With this closing lesson for the course, we will take a slightly different tack. We do have readings from The Quest now that we are done with The Prize. However, for the most part, these readings are short sections sprinkled throughout the book, a smorgasbord of topics that are paramount as we enter the “current” phase of the oil industry. Rather than do a chapter-by-chapter approach, we will look at several themes integrated in the reading.
By the end of this lesson, you should be able to:
This lesson will take us one week to complete. Please refer to the Course Syllabus for specific time frames and due dates. Specific directions for the assignment below can be found within this lesson.
| Activity | Location | Submitting Your Work |
|---|---|---|
| Read | The Prize: Chapters __ (select sections) The Quest: Chapter __ (select sections) |
No Submission |
| Discuss | Participate in the Yellowdig discussion | Canvas |
| Complete | Complete and deliver the Unessay Presentation | Canvas |
Each week an announcement is sent out in which you will have the opportunity to contribute questions about the topics you are learning about in this course. You are encouraged to engage in these discussions. The more we talk about these ideas and share our thoughts, the more we can learn from each other.
As we see in Chapter 11 (selected sections), the oil industry has had a history of “Chicken Little” or “Boy Who Cried Wolf” periods, where there was fear and concern over the fact that we have peaked in identifying reserves, and the current rates, we would run out of oil in some imminent time frame. We learned each time that the amount of available oil is a moving target because the market forces and technological advances constantly move the goal posts. Recall that reserves represent oil that can be recovered technologically and at a cost that is practical based on the prices of oil. Clearly, when technology advances, costs go down, and/or prices go up, the amount of available oil changes. We have learned over history that in each case of concern, we either find more oil, find cheaper ways to produce, or have a demand/price situation that makes it economic to recover. Could we eventually run out of oil? Sure, but so far history has taught us that it is more likely we will make it through the scare. And with the advent of increased efficiency and new non-oil energy sources, the timeline before we run out is even longer than was ever imagined before.
This is a very interesting chapter that describes a number of unconventional sources of oil that have come into play over the years. There are only two required reading sections, but I encourage you to read as much of the chapter as you can in that it is interesting.
We chose two specific examples because they are fundamental to some recent issues in the news. First is the section on the Canadian Oil Sands. The chapter section provides an excellent overview of how this oil is recovered, especially the unique dual nature of recovery- open pit mining and subsurface steam flooding. The interesting aspect of the Canadian Oil Sands is that they play a key role in the controversy over the Keystone XL Pipeline. It is oil from this area that will constitute the bulk of the oil that was to move through the pipeline from Alberta, Canada to the Texas refineries.
It has been claimed that the challenge to the pipeline was not so much that it was a pipeline, we have hundreds and hundreds of miles of pipelines already in those areas; but that it would encourage development of this oil resource. The truth of the matter is that this region plays a critically important role in Canadian economy and that oil will be recovered with or without the pipeline. It is only a matter of it comes into the US anyway by rail and truck, or it goes west to the British Columbia ports to be shipped on to Asia.
Second, the section on tight oil discusses a technology that was used early on for oil, but more recently for natural gas (Chapter 16)- an approach we will learn about later called hydraulic fracturing. The demise of this approach occurred early because of the price drop in the 1980s which made this technology uneconomic.
We sometimes tend to group oil and gas together as if they are the same. In reality, although they are both fossil fuels, they are quite different. They are formed in slightly different ways (although obviously related), one can occur without the other, they both have different carbon footprint and environmental impacts, and have quite different economics. This distinction became a major element of the natural gas revolution. Whereas oil was a challenge, natural gas was a preferred alternative in the transition from a coal and oil-based sector to a non-fossil fuel sector. How can this be? It is based on all the aspects we have learned about over the semester. The same way oil is cleaner and easier to get than coal, natural gas is easier than oil. Most importantly as we shall see in chapter 21, it has a lower carbon footprint.
This is a great story in itself, but it is further enhanced by the fact that the same fracturing technology used for tight oil in prior years, can be applied to shales containing natural gas. The development of the natural gas market could not have come at a better time. It not only addressed cost and climate impact concerns compared to oil, but it allowed the US to become energy independent, and actually, an energy exporter.
Being in control of such a natural gas bounty was critical considering the power that Russia wielded over Europe with its natural gas resource. US production of natural gas offered a counterbalance to the leverage Russia had with its reserves. The assigned sections of the chapter discuss Gazprom, the Ukraine-Russia love/hate relationship over gas reserves and transmission, and the reason the Nord Stream pipeline is so prominent in the news today.
This chapter and the assigned sections introduce the prominent role climate change began to play in energy policy and the oil industry. The conflict was clearly defined- a global economy driven by fossil fuels that emit carbon vs. a movement to eliminate fossil fuel use to reduce carbon emissions.
Chapter 22 is an overview of the emergence of climate change concerns and carbon emissions trying to play a role in global policy and markets. The intent was to use international treaties to manage and control emissions. Whereas this is a noble cause- it proved to be unrealistic and impractical. On the policy side, requiring emission reductions but exempting high emissions countries undermine the intent. Also, depending on regulatory command and control is the lowest common denominator approach that is inefficient.
Fortunately, in the chapter we learn that market innovation provided a very workable solution. By developing a cap and trade system, the free-market mechanism and economics can be used to drive innovation. We learned that this business model, originally started for acid rain concerns, led to better reductions than the regulatory model would have, at a more affordable cost. Trading markets incentivize emitters to reduce, which proved to be more effective than forcing them through regulation. The success of the market mechanisms, especially when compared to the less-than-ideal outcome of the Kyoto Protocols, proved to be a positive harbinger of the approach needed for carbon.
Chapter 25 describes the experience of the Kyoto Protocol and the evolution of the carbon trading market. Since the publication of The Quest, future global climate meetings have not been able to “crack the nut” of coming up with effective policy mechanisms to enact wholesale change. Key emitting countries are still exempted, much focus is put on trying to move funding to developing countries, and compliance even by those countries who sign the treaties is spotty. Ironically, the US was one of the few countries to meet the goals set by the Kyoto Protocol- even though we never ratified the treaty! In parallel, the carbon trading and offset market has come into its own with millions of tons of carbon removed from emissions (either by capture, reduction, or offset via sequestration) in the past few years.
Review the video titled "Unconventional Applications and Climate Change" (3:38 minutes).