Conventional oil production has peaked and is now on a terminal, long-run global decline. However, contrary to conventional wisdom, which many embraced during back-to-back oil crises in the 1970s, oil is not running out. It is, instead, changing form—geographically, geologically, chemically, and economically.
These dynamics point to a new reality. We are approaching the end of easily accessible, relatively homogeneous oil, and many experts claim that the era of cheap oil may also be ending.1 The realignment of world oil prices upward, settling above $100 per barrel over the past year, is spurring a transformation of oil technology and markets. The oil industry is posting substantial profits, reinvesting significant capital, and gaining new capacities to identify, probe, recover, and process oils that were once unknown, inaccessible, unmanageable, or uneconomical. As such, oil corporations and national oil companies are developing a wide array of new oils worldwide.Though they have been recognized as new sources of petroleum, according to the U.S. Energy Department, unconventional oils have yet to be strictly defined. In reality, new oils are emerging along a continuum from conventional crudes to transitional oils to unconventional oils, with their classification varying according to the ease of extraction and processing. While no two crudes and oil processes are identical, petroleum products—at least for the time being—are expected to remain relatively unchanged in appearance and use despite burgeoning changes in oil quality. That gasoline, diesel, and jet fuel will likely remain unchanged at the pump will obscure the fact that oils are transforming upstream, with unintended societal consequences—from increased climate forcing and groundwater contamination to forest destruction and impacts on indigenous cultures.
Many new breeds of petroleum fuels are nothing like conventional oil. Unconventional oils tend to be heavy, complex, carbon laden, and locked up deep in the earth, tightly trapped between or bound to sand, tar, and rock. Unconventional oils are nature’s own carbon-capture and storage device, so when they are tapped, we risk breaking open this natural carbon-fixing system. Generally speaking: the heavier the oil, the larger the expected carbon footprint.
From extraction through final use, these new oils will require a greater amount of energy to produce than conventional oil. And as output ramps up to meet increasing global demand for high-value petroleum products, unconventional oils will likely deliver a higher volume of heavier hydrocarbons, require more intensive processing and additives, and yield more byproducts that contain large amounts of carbon.
This is a key moment to determine the future energy balance between oil and low-carbon alternative fuels. This paradigm shift in petroleum sources, if left to the marketplace alone, will likely have profound local and global impacts. Understanding the trade-offs associated with unconventional oils will be instrumental to managing them prudently. Only with sound policy guidance can we arrive at a decarbonized fuel system to drive our transportation sector and fuel the global economy. Moving forward to replace conventional oils in a structured, safe manner will require the following steps:
Define the Problem
Gather Information About New Oils
Make Prudent Policy Decisions
Global oil supplies have plateaued and are slowly decreasing. Until recently, conventional wisdom posited that as oil ran out, petroleum would be largely replaced by an array of potentially lower-carbon alternative sources, including electricity, hydrogen, biofuels, and natural gas, as shown in figure 1a.2
Instead, a new reality is emerging. As conventional oil dwindles, liquid fuels have begun to change form. The International Energy Agency, in its 2011 World Energy Outlook, projects that by 2035 several new oil types will replace the loss of nearly one-half of global conventional oil production. ExxonMobil concurs. Conventional crude is projected to account for only 60 percent of liquid-fuel supply by 2040, down from 80 percent in 2010, as shown in figure 1b.3 An array of new oils—oil sands, tight oil, new heavy oils, deepwater oil, and eventually oil shale—are projected to fill the gap, as demand for liquid fuels continues to rise.
The plateau in conventional oil and the corresponding increase in the demand for liquid fuels have motivated markets to respond with higher oil prices. And the current economics of oil are spurring a technological transformation of petroleum supplies, not a transition away from oil. The industry estimates that less than half of the world’s known oil will be produced by 2040 and that the amount of global petroleum resources remaining could continue to be revised upward as new technologies are developed.4
The current economics of oil are spurring a technological transformation of petroleum supplies, not a transition away from oil.
New oils, left to market forces alone, are expected to dominate liquid-fuel supplies through the twenty-first century, powering the transportation sector and gaining shares in other economic sectors. The oil industry is expected to invest huge sums in petroleum production and oil infrastructure in the years ahead, up to an estimated $1 trillion over the next decade alone.5 The opportunity costs are massive. Without a concerted policymaking effort, these investments will likely continue to flow disproportionately toward unconventional oil. The only way the transition to clean energy will ultimately succeed is if new rules are established for new fuels that require the private sector to invest in a low-carbon future.
The conventional oils that dominated the twentieth century may differ from one another in color, thickness, sulfur content, and other impurities, but they are a relatively homogeneous lot, flowing from relatively easily accessible deposits in limited locations around the world. The makeup and geography of tomorrow’s oil, however, will be dramatically different from the black gold that gushed forth at Spindletop, Texas, back in 1901.
As conventional crude oil supplies have peaked and leveled off globally in recent years, oil has begun to transition, as shown in figure 2. Many current forms of oil that were once considered unconventional are now grouped into the conventional category, from ultra-deep oil in the Gulf of Mexico to Maya heavy oil in Mexico. These and other new transitional oils are being developed as well—from shale rocks saturated with oil over a broad, continuous area, with the fabric of the rock itself trapping the hydrocarbons in place. This oil transition is in turn giving way to an oil transformation. Non-flowing oils are being produced from non-crude sources in processes that require emergent technologies, as is happening with the oil sands in Alberta, Canada, Venezuela’s Orinoco belt, and eventually the kerogen (an oil precursor) in oil shales in U.S. mountain states, Western Europe, and beyond. Ultimately, oil need not be a building block in liquid fuels, which can also be converted from biological materials, natural gas, or coal.
Over time, oils themselves are expected to change: what they are, where they are located, how much they cost, how much carbon and other impurities they contain, what byproducts they yield, what wastes they leave behind, what their greenhouse gas emissions are, and how to handle them. Given this shift, when it comes to managing new sources of petroleum, the past will not necessarily serve as a good indication of the future.
Still, according to the U.S. Department of Energy, although new liquid hydrocarbon supplies have been acknowledged, unconventional oils have yet to be strictly defined. Generally speaking, unconventional oils cannot be produced, transported, and/or refined using traditional techniques. They require new, highly energy intensive production techniques and new processes to deal with their inaccessible placements or unusual compositions.
Unconventional oils require new, highly energy intensive production techniques and new processes to deal with their inaccessible placements or unusual compositions.
This heterogeneous bundle of resources not only represents a departure from conventional oil, new oils differ widely from one another as well (see box 1). The spectrum of new oils runs the gamut: some of tomorrow’s liquid hydrocarbons are akin to today’s oil, others will evolve but remain more oil-like, and still others will be synthesized from coal or natural gas.6 Transitional oils, for example, tend to have conventional makeups but are difficult to extract. These include tight oils, which is oil trapped in shale that can be accessed by hydraulic fracturing or fracking, a procedure by which rock formations are fractured by injecting fluids to force them open, allowing oil (and gas) to flow out. Ultra-deep oils that are buried as remotely as 10 miles below the water’s surface are also considered transitional.
More coal-like oils include semisolid extra-heavy oils such as bitumen in tar and oil sands, kerogen in oil shale, and liquid oils derived from coal itself. Gas-based oils can be derived through gas-to-liquids processing from natural gas supplies found in shale gas, tight gas, coal bed methane, coal seam gas, and deep-ocean gas hydrates.
Industry has gotten quite skilled at extracting and refining conventional crude for sale and distribution. But the oil landscape is changing rapidly, and along with it, the processes employed and the quality of products. The shift to unconventional oils can be viewed as a technologically and economically driven redefinition of the resource base for liquid hydrocarbons. Over time, new oils are expected to change the entire oil value chain, from upstream production byproducts to downstream refined petroleum products.
Conventional oils are hydrogen-rich compounds with relatively short hydrocarbon chains, fewer carbon atoms—C1 to C60—and lower molecular weights than most unconventional oils (around 200). Since hydrogen packs all of the energy while carbon goes along for the ride, conventional oils tend to deliver more productivity with less waste than unconventional oils.
There can be a great deal of variation within that range—there is no one formula for crude oil. Instead, these natural resources range from high-quality “light, sweet” crudes to lower-quality “heavy, sour” crudes (see box 2). The density of the oils is measured on a scale known as API gravity—the lighter the oil, the higher the gravity; the heavier the oil, the lower the gravity. Heavier oils are tricky to extract, requiring gas injection and other invasive techniques due to their high, molasses-like viscosities that approach those of unconventional oil. Other factors being equal, the lower the API gravity, the more expensive the oil is to extract and process, and the lower the price the oil will bring.
Transitional oils are oils with conventional compositions that are extracted by unconventional means. As conventional oils become less accessible, new, more technical, energy-intensive methods are being developed for their recovery, from ultra-deep wells drilled miles below the sea to fracturing shale rock in order to tap oil trapped in low-permeability siltstones, sandstones, and carbonates deep in the earth. But no two source rocks are alike. Therefore, no two shale oils are exactly alike. The lighter and sweeter the oil, the less involved the processing and the higher the yield of high-value petroleum products, including gasoline, diesel, and jet fuel. But the more extensive the recovery method, the more energy is required for extraction, which means that these oils tend to result in higher carbon emissions and other societal impacts.
Lacking a clear definition, unconventional oils are typically identified by their characteristics. The heavier the oil is—for example, oil sand (bitumen) and oil shale (kerogen)—the more carbon laden, higher in sulfur, and filled with toxic impurities. Unconventional oils are typically much heavier and sourer than even the lowest-quality conventional oil.
An array of unconventional solid, liquid, and gaseous hydrocarbons can be processed into petroleum products, as shown in figure 3. But these extra-heavy, impure oils require very large energy inputs to upgrade and preprocess into synthetic crude oil that is then processed by a refinery (known as feedstock). Some new oils are effectively solid and must be removed through mining or heated in place (in situ) until they flow. These new oils tend to be less valuable than conventional crude, which is readily transformed into the most marketable petroleum products by today’s standards.
Oil sands are a combination of quartz sand, clay, water, trace minerals, and a small (10–18 percent) share of bitumen, and their sulfur content can be in excess of 7 percent. Bitumen is made up of organic components ranging from methane—the simplest organic molecule—to large polymeric molecules having molecular weights in excess of 15,000. This extremely complex hydrocarbon mixture can be synthetically processed into oil.7 However, it cannot be transported to market by pipeline without adding diluting agents—such as gas-processing condensates including the diluent pentanes plus—to meet pipeline density and viscosity limitations. A large portion of Alberta’s bitumen production is currently upgraded to synthetic crude oil and other products before shipment to refineries.
Oil shale is “immature oil” that has not been in the ground long enough to form oil. It is mostly composed of clay, silt, and salts, with a small (12 percent) share of insoluble organic matter (kerogen) and even smaller (3 percent) share of soluble bitumen.8 The organic kerogen, once extracted and separated from the oil shale, can be processed into oil and gas. Like oil sands, oil shale has similarly high sulfur content—up to 7 percent.9
Not only is the makeup of oil drastically changing, so too is its political geography. As shown in figure 4, which depicts the projected geographies of new oil (and oil derivatives) based on current knowledge, the world’s oil supplies will no longer remain concentrated in the Middle East, Africa, and Russia. Twenty-first-century oil reserves will be found in the Western Hemisphere and, over the long term, they will be unearthed globally. The International Energy Agency projects that North America is home to the world’s largest stores of unconventional oils—extra-heavy oil, bitumen, and kerogen—with estimates of 50 percent more unconventional oil than total conventional reserves in the Middle East.10 Eastern Europe and Eurasia, followed by Latin America, have also been identified as part of the new geography of oil.
In the latter part of the twentieth century, as conventional oils started to become more heterogeneous, their geography became increasingly more diversified. Heavy oils in California, Venezuela, China, Indonesia, the Middle East, and along the Alberta-Saskatchewan border initiated the oil transition.
Conventional oils are also being found in difficult-to-reach places. Ultra-deep oil in the Gulf of Mexico, for example, can be trapped many miles below the ocean floor. Oils have been discovered under 4 miles of water, salt, sand, and rock as well. Deep pre-salt fields—generally high-quality oil located in deep-sea areas under thick layers of salt and requiring large-scale investment to extract—are offshore of Brazil and West Africa. They are the first of their kind being drilled around the globe.
In North America, tight shale oils are being fracked in the northern Bakken (spanning North Dakota, Montana, Saskatchewan, and Manitoba); in Eagle Ford, Barnett, and the Permian basin in Texas and New Mexico; in the Cardium play in Alberta; in the Miocene Monterey and Antelope deposits in California; in Mowry-Niobrara in Wyoming and Colorado; in Oklahoma’s Penn Shale; in Montana’s Exshaw Shale; and in Utica Shale in Colorado, Wyoming, and New Mexico. Additional transitional tight shales are being probed for oil (and gas) in New York, Maine, Mississippi, Utah, and Alaska’s North Slope and Cook Inlet.12 There is an even-greater potential for new tight oils on a global scale in China, Australia, the Middle East (especially Israel), Central Asia (Amu Darya Basin and the Afghan-Tajik Basin), Russia, Eastern Europe, Argentina, and Uruguay.
New oil conditions in the Arctic are unlike any other and will require drilling in some of the coldest waters, far from civilization, amid areas of high environmental sensitivity and unpredictable weather. Still, the Arctic Circle nations, including Russia, the United States, Canada, Norway, and Denmark—with one-sixth of the world’s landmass and spanning 24 time zones—may constitute the geographically largest unexplored prospective area for petroleum remaining on earth.13 The United States Geological Survey has assessed the area north of the Arctic Circle and concluded that about 13 percent of the world’s undiscovered oil and 30 percent of the world’s undiscovered gas may be found there.
The bitumen contained in oil sands is the most prevalent extra-heavy oil. The province of Alberta, Canada—including the Athabasca Wabiskaw-McMurray, Cold Lake Clearwater, and Peace River Bluesky-Gething regions—has the globe’s largest deposits of bitumen. Outside of Canada, 21 other countries have bitumen resources, including Kazakhstan (in the North Caspian Basin), Russia (in the Timan-Pechora and Volga-Ural basins), Venezuela, and Africa,14 including the Republic of Congo, Madagascar, and Nigeria. In the United States, oil sands are deposited in at least a dozen states, including (in relative order) Alaska, Utah, Alabama, California, Texas, Wyoming, Colorado, and Oklahoma. However, the U.S. and other nations’ oil sand reserves are currently considered to be far smaller in volume than Canada’s reserves and may also be less easily recovered due to different physical and chemical compositions.
Extra-heavy oil (non-bitumen) is recorded in 166 deposits worldwide, the largest in eastern Venezuela’s Orinoco Oil Belt. The deposits are found in 22 countries, with thirteen of the deposits located offshore.15
Kerogen has the potential to be one of the largest unconventional hydrocarbon resources in the world. In North America, the richest and thickest oil shale deposits are in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming. Prudhoe Bay, Alaska, and additional basins in Colorado (Piceance), Utah and Colorado (Uinta), and Wyoming (Washakie) are also known locations of oil shale. A block of U.S. states bordered by Michigan, Missouri, Alabama, West Virginia, and Pennsylvania contains a grouping of large oil shale plays, that is, promising areas targeted for exploration. Internationally, Brazil, Israel, Jordan, Sumatra, Australia, China, Estonia, France, South Africa, Spain, Sweden, and Scotland all have notable oil shale deposits.
At the core, geologic and chemical factors determine the geography of new oils. Global oil—that beyond confirmed assets currently owned by companies or contained in countries (proven reserves)—is being remapped. Looking ahead, it is increasingly likely that international oil companies will be involved in developing the “frontier” oils—shale, tight, deep offshore, Arctic—due to their expertise and experience. Innovative, asset-rich, profit-driven, and technologically capable international oil companies may be a significant factor in identifying North America’s large unconventional oil reserves. This will not diminish the longer-term dominant role of state-run national oil companies, which own some 75 percent of the world’s proven conventional oil reserves and still reap the benefits of their comparatively low production costs. Still, these national companies have historically lagged on commercial reserve replacement given tensions to use national capital budgets to fulfill important social and economic goals.16
The production of these new oils will be highly influenced by economic, technological, political, and policy factors.
International oil companies will have to take on more risk, developing new oils in new geographies and under new conditions. But the prospects for profit are driving these difficult plays. The production of these new oils will be highly influenced by economic, technological, political, and policy factors.
Oil quality is changing worldwide with respect to its weight and impurities. So as the world increasingly turns toward unconventional oil supplies, it must consider the larger carbon footprints of these oils throughout the fuel cycle.
Life-cycle greenhouse gas emissions increase the heavier the oil and the lower its API gravity—heavier oils emit more carbon than their lighter counterparts, as shown in figure 5.17 Chemically, they are bound up with more carbon and yield greater volumes of bottom-of-the-barrel residual products, such as petroleum coke and heavy fuel oil. One-half of each barrel of bitumen, for example, consists of residual products, and an estimated 60,000 metric tons of petroleum coke is removed during the upgrading process for every barrel of bitumen extracted.18
The complex methods used to extract and process these heavier oils before they are able to be refined into petroleum products require greater energy inputs and more energy-intensive additives, such as hydrogen. Their use means a reduced product yield, degraded product quality, and more oil input for comparable amounts of petroleum products.
Uncertainties abound about which processes for upgrading these extra-heavy oils to suitable feedstock are the least damaging, especially in terms of overall carbon footprints. Mining bitumen, for example, has a distinct set of impacts while in situ removal has another.19 In Canada at present, in situ oil sands production is in a period of significant growth, as more than 80 percent of Canada’s oil sands are too deep to be mined and must be extracted with in situ methods. That type of production is associated with peatland destruction, an area of growing environmental concern.20 While in situ oil sand removal may have less direct land-use impacts than surface mining because it avoids massive earth removal and disturbs less land per unit of production, this technique may have equal or greater impacts in terms of its land-intensive natural gas requirements and land-use fragmentation due to its spatial dispersion over a massive area.21
Yet, there has been too little research to firmly assert the overall effects of heating oil sands and removing them in place. Early indications are that in situ removal may be even more greenhouse gas intensive than strip or open-pit mining.22 Similar concerns surround the in situ removal of oil shale and coal-to-liquids processes. These geography-dependent unintended consequences must be probed more fully, and policymakers must keep the implications of land-use changes in mind.
As the world increasingly turns toward unconventional oil supplies, it must consider the larger carbon footprints of these oils throughout the fuel cycle.
Where these and future processes are taking place also matters. There will be a huge need for sophisticated upgrading capacity in the future, with strong, increasing demand for gasoline and diesel fuel, slow or little demand growth for the heavier oil fractions, and the “heavying up” of the oil slate. The location of that new upgrading capacity is likely to depend on climate policy—the path of least resistance is often the most attractive for development. Uneven policies on a global scale could lead to significant carbon leakage as high-carbon oils travel to locations without effective greenhouse gas emission controls for upgrading.
Furthermore, refineries will need to take a close look at their bottom lines when updating their existing processes to meet the needs of new oils. Refineries produce a variety of products from a barrel of oil, but the product slate has begun to change because the makeup of a barrel of crude is changing.23 While refineries can be optimized to a certain extent to maximize the amount and types of products they put out, refinery specs are influenced by exogenous factors (see box 3). Shifts in the carbon-equivalent emission intensities of new oils will require improved monitoring, reporting, and verifying as century-old oil-refining processes adapt to new oil makeups.
The petroleum industry has been remarkably adept at inventing processes and products from lower-quality feedstock—to the point where the public is not even aware that oil itself has been changing. For example, burgeoning foreign markets, with fewer environmental protections, have begun to absorb low-priced, high-carbon exports of petroleum coke from oil-sand-mining production in Canada. Petroleum coke, or pet coke, is similar to coal but sells at a lower price than thermal coal because this solid residue consists of 90–95 percent carbon. One step above industrial waste, when burned, petroleum coke emits high levels of greenhouse gases that are comparable to coal emissions but with more accompanying ash and toxic metals. Today, U.S. exports consist primarily of heavier products that are not in high demand domestically—diesel, residual fuel oil, asphalt, and petroleum coke.24 Pet coke in particular is used as a feedstock in coke ovens for the steel industry, for heating purposes, for electrode manufacture, and for production of chemicals. Left to the world market, it is easy for these oils to become widely used—and to overlook their significant carbon impacts.
And the availability of this unconventional oil could change petroleum product flows to U.S. (and global) oil markets with resulting changes to carbon footprints. In the 1970s, for instance, the United States backed oil out of the power sector and shaved the share of oil in the industrial and residential sector, leaving the majority of oil for transportation. Now and in the future, the high-carbon petroleum products borne from new oils could readily find their way into the industrial, building, and power sectors.
The potential to increase carbon and other greenhouse gas emissions pervades new oils—from extraction to upgrading and refining and use. With so many emission outlets, oil policy must be looked at closely.
Unconventional oils are nature’s own carbon-capture and storage device. When they are tapped, we risk breaking open this natural carbon-fixing system. According to the National Petroleum Council, critical aspects of unconventional oils—including their greenhouse gas emission intensity—are currently not well understood.25
Until recently, the environmental effects of the petroleum fuels that power the transportation sector were also not well understood. But great strides have been made toward a better understanding of the life-cycle greenhouse gas emissions from these fuels.26 Yet, while the tailpipe emissions attributed to automobile combustion may not differ markedly regardless of which type of today’s conventional oil is used, the debate over what constitutes the actual life cycle of unconventional oils reveals the complex and dynamic nature of the full impact of new hydrocarbons.
In the absence of complete information, this issue is sometimes attacked with emerging if imperfect tools: fuel standards. There are current policies in place or in the planning phase in certain regions that impose emission standards on vehicles, including California’s Low Carbon Fuel Standard, which requires a 10 percent reduction in the carbon intensity of gasoline and diesel in the state by 2020, and the European Commission’s Fuel Quality Directive, which requires a 10 percent reduction in the emission intensity of transport fuels by 2020. But fuel policies, while necessary and important, may not be sufficient to manage the wide-ranging climate impacts of new oils. As more unconventional oil enters the economy and its byproducts make their way into other sectors for other uses, regulating new oils based on their end-use transport components may not offer ample protection.
The oft-cited full fuel-cycle statistic that oil sands have 5–15 percent higher greenhouse gas emissions than conventional oil underscores this limitation. Oil sands themselves contain roughly three times more carbon than conventional oil, similar in fact to coal.27 And oil shale likely contains the same high weight in carbon.28 Much of the carbon imbedded in these unconventional oils has the potential to form carbon dioxide—the principal greenhouse gas—when extracted and burned. Yet the impact of such large stores of carbon is not reflected in the cited emission increases because fuel standards are computed for motor vehicles (per mile driven) and the driving cycle in today’s inefficient cars and trucks masks the carbon intensity of the upstream processes involved in using gasoline and diesel fuels. Using a driving basis is useful in carbon accounting for motor vehicles running on different types of fuel. But a broader oil policy is needed to accurately depict the carbon intensity of new oil feedstocks economy-wide, accounting in the aggregate for all of their byproducts.
As oils transform, so too will their emissions. It is often assumed that a unit of fuel feedstock is equivalent to a unit of a specific fuel product. But as oils get heavier, it will take greater volumes of feedstock to yield the same volume of each byproduct. Further complicating matters, to the extent that unconventional oil represents an increasing share of crude oil supplies, less gasoline and jet fuel will be produced relative to other, often heavier and dirtier, petroleum products. And refineries, due to their complex and dynamic inputs and outputs, will introduce larger errors when accounting for their carbon impacts, making it more difficult to determine the exact extent of emissions. Attributing carbon flows from each of the upstream processes and byproducts (such as petroleum coke) to downstream petroleum products (such as gasoline) poses another challenge in terms of accurate carbon accounting.
The knowledge gaps on unconventional oils are extensive, as shown in figure 6. New economy-wide methodologies need to be developed to measure the carbon emissions associated with a growing number of unconventional oil processes and products.29
Yet, there are obstacles to overcome. The lack of a widely accepted definition of unconventional oils could lead to growing confusion about what they are and how they are produced. This will be increasingly problematic if it obscures public awareness, policy attention, and government oversight. As such, governance structures established for conventional crude oil, its processing specifications, and its byproducts will need to be revisited with new oils in mind. For example, will vehicle emission control standards provide ample protection as fuel quality changes worldwide? Will stationary source emission standards, especially regarding new oils’ methane and other hydrocarbon leakage, prove difficult to measure and control? Will unconventional oils have a major impact on short-term climate-forcing agents, including methane and ozone (nitrogen oxides and reactive organic gases)?
Governance structures established for conventional crude oil, its processing specifications, and its byproducts will need to be revisited with new oils in mind.
New rules will likely be required to deal with new fuels. This includes managing their impacts and determining the mix of unconventional oils in the future mix of petroleum products.
The International Energy Agency, in its 2011 World Energy Outlook, makes it clear that urgent action is needed to reduce both conventional and unconventional oil use to ensure that global warming does not exceed the 2o C (3.6o F, 450 ppm atmospheric concentration) safe threshold agreed upon by many world governments. Experts project that, absent a strategic effort to manage unconventional oil development, global carbon dioxide levels are likely to rise well above safe levels, given limited policy action. We can and must do more to advance an oil policy agenda.
Despite the clear need to move to a lower-carbon future, that transition has been a long time coming—and there is still a long way to go. In the interim, various forces—including industry, which is already accustomed to dealing in oil—will invest heavily in the extraction and processing of various kinds of new oils. And the implications of that shift could be even more damaging for the environment than the use of conventional crude. Just how damaging is impossible to determine. Policymakers and industry officials have not been able to decide how to define unconventional oils let alone determine their impacts.
Effective policymaking under changing circumstances depends on the full acknowledgment of what decisionmakers know and what they do not know. Therefore, bridging information gaps and shedding light through up-to-date data on new oils will be key to managing them.30 The first step along this uncharted path is advancing ongoing robust global data collection, in a process that is both monitored and verified.
New oil resources and their associated impacts are not stagnant. Oil will continue to be discovered in new locations and processes will continue to evolve. Global citizens will increasingly look to policymakers and industry to demystify new oils and the risks they pose.31 And those citizens will expect policymakers to take appropriate action to deal with the trade-offs involved with the use of unconventional oils worldwide. Thus the need for unbiased information about unconventional oils and their substitutes will be increasingly important as new facts surface about the relative trade-offs between feedstock, processes, and products.
As part of this information gathering, new oils should be differentiated from one another globally by exploring the varying granularity of emission data (well, block, basin, field, and subfield). The knowledge gaps in the new geographies, chemistries, and carbon implications of unconventional oils should be identified through new worldwide data collection that is made publicly available, and governments and industry should then move toward a harmonization of emission-accounting methodologies based on geography.
Working with stakeholders who possess verifiable data on the changing nature of oil and the particular characteristics of unconventional oil, and sharing this information, will help remove barriers to effective policymaking. Partnerships will be important, with an eye toward accommodating intellectual property so that technologies and techniques with the greatest environmental benefits can be shared throughout industry and governments.32 This information will be necessary to update analytical tools so that policymakers can develop transparent and consistent guidelines for new oils.
Governments and industry should create enduring structures for international and national oil oversight and track changes in oil makeups, processing techniques, and byproducts while encouraging continuous evaluation of unconventional oils.
Governments and industry should also create enduring structures for international and national oil oversight and track changes in oil makeups, processing techniques, and byproducts while encouraging continuous evaluation of unconventional oils as new information comes to light, including updated life-cycle analysis of new oils that considers emerging processes and byproducts.
With this information in hand, the next step is to develop an appropriate and durable oil policy response that entails transparency, longevity, and consistency. Moving forward to replace conventional oils in a structured, safe manner is necessary. This will require increased collaboration through a distributed intelligence network—with industry, government, academia, think tanks, and nongovernmental organizations—on unconventional oils. Ad hoc, country-by-country intervention may not deliver the desired climate results.
Ultimately, unconventional oil development will be highly responsive to prudent climate policies.33 But such policies do not currently exist. If anything, prevailing government policies worldwide have provided fiscal subsidies to accelerate the production of new oil, with regulatory oversight limited to certain environmental impacts at the point of pollution.
Without policy guidelines, such as carbon taxes, new oils will have a significant market advantage over low-carbon alternatives.
National climate policies could determine and track which—and under what conditions—new oil resources are developed, what oil byproducts are created, as well as how they are processed and marketed. Policies will also be needed to address potential emissions that are produced at upgrading facilities where the oils are processed before being refined as well as imports of high-carbon upgraded byproducts. Designing flexibility into new oil rules will be important as new data surfaces.
The ultimate goal should be the transition to a low-carbon fuel future, which will be stimulated—along with new oils—when fuel prices rise. As light and easy crude stocks dwindle and oil prices likely trend upward in the long term, more costly resource replacements will be induced—from low-carbon alternatives to energy-intensive petroleum supplies. Without policy guidelines, such as carbon taxes, new oils will have a significant market advantage over low-carbon alternatives. The only way investment decisions are guaranteed to take climate mitigation into account is if carbon is regulated or priced.
Fuel efficiency policies—for vehicles, buildings, industry, and elsewhere—are a critical backstop strategy for long-term decarbonization. When it comes to meeting market demand for liquid-fuel feedstock and product supplies, using policies to guide supply and demand toward a more diverse array of low-carbon feedstocks and products will be critical. So too will regulations and incentives that promote the efficient use of liquid fuels and their byproducts—new oils that contain significantly more carbon in a unit of energy must be sipped and not guzzled. If successful, these policies can serve to balance climate and oil security goals.
Developing new rules for new fuels will be critical to effectively manage the transformation of oils. This is a key moment to determine the future energy balance between oil and low-carbon alternative fuels. Only with sound policy during this time of transition can we arrive at a decarbonized fuel system to drive our transportation sector and fuel the global economy.
There is no historical precedent for a coherent, enduring global oil policy. It will take new knowledge about new oils to spur cooperation and leadership, which together will enable policy guidance for moving forward. Now is the time to structure the role petroleum supplies will play in our collective energy future.
1 International Energy Agency, World Energy Outlook 2011, www.iea.org/weo/docs/weo2011/executive_summary.pdf.
Note that while the world oil prices are expected to trend upward in the long term, certain exogenous conditions can affect markets and reduce oil prices, such as a boost in short-term conventional oil production or OPEC members’ loss of cartel pricing power control.
2 Note that some of the replacements for liquid-fuel supply are not liquids (for example, electricity, hydrogen, and compressed natural gas). They are mainly used for replacement transport fuels.
3 ExxonMobil, “The Outlook for Energy: A View to 2040,” 2012, www.exxonmobil.com/Corporate/Files/news_pub_eo2012.pdf.
5 Deborah Gordon and Daniel Sperling, “Big Oil Can’t Get Beyond Petroleum,” Cap Times, June 20, 2010, http://host.madison.com/ct/news/opinion/column/articleb1775726-9ef8-5e5a-85fb-ed56417475d8.html.
6 Oils can also be synthesized from biofuels, but these non-fossil-fuel feedstocks are not covered in this report.
7 O. P. Strausz, “The Chemistry of the Alberta Oil Sand Bitumen,” Hydrocarbon Research Center, Department of Chemistry, University of Alberta, Edmonton, http://web.anl.gov/PCS/acsfuel/preprint%20archive/Files/22_3_MONTREAL_06-77_0171.pdf.
8 Mark T. Attwood, “Integration of Large Scale Retorting Operations with Laboratory Testing and Analysis,” 26th Oil Shale Symposium, 2006, http://ceri-mines.org/documents/A14d-MarkAtwoodJB.pdf.
9 John R. Dynl, “Israel and Jordan Oil Shale Deposits, United States Geological Survey Scientific Investigations Report 2005-5294, geology.com, 2005, http://geology.com/usgs/oil-shale/israel-jordan-oil-shale.shtml.
10 International Energy Agency, World Energy Outlook: Trends in Future Oil Production, November 2011.
11 Modified from Paul L. Russel and UNITAR Heavy Oil and Oil Sands Database, Oil Shales of the World: Their Origin, Occurrence, and Exploitation, September 9, 2010, http://thetyee.ca/News/2010/09/09/OilSandsWorld; Energy Information Administration, “World Shale Gas Resources,” April 12, 2011, www.eia.gov/
analysis/studies/worldshalegas/pdf/fullreport.pdf and Hart Energy, https://store.hartenergy.com/index.php?main_page=product_info&products_id=384.
12 Energy Information Administration 2011 map, www.osti.gov/shale_gas.html and the new USGS publication: “Shale Gas and Shale Oil Resource Potential of the Alaska North Slope,” USGS, February 24, 2011.
13 Aaron Levitt, “Is the Arctic Oil’s Last Frontier?” Investopedia, November 16, 2011, http://stocks.investopedia.com/stock-analysis/2011/Is-The-Arctic-Oils-Last-Frontier-IXC-BP-XOM-STO-SDRL-CRNCF-NATDF1116.aspx?printable=1; and see USGS Arctic Regional Studies Program: http://energy.usgs.gov/RegionalStudies/Arctic.aspx.
14 For more information see “Locking Up the Future: Unconventional Oil in Africa,” Heinrich Boll Stiftung, November 21, 2011, www.boell.de/downloads/ecology/HBF_Durban_online.pdf.
15 World Energy Council, “Survey of Energy Resources, 2007, www.worldenergy.org/publications/survey_of_energy_resources_2007/natural_bitumen_and_extraheavy_oil/654.asp.
16 Amy Myers Jaffe and Ronald Soligo, “International Oil Companies,” James A. Baker III Institute for Public Policy, Rice University, November 2007.
17 Note that the greenhouse gas impacts of changing residual oil or coke output is not considered in the Argonne National Laboratory’s carbon accounting (GREET) model because these products are not transportation fuels. Therefore, any emissions associated with burning coke are not typically considered.
18 James G. Speight, “Upgrading and Refining of Natural Bitumen and Heavy Oil,” in Coal, Oil Shale, Natural Bitumen, Heavy Oil and Peat – Vol. II, 2009, www.eolss.net/Sample-Chapters/C08/E3-04-05-06.pdf; and Marsulex, “Sulphur & Petroleum Coke Markets: More important than you might think,” presented at Coking Community Seminar 2010, Calgary, September 13‒16, 2010.
19 In situ oil sands production is in a period of significant growth, as more than 80 percent of Canada’s oil sands are too deep to be mined and must be extracted with in situ methods.
20 Rebecca C. Rooney, Suzanne E. Bayley, and David W. Schindler, “Oil sands mining and reclamation cause massive loss of peatland and stored carbon,” PNAS, November 3, 2011.
21 Sarah M. Jordaan, David W. Keith and Brad Stelfox, “Quantifying land use of oil sands production: a life cycle perspective,” Environmental Research Letters, volume 4, May 12, 2009, http://iopscience.iop.org/1748-9326/4/2/024004/fulltext.
22 Simon Dyer and Marc Huot, “What is the Highest Environmental Impact Oil?” Pembina Institute, May 27, 2010, www.pembina.org/pub/2017.
23 Energy Information Administration, Petroleum and Other Liquids, March 2012, www.eia.gov/dnav/pet/pet_pnp_pct_dc_nus_pct_a.htm.
24 American Petroleum Institute, Message Points, February 2012, www.api.org/policy-and-issues/policy-items/keystone-xl/~/media/Files/Policy/Keystone%20XL%20Pipeline/Exports-talking-points-2-23-12.ashx.
25 National Petroleum Council, “Unconventional Oil,” Working Document of the NPC North American Resource Development Study, Paper #1‒6, September 15, 2011, www.npc.org/Prudent_Development-Topic_Papers/1-6_Unconventional_Oil_Paper.pdf.
Note: the Council also cites impact on water as another critical area for further investigation on unconventional oils.
26 For example, see the International Journal of Life Cycle Assessment, Argonne National Laboratory GREET Model, and their respective citations.
27 Strausz, “The Chemistry of the Alberta Oil Sand Bitumen.”
28 Atwood, “Integration of Large Scale Retorting Operations with Laboratory Testing and Analysis” and J. J. Schmidt-Collerus and C. H. Prien, “Investigations of the Hydrocarbon Structure of Kerogen,” University of Denver, http://web.anl.gov/PCS/acsfuel/preprint%20archive/Files/19_2_LOS%20ANGELES_04-74__0100.pdf.
29 S. Unnasch et al., (Life Cycle Associates), “CRC Report No. E-88: Review of Transportation Fuel Life Cycle Analysis,” prepared for Coordinating Research Council Project E-88, 2011 and S. Unnasch et al., “Assessment of Life Cycle GHG Emissions Associated with Petroleum Fuels, Life Cycle Associates Report,” LCA-6004-3P, prepared for New Fuels Alliance, 2009, www.newfuelsalliance.org/NFA_PImpacts_v35.pdf.
30 For one particular case study whose methodology could prove useful, see “An Evaluation of the Science Needs to Inform Decisions on Outer Continental Shelf Energy Development in the Chukchi and Beaufort Seas, Alaska,” USGS Fact Sheet, June 23, 2011, http://energy.usgs.gov/Miscellaneous/Articles/tabid/98/ID/85/An-Evaluation-of-the-Science-Needs-to-Inform-Decisions-on-Outer-Continental-Shelf-Energy-Development-in-the-Chukchi-and-Beaufort-Seas-Alaska-Fact-Sheet-and-Circular.aspx.
31 Deloitte Survey, “Strong need for better dialog, more information on shale,” December 15, 2011, www.ogfj.com/articles/2011/12/deloitte-survey.html.
32 See Christa Marshall, “Canadian oil sands companies join to reduce emissions,” E&E News, March 2, 2012
33 Gabriel Chan, John M. Reilly, Sergey Paltsev, and Y. H. Henry Chen, “Canada’s Bitumen Industry Under CO2 Constraints,” MIT, Report 183, http://globalchange.mit.edu/files/document/MITJPSPGC_Rpt183.pdf.
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