THE OUTLOOK FOR UNCONVENTIONAL FUELS Roger H. Bezdek, Ph.D. Management Information Services, Inc. rbezdek@misi-net.com Presented at the Conference Integrating Energy Policy and Climate Policy Sponsored by the Association for Energy Economics and the Johns Hopkins University School of Advanced International Studies Washington, D.C. April 22, 2008
No, we re facing a liquid fuels crisis 2
WORLD HAS BEEN CONSUMING MUCH MORE OIL THAN IT HAS BEEN FINDING The Growing Gap 60 billion barrels 50 40 30 20 10 Past Discovery Future Discovery Production Past discovery according to ExxonMobil 0 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 3
ARE UNCONVENTIONAL FUELS THE ANSWER? Eliminating U.S. oil imports by 2030 Southern States Energy Board, 2006 30 25 Trans.Efficiency Transportation Effiiency 16% Biomass 24% Coal-to- Liquids 29% Oil Shale MMbpd 20 15 10 Import Gap EOR Oil Shale Biomass CTL Enhanced Oil Recovery 15% 16% 5 Conventional Oil Production 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 4 2029
OIL SANDS Immense resource No exploration costs No decline curve Capital access Politically stable 40 yrs. development Challenges -- Capital costs -- Labor -- Natural gas -- Water -- Climate -- Environmental 5
GLOBAL CRUDE OIL RESERVES BY COUNTRY 300 250 264 Includes 175 billion barrels of oil sands reserves Canada, with 175 billion barrels in oil sands reserves, ranks 2 nd only to Saudi Arabia in global oil reserves billion barrels 200 150 100 179 133 115 102 92 80 60 50 39 36 21 0 Saudi Arabia Source: Oil & Gas Journal Dec. 2005 Canada Iran Iraq Kuwait Abu Dhabi Venezuela Russia Libya Nigeria United States 6
TWO EXTRACTION METHODS: MINING & IN-SITU Extraction Upgrading Refining Mineable In-Situ 7
OIL SANDS CURRENTLY PRODUCING 1.1 MMBPD But it Has Taken 40 Years to Reach This Level! 3,000 2,500 2015 Forecast is 2.8 MMbpd Is This Feasible? Thousand bbl/day 2,000 1,500 1,000 500 0 1967 1975 1984 1991 1999 2001 2003 2005 2008 2010 2012 2015 8
OIL SANDS CAPITAL COSTS INCREASES But Cost Increases are Global for all Energy Capital $ per bbl/day, 2006$ 120,000 100,000 80,000 60,000 40,000 20,000 0 CAPEX increased 3-fold, and still escalating rapidly Suncor - Millenium Albian Syncrude - Aurora 2 & UE 1 Nexen- OPTI CNRL - Horizon Shell - Muskeg & Scotford Production Start Date 2001 2003 2006 2007 2008 2010 9
LIQUID FUELS FROM COAL U.S. Could Be the New Middle East 1.55 Trillion Barrels of Coal Synfuel Old Middle East Saudi Arabia: 261.8 Billion Barrels Iraq: 112.5 Billion Barrels UAE: 97.8 Billion Barrels Kuwait: 96.5 Billion Barrels Iran: 89.7 Billion Barrels Qatar: 15.2 Billion Barrels Oman: 5.5 Billion Barrels Yemen: 4.0 Billion Barrels Syria: 2.5 Billion Barrels TOTAL 686 Billion Barrels U.S. Domestic Coal Recoverable reserves 0.55 T Bbls Demonstrated reserve base (oil equivalent) 1.0 T Bbls TOTAL 1.55 T Bbls Equivalent 10
COAL-TO-LIQUIDS TECHNOLOGY A Proven Technology Currently in Use World-Wide 1 GASIFICATION Coal is converted into syngas FT CONVERSION 2 Syngas passes through an FT catalyst and is converted into an hydrocarbon ultra-clean liquid UPGRADE 3 The FT liquid product produced is is upgraded to into ultra ultra high clean purity synthetic fuels fuels 11 11
ESTIMATES OF U.S. CTL POTENTIAL 6 5 National Energy Technology Laboratory 2027 Southern States Energy Board 2030 Million Barells/day 4 3 2 Unconventional Fuels Task Force 2030 National Coal Council 2025 1 0 Bottom Line: All studies indicate huge potential for CTL 12
BARRIERS TO CTL Technical: Integrated operations of advanced CTL technologies Economic: Uncertainties about future WOP High capital and operations costs Investment risks Competition for equipment and engineering skills Environmental: CO 2 and criteria pollutants emissions Expansion of coal production Water requirements Social: NIMBY & public resistance to coal use 13
HYPOTHETICAL CTL PLANT EXAMPLE (26,000 barrels/day) Expenditures: Capital (plant): $3.2 billion O&M: $114 million/yr CO 2 sequestration: @$15/ton CO 2, $98 million/yr Revenues/Returns: Net revenues: $700 million/yr Return on investment (ROI): 16% Bottom Line: Net cash-flow is positive by year 7 of project Plant is profitable during year 13 of project CTL plant competes with oil at $61/bbl 14
OIL SHALE BASICS Hydrocarbon bearing rock Enormous resource: 2.6 trillion BOE; about = world oil reserves Advantages: -- 2 trillion+ in U.S.; most in CO, UT, WY -- Well specified -- Extensive RD&D conducted Issues: -- Huge CAPEX -- Never been commercialized -- Requires huge energy input -- Environmental problems: water, waste, CO 2, etc. -- Infrastructure: roads, facilities, labor, etc. 15
EASTERN & WESTERN OIL SHALE RESERVES U.S. Geological Survey s s Reserve Estimate: 2.1 Trillion Barrels 16
OIL SHALE TECHNOLOGIES Two basic processes: Mining followed by surface retorting In-situ retorting Shell modified in-situ process (ICP) most viable However, energy input is enormous: e.g., 250K bpd would require all Colorado electricity Conversion of Oil Shale to Products (Surface Process) Resource OVERBURDEN OR LEANER GRADES Ore Mining Retorting Oil Upgrading Overview of In-Situ Conversion Process PRODUCER HEATER INLET FACILITIES GAS TREATMENT & Oil STABILIZ ATION OIL STORAGE Fuel and Chemical Markets HEATED RICH ZONE 17
POTENTIAL OIL SHALE PRODUCTION (Estimated by DOE Unconventional Fuels Task Force) Oil Shale Production (MMBbl/D) 3.0 2.5 2.0 1.5 1.0 0.5-2006 2010 2014 2018 2022 2026 2030 2034 Year 18
PRODUCTION SCHEDULE IS REALISTIC 2.5 Achievable When Compared With Canada Oil Production (Millions Bbl/D) 3.0 Canadian Oil Sands Actual (1990-2005); Projected (2006-2020) 1 2.0 1.5 1.0 0.5 Oil Shale Development Schedule (2006-2035) 2-0 5 10 15 20 25 30 Year 1) Canadian Oil Sands Production Source: Energy Information Administration, IEO (2006) 2) U.S. Oil Shale Development Schedule: Oil Shale Working Group (2006) 19
ECONOMICS AND COSTS DOE estimated following costs (100,000 bpd facility): -- In situ: $3.4 billion -- Retort surface: $4.4 billion -- Retort underground: $4.7 billion -- Annual O&M costs range $0.6 $0.8 billion But these have likely escalated significantly in recent years perhaps by a factor of 2 or more Further, RAND estimates costs to be much higher (double or more) and that oil shale requires oil prices of $70 - $95/bbl Shell delaying its ICP commercialization Bottom line: Economics highly uncertain, and first commercial plant unlikely for another decade 20
ENHANCED OIL RECOVERY 80+ billion barrels of stranded oil in U.S. oil left after conventional extraction EOR is initiated after primary and secondary recovery Employed since 1950s Most produced via CO 2 injection Expensive; currently limited by available CO 2 and pipelines Reservoir Production Time - Decades Major opportunity: A win-win produce more U.S. oil and sequester CO 2 Normal Production Due to Primary & Secondary Recovery Production Enhanced by EOR 21
EOR OPERATION AND GEOGRAPHY Existing U.S. CO 2 Sources and Pipelines CO 2 EOR Operation 22
EOR POTENTIAL Original Oil In-Place: 582B Barrels Oil left: 390B Barrels 89 Billion Barrels with State-of-the-Art CO 2 -EOR Technology (Ten Basins/Areas) 41 Billion Additional Barrels with Next Generation CO 2 -EOR Technology (Six Basins/Areas Studied to Date) Future Challenge 260 Billion Barrels Cumulative Production 172 Billion Barrels Proved Reserves 20 Billion Barrels 200K+ bpd currently produced in U.S. Most produced by small independent companies not the Exxons New technology can significantly increase CO 2 - EOR potential 23
BIOMASS RESOURCE POTENTIAL OF 500+ MILLION DRY TONS PER YEAR 24
8000 U.S. ETHANOL PRODUCTION IS FORECAST (MANDATED) TO INCREASE SIGNIFICANTLY Actual Production Energy Bill Requirement 7000 6000 5000 4000 3000 2000 1000 0 2012 25 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Millions of gallons/year Source: Renewable Fuels Association
OF U.S. RENEWABLES ONLY CELLULOSIC BIOFUELS MIGHT HELP Potential of corn-based ethanol is not energy efficient & created the food versus fuel problem Cellulosic ethanol is more complex, difficult, & expensive than corn-based ethanol Industrial cellulosic ethanol technology does not exist. BEWARE PROMISES VS REALITY -- REMEMBER CORN ETHANOL 26
CTL PLANT BENEFITS TO A STATE Volumes oil displacement Opportunity for guaranteed supplies in times of shortages Industry sales and profits Total (direct and indirect) employment created Specific jobs created by occupation & skill Good jobs that cannot be re-located or off-shored Tax revenues for state and local governments Technology development and spin-offs Revitalization of depressed regions Most States View CTL Plants as Economic Development and Job Creation Projects: It is All About JOBS, JOBS, JOBS 27
STATE AND LOCAL IMPACT (Example 30,000 bpd Plant) Development and Construction: Direct jobs: 2,000 total Payroll: $100 million/yr Operations & Maintenance: Direct jobs: 350 Payroll: $25 million/yr. Expenditure, job and payroll multiplier: 1.8 to 2.2 Total (direct plus indirect) annual jobs: ~ 700 State and Local Government Tax Revenues: $10 million/yr. 28
NATIONAL IMPACT (20 Year CTL Development Program) By 2025, U.S. GDP increases >$600 billion and 1.4 million jobs are created 1,500 1,200 Employment (Thousand Jobs) 900 600 300 GDP (Billions 2004$) 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: Pennsylvania State University, Economic Benefits of Coal Conversion Investments, 2006. 29
ENERGY COST TREADMILL Unconventional fuels will become competitive as oil prices increase However, as oil prices have increased rapidly, so also have costs of unconventional fuels. Therefore, price of oil required to make these fuels competitive keeps increasing. Notationally: $140 $120?? $100 Oil Price $80 $60 $40 Oil Price Oil Price Required to Make Unconventional Fuel "X" Cost Competitive $20 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 30
ENERGY COST DILEMMA It is not only costs of unconventional fuels that are increasing. Costs of all energy projects worldwide are increasing rapidly: Oil & gas drilling, power plants, transmission lines, etc. Cost pressures result from increased demand from China, India, and other nations. Only a severe global recession will reduce these cost pressures. However, such a recession will also reduce oil prices at least temporarily. Thus, dilemma is that the same factors driving up oil prices are driving up the costs of all energy projects, and these demandrelated factors work in both directions. Thus, the costs of unconventional fuel X may always be too high to compete with the prevailing oil price. 31
THE FUNDAMENTAL QUESTION Question always asked is can we afford to pursue unconventional fuel alternatives This may be the wrong question Perhaps we should be asking can we afford NOT to pursue unconventional fuel alternatives Serious concerns over U.S. energy: Large imports, national security, foreign policy flexibility, balance of trade, vulnerability, etc. Aggressive government policies and incentives are required to develop any unconventional fuels Closing thought: Two best examples of alternative fuels development are Canadian oil sands and South African CTL, and both required massive, long term government and industry support 32