NAFTA oil independence

As I have posted before, we will be hearing a lot about the Bakken Formation, just as now we are all hearing about the Alberta tar sands. Both are expensive and difficult resources to tap, though clearly not as problematic as the Green River Formation in Colorado and Utah. I have posted the excellent Wikipedia article for a comprehensive description.

The tar sands do not have any porosity or permeability issues whatsoever. In fact, if you can cause separation, the recovery reaches nearly eighty percent. This means that the trillion barrel reserve is almost fully recoverable, provided you are prepared to go after it using mining methods.

The THAI in-situ process promises to deliver seventy percent recovery of areas treated at a very low cost and from considerable depth without nearly the environmental cost of mining. The process also partially upgrades the oil which is a major break. THAI process relies on the creation of an air fed burn front started at the toe of a horizontal well. The heat and pressure and process CO2 and process steam and nitrogen gas all assist in attacking the bitumen. This technique will eventually be used on many older partially depleted fields that have lost their gas drive or simply are too thick.

In other words, the current results are already amazing on formerly unrecoverable resources, and it is well worth a try on almost every other reservoir to see if it can help. I can even see folks pumping out an old water flood to try this on and cursing the idiots who authorized it in the first place. Not only does THAI bring at least one trillion barrels of bitumen in Alberta into full exploitation mode, it also likely brings another trillion barrels on stream from the Amazon that I know of. Add another trillion from known conventional fields and we now have three times all the oil that has ever been burned.

And remember folks, we are going to burn it all, regardless of all the conservation efforts, simply because it will always be a cheap feedstock for either energy production or synthetic materials. It will just take us a lot longer. Or let us rephrase it another way. How much oil do you think will be in the ground for use in ten thousand years?
This takes me now to the Bakken Formation. This is a great oil resource that likely represents half a trillion barrels of oil in place at a depth of two miles. Unfortunately, the recovery runs at an abysmal 4% or so though it appears that ten percent has been achieved. That means that the recoverable resource may be no more than fifty billion barrels. I will take it, but it is hard to imagine a more difficult technical challenge in the oil patch, but apparently secret breakthroughs have been made.

Without doubt this entails horizontal wells at the end of a ten thousand foot vertical string which alone is pushing the technology and some pretty nifty hydraulic fracing along the foot across the natural fracture planes of the oil bearing structure. Since it is in dolomite I suspect that this is an acid frac to boot. I am not sure if we should buy shares in the producers or Halliburton, Dick Cheney’s favorite company. Each well must cost at least ten to fifteen million.

In any event, this is not cheap oil and it still looks like you have to find the sweet spot at least for now. Welcome to the brave new world of folks with billion dollar balls. In any case one hundred dollar a barrel oil is on the march and North America, also known as NAFTA, is clearly on the road to total oil independence.

*-Bakken Formation

From Wikipedia, the free encyclopedia

The Bakken Formation, initially described by geologist J.W. Nordquist in 1953,[1] is an immense blanket of rock from the Late Devonian to Early Mississippian age occupying a substantial part of the subsurface of the Williston Basin, Montana, North Dakota, and Saskatchewan. Covering about 200,000 square miles (520,000 km²), Bakken serves as a significant oil reservoir, and until recently has long frustrated efforts to extract its oil, initially discovered in 1951.

The formation consists of three members: lower shale, middle dolomite, and upper shale. The shales were deposited in relatively deep marine conditions, and the dolomite was deposited as a coastal carbonate bank during a time of shallower water. The middle dolomite member is the principal oil reservoir, roughly two miles below the surface.

Porosities in the Bakken average about 5%, and permeabilities are very low, averaging 0.04 millidarcies—much lower than typical oil reservoirs.[2] However, the presence of horizontal fractures makes the Bakken an excellent candidate for horizontal drilling techniques in which a well drills along the extent of the rock layer, rather than punching a hole vertically through it. In this way, many thousands of feet of oil reservoir rock can be penetrated in a unit that reaches a maximum thickness of only about 140 feet (40 m).[3] Production is also enhanced by artificially fracturing the rock.[4]

The greatest Bakken oil production comes from Elm Coulee Oil Field, Richland County, Montana, where production began in 2000 and is expected to ultimately total 270 million barrels (43 million m³). In 2007, production from Elm Coulee averaged 53,000 barrels per day (84 m³/d) — more than the entire state of Montana a few years ago.[5]

New curiosity developed in 2007 when EOG Resources out of Houston, Texas reported that a single well it had drilled into an oil-rich layer of shale below Parshall, North Dakota is anticipated to produce 700,000 barrels (111,000 m³) of oil. Estimates for ultimate oil contained in the entire Bakken play range from 271 billion to 503 billion barrels (40–80 km³), with a mean of 413 billion barrels (65 km³) of technically recoverable and irrecoverable oil.[6]

This massive estimate appears to dwarf the estimated 50–70 billion barrels (8–11 km³) of technically recoverable and irrecoverable oil in Alaska's North Slope. A conservative estimate of Bakken's technically recoverable oil would be 1% to 3%, or between 4.1 and 12.4 billion barrels (0.6–2 km³) of oil, due to the fact that Bakken's shale is so tight. However, other estimates range from 10% to as high as 50% technically recoverable reserves.[7] By comparison, recoverable oil estimates in the Alaska formation are 30% to 50%, or a mean of 26 billion barrels (4 km³).

Not counting the Bakken Formation, there are about 175 billion barrels (28 km³) of technically recoverable oil in the United States,[8] so the formation represents a substantial increase in U.S. reserves, which can be produced at an estimated cost of $20–40 a barrel.[9]

Starting in March, 2008, the U.S. Geological Survey will re-survey the Williston Basin which includes the Bakken Formation.[10]

The Starter's Gun

I hate playing the role of Cassandra at the great oil party when it is clear that no one wants to hear. It is just that the direct impact on our lives will be so great that it is wrong to not get the message out. We are producing 85 million barrels of oil a day of conventional oil. That means that on average we were able to add 1million barrels of oil production a day every year for the past century. We have been able to do this using resources discovered over forty years ago that have now slid into natural decline. Those resources have not been replaced in the form of conventional oil.

What has replaced them is the equally huge heavy oil resources that are only now been mastered. From them we get perhaps three million barrels of production, now that the price of oil makes it viable. I believe it is possible to add a million barrels a day of heavy oil production per year, provided THAI holds up. Otherwise we are hooped as far as the oil economy is concerned.

The red hot problem is that this is still far too late to avoid a precipitous decline in conventional production. The harsh reality of that developing decline will not be minus one million barrels per day. It will be way faster than that for several years until alternatives kick in and take the pressure off.

Imagine a world two decades from now in which production from current producers is only supplying 55 million barrels a day. That is what happened to US production in the seventies and it has never recovered. The point is that this is going to be incredibly disruptive throughout the globe and will be a true global crisis.

North America is actually best able to add new production thanks to THAI and the Bakken formation which operate within a conventional infrastructure and can actually step up activity now. Elsewhere we are looking at deep sea deposits requiring years of construction. It is going to be one hell of a foot race and no one seems to have heard the starter's gun.

And pretending that rapid decline is not imminent is wishful thinking of the worst kind. I babble about a mere one million barrel decline. The fact is that we will stretch every spare resource to put off the decline until it becomes precipitous. The Saudis both reduced production this past year and suddenly became amazingly forthcoming on their production capabilities. This is a clear sign that it is all going into the crapper.

So what else could go wrong? A supply decline of historic proportions in oil production combined with a massive credit crunch in US currency denominated financial assets that must be sorted out we already have happening in slow motion. How about a crash and burn in the Chinese economy, while we are at it, precipitating a radical remake of the Chinese political system. It is way overdue and would likely be beneficial. Can all these difficulties be worked out in slow motion preventing massive real hardship? I keep thinking it is possible, except that it is not possible to replace a sudden loss oil production except through the aggressive rationing of gasoline which will ground a large segment of the economy.

Five years ago these were all future possibilities. We are living there now. We are entering one of the great transition periods of the global economy and it is all tied to new energy sources.

When is that gun going to be fired?