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    Daniel Yergin Gets Tight

    I watched Val Kilmer in Red Planet again last night. It's 2056 and Earth has been seeding Mars with algae because our blue marble is almost toast. The acting and SFX are OK, but the plot is contrived. I like scifi enough to overlook small errors, but some of the science in the fiction doesn't make a lot of sense. Spaceships swoosh as they go by, but just about every show does that. A helper robot ignores Asimov's three laws and decides to be a ninja assassin. A scientist calls some exoskeletoned Martian insects, "nematodes," which I recall as being simple roundworms. But hey, it's escapist fantasy.

    In America's New Energy Security, Daniel Yergin jumps on the tight oil bandwagon, claiming that everything's going to be fine because we're finding plenty of new oil in the good old US of A.

    Every president since Richard Nixon has called for energy independence. Nevertheless, U.S. reliance on imported oil long seemed to be headed in only one direction—up—and that pointed to inevitably increasing dependence on the huge resources of the Middle East.

    No longer. U.S. petroleum imports, on a net basis, reached their peak—60%—of domestic consumption in 2005. Since then, they have been going in the other direction. They are now down to 46%.

    What's happening? Part of the answer is demand. U.S. oil consumption reached what might be called "peak demand" in 2005 and has since declined. The country has become more efficient in its use of petroleum, and that will continue as vehicle fuel economy goes up. The economic slump has also muffled demand.

    Ken Deffeyes predicted that peak production of conventional liquid supplies would occur in 2005, and the IEA recently implied that it had occurred in 2006. As far as I can tell from the IEA chart above, conventional supply was in a plateau from 2005 to 2008. I like how "muffled demand" is an also-ran. A lot of people don't have jobs, and those that do, can't afford to drive as much. So, if only we were all rich, there would be plenty of oil! People would be willing to test that, but unfortunately the banksters torpedoed middle class earnings so we don't have enough cash to buy $5.00 gas and fill our Hummers like it's 1999.

    But Yergin does have news:

    But developments on the supply side are particularly striking. U.S. crude oil output has risen by 18% since 2008. ... The reason is the sudden appearance of a new source, "tight oil," which is extracted from dense rocks. For years, tight oil has been a very marginal business. In 2000, it was only about 200,000 barrels per day, 3% of total output. Today it is about a million barrels per day. By the end of the decade, according to IHS Cambridge Energy Research Associates' estimate, it could reach three million barrels per day, over half of current domestic crude oil production.

    Light tight oil, or LTO, is called tight because it is difficult to extract—requiring hydraulic fracturing and horizontal drilling. Fracking is already a suspect practice in my book, but Yergin paints a picture of prosperity:

    Oil extracted from shale also means lower imports, a lower bill for these imports, and substantial job creation. Thanks to tight oil, North Dakota is now America's fourth largest oil-producing state after Texas, Alaska and California. It may well move up to third or even second place.

    North Dakota also has the lowest unemployment rate in the nation at 3.5%. The shale oil boom generates jobs in the oil fields, but it also has a long supply chain, fostering manufacturing jobs in states like Ohio and information technology jobs in California.

    There will be profits, but for whom? An AOL article, Rural Communities Pay Price for US Oil Bonanza, describes the Bakken Shale play, where extraction does not mean a wonderful day in the neighborhood.

    Daryl Dukart, county commissioner of Dunn County, North Dakota, a center of drilling activity, said most county towns had fewer than 100 people before the rigs began moving in five years ago. The county, with fewer than 4,000 people spread over 2,000 square miles, had mostly gravel roads, no housing subdivisions, and all-volunteer services like fire and rescue.

    The oil bonanza didn't directly benefit many people because 60-70% of surface landowners don't own subsurface mineral rights, Dukart said. But the negatives hit everyone.

    Roads are clogged and deteriorating, emergency services are slowed by potholes and traffic jams, and the county lacks money to fix them. The small county staff has maxed out overtime trying to cope with a spurt of land sales, mineral leases, title searches, and subdivisions, and the county has trouble replacing stressed workers who depart for better-paid jobs with the drillers.

    The sheriff, courts and social services have been overwhelmed with increases in alcohol-related offenses, family abuse cases, and other crime. Criminal and civil court cases have more than tripled in five years. Schools and the single hospital are also taxed.

    Dukart said a plurality of residents accept the influx, though older residents generally say, "Let's go back to the way it was."

    My take is that Yergin is mostly correct. Tight oil will play out like fracking natural gas— if it isn't their back yard, or their water supply—people will be happy for any additional supplies of fuels. And workers will be glad for the jobs. And investors will swoon over the profits. And eventually we can put algae on Mars.



    Brian Williams did a piece on this topic as well. The piece makes it sound like a wonderful boon to the economy. How is this different than the "fracking" for natural gas that ruins the drinking water?



    It is wonderful to find a job, and even PO-aware economist James Hamilton seems to be all for the Keystone Gas pipeline because of all the jobs it will create. I'm not sure whether LTO fracking is any different than the NGas fracking. Most industry disturbs nature, and oil industry types claim that they have been doing this sort of thing for years, and that despite the numerous oil spills, gas flaring, etc. nature will rebound.

    You're looking at this wrong, Donal. It's a win-win-win. First, we'll create jobs for those doing the fracking. Next, we'll create jobs for lawyers. Finally, we'll create jobs for those doing the cleaning up!

    Now, that's funny. I mentioned Val Kilmer, and this post showed up in ecelebritynews.

    Maybe I should always slip Jennifer Aniston, LiLo or Brangelina into my posts. Or Pippa Middleton. What does Pippa think about fracking?

    The Oil Drum has a good post comparing the Bakken play to the California and Klondike gold rushes.

    The Bakken Boom - A Modern-Day Gold Rush

    The Bakken boom has inspired a number of prominent commentators to resurrect the energy independence meme. Daniel Yergin was first at bat, asserting in an essay published by The Wall Street Journal that rising prices and emerging technologies (especially hydraulic fracturing) will significantly drive up world liquid fuels production over the coming decade(s). Ultimately, Mr. Yergin argues that tight supplies lead to high fuel prices, and high fuel prices will bring previously inaccessible oil to the market. The trouble with this line of thinking is that high prices aren’t merely a symptom of the supply problem; high prices are the problem.

    After Mr. Yergin stole first base through this apparently convincing display of contortionist logic, the next up to bat was Ed Crooks who recently penned an analysis piece for the Financial Times. In this piece, Mr. Crooks declares that “the growth in U.S. and Canadian production from new sources, coupled with curbs on demand as a result of more efficient use of fuel, is creating a realistic possibility that North America will be able to declare oil independence.”

    Mr. Crooks thus ‘balances’ rising production from shale oil and Canadian tar sands against declining consumption, which he mistakenly chalks up to efficiency gains rather than the deleterious effects of the greatest recession since the Great Depression. Beyond this obvious blunder, Mr. Crooks manages an even greater and far more common gaffe by neglecting to integrate decline rates of mature fields into his analysis.

    But in a game where the media is the referee and the public doesn’t know the rules, Mr. Crooks manages to get on base by knocking a foul ball into the bleachers. With Yergin on second and Crooks on first, Edward Luce steps up to plate and takes a swat at the energy independence meme, directing the ‘greens’ to look away as “America is entering a new age of plenty”. And while the greens looked away, Mr. Luce took a cheap shot at clean energy through an attack on the federal government’s support for the now bankrupt solar panel manufacturer, Solyndra. Luce thus willingly employs the logical fallacy of hasty generalization to sway his audience. Of course the Solyndra bankruptcy is no more generalizable to the solar energy industry than BP’s Macondo oil spill is to all offshore oil production, but in a game of marketing one-upmanship one should not expect a balanced and rigorous evaluation of the possibilities.

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