For some environmental groups, the earth-smashing ubobtanium mining in Avatar (top) perfectly parallels the excavation of Canada’s tar sands (bottom) in pursuit of crude oil. (images: gawker.com and whitepinepictures.com)

On Sunday Avatar fell short of winning the coveted “Best Picture” Academy Award, but it continues to rule box offices around the world as the most profitable movie ever made. While the film’s dazzling three-dimensional special effects and fantasy-world setting are likely the main drivers of its massive popularity, there is another element of Avatar that has lot of people talking: its environmental message.

In the film, a corporation intent on extracting an invaluable mineral called “unobtanium” from the lush green planet of Pandora meets resistance from the planet’s inhabitants, who want to prevent the environmental destruction that the excavation of unobtanium brings. For many, the heroic natives’ struggle against the greedy invaders amounts to a powerful environmental allegory that urges humanity to deny greed and respect the pristine harmony of the natural world.

As the CBC reported on March 5, a coalition of environmental groups took the allegory one step further, placing an ad in the film industry publication Variety that cast Canada’s Alberta tar sands as the real world’s unobtanium. The ad, paid for by 50 environmental groups, featured an aerial photograph of a massive oil sands site, where excavation had removed all signs of life, leaving only a huge field of brown sand dotted with man-made hills and pits. Title text labels the photo “Canada’s Avatar Sands.” For the groups who took out the ad, the bitumen (a chemical precursor to crude oil) trapped in the tar sands of northern Alberta is real-life unobtanium, and the environmental destruction it has brought to the plains and forests of Canada parallels the tragic and heartless plundering of Pandora.

Despite the engineering inaccuracies of Avatar’s mining equipment, it is hard to deny that the destructive mechanical behemoths used to mine unobtanium in the film bear a striking resemblance to the massive drilling machines and dump trucks used to excavate Canadian tar sands. But to draw so direct of a comparison between the real world and a fictional one goes a bit further than most green-minded citizens are willing to allow.

In any event, the public “shame on you” directed at oil companies excavating oil sands have successfully attached (at least for now) the issue to a global blockbuster that nearly every citizen of the world has at least heard of, if not seen. But so long as Canadian tar sands keep providing a steady supply of oil to the US and other major consumers, projects will continue to expand. And as global crude demand recovers, other tar sands sites like the massive fields in Venezuela’s Orinoco belt will likely be dug up as well.

So long as the world thirsts for oil and squeezing it from tar sands it is a profitable enterprise, all the environmentally friendly movies in the universe won’t stop the digging.

Watch the trailer for Avatar below (it begins at 0:44):

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For Exxon Mobil and the rest of the oil industry, much of their future production will come from unconventional sources like the oil sands of Alberta, Canada. (image: cdecard.com and The Co-operative campaigns via flickr.com)

In a presentation to the New York Stock Exchange, Exxon Mobil laid out plans for future oil and gas projects that show an increasing reliance on harder-to-reach oil and gas reserves, CNN Money reported on Friday. Exxon, the world’s largest publicly traded oil company, will begin new projects aimed at extracting crude oil and natural gas from deep ocean waters, from a remote area of the Arctic, and from tar sands in Canada. All of those sources, deemed “unconventional,” require substantially larger investments of money and resources to extract than do the “conventional” reserves of crude oil and gas relatively close to the earth’s surface. As reservoirs of easy-to-reach oil, such as those found in abundance in Saudi Arabia, deplete, oil companies big and small will increasingly turn to unconventional sources such as those identified by Exxon.

Exxon CEO Rex Tillerson, doing his job to keep up appearances of a rosy future for his company, noted that the definition of unconventional oil is subjective, and insisted that just 10 percent of its future projects will tap unconventional sources. Unconventional oil and gas that is difficult to access is more expensive to extract and process, meaning higher costs for oil companies that would likely lead to lower profit margins and/or higher consumer prices that could cut into future demand. Even Tillerson acknowledged that increased reliance on unconventional sources is the inescapable future of the industry, and offered his company a pat on the back for preparing for that future: “We anticipate it will grow in the future, and we hope it will grow with the positions we’ve taken,” he said.

There are some bright spots in the future of conventional oil, most notably expectations of prolific conventional oil production in Iraq as the nation becomes more stable. However, the quantity of conventional oil expected to come from these bright spots will not be abundant enough to offset the depletion of other conventional supplies.

Although oil executives like Tillerson would probably deny it, the industry’s shift toward unconventional sources will, sooner or later, bring higher prices for consumer goods like heating oil, gasoline, and natural gas. For economist Jeff Rubin, the shift toward unconventional energy sources is the most important factor in his extreme vision of $225-per-barrel crude oil in two years and a subsequent demise of the global economy.

While an economic downturn, booming economies in the developing world, and a host of other factors have sent oil prices on a wild rollercoaster ride over the last couple years, the future is clear: the prices of oil and natural gas will continue to increase—the only question is how much and how fast. One cannot escape the simple logic that a product that is more expensive to produce is more expensive to buy.

(image: lpi.usra.edu)

Burning fossil fuels plays a well-known role in causing climate change, but a new scientific paper analyzes how fossil fuel mining—never mind burning the stuff—could also affect the climate by changing the shape of the earth, reports the blog Seeking Alpha.

According to the paper, which will be presented in India at the AGU Chapman Conference on Complexity and Extreme Events in Geosciences, the extraction of fossil fuels may have a noticeable impact on the earth’s total mass. For you math whizzes there’s some talk of “the moment of inertia” and “the angular frequency of the earth,” but the gist is that extracting so much oil from the northern hemisphere may have upset the earth’s balance and tilted it. More tilt could mean more extreme summers as the earth revolves around the sun.

This is only one paper presented at one conference, so it’s not exactly well-established science, but if it’s true we would agree with the paper’s author that it “[makes] the process of climate change such as global warming more complex to understand.” Not that we really understood it in the first place.

Light sweet crude is flowing in Weld County, Colorado. (image: co.weld.co.us and lca-resources.com)

Yesterday, reports of a high quality crude oil well in discovered in northern Colorado contained two remarkable facts.

1. During its initial 24-hour test, the production well yielded 1,770 barrels of oil. According to denverpost.com, the average well in the region produces 100-150 barrels a day.

2. The oil is light sweet crude, the most useful and therefore most valuable crude grade in the world that is increasingly rare.

Light sweet crude is the highest crude grade due to its lightness (flow quality) and sweetness (purity). Defined as crude with little or no sulfur (under 0.5%), sweet crude is easiest to pump and requires significantly less processing than sour (sulfur-heavy) crude grades. Also, light crude yields more gasoline and other distillates per barrel because of its higher hydrocarbon content. The value of light sweet crude grows as global supply declines: according to OPEC via the Energy Bulletin, the global peak in light sweet oil production was reached in 2005.

The discovery of high quality liquid crude oil comes in an area known to contain great quantities of oil shale, a waxy substance trapped inside rock that must be heated before it can be extracted and processed into crude oil. In nature, formation of oil shale takes place through geologic processes over millions of years. As the global supply of conventional (liquid) oil depletes, unconventional oil from sources like oil shale becomes more attractive, but comes at twice the cost of conventional oil production, according to Department of the Interior.

The newly discovered field is located in northern Weld County underneath a sheet of shale rock called the Niobrara Formation. Oil companies have known the value of this region for years, but only recently acquired the legal rights and the necessary technology to reach the oil, which requires a drill maneuvered by a horizontal pipe thousands of feet long and 50 feet underground.

The well, named Jake 2-01H, is run by EOG Resources Inc, an independent oil and gas exploration company based in Houston that has been cagey about its projects in the area. According to the Houston Business Journal, company spokespersons Elizabeth Ivers and CEO Mark Papa have released just one shared statement: “EOG doesn’t discuss areas where we are still leasing acreage.”

Ed Holloway, CEO of Synergy Resource Corp, one of the oil companies trying to get a share of the region’s lease, called the well a “gusher” and said, “There’s some really significant things that are going to go on in Weld County. . . It’s just going to spark off one heck of a drilling activity.”

Weld County Commissioner Doug Rademacher agreed, stating that the field was “very high quality” and “high producing,” and that it could be “fairly large.”

Said energy analyst Ward Polzin of Tudor, Pickering Holt & Co.; “If I’d pick any recent activity in the state of Colorado that has people excited in the oil and gas industry, this is it.”

A large domestic oil find could ease crude oil prices downward due to supply increases. If this field’s early reports hold up then we are bound to see a corresponding heating oil price drop in the future.

(image: daylife.com)

As our Kristin Miller wrote January 22nd, refiners are closing facilities, reducing output, and cutting payrolls in response to weak demand for refined petroleum products. This weak demand can be seen in falling profits—and even outright losses—being posted by the refinery operations of major global energy companies, such as Exxon and Chevron.

As MarketWatch reported Friday, Chevron reported a fourth-quarter loss of $613 million in its refining and marketing businesses, contributing to a decline of 37 percent—or $1.82 billion—in profit. For the same period, CNNMoney.com reported that Exxon suffered a $189 million loss in its refining business.

Refiners are caught between a rock and a hard place. Demand for refined or distilled products, including gasoline, diesel, and heating oil, is down, depressed by a persistently global weak economy mired in recession. Less economic activity means fewer goods transported in commerce and less construction (less diesel); high unemployment reduces work-related driving, such as commuting, and also discretionary or vacation travel (less gasoline and jet fuel); and many households feeling the economic pinch are turning the thermostat down (less heating oil). However, at the same time, the raw material that these end products are made from, crude oil, continues to be priced surprisingly high given the weakness or economies around the world. Notwithstanding that supply has outpaced consumption, leading to record-levels of inventory, the average 4th-quarter 2009 crude price was $76/barrel, up more than 30 percent from 4th-quarter 2008’s average price of $59/barrel.

Weak demand for refined products coupled with high prices for the raw material squeezes what’s known as the “crack spread.” This is, in simplest terms, the profit margin per barrel of gasoline, diesel, heating oil, etc. It’s been squeezed down to the point where, for example, Exxon made $2.2 billion less than it had the year before on reduced refining margins.

Fortunately for them, Exxon and Chevron are broad-based energy companies: even as refining margins and profit plummeted, their “upstream” operations—exploration and production (or finding and pumping oil) rose. With the offset from upstream operations, the companies continued to do well, with Exxon shares rising modestly.

Companies more reliant on refining fared significantly worse. Valero, the largest independent refiner, lost $1.4 billion overall and cut its dividend by two thirds.

Because the money is in production, not refining, that’s where energy companies are investing. Exxon increased its capital and exploration expenditures by 21 percent in 4th-quarter 2009, while Chevron has been bidding for access to new reserves in Venezuela.

Since the weak demand for refined products is linked to the weak economy, refiners can’t look forward to resurgence in demand until the economy improves. With unemployment, one of the best real-world indicators of economic activity remaining above 10 percent in the U.S., when that will happen is anyone’s guess. In the meantime, the only thing that refiners can do is tackle the other side of the equation and reduce supply by offlining production and facilities. That, of course, has a host of unfortunate effects, such as unemployment and decreased local tax revenue. Moreover, since ramping up production again is not a matter of simply flipping a switch and placing some want ads, by taking refining capacity offline now, a risk of a refining shortfall in the future (after the economy finally does recover) is created, with a concomitant risk of higher gasoline, heating oil, and diesel prices.

Near term, however, as we discuss in this week’s Heating Oil Price Preview, weak refined product demand should continue to moderate gasoline and heating prices. It also helps to push back against crude prices, since reduced end-product demand reduces raw-material demand. Therefore, while bad for energy companies and their employees, the weak market for fuel should benefit consumers, including heating oil customers.

The Orninoco oil belt territory, Venezuela. (image: vheadline.com)

As reported by the New York Times on Monday, a new USGS survey concludes that Venezuela’s Orinoco tar sands have more than twice as much “technically recoverable” oil than previously thought. The survey concludes that the Orinoco belt, thought to contain 235 billion recoverable barrels of oil, actually holds 513 billion barrels. This, “the largest accumulation ever assessed” by the USGS, goes a long way toward validating Venezuela’s claim to have the world’s largest oil reserves, ahead even of Saudi Arabia.

However, the critical caveat is “technically recoverable”—getting oil from tar sands is a labor-, capital-, and energy-intensive process, at least compared to “simply” sinking a well. For example, the Orinoco is believed to have 1.3 trillion barrels of oil locked up in its sands, of which only around 40 percent is now thought to be extractable. The rest is not practically reachable by today’s techniques. However, even for the 40 percent that can be recovered, the question remains: is it worthwhile to recover at today’s prices?

Extensive mining, big equipment, and elaborate processing make tar sands a less-economical source for oil than conventional resources. (image: treehugger.com)

Technically recoverable is not the same thing as economically viable, as Shell has concluded. As reported by Reuters on Monday, Shell has decided to scale back investment in and production of oil from Canada’s tar sands. Instead, the energy giant will look to increase conventional drilling to overcome a nearly decade-long decline in its oil output. Shell attributes its decision to ample opportunities for conventional oil production that are made possible by investments it made in exploration and discovery; however, the bottom line is more likely the bottom line—while oil prices are higher than the anemic global economy can account for, they are not high enough to make extensive tar sand development worthwhile. That’s the reason why Shell is allowing 20 billion barrels of oil—one third of its total reserves—to lie fallow; they’re not worth exploiting at current oil prices.

That is the fundamental paradox, at least for now, of unconventional oil reserves, especially tar sands: they are coming to represent a larger and larger percentage of the world’s total oil reserves, but are not presently worth exploiting to any large degree. In the future, when economic and technological conditions for them improve, they will supply a major part of the world’s oil; but at a time of weak demand and abundant conventional supply, they represent hundreds of billions of barrels that may simply not be worth taking out of the ground.

An employee of Sinopec, China’s national oil company, at work. (image: daylife.com)

The world may expect China to drive a resurgence in oil demand and a subsequent rise in prices, but according to a new report from IIFL, its oil consumption growth is actually decelerating, said an article published on Monday in India’s Business Standard. IIFL wrote in its report on China’s quest for energy security that, “The importance of China’s oil consumption and growth to global trade, albeit undoubtedly significant, had been grossly overrated.”

The IIFL also mentioned that China imports much less oil than the “developed world.” The IIFL described China as a “price-taker, not yet a price-driver.”

IIFL, the international equities arm of India Infoline, went on to say that in terms of China and oil, appearances can be deceiving. It said that, “Beneath the everyday ‘China demand’ talk is decelerating growth in oil consumption, facilitated by a structural shift in the economy and government policies.”

China’s oil consumption growth rate averaged 4.8 percent per year in the past 30 years since China’s reform and opening, and is significantly lower than India’s 5.3 growth rate during the same period.

“Only 19 percent of China’s energy needs are met by oil, and country’s oil dependence is weakening. We expect sharply lower consumption growth (0.9 percent in 2009, 1.3 percent in 2010, and 1.2 percent in 2011) due to economic rebalancing and efficiency improvements,” said the IIFL.

Comparatively speaking, China and India cannot compensate for decreasing oil consumption in the developed world. A one percent decline in OECD countries’ oil consumption would require a 6 percent growth in China to compensate for it, said the IIFL.

The International Energy Agency’s Mid-Term Oil Market Report forecast a 5.1 percent decrease on Oil consumption by OECD countries in 2009, which would mean that oil consumption in China and India would need to increase by an unrealistic 22 percent.

IIFL said that China’s oil demand growth rate has been kept lower by its quest for energy security and improved efficiency. “There has been a structural shift towards other energy sources, and the government is redoubling its policy efforts to reduce energy intensity,” the IIFL said.

On December 1 of last year, HeatingOil.com reported that China agreed to curb its carbon intensity 40–45 percent from 2005 levels by 2020. The term “carbon intensity” refers to the energy efficiency of carbon-emitting facilities. In other words, China intends to reduce its carbon emissions per unit of GDP, rather than reducing absolute emissions levels.

In combination with increased Indian demand, China’s decreased oil consumption growth provided “no meaningful support in the slumping demand in the developed world [i.e. OECD countries],” said the IIFL. It went on to say that China’s real oil consumption growth was likely to fall from almost 5 percent in 2007 to less than 2 percent in the next two years.

As its rate of oil consumption slows, China’s domestic oil production is accelerating. “As against dramatic production decline in the developed world, China has maintained a respectable 2 percent plus (annualized) growth rate in domestic crude production over the last 5 years,” the IIFL said, adding that, “Domestic crude production supplies half of its crude oil demand—a far higher self-sufficiency rate than other major economies.”

Even though major oil producing assets such as Daquing and Shengli have matured, China’s national oil companies have maintained stable production by using improved recovery technologies and developing new properties in western China and the Bohai Bay region.

State-run PetroChina and China Petroleum and Chemical Corp. (Sinopec) spend 20-30 percent of their total R&D expenditures on exploration—far higher than major western oil companies’ average of 18 percent. However, China’s oil imports may increase this year, as it begins the 170-million-barrel second phase of building up its Strategic Petroleum Reserve.

Price reforms in China have improved the economic outlook of its oil industry, which was negatively affected by sluggish refining, in response to stringent price controls and high crude oil prices. Companies in related industries benefit from this improved outlook, as refined petroleum prices are kept close to a historical high.

The Discoverer Clear Leader, currently under contract to Chevron for the bargain price of $500,000 a day. (image: ports.co.za)

A video posted on Monday to the Wall Street Journal website profiled what offshore drilling giant Transocean claims is the world’s most powerful drilling ship. The ship, called Discoverer Clear Leader, is drilling for oil in the Gulf of Mexico, 190 miles south of New Orleans.

The Clear Leader is owned and operated by Transocean, who is using the ship’s technology to drill for oil in places that other oil rigs cannot. “We are drilling in 12,000 feet of water, 40,000 foot holes, because we have the horsepower to do that,” John Redington, offshore installation manager for Transocean, told the Journal. He went on to say that third- and fourth-generation oil rigs get to 20,000 or 25,000 feet, and then “start wheezing.”

Although the Clear Leader’s technology is expensive—Chevron, the ship’s first customer, is paying almost $500,000 per day—the oil industry may not have much choice. The oil fields of the 20th century are either pretty much dry or off limits to drilling, forcing oil companies farther and farther offshore in search of untapped resources.

Said Gary Luquette, president of Chevron North America Exploration and Production, “The cheap, easy stuff has pretty much been picked over, and these pools or pockets that you are looking at are much smaller.”
Chevron is searching for oil in areas that may be a challenge to tap into, but also have “greater promise for larger discoveries, which is what it takes,” Luquette said.

Crude oil is currently trading at about $81 per barrel; such high prices may make expensive deep-water oil exploration performed by rigs like the Clear Leader worthwhile to oil companies, and ultimately help lower future oil prices by increasing supplies. In addition, the Gulf of Mexico appears to be far from tapped out.
For example, on November 14, BP announced that it had made what it termed a “giant” crude oil discovery in the Gulf of Mexico. The presence of oil was confirmed in the Lower Tertiary formation, about 5 miles west of BP’s Tiber reservoir.

On December 7, the Houston Chronicle reported that oil companies made 12 discoveries in the Gulf of Mexico in 2009, marking the largest number of oil finds in the area since 2002, and confirming the Gulf of Mexico as a major source of oil for years to come.

Interior Secretary Salazar is unapologetic about tightening regulations on drilling in public land. (image: csbj.com)

Interior Secretary Ken Salazar had some disparaging words for the Bush administration and its coziness with the oil industry this week. As the New York Times reported, Salazar, in an address given on Wednesday, said his department will be taking a harder look at the leasing of oil and gas on public lands; Salazar said he and his colleagues would not be doing business as the last administration had, serving as a “candy store” for big oil.

Salazar, who said Bush administration policies “carved up the landscape and fueled costly conflicts that created uncertainty for investors and industry,” is looking to cut down on what he sees as pricey legal disputes that arose from protests over land use. He pointed to the statistic that nearly 40 percent of rulings on permit drilling rights were challenged in 2008, as compared to 1 percent in 1998.

A strong proponent of wind energy, especially offshore projects, Salazar has been critical of the oil and gas industry in the past, in particular the industry’s approach to land leases. In late November he claimed the industry had a sense of entitlement to public land and failed to develop properties already under lease.

Looking to do away with what he says costs taxpayers millions in legal costs, Salazar is having the Bureau of Land Management issue new guidelines on the review process of land for development by oil and gas companies. (The bureau oversees oil and gas rights.) Citing the bureau’s director, Bob Abbey, the paper said that, under the new guidelines, teams from various agencies will now be able to consult and officials will “physically inspect the sites rather than making decisions from behind their desks.”

While Salazar’s proposed changes are being championed by some, opposition is already brewing. The oil and gas industry isn’t happy, and some Republicans in Congress are also gearing up to challenge the new guidelines. Kathleen Sgamma, Director of Governmental Affairs for the Independent Petroleum Association of the Mountain States, told the Times that the changes will result in “a bureaucratic command-and-control system.” And Jack Gerard, at the American Petroleum Institute, said what Salazar is looking to do will ultimately be bad for the economy and “further delay and limit American energy resources for all Americans.”

Salazar has not been swayed by industry criticism. He told the Times that he thinks the oil and gas industry is simply “wrong” and is reacting to a sudden loss of power after being, during the Bush administration, “the kings of the world.”

Rubin predicted the last spike in oil prices—will he be right about the next one? (image: ipsnews.net)

According to BusinessWeek, Jeff Rubin, the economist who correctly predicted 2008’s massive crude oil price spike, believes that petroleum prices are steadily headed toward the $100 mark. Asserting that oil prices will hover around $90 by the end of March, the former CIBC World Markets Inc. chief economist believes that “it’s safe to say that we’ll see triple-digit oil prices by the fourth quarter of this year.”

Rubin attributes rising oil prices to increased consumption by countries with rapidly developing economies such as India and China. This occurrence will in turn force the United States to rely on more expensive non-conventional sources of oil. Increased consumption, Rubin believes, will outweigh other factors that could cause price spikes, such as political disturbances in oil producing nations and production limits set by OPEC. Rubin’s prediction challenges recent forecasts made by Peter Cooper, who believes that oil prices will drop in 2010 and that factors such as rising Chinese demand are not credible because the strength of emerging market economies is questionable.

Lamentably, if Rubin again proves correct, consumers should expect to pay more for heating oil as he predicts crude prices could reach up to $160 a barrel in 2012, a level at which he asserts “the global economy becomes very challenged.”