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$100 Oil Hard Truths – Reasoned Response

$100 Oil Hard Truths – Reasoned Response. Ron Hinn Society of Petroleum Engineers Educators Workshop – September 24, 2008 Denver CO. “Our Energy Future” Significant Issues of Interest/Importance. The Politics of Energy Energy “Value” Hard Truths – Supply / Demand Reasoned Solutions.

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$100 Oil Hard Truths – Reasoned Response

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  1. $100 OilHard Truths – Reasoned Response Ron Hinn Society of Petroleum Engineers Educators Workshop – September 24, 2008 Denver CO

  2. “Our Energy Future”Significant Issues of Interest/Importance • The Politics of Energy • Energy “Value” • Hard Truths – Supply / Demand • Reasoned Solutions

  3. We’ve got to build cars that use less gasoline Reduce the risk of investing in renewable fuels by providing loan guarantees and capital. Impose a windfall profits tax on oil companies and use the money to suspend the gas tax during the summer Pressure OPEC to increase oil production. Stop new additions to the Petroleum Reserve Reduce barriers to increasing domestic supplies Open up areas offshore and in Alaska for exploration. “We should just replace the use of oil altogether as America’s fuel of choice” (mentions ethanol as a possible replacement) Institute a Gas Tax Holiday Encourage energy efficiency The Politics of Energy“Political Solutions”

  4. How Valuable Is Oil? To the Chemist Molecular structures of various gasoline's To the Consumer 

  5. How Valuable Is Oil?An Interesting Analogy • Commodity Savy?? NYMEX Closing “Spot” Prices 9/23/08 • West Texas Intermediate Crude ($/bbl) • Natural Gas ($/Mcf) • Volumes • 1 Barrel = 42 gallons = 672 cups • 1 Mcf = 1000 Std. Cubic Feet @ Standard Temp (60F), Pressure (1atm) • Just for fun! • Grande Latte @ $3.50 (est. = 2 cups) • 1 Barrel “Latte” = 672/2 *$3.50 = $1176 • 1 Barrel of WTI = $108, 1 cup of WTI = $0.16 • Energy contained in 1 cup of crude oil? • Assume avg. Car Mileage 25 mpg... Equivalent of 1.6 miles/cup Oil = $107.86/ bbl Gas = $7.90 / mcf

  6. Crude Oil 84-87% 11-14% 0.06-2% 0.1-2% 0.1-2% Natural Gas 65 – 80% 1-25% 0-0.2% 1-15% 0% Chemical Composition of Hydrocarbons Carbon Hydrogen Sulfur Nitrogen Oxygen

  7. PetroleumProducts A Barrel of Crude Oil Provides: Gasoline - 19.5 gallons One Barrel = 42 gallons Fuel Oil - 9.2 gallons Jet Fuel - 4.1 gallons Asphalt - 2.3 gallons Kerosene - 0.2 gallons Lubricants - 0.5 gallons Petrochemicals, other products - 6.2 gallons American Petroleum Institute, 1999

  8. Hard Truths • Prices – Historic highs • Supply & Demand – Realities • Consumption Habits

  9. Historical Oil Prices – 2006 $ Real Oil Prices* BP Statistical Review of World Energy June 2007

  10. Historical Energy Use by Type of Fuel (%) SPE 77506 – World Energy Beyond 2050, Arlie Skov

  11. Growing Energy Demand • 1970’s • Source: 1970 & 2005  BP Statistical Review of World Energy , 2020  EIA International Energy Outlook 2006

  12. Growing Energy Demand • 2005 • Source: 1970 & 2005  BP Statistical Review of World Energy , 2020  EIA International Energy Outlook 2006

  13. OECD Non-OECD ... And Energy Demand Growth Follows History Projections 500 400 300 QUADRILLION BTU PER YEAR 200 100 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: EIA 2007

  14. World Energy Consumption The Truth About Oil & Gasoline: An API Primer

  15. Coal, Oil, and Natural GasWill Remain Indispensable 1980 2004 2030 288 QUADRILLION BTU 445 QUADRILLION BTU 678 QUADRILLION BTU NATURAL GAS OIL COAL WIND / SOLAR / GEOTHERMAL HYDRO NUCLEAR BIOMASS Source: IEA REFERENCE CASE

  16. Proved oil reserves at end 2006 BP Statistical Review of World Energy June 2007

  17. Proved oil reserves at end 2006 The Truth About Oil & Gasoline: An API Primer

  18. OPEC Production

  19. World Oil Consumption & Growth The Truth About Oil & Gasoline: An API Primer

  20. OPEC “Surplus” ?? The Truth About Oil & Gasoline: An API Primer

  21. The Culprit(s)! • Contributing Factors • Strong demand growth 2004 + • Non-OPEC resource access/growth • OPEC behaviour post 1999 • Deference to efficiency opportunities • Low spare capacity • Geopolitics • Falling value of US Dollar • Energy as a financial commodity

  22. Supply & Demand • Airline tickets • Stocks • Real Estate • I-Phone • In a free market – commodity prices are driven by the balance between supply and demand – For hydrocarbon fuels (oil and gas) the price equation is becoming evermore dominated by “supply” related challenges.

  23. Oil Consumption BP Statistical Review of World Energy June 2007

  24. Demand ChallengeOne Example - Fuel Economy • Overall fuel economy for cars and light trucks peaked at 22.1 mpg in 1987. Fell to 20.8 mpg in 2004. Avg. weight of vehicles has increased from 3200 lbs. to 4066 lbs. • Federal tax on gasoline = 18.4 cents/gallon • State tax varies (New York 60.8 to Alaska 26.4) • About 70% of new vehicles purchased in US have 6 cylinders + • 89% of vehicles in Europe have 4 cylinders or less (average fuel economy is 35 mpg) Wall Street Journal – “Fuel Economy Back in The Saddle”

  25. The Politics of Energy • They (politician’s) want to lower prices but don’t want more production to increase supply.. • They (politician’s) want oil “independence” but they’ve declared off limits most of the big sources of domestic oil that could replace foreign imports. • They (politician’s) want Americans to us less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. • They (politician’s) want more oil company investment but they want to confiscate the profits from that investment. Wall Street Journal, “Review & Outlook” May 3, 2008

  26. US Potential – “No Trespassing”

  27. Reasoned Energy Solutions? • Access to resources • Enhanced Oil Recovery (EOR) technology • Natural Gas (LNG) / Clean Coal • Alternatives (Nuclear, Wind, Solar, Biomass)

  28. Proved Natural Gas Reserves BP Statistical Review of World Energy – June 2007

  29. Proved Coal Reserves 2006 BP Statistical Review of World Energy – June 2007

  30. Its All About ---- “Residual Oil Saturation” Pores (blue) Residual Oil Saturation (drivers) Pore structure Porosity & permeability Oil wet vs. water wet Capillary considerations – IFT Oil viscosity

  31. Secondary Recovery / EOR Target Secondary Recovery --- Waterflooding (Immiscible) EOR Target = 65% OOIP Fundaments of Petroleum – Petroleum Extension Svc. – UT Austin

  32. Principal Enhanced Oil Recovery MethodsWhy Do They Work? • Steam Flooding – Heavy Oil / Shallow Depth • Viscosity reduction • Improves oil mobility • Co2 Miscible – Lighter Oil • Solvent (CO2) extraction of oil • Some benefit from viscosity reduction • Improves oil mobility

  33. Domestic EOR Production • Steam 287 Mbopd Mostly California • CO2 234 Mbopd Mostly West Texas / Eastern NM ________ • Total 521 Mbopd 10% of Total US Source: Oil & Gas Journal 4/17/06

  34. Career Opportunities • Engineering • Petroleum, Chemical, Mechanical, Others • Geoscience • Geology, Geophysics • Sciences • All basic sciences - research • Business • Finance, HR, Management

  35. Acknowledgements • API • The Truth About Oil and Gasoline: An API Primer • BP • Statistical Review of World Energy • Energy Information Agency (EIA) • International Energy Agency (IEA) • SPE • energy4me.org (Energy Education)

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