Chapter 1: Petroleum Part 2

I realize this is posting in reverse order. Don't know what to do about it and I'm not going to worry about it. Suggestions are welcome, however.

Petroleum Analyzed

Petroleum is the “King of Fuels” and is that by which all other alternatives are judged. It is difficult to speak of petroleum fuels in the same manner as alternatives because the language of alternatives is how they compare, better or worse, to petroleum. Regardless, this section will provide the same analysis for petroleum fuels, gasoline and diesel, that Chapters 5 through 10 provide for the alternatives. In this pursuit, this section will look at the general advantages and disadvantages of petroleum, its emissions, its ability to support national security, sustainability factors, its economic impact, and future potential.

General Advantages

Petroleum, whether in the form of gasoline or diesel, has the advantage of being available everywhere in the nation. Over 180,000 fueling stations are available to fill a vehicle’s tank with a petroleum product and the remotest locations are likely to have a gas station. It is this widespread availability that makes oil such a preferred commodity. Comparatively, alternative fuels have nowhere near the availability. Propane, the most widely available alternative fuel offers only 3,300 refueling locations country-wide. Combine this with the prevalence of gasoline and diesel powered vehicles, some 200 million of which drive the streets and highways of the US, and it is obvious why 97 percent of transportation fuels are made from petroleum.
Petroleum is also an integral part of our everyday lives. It is used in a variety of ways other than a transportation fuel. This is because it is a simple compound that has been studied and experimented on for over 100 years. It is used to make plastics, lubricants, fabrics, medications, and detergents, and provides energy to homes as a part of electricity generation and as propane, which is a major fuel used for heating and cooking in rural areas.

General Disadvantages

There aren’t many general disadvantages of petroleum fuels. Most of the disadvantages are well known and will be discussed in subsequent sections leaving this section bare. The fuel is dirty, it endangers our national and economic security, it isn’t sustainable, and it has a strangle hold on our economy.
Grade for Advantages and Disadvantages: C

Emissions

Emissions from gasoline and diesel are better than most people would think but still poor. The 1980s saw the first improvement in gasoline when lead removal was required. Since then, gasoline has been improved five times and is able to meet the EPA’s National Ambient Air Quality Standards in most instances. It was originally thought that the standards would only be met by alternative fuels but additives and reformulation combined with engine improvements have managed to keep emissions low.
Recent legislation is doing the same for diesel fuel. One of the major pollutants in diesel is sulfur, an ozone forming agent and contributor to smog and health problems. In the not too distant past, diesel had sulfur content of 500 parts per million (ppm) or higher but starting in 2006, the fuel will be kept to a maximum of 15 ppm making it much cleaner. Past legislation has also caused reductions in particulate matter emissions that cause asthma and contribute to global warming.
But beyond the improvements made in petroleum fuels, air quality standards in most urban centers are still poor, often not attaining at least one of the many standards the EPA enforces. This may be a failure of petroleum fuels or a failure of EPA regulations or both, but is most often attributed to the increase in vehicles on the road and vehicle miles traveled. More vehicles are driving the roads than ever, some 200 million, and people are living further away from city centers in what has come to be known as “ex-urbia,” with commutes as long as 2.5 hours. It is a simple equation: increased numbers of vehicles in an area plus increased drive times equals increased emissions. Petroleum fuels, which are cleaner than ever but still dirtier than alternatives, can’t make up the difference in the increased emissions and the nation’s urban areas prove it.
Grade for Emissions: C-

National Security

Petroleum contributes nothing to national security. It is actually the reason why national security is such a prime motivator behind the development of alternative fuels and is the ceiling of acceptance for any fuel. The nation currently imports about 60 percent of the oil it consumes. Transportation uses about 60 percent of this supply and is 97 percent dependent on it. Therefore, any fluctuation in oil supplies is felt directly by industry and consumers in the transportation sector.
The main reason for the US economic and military involvement in the Middle East is oil. The Middle East is a volatile region which has been known to be “unfriendly” to US economic and national interests. Other nations that are important contributors to the US oil supply, such as Venezuela and Nigeria, are also considered volatile nations that could disrupt supplies and thus place the US economy in danger. It is because of reasons such as these that the nation is pursuing alternative fuels policy.
Grade for National Security: F

Sustainability

Sustainability is based on two principles. The first is the ability of the fuel to be produced over time and the second is the net energy balance, or energy inputs ÷ energy outputs. Considering the first definition of sustainability, there is much media attention on the possibility that world oil production could be decreasing in the near future. The stories all center on Hubbert’s peak, when world oil production reaches its apex and begins to decline. The following will discuss this phenomenon.
Hubbert’s Peak
If oil and gas are finite products then the amount of these substances being used in the world today can’t be sustainable. The US itself uses 20 million barrels of oil per day which accounts for one quarter of world usage. Japan is the next largest user and accounts for 5 million barrels per day. The faster the oil is used, the closer the end of supply approaches. But it isn’t when the last drop is extracted that is the main worry. It is the half-way point, or peak, that is most worrisome because once peak oil production is attained, oil will become an increasingly expensive commodity and thus less attainable for future generations. This subsection of sustainability will take a slight detour to discuss the possibilities of peak oil, a hot topic in the press these days.
The argument for peak oil is based on the work of a preeminent oil geologist who worked for the Shell corporation in the mid-twentieth century, M. King Hubbert. In 1956, Mr. Hubbert created an equation that predicted that US oil production in the lower 48 states (this is before offshore drilling and the discovery of the North Slope in Alaska) would reach its peak by the early 1970s, which became known as Hubbert’s Peak. In 1970, Hubbert’s prediction was proven true as consensus among all parties was that US oil production had peaked.
Of course, at the time of Hubbert’s prediction he was scoffed at by most people in the industry. As early as 1890, predictions of oil depletion within the next decade or two were common and never came to fruition. In this case, the difference was that instead of simply looking at known reserves divided by current production (the R/P ratio), Hubbert based his predictions on data that included previous production, known reserves, and future potential.
He first used a biological idea of population growth to explain oil discovery. The idea was that like population, when resources are plentiful, new discoveries will grow at a compound rate. As oil is a finite resource, the more that is discovered means the less there is to discover and the rate of growth begins to level off and then decline. Hubbert found that knowing where the decline started, one could predict when all available oil would be discovered because it matched a Gaussian, bell-shaped curve. While this was a best guess at the time because he only had production data to the mid-1950s, we now know his guess was accurate. Using the previous two pieces of information, he next discovered that oil production matched discovery with a lag time of three or four decades. Because oil discovery peaked in the 1930s , he predicted oil production would peak in the early 1970s.
Kenneth Deffeyes, a long-time associate of Hubbert’s and author of Hubbert’s Peak, remembers hearing a confirmation of Hubbert’s prediction when, in the spring of 1971, the Texas Railroad Commission (TRC), “…announced a 100% allowable for next month.” According to Deffeyes, the TRC at the time was the United State’s personal Saudi Arabia. Its function was to match supply to demand by controlling oil production in the state of Texas (similar to Saudi Arabia’s position in OPEC) thus mitigating any fluctuations in the market price for oil. If the price of a barrel of oil went up, the TRC would increase the allowance for production, increasing supply and thus, lowering price. The fact that the TRC opened production to 100% proved to Deffeyes that production limits had been reached. This was confirmed later when in 1973, the US was at the mercy of OPEC’s oil embargo because it was at full production. Thus, having Hubbert’s theory proven true, it wasn’t long before people started applying the same principles to world oil production. This is what most concerns us today, as we are in a time of increasing demand due to booming economies in China and India, as well as experiencing unprecedented demand in the West.
What, exactly, have people found when they calculated the peak of world oil production? “It depends,” is probably the best answer that can be given. Just like global warming, there is controversy over when Hubbert’s Peak will arrive, if indeed, it will arrive at all. Predictions of the peak span a timescale from somewhere between yesterday, to the year 2040, to never. For instance, Deffeyes predicts the peak to occur around 2004-2006. Colin Campbell, a former exploration geologist and fellow at the Association for the Study of Peak Oil, predicts 2010. John Edwards, of the University of Colorado, Boulder, an ex-oil geologist and self-proclaimed optimist predicts a peak around 2020. The US Geological Survey, on the other hand, predicts a peak of 2035 or beyond (based on estimates in the US Geological Survey World Petroleum Assessment, 2000). Most predictions, however, cluster around a peak at the end of the first decade of the 21st Century, which is rapidly approaching.
Even the oil companies are in on the act. In its advertising and PR campaigns Big Oil is admitting that petroleum is a finite commodity. Exxon-Mobil released a report, “The Outlook for Energy: A 2030 View,” predicting non-OPEC oil production to peak in five years. Chevron, a major US oil corporation, started the website - willyoujoinus.org - to educate people on energy problems and enlist the public’s help in the form of discussion boards. Their copy reads, “One thing is sure, the era of easy oil is over.” And, “Many of the world’s oil and gas fields are maturing. And new energy discoveries are mainly occurring in places where resources are difficult to extract—physically, technically, economically, and politically.” While these statements don’t go so far as to say the peak is here, they do point directly at short-term supply constraints.
From whence, then, comes controversy? It stems from different parties using different data from which to base their predictions. The data that differs most often is oil reserves and our ability to extract them. Oil companies and governments use a probability scale when predicting available reserves. Generally, there is a P90 value and a P10 value given for each field. The P90 value is the low end or conservative estimate and the P10 is the liberal estimate. As an example, the Oseburg oil field in Norway had a 90 percent chance of producing 700 million barrels (P90 = 700 Mbl) and a 10 percent chance of producing 2,500 million barrels (P10 = 2,500 Mbl). Thus, there is a large discrepancy between the two figures which can easily account for large differences in the peak oil year prediction. This is the case in the USGS predictions which place total historical reserves at 2.8 trillion barrels when most other organizations place the figure at 2 to 2.1 trillion barrels, a discrepancy that matches all the oil under the Middle East…ever.
But this isn’t the only problem. Reserve estimates tend to be based on political and economic factors as much as physical factors. In the mid-1980s half the OPEC nations increased their reserve estimates by up to 200 percent shortly after the organization changed its rules to include reserves in production quotas . In 1997, 59 countries reported the same level of reserves as they did in 1996, an improbability given the likelihood reserves remain level after oil has been extracted. Also, an increase in reserves is likely to lead to an increase in an oil company’s stock price (satisfying its shareholders) or a nation’s ability to obtain loans.
All of these scenarios point to a time in the near future when the world will have reached peak oil production. It’s important to remember, however, a few things about Hubbert’s Peak. First, the reaching peak doesn’t mean that the world is going to run out of oil. What it means is that the supply of easy, cheap, conventional oil is decreasing at a time of increasing global demand. This will increase the price per barrel, which will then make viable unconventional oil sources like the tar sands in Alberta, Canada. A high price of oil also means people will pay more at the pump. Sustained, high gasoline prices will change the way consumers purchase cars, with people favoring lighter, more efficient vehicles that get better gas mileage. This was the case in the late 1970s to mid-1980s, and is the case today, apparently, as Toyota’s Prius hybrid vehicle can’t be kept in stock. High gasoline prices will also have the affect of increasing demand for alternative fuels, which tend to be higher priced.
Another note of importance is that production isn’t declining yet. It fluctuates from year to year given market constraints but every year there is more production than the year previous. It is the rate of increase (think back to your calculus) that is currently diminishing, however, meaning that at some point, the rate of demand is likely to outstrip the rate of production. Thus, we are approaching the top of our bell curve which means as new production is constrained and demand continues to grow, shortages will ensue.
This is relatively good news for alternative fuel producers and environmentalists, but what about repercussions on the economy. An Associated Press news release of October 18, 2005, “Inflation Soars on Surge in Energy Prices,” stated that inflation was on the rise due to recent hurricanes disrupting oil supplies and refineries. If this temporary rise in oil and gas prices is having an immediate effect on prices across the board, one can imagine what the scenario might be after the world reaches peak production.
Peak oil may not raise prices of petroleum for the US, however. If oil prices do increase, causing core inflation to rise, the Federal Reserve will increase interest rates, which will have the effect of increasing the value of the US Dollar on world markets. The increase in dollar value could offset the increase in oil price to the point that relative to the US, oil is roughly equally priced as before. Relative to the rest of the world, though, oil is more expensive. This poses the question, then, of, “Who gets the oil?” If it’s still cheap in the US, Americans will consume at the same quantities as before and it will be the smaller, poorer nations that lose out on their share.
There are many detractors to the peak oil theory, however, and both sides are constantly shooting holes in the arguments of the other side. Some of those arguments are given above and others are available in the news media and scholarly journals and thus, won’t be discussed here. For the sake of advancing the work, the tenets of this paper will rest on peak oil occurring sometime in the next 20 years.
Whether the world runs out of oil or not, the fact is that more can’t be made. Petroleum is made by geological forces over geological time periods and is consumed in “real time,” orders of magnitude faster than it was made. Once it is gone, it will be gone forever, as far as humans are concerned, proving oil a failure in the first tenet of sustainability. The other tenet of sustainability is net energy balance. Many alternative fuels are decried in the media because they use more energy to produce than they put out. This fact is rarely true and there is rarely mention of petroleum’s net energy value. What is the net energy balance of gasoline and diesel? Are they offering more energy than they consume in production? The answer is a resounding “No.”
According to one study, diesel fuel has a net energy balance of 0.83 percent. That is, diesel consumes 17 percent more energy to produce than it gives off during engine combustion. The Minnesota Department of Agriculture’s website corroborates this evidence, stating a 0.84 percent energy yield for diesel. Engine efficiency affects this percentage but as the federal government refuses to increase CAFE standards for heavy duty vehicles (majority users of diesel), it is an accurate measure.
Gasoline also suffers from a negative energy balance. The Minnesota website states a .81 percent energy yield for gasoline, lower than that of diesel, which has higher energy content per gallon. Thus, the two fuels, which comprise 97 percent of transportation fuels in the US, are net energy losers. This means that the energy consumption of transportation is actually higher than statistics report because it takes 15 to 20 percent more energy to produce a gallon of petroleum fuel than what is derived from it.
Grade for Sustainability: D

Economic Impact

There is no doubt that the economic impact of petroleum is huge; without it, there would be no economy. It is a fundamental part of Western life and it is a key need for growth in newly industrialized nations. The US currently consumes 20 million barrels (840 million gallons) of oil per day and is expected to consume 28 million barrels per day by 2025. As an example, the following is a story that shows how prevalent petroleum is in our daily lives.
A person is at a local protest against importation and use of oil. The rally is over so they get in their car to drive home, which has plastics made from petroleum and synthetic rubber used in tires, hoses, and seals, not to mention engine and bearing lubricants. The tank is low so they drive to the local station to fill their vehicle with gasoline on a road made of asphalt (about 5 percent petroleum). They call home on their cell phone (plastics), to have the barbecue heated up (propane, 50 percent from oil), because they picked up some pork chops on the way home (refrigerator coolant from oil). Once home, the person walks inside (powered in part by petroleum), across the carpet, (synthetic fibers made of petroleum) and into the bathroom to take their medication (also made from petroleum).
This is a brief description of the more obvious roles petroleum plays in modern life but demonstrates just how pervasive its use is. While it is excellent that so much can be derived from petroleum, the fact that the nation is almost completely dependent on oil for an inexpensive and robust economy is a negative. It’s the equivalent of having all your eggs in one basket.
Grade for Economic Impact: B

Future Potential

Petroleum could be said to have a bright future or no future at all. Oil is, and is going to be, a major part of the world economy for a long time into the future. So many nations are dependent upon the free flow of petroleum that to disrupt its supply, or to prematurely force an inadequate substitute, would spell doom for their economies. While petroleum use for transportation and electricity generation is seen as a negative application of the technology, many uses of the fuel are positive.
Products like plastics provide Third World nations with an inexpensive and durable means to carry and store water. Fertilizers that maximize field crop potential, and pharmaceuticals that prolong people’s lives are also made from petroleum. One author encountered imagined a time when his grandchildren would say, “You had all that oil and you just burned it?” Thus, while petroleum plays the part of the villain in modern industrialized societies, there are still many benefits that it provides, the least of which is inexpensive transportation.
But oil is, and always will be, a finite commodity. Only the most enthusiastic economists believe that petroleum supplies will last for hundreds of years. In the mean time, it will be important to find ways to decrease consumption to; 1) slowly wean the economies of the world off petroleum dependency and 2) provide long-term access to petroleum for those uses that provide the greatest societal value. After all, using oil to create major-multiple explosions that are 25 percent efficient is caveman technology from where humanity stands today.
Grade for Future Potential: B-

Final Grade for Petroleum: C-