RE: Natural gas: The fracking fallacy

Sat, 27 Dec 2014 12:56:39 -0800 

 

 

From: [email protected] 
[mailto:[email protected]] On Behalf Of John Clark

 

On Fri, Dec 26, 2014 PM, 'Chris de Morsella' via Everything List 
<[email protected]> wrote:

 

OK Chris, you made some valid points and you've convinced me that I wasn't 
paying enough care in distinguishing between the very common kerogen oil shale 
that would need considerable processing to be useful and the less common shale 
oil (that is really just porous shale that contains light oil and gas in it ) 
which would need much less processing. And I concede that the bulk of the 
massive increase in oil and gas production in the USA came from this rarer 
porous shale rather than the much more common kerogen oil shale. 

 

Thank you for conceding this point; it displays intellectual maturity on your 
part. This is fairly arcane knowledge – not that many people are familiar with 
the critical difference between the kerogen bearing deposits and the porous 
tight oil bearing shale formations. Boosters of Kerogen bearing shale deposits, 
will naturally attempt to associate their resource with the tight oil shale and 
present it as if it was just an extension of the former. It is not, of course, 
but it is entirely understandable why the holders of these deposits would try 
to get it all lumped in together in one big bucket.

 

But just because it's rarer doesn't necessarily mean it's rare; when will the 
USA run out of shale oil and shale gas? 

 

No it is not rare; though how much of it there is that is economically 
recoverable (at any given price floor) is open for debate. I am more of a 
pessimist on this. 

What I think has happened is that the drillers have been very successful with 
the huge influx of capital they enjoyed (over the last five years boom time) in 
finding the best producing areas. We are enjoying the sweet spot side of the 
tight oil era. 

IMO – it will keep getting harder. Oil is there, but getting it out is going to 
become increasingly hard to do. Depletions rates will continue to rise (and for 
tight oil they are already very high and this is the reason the major oil 
companies have been abandoning the sector). 

In addition the world has only so much ability to allocate capital. Capital is 
a limited resource and as the capital needs continue to rise in order to 
produce a given amount of oil there is some limit to how far this can go.

It is not so much that it will run out. It is going to become increasingly 
expensive to produce.

What I think is going to happen – is that over the next five years a sober 
evaluation of the American shale boom will happen (as the data picture becomes 
clear). The amount of capital expenditure for producing a given quantity of 
tight oil will also become clear. A lot of the bets made in the US shale boom 
are not going to pay off for the investors holding on to the debt; holding 
those one or two year duration futures hedge contracts priced at $90 a barrel. 

After all these investors get burned – or IMO more likely the US taxpayers get 
stuck with the bill, bailing out the too big to fail banks that have bet 
heavily in this sector and are the major holders of these seriously underwater 
futures contracts – I do not believe the investment climate will be as friendly 
for this sector. New capital will be much harder to come by and each single 
case is going to get evaluated in a much more rigorous fashion, which is what 
should have been done this time around.

Tight oil will play a significant role in supplying liquid hydrocarbons to the 
global market, but it is not the answer to all our energy woes. Tight oil is 
grungy hard work and the margins will be slim.

What we are seeing now globally in this sector is a capital flight out of it. 
Eventually, after the capital markets work through the hangover from the 
current bubble getting blown out of the water by the global price slide --- 
those future contracts are going to really bite the banks big time – it is my 
opinion that capital will return to this sector and that new fields will be 
developed. 

One must also keep in mind other gating factors on the rate at which a resource 
can be exploited. For example the Canadian tar sand are huge, but the rate at 
which they can be exploited is gated by available processing water and energy 
(the sands need to be cooked).  Because of these other resource bottlenecks  
the rate at which these resources can be exploited is already being approached.

To give you an example from the Bakken – it is getting harder and harder for 
drillers to get good supplies of the sand they require for poppants (injected 
into the micro-fissures created by the fracking process to keep these 
micro-fissures open after the ultra-high pressure fracking fluid has been 
drained out.) They are having to haul sand from further and further afield; 
sand weighs a lot so hauling it over large distances significantly increases 
its costs. 

The principle gating factor is water. Water is a scarce resource in the dry 
areas of the great plains and the west where much of these shale resources are 
located.

 

Estimates seem to be all over the place, some say production in the USA  will 
plateau in about a decade and start to decline shortly after that, others say 
that won't happen for 30 years or more. I don't know who's right but even if 
the most pessimistic is correct trillions of dollars will be pumped out of the 
ground due to fracking. And lots of countries have far more shale oil (but not 
kerogen oil shale) than the USA and they haven't even started fracking yet. 

 

Concerning kerogen oil shale, I haven't found any credible source that says it 
would take more energy to get oil out of kerogen shale than you could get out 
of it which would mean it would never be economical no matter how high the 
price of oil went. 

I have seen the EROI figure of 2.5:1  -- e.g. it takes 2.5 times as much energy 
in as can be obtained from the produced product.  If it takes more energy to 
produce than can be recovered from the produced result it will never be 
energetically productive, no matter what price the product has. 

There is one specific scenario where this makes some sense. I described it in 
detail in my response to spudboy. Basically if the installed base of wind and 
solar – a lot of which is sited in the same general areas as these shale 
deposits – continues to exponentially grow, then at some point this installed 
base will produce a massive surge capacity that will create huge surpluses of 
electric energy  – when for example the wind is really blowing during off peak 
hours for example. 

Using this – very hard to utilize – extra capacity that is above the rate at 
which it can be used or stored to electrically heat columns of kerogen shale to 
cook out the oil it contains might actually make sense. Because liquid fuels 
are a premium source of energy; liquid fuels are a highly dense energy store 
and for many applications (aviation for example)  there are no replacements on 
the horizon (battery density will need to climb to above 400wh / kg for 
electric powered aviation to begin to make sense.

Some kerogen may get produced in a scenario like this, but it will only make 
sense because the energy input is almost free (grid operators may even pay to 
have extra surge surplus taken off the grid at times) and because liquid fuel 
is perhaps the most valuable form of energy store.

What I've seen is that with existing technology to make a barrel of oil from 
kerogen oil shale it would cost between $75 and $110, and that would explain 
why oil companies can't make any money off it with oil selling for just $57. 
But even under the assumption that the technology will not improve (a 
ridiculous assumption) oil shale should put a lid on how high the price of oil 
can go.

It is not just cost; it is the energetics. Cooking all that rock requires huge 
amounts of energy inputs; there is no way (that we know about) around this. 
Barring some revolutionary new means (perhaps nano-tech)

And I don't even want to get into Methane Clathrate that contains more energy 
than all forms of shale and tar sands combined,

And that is also unstable, very hard to reach (in the mud at the bottom of 
oceans) and has never successfully been exploited.

-Chris

  John K Clark

 

 

 

 

 

 

 

 

 

 





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