Energy Futures: The CTL/EOR Couplet

There has been much commentary on peak oil and rising crude oil costs in the near future. In fact, there seems to be a general anxieity about the future supply of energy. For the Polymath, the consideration of Energy Futures will at a minimum, involve demographics, Economics, technology and energy resources. Peak oil alarmists, such as Matt Simmons, are not wrong in their analytical techniques. They are wrong in their scope of considerations. Matt Simmons draws the very correct conclusion that if oil consumption patterns continue and no ‘unconventional’ oil or fuel switching opportunities present themselves, we are headed toward a persistent and economically devastating oil crisis.

However, a Polymath, asking the general question, ‘What will energy supply and demand look like in the future’ ignores subject and industriy boundaries to pursue a comprehensive answer. Because of this, when Matt Simmons was predicting $500 oil, we were predicting $85 oil. As oil prices ran up to nearly $150 per barrel subsequent to the predictions of Simmons, et al, we stuck to our guns and continued to state without equivocation that oil would oscillate around an $80 to $85 per barrel price. The more polymathic approach proved to be correct. It generally will.

A full consideration of Energy Futures is well beyond the scope of this article. However, because of its pervasive effects on the shape of future world economies, it is considered by the Polymathica Academy within the course work of The Future 101. Put simply, a superior knowledge of futurity is one of the benefits of Polymathica Institute Fellowship. Here we will consider the twin opportunities of Coal to Liquid (CTL) and Enhanced (tertiary) Oil Recovery (EOR) Technologies. We will do so, because its impact is imminent and the technologies are fairly well developed. It shapes the near future in several ways and is not particularly susceptible to claims of unwarranted and overly optimistic speculation.

Coal Liquefaction has an estmated cost between $30 and $45 per barrel. Its first use was by Nazi Germany when the Allied Forces interfered with their access to petroleum. It is currently implemented in commercial scale operations in South Africa. Because China has large coal reserves and very little oil, it is under active development there. The potential supplies of CTL oil equivalents are huge. U.S. Coal reserves are equivalent to approximately 4,116 billion barrels of oil. This compares to world oil reserves of approximately 1,365 billion barrels. Consequently, the U.S. alone has more than three times the oil reserves of the world with this technology.

The criticism of CLT has been that it produces approximately twice the CO2 as conventional oil production. Environmental interests are insisting that if this technology is deployed, it must be done with CO2 sequestering. The sequestering process adds to the cost and reduces industry and investment interest in the technologies. There is, however, a much better and undoubtedly feasible solution.

This brings us to CO2 Enhanced Oil Recovery (EOR), a method by which up to an additional 50% of the oil recovered through primary and secondary oil recovery methods can be recovered. A DOE review of just six regions concluded that they contained 43.3 billion barrels of additional reserves utilizing this method. From this, it is estimated that the onshore reserves of the U.S. are 89 billion barrels. The upside estimates are as high as 240 billion barrels of stranded oil that can be recovered in the U.S. alone by this method. Costs vary, however, the DOE funded study, dated February 7, 2008, estimated typical costs in the $45 - $55 per barrel range. Again, we emphasize that this is not speculative technology. It has been used on a limited basis since the 1960’s.

There are a couple of important considerations in determining the practical impact of the CTL/EOR couplet. One is the issue of how many barrels of oil can be gotten in EOR from a barrel of CTL. The answer limits the total production by this method that does not require CO2 sequestering of CTL production. Estimates vary between two and three barrels of EOR that can be produced from the CO2 created by liquifying coal to produce one barrel of oil. What this means is that, by the upside estimate, we have 80 to 120 billion barrels of CTL and that this will recover 240 billion barrels of EOR. The additional 320 to 360 billion barrels of U.S. oil is more than the oil reserves of Saudi Arabia and would make the U.S. the number one oil producer in the world. Even by the estimate of 89 billion barrels, based upon no technological advancements in the processes, the CTL/EOR couplet increases U.S. oil reserves from 21 billion barrels to 140 to 155 billion barrels. This would place it behind only Saudi Arabia and Canada in oil reserves.

While the U.S. has, by far, the greatest potential for increased reserves through CTL/EOR, other regions, most notably Russia and Venezuela also have significant exploitable reserves. Consequently, rather than a impending oil crisis and price run-up, in reality, the world oil market has a massive supply overhang below $100 per barrel, and probably below $80 per barrel. In other words, if the price of oil remains above $80 per barrel for a sustained period of time, the CTL/EOR Couplet will become progressively more commercialized, placing downward pressure on oil prices. In this way, the conventional oil supply and the CTL/EOR oil supply will find a dynamic equilibrium between $75 to $85 per barrel. We emphasize that there will be price shocks both above and below this price range as markets speculate in advance of short term supply/demand disequalibria. From there, the price will fall to around $55 to $65 per barrel over the next twenty years as consumption per GDP dollar decreases, demographic shifts impact consumption and other oil supply and fuel switching opportunities become economically and technologically feasible.

This is just one small example of how practiced Polymathy leads one, over time, to a different and more informed world view. None of the preceding is unavailable to the mainstream media. Its significance, however, is not properly appreciated and communicated because it runs counter to a world view fabricated from compartmentalized pieces of information. This is a temporary situation and recent publications, such as the 2008 DOE piece will allow the opportunity to slowly diffuse into the public awareness. We strongly encourage the serious Polymath to follow the links in this article, especially the 2008 DOE study, to gain a more complete understanding of this issue.