What's on This Site

Purpose: to function as a clearinghouse of useful information, as well as an incubator of provocative and innovative ideas. I have done this by trying to break down some of the complexities associated with the overlapping issues of energy, culture, politics, and economics. I cover a range of political, social, and scientific perspectives here. Although global in focus, there is a slight regional slant toward the western American state of California. The physical layout of this site is basically divided into two vertical halves: the left-hand side, and the right-hand side.

Down the left side (mostly blog posts & links):
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- Selected Global Resource Statistics
- About Me
- The Peak Oil Clock


Down the right side (mostly multimedia & links):
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Across the Bottom (information section, mostly reference material on energy consumption):
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- World Energy Consumption Statistics (year-to-date, updated in near-real-time)
- US Energy Consumption Statistics (year-to-date, updated in near-real-time)
- World Oil Prices (European Brent & American WTI, updated daily)



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Monday, December 1, 2014

The Danger of “Sub-Prime” Energy Resources


By Dr. Blaine D. Pope, © 2014 

In my fall 2014 class on international political-economy and energy, a group of my undergraduate social science students were given the following scenario, problem, and question to solve:


The Scenario 

Tight oil (also known as shale oil or light tight oil, abbreviated LTO) is petroleum that consists of light crude oil contained in petroleum-bearing formations of low permeability, often shale or tight sandstone.”  Source: http://en.wikipedia.org/wiki/Tight_oil 

Based on the definition above, on the graph below, note the following details:

·         Time is displayed on the “X” axis, in 5 year increments.

·         Volume of oil (in millions of barrels per day, or “Mb/d”) is displayed the “Y” axis. 

·         The black line—which peaks around the year 1970—displays actual oil production statistics, starting from the year 1900 and ending somewhere between 2010 and 2015 (information shown after the black line ends is simply projected oil production).



Questions:

Part A: Sometime around the year 2010, after many years of steady decline, US oil production appears to rise again.  Why do you think this is so? Draw on everything you know from this class, to justify your answer as best you can.

Part B: What’s in a title?! The title of the above graph is “US Crude Oil Production.”  Based on what you’ve studied in this class, does that seem like an appropriate title for information in contained in this graph?

***
Answers:

Questions A & B are perhaps best thought of as two interralted parts of one overarching question: "Why is the United States—after many years of steady decline—now reporting an apparent upward trend in oil production?"  A student who performed reasonably well would have answered something like this:

Part A: The USA has begun reversing the long-term trend in domestic oil production as a result of the revolutionary new technology in hydraulic fracturing (or “fraking”), wherein water and chemicals are injected into the earth, to help break-up and release the carbon-rich material contained therein (at a rate of anywhere from 1-5 barrels of water for every 1 derived barrel of oil equivalent).  This has been combined with advanced mining, or digging, processes in other areas—involving the clearing of forest topsoil (at an approximate rate 4 tons of earth moved to derive 1 barrel of oil equivalent, or “BOE”), to get at the peat-like substance underneath. 

Part B: No, this is not an appropriate title for this graph.  It does not distinguish between the less expensive, traditional liquid crude oil, of the type shown here . . .



. . . and the more expensive, rocky (shale) formations shown below. These must be mined and then processed (requiring still more energy in order to be heated and liquified) before they can be converted into a substance more or less on par with liquid crude oil.  Ergo, these rocky formations are more complex and expensive to process and ultimately bring to market, compared liquid crude. 



Shale should really be called a different energy source.  It has to be treated much differently in order to bring it to market as a usable source of energy.  However, as the above graph implies, it is simply lumped together as “oil,” as if if were all the same. 

The real problem comes in at level the cost of extracting and processing shale (i.e., its production costs).  Many of these shales require a higher minimum price in the world oil market to make them worthwhile to extract.  Said another way, it order to make my imaginary shale extraction business profitable, I need to be able to earn approximately $70 per barrel of oil (in equivalent derrived shale oil product), assuming the average market price was $70 per barrel.  If the market price slips below that $70 “break-even point” (and stays there too long) then I am going out of business, because I won’t be able to earn enough to meet my production costs.  In other words, I wouldn't even be able to "break even," in terms of my investment in my business.  Different companies will likely have slightly different break-even points, so we are talking about industry sector averages here.   

I am calling shale oil "a sub-prime energy source" (as compared with liquid crude oil) precisely because of these higher (yet often hidden) production costs associated with it.  This is a problem—as we are now seeing—because once average BOE prices get close to the $70/barrel range, a lot of people in the shale business risk going bankrupt.  If this happens to too many energy companies too quickly, then what we are looking at (potentially) is a major collapse in the shale oil (or "oil derivatives") market, a lot of failed small and medium-sized business attached to the energy sector, and ultimately a return to higher, traditional liquid crude oil prices.  Yet, this sub-prime energy source has been bundled together with the more financially robust, traditional liquid crude oil, as if it were all the same.  

Does any of this sound familiar? 

Overall, this is a cyclical process; but with no two successive cycles being exactly alike. The key idea here is pattern recognition (on the part of both investors and policy-makers).  In another post, I will say more on the political-economic elements of this energy extraction process--including some of its international dimensions.


Blaine D. Pope, Ph.D.

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Why design a site on "Culture and the Political-Economy of Energy Resources?"

Overview: A New Way for a New Era

The overall purpose of this site is to function as a clearinghouse of useful information, as well as an incubator of provocative and innovative ideas. Emphasis will be on the social implications of our heavy reliance on petroleum and related products. All of this is being discussed—either implicitly or explicitly—in the overarching / overlapping context(s) of Peak Oil and Climate Change.

The site contains a collection of useful links, original articles, re-posts from other distinguished organizations, individual writers and bloggers.

I hope that you will find this site both useful and enjoyable (and I welcome your feedback). It’s not easy to make something so serious so fun. This comes about as a result of reviewing a lot of material in the past which, although very informative, could also be quite depressing and downright discouraging at times. So, I’ve decided to take a slightly different path, in bringing you information that you will possibly find important or helpful.

Finally, know that you are not alone in all of this—far from it. These are issues we are all facing, in one way or another. So let’s find our courage and face them together.


Aerial View of Downtown Los Angeles. This city typifies the triumph of the petroleum-based industrial system of the 20th century.

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Research Gate

Blaine Pope

"In the beginning is energy, all else flows therefrom." -- Cheikh Anta Diop (1974)

"In the beginning is energy, all else flows therefrom." -- Cheikh Anta Diop (1974)

About Me

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A college professor and independent management consultant, focusing on general program design and administration, sustainable development, and the political-economy of energy and the environment. Faculty member at Goddard College (Plainfield, VT). Previously worked at the following academic institutions: Sociology and Anthropology Department, University of Redlands (Redlands, CA); Media and Social Change Program, jointly taught between the School of Psychology at Fielding Graduate University (Santa Barbara, CA) and the University of California at Los Angeles Extension (UCLAx) Program; Research Assistant Professor, Center for Sustainable Cities at the University of Southern California (Los Angeles, CA); Global Studies Program, University of California at Santa Barbara (UCSB); MPA Program in Environmental Science and Policy, The Earth Institute and the School of International and Public Affairs (SIPA) at Columbia University (New York, NY); and, Swahili Language Program, Council on African Studies, Yale University (New Haven, CT). -- Additional working experience in emergency relief and development in 10 countries in Africa and the Middle East.

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