The use of carbon dioxide in enhanced oil recovery, as illustrated above, could expand as a consequence of climate legislation. (image: llnl.gov)

The oil industry has opposed legislative efforts to impose a cap on carbon emissions, but a new study says that such a cap could actually lead to increased oil production in the US and reduce imports of crude oil by 40 percent, reports the Houston Chronicle’s NewsWatch: Energy blog.

Captured carbon dioxide is at the heart of the study’s paradoxical finding. According to Advanced Resources International (ARI), which conducted the study for the environmental group the Natural Resources Defense Council, an emissions cap would accelerate development of carbon capture and storage (CCS) technology. Oil companies are already using captured carbon dioxide to improve the recovery of oil; by pumping carbon dioxide into oil wells, oil that couldn’t be recovered through conventional drilling is pushed up where it can reach a well, a process known as carbon dioxide enhanced oil recovery. If CCS became commonplace and could be paired with oil drilling, carbon dioxide enhanced oil recovery could expand immensely, increasing total domestic production by 3 to 3.6 million barrels per day in 2030. This form of enhanced oil recovery could bring a total 85 billion barrels of previously unrecoverable oil into production.

Carbon dioxide enhanced oil recovery is already underway in 105 separate projects, including Denbury Resources’ Conroe Field. Denbury uses naturally occurring carbon dioxide at Conroe Field, piped in from Mississippi. Denbury’s president, Tracy Evans, says that “a limitation of the source of CO2” has prevented more enhanced oil recovery from taking place. This limitation highlights a pivotal assumption upon which this study is based: carbon capture and storage technology will become highly developed and widespread if climate legislation places a cap on carbon emissions.

Taking as its baseline the American Clean Energy and Security Act (ACES), the House cap and trade bill also known as Waxman-Markey, the ARI concludes that 78 to 85 million metric tons of CO2 could be captured annually by 2020, and 410 to 530 million metric tons annually by 2030. While an emissions cap would certainly create an incentive to develop the technology to capture carbon emissions, it’s not certain that it would be developed—or could be implemented on that scale—regardless of what legislation is passed.

For the purposes of its study (full text available at Scribd.com), the ARI also assumed that “all of the captured CO2 is preferentially used for EOR [enhanced oil recovery]” (emphasis in original). If italicizing that assumption wasn’t enough, the ARI follows it up with a doozy of a footnote: “This is not necessarily what is expected to take place as a result of the ACES.”

So the ARI study appears to outline a best-case scenario for the oil industry and not the most probable outcome. Perhaps it’s the Natural Resources Defense Council’s effort to win oil support for climate legislation. Nevertheless, the study underscores a recent innovation in oil drilling—which, if it became the end stage of CCS, could mean carbon-neutral oil drilling—and the unintended benefits that the oil industry could gain from a cap on emissions.

Clean coal and nuclear are cornerstones of Sen. Graham’s clean energy proposal. (image: treehugger.com)

Sen. Lindsey Graham (R-SC), part of a trio including Sen. John Kerry (D-MA) and Sen. Joe Lieberman (I-CT) working on compromise climate legislation, has begun circulating a draft of his own bill that would establish a clean energy standard for utilities, reports The Hill’s E2 Wire blog. Graham’s draft (full text available here) may or may not be included in any broader legislation that Graham, Kerry, and Lieberman are working on, and could move forward as a separate bill.

The notable feature of Graham’s clean energy standard is its inclusiveness—renewable sources like wind, solar, and biomass would qualify as clean energy, but so would nuclear power and coal plants that capture and sequester carbon emissions. His proposal would require utilities to produce progressively more electricity from clean sources: 13 percent in 2012, 25 percent in 2025, and 50 percent in 2050. While many Democrats and environmentalists oppose a standard that considers coal and nuclear to be “clean,” many Republicans insist that only coal and nuclear will allow their regions to produce the energy they need.

Climate legislation has faced a slew of setbacks, and Democrats have indicated a willingness to make concessions to nuclear power, clean coal, and offshore oil and gas drilling in exchange for a cap on carbon dioxide emissions. Whether Graham’s draft bill is merely the first step in renewed debate over climate and energy legislation or the foundation of a future Senate bill remains to be seen.

Reports of an unprecedented bounty of domestic oil and gas reserves are open to misinterpretation. (image: trcc.commnet.edu and i.ehow.com)

On Monday, a report released by a national contractor for state utilities claimed that the United States contains more than 2,000 trillion cubic feet (tcf) of natural gas and 229 billion barrels (bbl) of oil—as observed by The Energy Source blog at Forbes.com, that’s more than the average OPEC nation holds. Noting that a chunk of these reserves lie in areas barred from drilling, the report also found that leaving these reserves untouched would cost the US $2.36 trillion in lost GDP over the next twenty years.

It’s no secret that the US contains its own oil and gas reserves. According to Reuters, Previous estimates have placed those figures at 1750 tcf and 186 bbl for gas and oil, respectively.

The study, two years in the making, was sponsored by the National Association for Regulatory Commissioners in conjunction with the industry-funded Gas Technology Institute. The government-protected reserves amount to 43 billion barrels of oil and 286 tcf of gas and are located in the Arctic National Wildlife Refuge and in areas just off the coastline of the continental US. The US currently consumes an average of 20 million barrels of oil per day, and produces 6 million barrels per day.

The research was done according to standard methodology by SAIC Corp ie data collection and processing, and the report attributes the reserve increases to advances in drilling technology and gas extraction methods. The real thrust of the study comes from its economic figures. This appears to be the first time a hard dollar amount—and a whopping one at that—has been attached to the value of those reserves.

According to Bloomberg, the $2.4 trillion number was arrived at through calculating the expected revenue from employment, taxes and government holdings that would result from the development of untapped reserves. According to Reuters, the figure also incorporated the increased cost of foreign imports in the same period that would result from a failure to make use of the reserves. At $1.6 trillion, this chunk alone comprises over half the cost.

Industry representatives speaking about the report are unabashed about using the study to encourage changes in national energy policy. According to David Parker, president of the American Gas Association:

“It’s clear from this report that the status quo on energy production simply won’t suffice… We encourage lawmakers to heed the results of this study and take a closer look at the energy-rich areas in our country that are currently off limits.” (Reuters)

And from O’Neal Hamilton, former chairman of South Carolina’s Public Service Commission, “Our research allows policy makers to know the extent of the resource base and the effects that maintaining the restrictions would have on the country.” (Bloomberg)

However, curiously omitted from the report’s publicity and the document itself are the types of oil sources included in the total reserve calculations. As previously explained on HeatingOil.com, proven liquid oil reserves are very different from “unconventional reserves,” a moniker assigned to oil that exists in non-liquid form, either mixed with sand and too thick to flow (tar sands) or embedded as a wax in solid rock (oil shale).

Unconventional oil is worth significantly less than its conventional counterparts due to the highly expensive extraction and refinement processes it requires to even reach a barrel. The steep costs (in money, energy, and in many cases, water) of turning unconventional oil into useful crude make it anything but a profitable bet for oil producers, so even if restrictions on unconventional oil extraction were lifted, it’s unclear whether anyone would be interested.

It should also be noted that report specifically incorporates “shale gas,” or gas trapped in shale bedrock, into its reserve numbers for natural gas. Recent advancements in drilling technology and techniques have made these previously unreachable reserves accessible. However, some of those advancements pose risks to the environment and the public that have yet to be rigorously studied. Most notably, the advanced method for extracting shale gas known as hydrofracking has been anecdotally linked to contamination of drinking water used by residents near drilling sites. The price of a filtration plant alone runs over $10 billion. Who would absorb this cost?

The exclusion of these mitigating factors and the clear industry ties to this report at a time when drilling leases are the subject of an ardent tug-of-war between the current administration and the oil and gas industries leave its provocative economic figures in need of stiff critical analysis.

On the left, one of the winners of a solar power design contest held by Exxon, as featured in a 1977 advertisment. (image: greentechhistory.com)

At HeatingOil.com we’ve reported on oil majors making a move to invest in renewable energy, but apparently this is an older trend than we realized. Alexis Madrigal’s blog, Inventing Green, shows an Exxon advertisement (partially pictured above) from 1977 that features the 10 winners of a design contest for solar-powered housing.

Gazprom, the Russian natural gas giant, had planned to expand into the US market, but the expansion of shale gas production in the US has proven to be an obstacle. The company isn’t too worried, though. As Rowena Mason of London’s Telegraph reports, Gazprom’s exports chief, Alexander Medvedev agrees with environmentalists that shale gas drilling is a “danger to drinking water.” He added that is was “unimaginable” that Europe would allow such dangerous drilling practices.

Controversy has surrounded shale gas drilling, but Vincent Fernando of Business Insider reports on a new oil shale drilling technology being investigated that would take center stage in the nightmares of the green movement. It’s called the “nuclear-assisted hydrocarbon production method,” and would take advantage of the incredible heat released by spent nuclear fuel rods to extract oil trapped in shale formations. If hydrofracking worries you, the combination of nuclear power and oil drilling might seem like Frankenstein’s monster come to life, but it could also open up oil fields three times larger than Saudi Arabia’s and prevent nuclear proliferation by creating a use for nuclear rods.

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.

Oil companies will be spending more money on exploration in 2010. (image: yorku.ca)

A survey of 387 oil and gas producers found that global spending on oil and gas exploration will rise 11 percent to $439 billion in 2010 as energy prices increase, Reuters reported on Thursday. The increase in spending on exploration reverses the 15 percent decrease seen in 2009, when oil prices dropped after 2008’s record highs.

Exploration and development spending is strongly linked to oil and gas prices. If prices are too low, oil companies have no incentive to initiate exploration and drilling projects. Without the development and production of new fields, however, supplies will decrease; that could in turn raise prices, unless demand falls by an equal amount.

The survey projected spending on exploration and development in the US to rise by 12 percent to $79 billion, with drilling for shale gas responsible for much of the increase. Spending in Canada is expected to increase by 23 percent to $23 billion, buoyed in part by the strengthening of the Canadian dollar. Globally, national oil companies in Asia, Africa, the Middle East, and Russia are expected to increase their budgets and raise exploration and development spending outside of North America by 10 percent to reach $337 billion.

The findings of the survey, conducted by Barclay’s Capital, fit with Chevron’s recent decision to focus on exploration and development in favor of refining. The majority of Chevron’s $22 billion in planned spending for 2010—$17.6 billion—will be spent on upstream natural gas and crude oil exploration and production projects.

The bill worked on by Kerry, Graham, and Lieberman is notable for its inclusion of expanded oil drilling. (image: politico.com)

Last Thursday, three US senators offered a revised proposal for climate legislation—more framework than bill—meant to assuage moderate and conservative critics by lowering emissions standards, promoting nuclear power, and expanding oil and gas drilling along the nations’ coastlines. It may strike some readers—and perhaps some senators—as odd that a climate bill would promote increased oil production, given the prevailing notion that oil ought quickly to be replaced by cleaner fuels. After all, aren’t carbon emissions from burning oil partly responsible for anthropogenic climate change?

In an article posted on Friday, Geoffrey Styles at Energy Outlook suggests that there is good reason to support new oil-drilling projects. Like it or not, the United States is an oil-dependent nation, and there’s little chance that biofuels will replace fossil fuels anytime soon. Last year, the United States used 19.5 million barrels of oil per day, which accounted for 37 percent of total US energy consumption. Even the Renewable Fuels Standard, which requires that commercial fuels contain a certain percentage of biofuels, is likely to cut national oil consumption only by 7 percent, or 1.4 million barrels a day. The inevitable conclusion is that the United States will continue to burn oil for a long time. So, according to the precepts of national energy security, why not produce as much of it as possible right here?

But then there is the matter of the emissions themselves. If we produce the oil here, or import it from another country, won’t it still emit carbon and lead to climate change? Styles informs us that conventional oil production in fact generates very few emissions. “Well-to-wheels” analysis, which traces oil from production all the way to its end use, suggests that 80–90 percent of emissions are created by burning oil, with production, transportation, and refinement accounting for only a small remainder. Thus, according to Styles, the most effective strategies for reducing oil-based emissions are not lowering or cutting off oil production, but rather “vehicle dieselization, hybridization, downsizing, and other efficiency measures, along with non-efficiency conservation, including carpooling, telecommuting, virtual meetings, etc.”

This HeatingOil.com reporter feels the need to pop his head in the frame for a moment and tell the reader that this is not a very good argument. It’s like saying that even though guns kill millions of people every year, the physical production of guns has led to very few actual deaths, and therefore the world would benefit from having more guns. In the case of oil, Geoffrey Styles fails to account for the many other, non-vehicular carbon emitters that daily consume oil—like homes, business, factories, ships, planes, etc. Little is said about efforts to curb these emissions—the rise of biofuels as a supplement to or a substitute for oil in many of these uses is the most obvious that comes to mind—while the proposal that carpooling and hybridization will curb vehicular emissions enough to justify the continued use of oil is hardly convincing. Until such a time as all of these oil users—including road vehicles—are exponentially more efficient, burning oil will continue to release emissions. Into the foreseeable future, producing more oil, whether it is done at home or abroad, will only lead to more emissions.

The new climate proposal is broadly similar to other climate bills, including the Waxman-Markey and Kerry-Boxer bills, but for the fact that it promotes the domestic production of conventional energy. Thus, it still contains legislation on emissions caps and carbon taxes, and funding for alternative and renewable energy projects. While the United States—like much of the world—is still dependent on oil, and will likely continue to consume it at a steady rate, at least for the foreseeable future, both legislation and environmental necessity point to a greener future built on alternative energy.

South Carolina Senator Lindsey Graham. (image: ingodisourtrust.wordpress.com)

The Washington Post reported that the senators who were attempting to draft a second bill to cap greenhouse gas emissions released a “framework” of the legislation on Thursday. However, the legislators offered few details about their ideas, and said that they were open to negotiation.

When UN Secretary General Ban Ki-moon met with a bipartisan group of senators at the US Capitol on Nov. 10, he urged the Senate to act on climate change before the UN climate change summit. Although Ban acknowledged that the Senate was unlikely to move that quickly, he urged the Senate to draft principles to establish pollution reduction goals, because such a framework would be a sign of commitment to reducing carbon emissions on the part of the US.

The nascent bill, authored by Sens. John Kerry (D-Mass.), Joseph Lieberman (I-Conn.), and Lindsey Graham (R-S.C.), is intended to send the message to delegates at the UN climate talks in Copenhagen that “the movement for climate change legislation in the United States Senate is alive and well,” Lieberman said at Thursday’s press conference announcing the framework.

The senators proposed cutting U.S. greenhouse gas emissions by 2020 by about 17 percent of 2005 levels, the same goal put forth in the Waxman-Markey bill passed by the House and articulated by President Obama last week. In addition, although the senators said that they do not support the name “cap and trade,” they pledged continued support to the concept of a cap and trade system, in which regulated industries could purchase and trade carbon credits as needed. They also said they support expanded offshore drilling for oil and natural gas, more nuclear power plants, and more funding for research to reduce coal plant emissions.

The ideas proposed by Kerry, Lieberman, and Graham last week have similarities and differences to those in the Kerry-Boxer bill, which went before the Senate’s Environmental and Public Works, Finance, and Energy and Natural Resources committees last month. Although both bills require reductions in greenhouse gas emissions, the Kerry-Boxer bill requires an emission reduction of 20 percent, not 17 percent, by 2020. However, some legislators, chief among them Sen. Max Baucus (D-Mont.), argue that 20 percent is too aggressive.

Although Kerry-Boxer itself does not contain provisions for nuclear power, the American Clean Energy Leadership Act (ACELA), a bill written by the Senate’s Energy Committee in June as a companion to the bill, does contain such provisions. Democratic support of nuclear energy is largely seen as a compromise for Republican support of carbon trading and emissions caps.

Environmental groups showed mixed reactions to the Kerry-Lieberman-Graham proposal. The ocean preservation organization Oceana said an increase in offshore drilling could create a higher risk of spills, although other environmental groups said an agreement that included a key Republican was a step forward.

Kerry said at Thursday’s news conference that the three sponsors would have to discuss their framework and ideas with Senate committee chairmen, and that he did not think a bill would be voted on until the spring.

Chevron cuts back on oil refineries, like this one in British Columbia, which have become less and less profitable. (image: theandrewness)

Chevron, one of the country’s largest oil companies, is putting its focus on—and its money in—exploration and drilling, instead of refining. This move away from refining, a major element of Chevron’s downstream business, is, as Kirstin Korosec of Bnet reports, a reaction to the difficulty the refining sector has been facing.

Chevron is cutting roughly $900 million from its downstream budget as part of a 2010 spending budget that, at $21.6 billion, is 5 percent lower than last year. The majority of that nearly $22 billion in planned spending, some $17.5 billion, will, as Korosec writes, “fund a slew of upstream crude oil and natural gas exploration and production projects.”

While oil prices have remained high, demand for refined products remains weak, creating a tough market for refineries. While a further hit to the refining market could ultimately send heating oil prices up, it’s hard to say exactly how Chevron’s move away from its downstream business will affect the market. Certainly Chevron is not alone among the big oil players in trimming its overall budget, as other major oil companies are bracing for a tougher 2010 and have similarly announced plans to scale back next year.

Not an alien probe—a wellhead for hydraulic fracturing, with injection pipes. (image: dpcusa.org)

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Fracking—if you’re a Battlestar Galactica fan, “fracking” is a coarse term for an intimate activity, as well as being an all-purpose, heavy-duty swear word.

However, if you’re in the oil or gas industry, or just read the news relating to upstate New York and eastern Pennsylvania, fracking—or fracing, as it’s also spelled—means something very different: hyrdofracking, or hydraulic fracturing. It’s a mining or drilling technique used to break up rock underground to create easier access to resources. It’s common in oil drilling; incredibly common in natural gas production; and is even used sometimes to revive flagging drinking water wells. It’s also used for some solid (as opposed to liquid or gas) mineral resources. For example, it’s used at a quarry in North Carolina to break granite blocks out from the surrounding bedrock.

Despite being in the news of late, it’s not a new technique. It was first commercially used in 1903, and was first used in the United States in the late 1940s. At present, thousands of wells use hydraulic fracturing. However, the “gas rush” in the Marcellus Shale formation in upstate New York and Pennsylvania has caused hydraulic fracturing to bubble to the surface of public consciousness: it may now come into widespread use in a densely populated region unaccustomed to fossil fuel resource extraction. Since the process—like most large-scale industrial processes—can have negative consequences, the near-certainty of its widespread adoption in this region has resulted in public controversy, as people weigh the benefits of economic gain against health and environmental risks.

And the debate has been loud, as would be expected when enough natural gas to satisfy US demand for at least a decade is set against possible harm to the water supply for almost 10 million people in one of the world capitals of media, finance, and law. It’s not natural gas per se that’s sparked a firestorm of controversy, it’s the technique—hydraulic fracturing—used to extract it.

So what exactly is hydraulic fracturing?