This is Part 2 of a paper written about the projected US Energy profile in the year 2050. In this chapter, we take a look at Oil as an energy source. 

History of Oil for Energy

At the beginning of the 20th century, oil emerged as a dominant force in the energy market when the US and Russia both struck what seemed like endless amounts of oil. In the US, the discoveries at Spindletop in Texas, which dwarfed oil production by Standard Oil in Pennsylvania, marked the beginning of an era of cheap and abundant energy. The United States continued to lead the oil production market through World War II. The second largest producer of oil, Russia, held less than half of the US share.

In the 1930s and 1940s, US and European oil companies struck deals with the reigning powers in the Middle East to explore for natural resources. Iran, Iraq and Saudi Arabia were found to have plentiful reserves. In the 1970s, Saudi replaced the US as the world’s excess energy producer contributing to the growing world addiction to oil by maintaining artificially low and stable prices.

The 1980s and 1990s were marked by economic prosperity and an energy system that benefited both American consumers and their producing allies. This system that reigned until 2003 was one of cheap energy consumption by the few—the developed countries. Producers had excess capability with the ability to shape market prices and mitigate the effects of supply crises. During this time, there was little awareness about or concern for fossil fuel emissions problems, and, therefore, a lack of interest or investment in alternative fuels and efficiency. In the mind of the US consumer, oil was cheap, abundant, and secure. 

Current role of Oil

Today, the significance of global energy trade cannot be overstated. Crude oil currently accounts for 17 percent of trade between countries, (Wenger, Orttung and Perovic, 20). In 2006, oil made up 34.4 percent of the world energy supply mix, (EIA AEO 2010).

In many cases, fossil fuel trade is the sole most important interaction between two countries. And, whereas, the majority of oil production used to be in the hands of international oil companies (IOCs), such as British Petroleum and Exxon Mobile, today state-run, national oil companies (NOCs) operate 77 percent of remaining reserves. Russian private oil companies control 6 percent of oil known reserves. Joint NOC and IOC ventures account for 7% of energy reserves And independent IOCs control just 7 percent share of total oil reserves.

Production costs of Persian Gulf oil average about $5 a barrel, making it the cheapest petroleum in the world. Though the United States accounts for only 4.6% of the world’s population, it makes up 22.5% of total energy consumption. Oil currently accounts for more than one-third of U.S. energy consumption and 94% of our transportation fuel. The US, formerly the largest oil-producing nation, now has net imports of about 57 percent of total oil consumption. Canada accounts for almost 20 percent of imports, and Saudi Arabia follows with a significant 11 percent.

The exponential growth of developing countries through the next twenty years and into the future is a game changer for the energy equation. OPEC nations have become accustomed to significant oil resources. However, with China and India’s increased demand, world oil is being depleted at higher and higher rates.

The last few decades have seen many predictions as to when the production capacity of oil peaked or will peak. Most experts think that oil peaked around the turn of the century, and that, if we continue to consume at our current rates, we should be out of recoverable oil by 2050. However, every year the number of known reserves increases due to new enhanced recovery technology.

How does oil generate energy?

Like all fossil fuels, oil and petroleum products are formed by the compacting of hydrocarbons from organic material that has been dead for millions of years. As this material decays, pressure and heat generate oil and gas, which gathers in porous “reservoir” rock. Then an impermeable cap rock or a salt dome blocks upward movement of this oil and gas.

The production of oil takes place in three phases: primary, secondary, and tertiary (or enhanced) recovery. During primary recovery, the natural pressure of the well drives oil into the wellbore where pressure and pumps bring the oil to the surface. Only about 10 percent of the well’s capacity is recovered during this first phase. Secondary recovery involves injecting water or gas to create enough pressure to drive oil into the wellbore and allows for the recovery of 20 to 40 percent of oil. Most of today’s R&D is focused on tertiary or enhanced oil recovery, which can produce up to 60 percent of the total oil. The three most commercially viable EOR techniques currently in use are thermal recovery, gas injection, and chemical injection. However, each phase faces obstacles because of relatively high upfront costs and the risk involved in potentially not producing. Each well can require very different techniques.

Thermal recovery and gas injection account for approximately 99 percent of U.S. EOR. Thermal recovery uses heat, such as injected steam, to lower the viscosity of the oil and thin it out, increasing its flow rate. Gas injection involves injecting gas, such as natural gas, nitrogen, or carbon dioxide to lower the viscosity of the oil, achieving the same affects as thermal. The U.S. has focused substantial R&D on carbon dioxide injection because of its potential huge environmental benefits.

Once the oil is extracted, it must be refined and then transported. The refining process takes crude oil and transforms it into gasoline, plastics, kerosene, or other petroleum products by separating different hydrocarbons. The different hydrocarbons in crude oil, such as paraffins, aromatics, and napthenes, have different boiling points. Refinery operators change the temperatures of the crude oil and separate the various hydrocarbons by their vaporization temperatures. The products of this distillation then must be treated to get rid of impurities.

From the refinery, petroleum products can be transported around the world through pipelines and in ocean oil tankards. 

New Oil Technologies

Recent technological developments have made the production and refining of once prohibitively expensive resources more commercially viable, such as oil sands. Oil sands are composed of bitumen, a form of extra heavy oil, mixed with sand or clay and water. However, because the refining of oil sands is extremely energy intensive, the well-to-wheels analysis of oil sands yields 10% to 45% the carbon emissions of traditional oil. Throughout the future, increased use of unconventional resources, such as oil sands and shale, will be important towards building energy security and maintaining a steady supply of oil. 

Oil Environmental and Safety Issues

Negative environmental effects take place during exploration, drilling, extraction, and transportation of oil. Land cleared for drilling and extraction causes erosion, soil degradation, and deforestation. Water used in drilling becomes contaminated by petroleum, and as reserves become harder to reach, more and more water is used in EOR. Also, the 15 billion barrels per year of water that is extracted with the oil, produced water, contains high levels of salt, toxins, metals and radioactive material. Though most is reused to extract more oil in EOR, some is injected into surface waters, polluting and contaminating ecosystems.

The petroleum infrastructure in the US is huge and somewhat vulnerable. The US has over 200,000 miles of oil pipelines. Though these pipelines sometimes leak, the most catastrophic accidents usually occur in offshore drilling and ocean transportation. Globally on average there are one to three oil spills per year averaging 10 million gallons of oil. Until 2010, the Exxon Valdez oil spill was the largest in the US, totaling 12 million gallons of oil.   

Economics of Oil

The AEO2010 predicts that motor gasoline prices will hit $4.11 per gallon in 2035, but this estimate is very conservative.  Policy, supply, and improved transportation infrastructure could drive these prices as high as $8.00 a gallon in 2008 dollars. In compliance with the Energy Independence and Security Act of 2007, the amount of E85 (a blend of gasoline and ethanol) used in transportation fuels will increase. This new fuel will be cheaper per gallon but about equal to gasoline in energy content.

Energy Security

The United States government current views energy policy and foreign relations with two separate lenses. However, in this new global energy order, they must be seen as completely intertwined.

In addition to fears of oil shortages and prohibitively high prices, it is in U.S. national security interests to decrease our dependence on oil. The countries with the most oil reserves are Saudi Arabia, Iraq and Iran. OPEC countries have increased leverage over the U.S. because of the American need for their oil. Many of these countries, such as Iraq and Iran are unstable. In addition, our oil dependence on Saudi Arabia forces us to ignore significant human rights violations.

The AEO2010 assumes that nearing 2035, OPEC maintains a steady market share of about 41%. However, it remains uncertain how much access the U.S. will have to production in non-OPEC and non-OECD countries. As prices rise steadily with increasing demand and tight supply, the infrastructure will be put in place so that Brazil, Russia, and Central Asian countries can be larger players in the global petroleum market.

Political Viability of Oil

As a transportation fuel, oil is the standard accepted by the public as long as it is cheap and plentiful. Without any financial incentives to find a substitute, oil will continue to be the favored choice for consumers. However, environmental crises, such as the BP oil spill, do have an effect on public opinion, and environmental lobbies tend to be some of the loudest and most well organized special interest groups.

In addition to environmental effects, the people of the Gulf coast will face job and investment loss. This could make offshore drilling less attractive. The public also is in favor of decreasing our dependence on foreign oil. Though convenience is a huge driver for continued oil dependence, an increase in the price of oil could send consumers over the edge and looking for alternative fuels.