European Tribune - Community, Politics & Progress.

Oil Giants Turn Sludge into Gold

by wchurchill
Mon Mar 27th, 2006 at 05:15:03 PM EST

According to a WSJ article printed today, $70 billion will go into mining previously impractical oil, kept in the form of sludge in the earth.

In February, engineers from French oil giant Total SA fired up colossal drum boilers to generate steam that will be pumped to a depth of 300 feet under the frozen ground here. If all goes well, by May, the steam will marinate a tar-like mix of oil and sand until the crude begins to flow.
Nearby, Total will go after the oil-soaked sands closer to the surface, scraping away an ancient forest of spruce and poplars and shoveling the black soil into two-story dump trucks. Fully loaded, the trucks weigh as much as a Boeing 747. Total will then use industrial versions of giant washing machines to remove the oil, generating enough liquid waste to create vast toxic lakes.
Heavy-duty oil-extraction projects like these are turning Fort McMurray into the first great oil boom town of the 21st century. A Florida-size section of sandy soil beneath the boreal forest in this sparsely populated area of Northern Canada is loaded with bottom-of-the-barrel petroleum.
<snip>
The surging interest in Canadian oil sands is stark evidence that the world isn't about to run out of oil. Instead, it is running low on readily accessible light, sweet crude -- oil that flows like water, has few impurities and can be easily turned into gasoline. As the good stuff gets scarce, Big Oil is turning its attention and pouring money into extra-heavy crude,,,,

While previously this was economically impractical since it costs $25 per barrell, versus $5 in Saudi and $15 lin the Gulf of Mexico, with prices now at $60 per barrel, voila!

Sounds like it has some enormous environmental problems, but the companies and Canada claim to be working on that.

In northern Alberta, the oil-sands boom is remaking the landscape. The mining operations have clear-cut thousands of acres of trees and dug 200-foot-deep pits. The region is dotted with large man-made lakes filled with leftover waste from the mining operations. To chase off migratory birds, propane cannons go off at random intervals and scarecrows stand guard on floating barrels.
Alberta's energy minister, Greg Melchin, says oil-sands development creates a minimal environmental disturbance that is outweighed by the opportunities and jobs created. "It's worth it. There is a cost to it, but the benefits are substantially greater," he said.
Environmental groups are increasingly critical of the government's reluctance to regulate the oil sands. "The pace of development is outstripping our ability to manage the environmental issue," says Mr. Raynolds of the Pembina Institute. "Our unwritten energy policy is dig it up and sell it as fast as possible."

But the addition to world oil supplies is significant according to sources in the journal article, and therefore well worth it.

Canada's northern forest contains at least 174 billion barrels of recoverable heavy oil, equivalent to five years' supply for the planet, according to the Alberta Energy and Utilities Board. Venezuela has perhaps even more in the Orinoco River delta. By comparison, Saudi Arabia has about 260 billion barrels of more traditional crude, or 8½ years' global supply, according to the Energy Information Administration, the statistical arm of the federal Department of Energy. Heavy oil also is being produced in the Middle East, the Caspian Sea, Brazil and even in California's San Joaquin Valley.

It sounds as though there are a number of obstacles to be overcome--environmental, technical,,, But as the price of oil goes up, it's going to open up alternatives that did not make economic sense in the past. Is this one of them? Could this be a part of the bridge that gives the world a "soft landing" in oil--soft in the sense that it is one of hopefully other alternatives that can help us bridge from oil to alternative fuels--, rather than the supply dry up quickly, causing chaos?

I'm sure this is not news to Jerome, and he likely already has this in his predictions. But it's hard for me to remember the specifics in previous diaries on the impact of this, and perhaps Jerome will chime in with facts and predictions again.

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Oil Giants Turn Sludge into Gold | 32 comments (32 topical, 0 editorial, 0 hidden)

Re: Oil Giants Turn Sludge into Gold (none / 0)

You know you can count on me!

Big oil getting desperate: Making oil with nuclear energy
Will Canadian oil sands save the USA?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Mar 27th, 2006 at 05:29:33 PM EST

Re: Oil Giants Turn Sludge into Gold (4.00 / 2)

thanks for the well written articles, and as I expected, thorough and well in front of the WSJ.

Personally I've becoome convinced, mainly from reading your articles, that the age of cheap fuels is behind us--at least for the forseeable future (one never knows what new technology may bring 50 years down the road). I'm expecting a trend line on price, that has a lot of annual volatility around that line. so maybe, say, year end '06 price of $60, '07 of $72, but quite a range over and under during the year.

What I am less clear about is how this actually plays out. One scenario is the world sort of runs out, without alternatives, with countries capturing their own oil supplies--and lots of bad implications for the world wide economy.

A second scenario is that the expectation of rising prices, plus the fact that they are rising, opens up the creativity of innovators, and the coffers of investors. I think I see some of that in thhis, in the sense that new creative ideas to get the sludge out of the ground are being developed. And investors, in this case big oil itself, seem willing to pony up $70 billion on these projects.

We had a diary several months ago on new business efforts aimed at creating alternate fuels--and clearly as the expectation of $100 per barrel oil prices become more and more accepted, business plans using those numbers as part of the business model become much more profitable, and draw much more investment. I've even seen a couple of ideas floated in private equity markets in California, even though I don't invest in that area.

In addition, as the prices rise and are expected to continue to rise, conservation becomes more important. So demand may increase at a slower rate than expected, as business and consumers adjust.

Even something like 20% increases in oil will have negative impacts on the economy, but I would expect that would be absorbed. And this would be a "soft landing" kind of scenario.

The disaster scenarios would be another story.

by wchurchill on Mon Mar 27th, 2006 at 06:53:43 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (4.00 / 2)

Once prices start going up they're only going to come down if demand falls heavily. And the most likely reason for that would be massive de-industrialisation.

Oil isn't just an energy source, it's also the source of derivatives that are essential in organic chemistry - which means plastics and composites, and to a lesser extent drugs and even some food additives. So technological solutions will have to replace both energy and raw materials.

While I'm modestly optimistic about renewables - I think there's quite a bit of technological slack that could be taken up if funded with aggressive investment - I'm less sure about replacements for industrial chemical processes.

And I'm less optimistic still about politics. The time for investment - huge, space-program sized investment - is now. But there are too many vested interests who don't want that happen.

So at the moment people are more of a problem than the technology is.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 27th, 2006 at 07:35:59 PM EST
[ Parent ]

Re: Sludge into Gold (none / 0)

People are more of a problem than technology? Which people do you have in mind? Who wouldn't benefit from a big investment? OPEC?

By the way, all these technical explanations were great, yet simple enough for the layman.;))

by Brownie on Mon Mar 27th, 2006 at 08:58:02 PM EST
[ Parent ]

Re: Sludge into Gold (none / 0)

The whole industry based about oil and the associated power structure. The inertia of something like that is huge.

by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 01:26:03 AM EST
[ Parent ]

Re: Sludge into Gold (none / 0)

Great, that was my assumption.:))

by Brownie on Tue Mar 28th, 2006 at 08:59:44 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

I'm not too worried about oil as a feedtock for industry - it's less than 1 mb/d overall, i.e. less than 1% of total consumption. We'll manage to keep that available longer than we'll be able to drive our cars around. Change will come from the transport side, not so much from that part of the industrial side.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Mar 28th, 2006 at 04:15:55 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

Agree about feedstock. But plastics will be more of an issue, I think. I don't know what the margins are in plastics manufacture, but if the price of raw materials doubles or triples, that can't be good.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 28th, 2006 at 05:00:04 AM EST
[ Parent ]

When this question comes up... (none / 0)

I always have one question: how well do we recycle?

by Nomad on Tue Mar 28th, 2006 at 06:09:25 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

What percentage of the wholesale price of plastics is made up by the cost of the oil that goes into them? What percentage of the end products? At least for the latter I suspect it is tiny for my roll of plastic wrap or my kitchen utensil or whatever. To put it differently (making up numbers here) if oil makes up 20% of the wholesale cost of plastic, and the oil price doubles, the plastics cost about twenty percent more. If oil makes up 1% of the cost of a consumer product and oil doubles, who cares.

by MarekNYC on Tue Mar 28th, 2006 at 04:50:40 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

The wholesale price will be a combination of raw materials costs and transport costs. So increases will be cumulative, because most transport is oil-powered. Without action to end dependency now, the price will more than double. The limiting factor is the point labelled 'global industrial breakdown.' $100pb will be the start of the price rise, not the end of it.

The added sting for retailers and customers is that there's more than one oil-based price dependency in every product. Most items go through more than one transportation stage during manufacture before final retail distribution from hubs and warehouses. Stores have to be heated or air conditioned. And customers will be travelling less and spending less because gas prices and domestic energy prices will be much higher. So the retail effect of oil price increments is geometric rather than linear.

The last time there was an energy crisis the West went through some very tough times. That was a political problem. What's happening now is a supply problem. Most people will eventually figure out these dependencies for themselves, and economic confidence will take a serious beating at every level - unless there are sustainable alternatives.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 28th, 2006 at 05:25:55 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

Via the oildrum I found a little article on the amount of energy that goes into a nice simple breakfast of oatmeal with rasberries and coffee. The ingredients cost $1.25. For a weeks worth of breakfasts about 2l. of oil goes into it i.e. about 1/80th of a barrel of oil or roughly $0.75 of crude - that would make up about 8.5% of the price (mental calculation correct me if I screwed up). But the real figure is misleading since the 2l. includes energy used at home for refrigeration and heating, but the $1.25 doesn't. The article says that that end use energy consumption represents 40% of the total energy input. 60% of 8.5% - less than six percent of the price you pay at the store is oil. And even that is a tad misleading since that home use is mainly electricity withh perhaps some ng for the stove.

The food = energy thing is frequently cited as a sign of the future oil shortage caused apocalypse. I don't buy it. If energy prices double, that $1.25 retail cost of breakfast ingredients goes up by an underwhelming 3%. Oh well. We'll deal.

That's not even taking into account the fact that if energy prices double efficiency and substitution shifts come into play. (more efficient engines, food sources closer to home, different energy sources, etc.)

The oil in your oatmeal

by MarekNYC on Tue Mar 28th, 2006 at 05:53:53 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

correction that 3% increase should read 6% still not worried.

by MarekNYC on Tue Mar 28th, 2006 at 06:16:34 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

Rather than looking at oatmeal, a more realistic exercise is to look at individual oil budgets. Current consumption in the US is 3 gallons per day and around half that in the EU.

At $50/barrel, that means the average oil spend per person is just over $4/day or $1500/year.

Double that to $100/barrel, and everyone is spending $8/day, or an extra $1500 per year, on average. Spread that over 300 million people, and that's not a small thing for an economy to have to deal with.

At $200/barrel, the annual spend per person is more than $6000 dollars. Deflation and conservation will have an effect long before then, but it's still a number to chew over.

You might think domestic production would cut these figures. But in fact US producers charge more or less the same oil-cartel rates as the ones set by OPEC, so - short of a government take-over - local production has no effect on prices.

So does this mean everyone will be worse off by $4500/year? Literally, no. Aside from deflation, individual costs depend on whether someone prefers oatmeal to coffee, because the spread of prices will reflect dependencies very directly. But the base for many people will be surging gas and heating prices. So any increase in food prices will hit poorer people hardest, because they'll already be overstretched.

Localisation is going to be essential, but most cities have very long supply chains. E.g. California isn't known for its wheat fields, so the wheat has to come from somewhere like Montana. That's an element in food production that's unavoidable.

So in the bigger picture 'We'll deal' won't cover it. A lot of flexibility - the real sort, not the neo-liberal sort - is going to be needed to deal, and it's hard to see how to get from here to there without a significant and painful economic contraction.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 28th, 2006 at 08:06:04 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (4.00 / 2)

You had me with the first sentence. I disagree on the second. More likely, something is going to happen that will scare the living hell out of businesses and investors -- revolution in the Middle East, a terrorist attack in Saudi Arabia, etc. -- and that will drive consumers to alternatives, if they're available. (I've read that, were an al-Qaeda operative to run a plane into a Saudi oil field, it would immediately crash the world economy. If that's not enough to tell people how evil oil is, I don't know what will convince them.) Our economic health over the next century is going to depend solely on the availability of energy sources other than oil.

You're absolutely right about industrial chemicals. That worries me a great deal, and it doesn't receive enough attention. It may well become a big hurdle, and it shines light on the fact that people, in general, don't even realize how dependent we are on the black goop. I have no doubt that the auto industry is capable of moving away from oil at a fairly quick pace. It's just going to require oil prices to move higher as a way of kicking consumers in the ass, plus, again, available alternatives.

The time for space-program-sized investment was in the 1970s. We all know what happened to Jimmy Carter, but we need more Jimmy Carters in the world to tell us to cut the shit. The US, EU and Asia need to get together and engage in a massive project and plan for getting off oil -- the sooner, the better. And it's going to have to be a combination of public works and incentives built into the tax codes. Make the alternatives irresistable to the market, and use the public sector for research, investment in infrastructure, loans, training, whatever. If it costs a lot of money, and it will, so be it. It will more than pay for itself in the long run.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (myfriends@thisispancakes.com) on Tue Mar 28th, 2006 at 09:04:56 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 1)

There is a rather frightening graph here. (Linked because it's too big to post.)According to this production will be down 50% by around 2035. So the timescale is very tight, but not hopeless. The political problem is persuading the mass of people, too many of whom appear to have a minimal ability to think far ahead, that some relatively painless sacrifices today are better than much more painful and dangerous sacrifices a couple of decades from now.

The world won't end if SUVs are banned and people are encouraged onto public transport.

The world may end, financially, economically and politically, if these things don't happen.

Something else to think about - imagine how stable a sustainable global economy would be. Without political threats to energy supply, a lot of today's strategic jockeying and war-mongering become irrelevant.

It could easily lead to a peace dividend like no other in history.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 28th, 2006 at 04:54:28 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 1)

A second scenario is that the expectation of rising prices, plus the fact that they are rising, opens up the creativity of innovators, and the coffers of investors. I think I see some of that in thhis, in the sense that new creative ideas to get the sludge out of the ground are being developed. And investors, in this case big oil itself, seem willing to pony up $70 billion on these projects.

I don't call putting $70 billion into getting sludge out of the ground "innovation" or "creativity", but "desperation" and "thinking within the box". But that's just me.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue Mar 28th, 2006 at 04:44:51 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

I'm no engineer, but as I read the articles about the technical challenges in actually being able to do this, it sounded like they went through lots of ideas and creative thought to solve this engineering problem.

It sure seems to have opened the "coffers", as I mentioned. $70 bil is not chump change.

by wchurchill on Tue Mar 28th, 2006 at 09:04:18 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (4.00 / 3)

The entire Canadian economy is based upon raw materials extraction. Take a look at pictures of the gold mines and diamond mines in the far north. Also look at the replacement of the western forests by tree farms. One area is clear cut, the roots removed and then it is replanted with one or two species. The adjacent plot is a few years older, etc.

So any claims by government officials about how carefully they will treat the environment should be taken with a grain of salt (mixed with tar sands).

Just this week they started the annual baby seal slaughter. The quota is only 250,000...

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon Mar 27th, 2006 at 06:41:55 PM EST

Re: Oil Giants Turn Sludge into Gold (none / 0)

325,000 actually, up by 5,000 (was in a diary yesterday)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Mar 28th, 2006 at 04:14:24 AM EST
[ Parent ]

Re: From Sludge to Gold (none / 0)

Yes, such great discoveries are bound to happen.

(I wonder, has the BBC World already shown an episode on this in its Earth Report program? We don't have BBC in the school dorm's cable package and I have no time to watch anyway. I'm thinking of the BBC because that's what reminds me of home.:) I'm sure a Hollywood blockbuster about sludge turning into gold is on its way.:)

Very useful diary, thank you!

by Brownie on Mon Mar 27th, 2006 at 09:09:55 PM EST

Re: Oil Giants Turn Sludge into Gold (none / 0)

It sounds as though there are a number of obstacles to be overcome--environmental, technical,,, But as the price of oil goes up, it's going to open up alternatives that did not make economic sense in the past.

There is one ultimate barrier, and that is the energy balance. At which point does it require more energy to extract the oil than the energy content of the final product? [We're not that far off that point when they are seriously talking about building nuclear plants just to power oil extraction from the Canadian oil sands.] At that point (or, actually, well before then becuase of the environmental impact, etc) it makes sense to just make synthetic fuels.

[I am of the opinion that the car is not going to go away because of autonomy considerations, it's just a very convenient kind of vehicle. The private car may become prohibitively expensive because of fuel costs, but that's another matter entirely.]

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue Mar 28th, 2006 at 04:42:37 AM EST

Re: Oil Giants Turn Sludge into Gold (none / 0)

Today's cars are ridiculously big and heavy. They're mostly used to transport one person, so most of the size and weight is entirely redundant.

You could save a lot of energy and also help minimise congestion by creating incentives for small-car or tiny-car use and development. Or by aggressively taxing big prestige cars. (Or both.)

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 28th, 2006 at 05:08:26 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

I am incensed every time I see a traffic jam where each car is carrying just one person. Give them all motorcycles and the traffic jam disappears.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue Mar 28th, 2006 at 05:14:02 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

Give them all motorcycles and the traffic jam disappears.

As does the lack of organs for transplant surgery - two birds with one stone. Or as a med resident once told me -'What do you call motorcyclist? An organ donor.'

by MarekNYC on Tue Mar 28th, 2006 at 04:04:38 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

That's just because they get run over by cars, which would not be that big a problem, would it?

Give them Vespas, you are unlikely to hurt yourself to much if you crash one of those.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue Mar 28th, 2006 at 04:12:19 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

We're still talking peanuts, remember:

At most, we'll get 5% of our oil from oil sands.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Mar 28th, 2006 at 05:27:35 AM EST

Re: Oil Giants Turn Sludge into Gold (none / 0)

Do you think ANWAR may be a better bet, both environmentally and production wise?

U.S. Geological Survey - 1980. In 1980, the U.S. Geological Survey estimated the Coastal Plain could contain up to 17 billion barrels of oil and 34 trillion cubic feet of natural gas.
U.S. Department of Interior - 1987. After several years of surface geological investigations, aeromagnetic surveys, and two winter seismic surveys (in 1983-84 and 1984-85), the U.S. Department of Interior (DOI), in its April, 1987 report on the oil and gas potential of the Coastal Plain, estimated that there are billions of barrels of oil to be discovered in the area. DOI estimates that "in-place resources" range from 4.8 billion to 29.4 billion barrels of oil. Recoverable oil estimates ranges from 600 million barrels at the low end to 9.2 billion barrels at the high end. They also reported identifying 26 separate oil and gas prospects in the Coastal Plain that could each contain "super giant" fields (500 million barrels or more).

by wchurchill on Tue Mar 28th, 2006 at 09:17:58 PM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

ANWR is very small, and essentially meaningless on a global basis. It would provide, at best, for 1 year of total US consumption, or 3 months of total world consumption (of cousse, production would be spread out over time, providing something like 5% of US demand over 20 years)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Mar 29th, 2006 at 05:05:16 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

1 year of total US consumption, or ... something like 5% of US demand over 20 years

Assuming demand stays constant at the current level. At a 3% growth rate, you get 15 years.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 05:10:15 AM EST
[ Parent ]

Re: Oil Giants Turn Sludge into Gold (none / 0)

It's just order of magnitude numbers.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Mar 29th, 2006 at 05:15:16 AM EST
[ Parent ]

</nitpick> (none / 0)

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 05:16:03 AM EST
[ Parent ]

Oil Giants Turn Sludge into Gold | 32 comments (32 topical, 0 editorial, 0 hidden)

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