Though they may be a favorable alternative to a massive oil spill devastating the Gulf Coast, the effects of oil sands processing can’t quite be called clean or safe. (image: Edward Burtynsky for the Globe and Mail via treehugger.com)

The environmental and economic disaster in the Gulf of Mexico oil spill has made clear the risks of deepwater drilling in search of crude oil. Images of oil-covered seabirds and contaminated beaches on computer monitors and television screens across the country will no doubt bring increased wariness and stricter regulation of deepwater drilling and offshore drilling in general.

Proponents of Canada’s oil sands are taking advantage of this unprecedented situation by singing its praises in contrast to the terrible cost of deepwater drilling gone wrong. But while their praises may seem legitimate in the shadow of the largest oil spill in US history, the environmental devastation and high cost of extracting and processing oil sands have not changed.

Reporting on a speech he made to a business group, the Calgary Herald summed up the message from CEO Bruce March of oil sands developer Imperial Oil: “Canada’s oil reserves offer the only safe and most environmentally friendly source of energy to meet world demands over the next three decades.”  Whether those exact words were spoken by March himself is not clear, but the statement is at best open to debate and at worst deeply misleading. Squeezing synthetic crude oil from oil sands in Alberta requires the excavation of millions of tons of earth in a forested wilderness, contamination of millions of gallons of fresh water that form toxic ponds, and emits millions of pounds of greenhouse gases into the atmosphere.

Responding to a US trip by Alberta Premier Ed Stelmach that included promoting oil sands to US lawmakers, economist Jeffrey Rubin summed up his criticism:

The tar sands aren’t a greener alternative to deep-water oil. They’re just a more expensive alternative. And the more that synthetic oil from tar sands replaces deep-water production, the more you’ll pay to burn it.

Calling oil sands excavation and processing “effectively a massive strip-mining project with a huge carbon emissions trail,” Rubin expressed disappointment that the tragedy in the Gulf had led some to see the process in more environmentally favorable light. Taking a page from his book that paints a gloomy picture of our petroleum-based global society, Why Your World is About to Get a Whole Lot Smaller, Rubin also noted the great economic expense of making useful crude oil out of oil sands and predicted that it would help drive gasoline, heating oil, and other petroleum product prices to staggering highs in the next decade. Those spiking prices, he posits, will bring about profound societal changes; “The very oil prices that are needed in order for tar sands to replace deep-water production are the same ones that will take millions of North American drivers right off the road,” he wrote.

The environmental effects and high cost are not lost on oil sands-men like March, who said his company and others are working to bring down costs and mitigate negative environmental effects:

“Our goal on land use is simple,” he said. “After development is completed, we want no evidence that we were ever there.”

Until that goal is achieved, however, oil sands will continue to be a costly and environmentally taxing source of crude oil, regardless of disasters that result from other methods of oil extraction. True, oil sands operations will never spout millions of gallons of crude into the ocean, but unchecked water pollution, excavation of forests, and greenhouse gas emissions associated with oil sands processing hardly make it a “clean” alternative.

President Obama gives a speech on energy security at Andrews Air Force Base on Wednesday. (image: nytimes.com)

In a speech delivered at Andrews Air Force Base in Maryland, President Obama announced that the Interior Department would lift bans on oil and natural gas drilling off the coast of the southeastern US and parts of Alaska. Along with the announcement, Obama made a clear effort to cast his decision as a middle road between unchecked drilling and a blanket ban on drilling expansion. Details of the policy reported on Wednesday by the New York Times support this characterization: vast areas of the Atlantic ocean, a section of the Gulf of Mexico, and select areas off the coast of Alaska will be opened, while waters along the entire Pacific US coast and other Alaskan coastal regions will remain off-limits.

In his speech, Obama referred to the compromise decision as a product of careful deliberation on America’s energy security and future energy resources. As such, he tied expanded drilling to an increase in renewable energy use, saying that both resource categories were required to meet US energy needs. “We have less than 2 percent of the world’s oil reserves. We consume more than 20 percent of the world’s oil,” he explained. “And that means drilling alone cannot come close to meeting our long-term energy needs.”

A White House press release offered a more general statement from the President on that subject:

I want to emphasize that this announcement is part of a broader strategy that will move us from an economy that runs on fossil fuels and foreign oil to one that relies on homegrown fuels and clean energy. And the only way this transition will succeed is if it strengthens our economy in the short term and the long term. To fail to recognize this reality would be a mistake.

As proof of this broad and balanced approach, Obama made two announcements on the energy efficiency of vehicles along with the allowance of expanded drilling. In just a few days, he said, the White House would unveil higher fuel efficiency standards for vehicles sold in the US that would amount to saving “1.8 billion barrels of oil.” In addition, the president announced that the federal government would “lead by example” and vastly expand its use of hybrid vehicles:

In order to save energy and taxpayer dollars, my administration—led by Secretary Chu at Energy, as well as Administrator Johnson at GSA—is doubling the number of hybrid vehicles in the federal fleet, even as we seek to reduce the number of cars and trucks used by our government overall.

The Navy’s energy security logo on the F18 fighter jet scheduled to be “the first plane ever to fly faster than the speed of sound on a fuel mix that is half biomass.” (image: navy.mil)

After he emphasized the “sensible” and middle-of-the road nature of the new energy policies, Obama drove home his view of why it is important. He touched on the issues of energy independence and efficiency in the context of national security. He lauded the US Armed Forces for their leadership in energy efficiency, citing huge investments in efficiency measures this year, and pointed to an Air Force F18 fighter jet parked behind him.

This navy fighter jet, appropriately called the Green Hornet, will be flown for the first time in just a few days, on Earth Day. If tests go as planned, it will be the first plane ever to fly faster than the speed of sound on a fuel mix that is half biomass.

As is expected in all major political statements in our current economic climate, Obama peppered his speech with references to energy initiatives creating jobs and growing the national economy. He began his remarks by congratulating his administration on making the “largest investment in clean energy in our nation’s history,” and said the investment was “expected to create or save more than 700,000 jobs across America.” He repeated previous statements that a robust green energy industry in the US is crucial to America’s economic recovery.

Finally, Obama used his administration’s moderate approach to the issue to urge Congress to act on energy reform. He closed his speech with a broad call to action:

I think that we can break out of the broken politics of the past when it comes to our energy policy. I know that we can come together to pass comprehensive energy and climate legislation that’s going to foster new energy—new industries, create millions of new jobs, protect our planet, and help us become more energy independent. That’s what we can do. That is what we must do. And I’m confident that is what we will do.

For American consumers, the new drilling policies will not change much, at least at first. The allowance of drilling in new areas does not mean drilling will begin in the next few years, if at all. According to analysis from the Times, “Much of the oil and gas may not be recoverable at current prices and may be prohibitively expensive even if oil prices spike as they did in the summer of 2008.” The new policy gives oil and natural gas companies the option of drilling in a wider swath of territory, but offers no incentives to begin drilling activity. The lower prices and increased domestic production claimed by drilling supporters, which have been contested by many sources, including the Department of Energy, would not be realized for at least five years, and probably more.

The stricter vehicle efficiency standards will deliver cost savings to American drivers by requiring them to buy less fuel. As Obama put it, “new standards…will reduce our dependence on oil while helping folks spend a little less at the pump.” However, these requirements will only apply to new vehicles and probably won’t go into effect for a few years, so it will only be the new car owners of tomorrow that will see the benefits of higher fuel efficiency mandates.

Oil production rose domestically for the first time since 1990, thanks to previously untapped reserves like that in the Bakken formation (pictured). However, this uptick means little for both prices and energy trends. (image: cbr.ca)

American oil production reached its peak in 1971, as was predicted by the Hubbert model applied to US oil fields. Since then, production has dropped by nearly 50 percent. Yet 2009 was a record-breaking year for US production, with levels increasing for the first time since 1991, according to the U.S. Energy Information Administration and reported by the AP.

However, missing in the above comparison is the fact that production dropped to its lowest point in 25 years in 1990, rendering the 1991 increase less significant in terms of overall production trends. In 1990, average domestic production of oil was 7.35 mbd, and in 2009, it was 5.32 mbd. 2009’s improvement over 2008’s 4.95 mbd is worth noting, but not a game-changer for the US energy outlook. The level is still 2 million barrels per day below the 1990 average.

As the AP article explains, the spike in 2009 domestic production was due to oil discoveries and the fruit of drilling projects that were financed during the period of high oil prices that ran between 2004 and autumn 2008. Deepwater reserves in the Gulf of Mexico and the Bakken Shale deposit that spans Montana and North Dakota were the biggest new sources.

“As the price of oil went up, you were able to access resources that were more difficult and expensive to get to,” said Rayola Dougher, Senior Economic Adviser for the American Petroleum Institute.

Dougher is referring to the steep costs of developing deepwater reserves and oil shale. The US Department of the Interior estimates that the US contains over a trillion barrels of oil in the form of oil shale, and 12-19 billions of barrels of oil in the form of tar sands. Both of these forms fall under the category of “unconventional oil,” because they require extraction techniques outside of traditional oil wells, and/or refinement techniques outside of those used for lighter grades of oil. As we’ve previously discussed, the methods of producing unconventional oil are economically feasible only when prices are very high.

But even under high-price conditions that could stimulate increased domestic production (some analysts are predicting higher oil prices in 2010 and onwards), it’s unlikely that Americans would experience relief from either high consumer prices or energy dependence.

In a period of very high oil prices, we would likely see more of these projects or efforts to make those federal lands, much of which are situated inside pristine national parks, open to drilling. However, setting aside the uncalculated costs to America’s bastions of untouched wildlife, it’s unlikely that these projects would have any impact on the price of oil, which is a globally traded commodity influenced by worldwide supply fluctuations that dwarf any US contribution. In terms of lessening our dependence on foreign oil, increased oil production domestically, even on the order of 1 mbd, would only offset the export losses that we are already experiencing from major suppliers Mexico and Venezuela. As analyst Chris Nelder wrote in February, the combined export loss from these two countries, which together comprise two of our three largest sources of oil, was 0.89 mbd from 2005 through 2008. Roger Blanchard, oil analyst and author of “The Future of Global Oil Production”, finds it “likely” that Mexican oil exports will reach zero within the next ten years.

The optimistic-sounding AP headline “Govt. says US oil production increased in 2009” implies a needed rejuvenation of our nation’s future energy supplies, but in reality only reinforces the unpredictability of our future.

How much oil does OPEC have? Oxford researchers say that OPEC exaggerates its oil reserves, and public agencies have accepted their figures. (image: media.wnct.com)

Researchers from Oxford University claim that OPEC’s oil reserve estimates are inflated but have been accepted by public agencies that compile statistics on oil and energy, reported the Daily Telegraph of London. The researchers warned that organizations like the International Energy Agency (IEA) and the Energy Information Administration (EIA) are aware that OPEC’s estimates are misleading, and could be failing to prepare governments for the oil shortages and price spikes that would accompany “peak oil.”

The Oxford researchers said that estimates of global oil reserves are “exaggerated by one-third,” and that conventional oil reserves amount to only 850–900 billion barrels—not the 1.2–1.4 trillion barrels that are currently estimated. The researchers wrote that the errors in statistics of oil reserves are “broadly acknowledged but not taken into account due to political sensitivities.” David King put the matter more bluntly, saying the IEA couldn’t afford to give unpleasant information to Western governments that pay its bills: “The IEA…has to keep its clients happy.”

IEA data has come under fire before, from outside analysts and a whistleblower in its own agency who said the agency overestimated the role that unconventional oil, such as the oil sands of Alberta, would play in future global oil supplies.

The IEA advises its member countries, which are nearly identical to the members of the Organization of Economic Cooperation and Development (OECD), on energy policy. Because of the influence of the agency, its estimates and statistics are closely watched and hotly debated. The IEA has previously said that peak oil—the moment at which global oil production will have irrevocably peaked, and which some observers believe will never occur—would happen in roughly 2020. This latest paper from Oxford avoids picking a date for peak oil, but says demand will outpace supply by 2014, the year that Kuwaiti scientists have predicted oil production will peak.

These findings come out just as the British energy minister meets with members of the UK Industry Taskforce on Peak Oil and Security, a business group that grabbed headlines in February when it issued a report warning that peak oil was imminent. A spokesperson for the British energy ministry said the meeting did not signify any change in British energy policy, but the report from Oxford gives academic backing to the Industry Taskforce’s argument that oil shortages may strike Britain earlier than previously expected. With business leaders and Oxford researchers in agreement, British public opinion—and public policy—may follow.

A global oversupply of oil enabled by OPEC's quota violations could lead prices to fall. (image: tehrantimes.com, blog.redfin.com, and AP via cbsnews.com)

Monday, an article in the Financial Times questioned the strength of OPEC in light of its members’ extensive quota breaking, and stated some analysts believe that a current global oil glut could drag down prices by the end of the year.

OPEC quota compliance has become an especially important issue as quota “cheating” is happening with increasing frequency, and OPEC announced on Wednesday that it would maintain current quotas, despite some members exceeding them.

Back in December 2008, the cartel responsible for 1/3 of the world’s oil agreed to make the biggest production cut in its history; a slash in output of 2.2 million barrels per day. The cut was motivated by the financial crisis’ blow to global oil prices, which plummeted by nearly 70% in the months following July of that year. Since then, OPEC’s official quota has not budged, remaining at 24.845 million barrels a day despite the widely-recognized fact that the true output of its members has run hundreds of thousands of barrels per day above this level.

In 2008, analysts estimated OPEC overproduction ranged from 600,000-800,000 barrels daily. This past January, Reuters Africa reported that an OPEC document registered overproduction at 1.87 mbpd. The FT article stated that OPEC quota compliance—a percentage measure of how real output matches agreed-upon levels—has slipped to a low of around 50 percent (its highest in the past two years was 80 percent, in spring 2009).

Iraq’s lode of international oil contracts could soon boost OPEC production by several million barrels, the article pointed out. With the second-largest oil reserves in the world, Iraq’s new participation in OPEC (after years of sanctions and disruption brought by war) could, in a scenario where quotas remain unchanged, either force the body to curtail the above-quota production in other countries, or explode the fissure in compliance to a point where OPEC loses the unity it needs to keep order and retain control over prices.

When OPEC nations break their quotas, they profit from the higher prices permitted by the supply restraint of fellow members.

However, some countries pump excess crude in order to stave off consequences of their own economies’ severe fragility. This is the case with the worst quota breakers: poverty-stricken Angola, which has observed no cuts in its production, and Nigeria, which was overproducing by 300,000 barrels daily in December. It’s also an expected motivation for war-torn Iraq, which is currently the only OPEC member exempt from quotas but whose pending contracts will soon change this as its production soars.

Additionally, when many members break their quotas and overproduce, previously compliant nations are pushed to overproduce in order to make up for the loss in profit that resulted from the supply glut’s depreciation of their oil. Compliance brings higher prices through supply restraints, so quota violations bring lower prices through increased supply. In a somewhat ironic feedback loop, members increase output to compensate for lower prices; the further increase in world supply contributes to lower prices.

Exceeding quotas, in conjunction with low oil demand worldwide, could be the reason for the oversupply the FT article mentions:

Some analysts and traders note that despite recent upward revisions in demand – especially from China – markets remain oversupplied and Opec faces some risk that prices will fall this year.

A global oil glut has been present for years, ever since the recession dampened demand from developed economies, and worldwide oil demand has only increased nominally in the last year or so. The current supply-demand imbalance would indicate that prices should fall, yet the price of crude has climbed by 79% over the past 52 weeks.

Therefore, any price declines would have to be brought on by a confluence of several factors. According to the FT, some analysts see nearing-termination of government stimulus packages (both the US and China), and the new limits on energy trading in the US (which could lessen price-hyping speculation activities) as two such important factors.

Researchers at Kuwait University’s College of Engineering and Petroleum recently published a study on world oil production that includes a new prediction of when conventional oil production will peak. (image: buthaina.wikispaces.com)

A new study published in the journal Energy & Fuels predicts that world conventional oil production will hit its peak in the year 2014, GreenCarCongress.com reported on Wednesday. The study, undertaken by researchers at Kuwait University and Kuwait Oil Company, looked at oil production in the top 47 oil-producing nations and found that humanity has extracted about 54 percent of total world oil reserves and that conventional oil production will reach its peak of 79 million stock tank barrels per day (an industry term, abbreviated as STB, that refers to the number of barrels of crude oil successfully extracted and “treated”) in about four years.

The study began with the Hubbert forecast model, named for peak oil pioneer M. King Hubbert, who successfully predicted that crude oil production in the US would peak in 1970. Though proven to be a useful tool in predicting peak oil, the Hubbert model has limitations when applied to more complex and diverse oil production methods and measures of the 21st century. The Kuwaiti researchers accounted for those limitations in the study, and also allowed for updates of their findings as new oil production data becomes available. The authors explained their methods in the study’s abstract:

Even though our approach originates from Hubbert model, it overcomes the limitations and restrictions associated with the original Hubbert model. As opposed to Hubbert single-cycle model, our model has more than one cycle depending on the historical oil production trend and known oil reserves. The presented method is a viable tool to predict the peak oil production rate and time. The model is simple, accurate, and totally data driven, which allows a continuous updating once new data are available.

It should be noted that the study, no matter how sound its methods, reports exclusively on conventional oil (liquid crude that can be extracted from the ground relatively cheaply), and in doing so paints an incomplete picture of world oil supplies and the expected arrival of peak oil production. If the study were to include data on unconventional sources such as Canada’s tar sands and oil shale deposits of the American West, the supply figures would grow substantially and the date of peak production would likely be pushed forward by at least a decade or two. However, because the technology and costs associated with extraction of unconventional oil vary widely and face an extremely uncertain future, it is logical that the study excludes unconventional oil figures.

This new fodder for the peak oil debate will probably do little to bring about a consensus on whether peak oil production is a real or imagined phenomenon and, assuming it is real, when it will occur. But the addition of new and complete data that can be updated over time will hopefully bring new insight to the world of oil supply data and help the world better prepare for the peak oil eventuality or something like it. The more prepared governments and citizens are for any supply declines that could lead to rapid price increases in consumer fuels like heating oil, diesel, and gasoline, the less disruptive those increases will be to our daily lives.