Oil

The State of the Union and Energy Policy

/ Danielle Kloster / Leave a comment

I always look forward to the end of January to hear what the President has to say on energy policy in the annual State of the Union address. It is interesting to hear the way the data will be spun, and to learn the stated administration’s goals for the coming year. This year’s speech included quite a long discussion of the past year’s energy developments and the goals for the coming years. President Obama discussed the trends I mentioned in my last post: more domestic energy production, less imported oil. He also talked about the importance of addressing climate change, which he calls “a fact,” through emissions reductions at (primarily coal) power plants. Importantly, he also emphasizes the importance of energy consumption reductions, specifically through the CAFE (Corporate Average Fuel Economy) standards, which reduce the average fuel consumption of the passenger cars and light duty trucks fleet.
There were a number of omissions that stuck out to me during the energy-focused portion of his speech. During his discussion of the importance of improved energy efficiency, he failed to mention that the U.S. is consistently the highest consumer of energy on a per-capita basis, with only a couple of other countries coming even close to our consumption. I suppose this would not fit in well with the narrative of America as the greatest nation on earth, but I think it’s an important fact to acknowledge. This ties in with his statements on climate change. He says that the U.S. has “reduced our total carbon pollution more than any other nation on Earth”. This isn’t exactly a fair statement without acknowledging that we are still one of the largest emitters of CO2, particularly on a per-capita basis. It’s also interesting that he discussed the importance of a “cleaner energy economy” just minutes after talking about ramping up domestic oil production, but I will get to that.

President Obama also failed to mention one of the biggest pieces of energy news so far this year: the contamination of the drinking water supply in West Virginia as a direct result of the coal industry. For about a week (and more for some citizens), 300,000 West Virginians lost access to water in their homes after a chemical that is used to process coal leaked into the water supply upstream. (A good commentary on the situation from National Geographic can be found here.) While domestic sources of energy can be beneficial to the economy, we must also consider the environmental, social, and health impacts of using these resources.

On that note, I found the President’s commentary on domestic oil production to be somewhat misleading. He is technically correct when he states we are currently producing more oil domestically than we are importing, but it’s important to remember that we still import just less than half of our consumption. Additionally, the definition of “oil production” in a lot of these calculations has changed to include all liquid fuels. These liquid fuels include biofuels (which are currently dominated by corn-to-ethanol production, a fuel that has its own set of environmental and social concerns), natural gas liquids, and coal- and gas-to-liquids production (albeit a small portion). It is misleading to lump all of these together in one category when each has it’s own concerns for use. For example, ethanol has been shown to have a very low net energy, meaning that it takes almost as much energy in the form of petroleum products to produce the energy-equivalent amount of ethanol. If the energy used to produce the ethanol comes from imported fuels, then we have gained little.

In addition, a lot of the oil we produce domestically, as I discussed in my last post, comes from sources that are harder to get, such as offshore and tight shale sources. This means a higher energetic and monetary cost to production. I am not sure if we’ll actually be able to “keep driving down oil imports and what we pay at the pump” using these sources of energy, as the President seems to hope.

Overall, I think that the message of President Obama was positive regarding energy policy. It is important to acknowledge climate change and take steps towards a low-carbon energy economy. It is also necessary to look to the future of both fossil and renewable energy resources, as both are important components of our energy future. And, as the President states, natural gas (done correctly and safely) does have the potential to act as the bridge fuel between our current carbon-heavy, fossil-based energy economy and a future of low-carbon, renewable fuel. I just hope that the President and Congress spend this year working on policy that works towards that new future.

[Quotes taken from the Washington Post transcript of the speech]

U.S. Oil Boom: What it means for prices, the future, and the environment

/ Danielle Kloster / Leave a comment

If you watch the news or read the paper, you’ve probably heard the good news: the United States is in the midst of an oil boom! Supply is higher than was anticipated even just a few years ago, imports are decreasing, exports are increasing, and we should be seeing better prices at the pump for the foreseeable future. This all sounds great, and it might be, but what are the broader implications?

For a good overview of the increase in U.S. oil production recently, see this article. A quick summary: oil production has exploded recently in the U.S.; the U.S. has reached the goal President Obama laid out in 2011 to decrease imports by one-third by 2025 in just 3 years. Texas is now producing more crude oil than Iran, twice as much as it was producing just 2 years ago, according to the EIA (Energy Information Administration). Where is the oil coming from, and what are the consequences of its production?

Most of the oil boom can be attributed to the growth of two major technologies, usually used together: horizontal drilling and hydraulic fracturing. You’ve likely heard of “hydrofracking” with regards to natural gas, but it can also be used to extract oil from tight shale formations. Oil reservoirs underground are less like an underground lake and more like an oil-soaked rock. In high quality oil reserves, the pressure from the natural gas in the reservoir sitting on top of the oil (or the air, water, or gas pumped into the ground by the drillers) is sufficient to push the oil to the surface. In shale formations, the pores holding the oil are smaller and hold the oil “tighter”, making it more difficult to extract. Hydraulic fracturing is used to crack open the shale formations to allow the oil to flow more easily out of the formation and to the surface through the drilling pipes. As the Bloomberg article mentions, this is done using high-pressure water flows, and sometimes explosives. Traditional wells for gas and oil are vertical, but technology now allows for horizontal drilling. This means that for each drilling rig, the oil companies are able to drill vertically and then horizontally from there, allowing them to drill a larger surface area and extract more oil per drill rig than with a simple vertical well. Used in conjunction with hydraulic fracturing, this technology has allowed previously unproductive or uneconomical fields to be produced.

There are some benefits to this oil boom. It does allow us to decrease imports and, as the article mentions, have some more leverage with sanctions in the Middle East since we are slightly less dependent upon them. Theoretically, this production boom is also creating jobs in the oil industry and helping the local economies around the newly producing oil fields, but the evidence is shaky on whether the long-term benefits are really there. Hopefully, we will continue to see relatively low gas prices and perhaps lower prices for other products dependent on oil for their production, including food.

But at what cost are we obtaining this oil? First, there is the environmental cost. Oil drilling of any kind is risky in terms of potential environmental damage, and hydraulic fracturing is considered to be one of the riskier practices. However, as we were reminded this week by the water crisis in West Virginia, all fossil fuels have a large environmental cost. Which ones do we decide are too much? Second, there are high economic and energetic costs. The technology is expensive and drilling unconventional sources is almost always more expensive with less return. David Ricardo described the “Best First Principle” in terms of development of agricultural land, stating that the highest quality land (that which produces the greatest yield) would be put into production first, followed by lower and lower quality land over time as more land was required. This principle can also be applied to oil production. The easily-obtained, low energy and monetary cost oil (think Spindletop, with oil essentially shooting out of the ground) was produced first and now we are required to go after lower quality oil, with its higher energetic and monetary costs. Although the initial surge in production has allowed gas prices to remain low, production in hydraulically fractured wells tends to drop off quickly. Additional fracking is required to continue production, but the production of the well will continue to taper off as time goes on. We’re experiencing the boom now, but we should look ahead to how we will handle the bust. Think about it the next time you’re filling up your car with the “cheap” gas.