Unconventional Oil Symposium

The technological shift towards exploring and extracting unconventional oils has fostered a complex realignment of geopolitics, climate impacts, and scientific research of world fossil fuel production. Carnegie's Deborah Gordon opened up the day-long symposium at the Carnegie Endowment on the paradigm shifts associated with unconventional oils. In her talk, Gordon discussed the need to confront complexity on the diverse array of 21st century oils and their impacts on climate change. She was joined by Adam Brandt of Stanford University and A. Michael Schaal of Energy Information Administration to discuss the major engineering shifts of the energy industry and the changing chemical characteristics of oil. Steve Mufson of the Washington Post moderated.

• Product Diversity:  Some of the unconventional oils have such a low viscosity that they need to be mined in situ. While this process is less water and land intensive than hydraulic fracturing, it is substantially more energy intensive, Brandt said. There is inadequate transparency regarding the climate impact of these new oils, with greenhouse gas adders in the full fuel cycle ranging from 10 to 30 percent, Brandt added. 
   
• Shale Gas: The new unconventional oils have appeared on the market due to the shale gas revolution which now makes up 40 percent of U.S. dry gas production, said Schaal. With improvements in technology, the United States has seen the biggest increase in crude production since 1951 at 750,000 barrels per day, added Schaal. Improvements in energy efficiency have slowed U.S. energy demand and have slightly lowered Co2 emissions, Schaal said.
   
• Global Demand:  In order to move the extra heavy oils, they are mixed with condensates that are later stripped during the refining stage, which has shifted crude oil trade patterns, said Gordon. Regulations have not caught up to shifts in global oil, although the California Fuel Standard is very specific, added Brandt.

A boom of unconventional oil discoveries has forced financiers, economists, and policymakers to re-evaluate the shifting energy market and the potential for a price on carbon. Robin West of PFC Energy, Mark Campanale of Carbon Tracker, and Robert Johnston of Eurasia Group presented on the future of oil investments, prices, and economic regulations. Bill Loveless of Platts moderated.

• Expect the Unexpected: Although no one predicted the shale revolution and the global reverses in crude flow, the world markets make it impossible for the United States to achieve energy independence, West argued. The private sector will continue to respond to market forces, with the United States being the world leader due to its unique mineral property laws, decoupled gas market, and strong independent energy service sector, West added. 
   
• Six Degree Co World: The carbon intensity of global financial portfolios is increasing, not diminishing, Campanale stated. Without financing any additional production, there are enough energy assets in the market to increase the global temperature six degrees Celsius, he cautioned. Furthermore, in the absence of regulations, the investment community is not in the policy conversation regarding how to manage these carbon-laden assets.  
   
• Rise of the Independents:  Refiners in strategic locations with the ability to process a wide array of inputs are poised to do well in this new era, Johnston noted. With the existing discounts in Alberta, regional refiners are indeed the big winners, West added.  Large oil companies such as ExxonMobil are accustomed to major projects and have had difficulty adopting to the new environment, West said.
   
• Price: Some of the unconventional oil fields will never be developed due to high cost, Johnston argued. The price of oil will be determined not only by global demand, but also by the cost of operation, West agreed. Lack of Chinese refining capacity for heavy oils makes Canada dependent on U.S. refiners, Johnston added. Moreover, political uncertainty regarding climate regulation and pipeline approval in the United States is seen as a political risk by the industry, Johnston said. 

Pulitzer Prize winner Steve Coll emphasized that the supermajor oil companies are defined by durability and resiliency, although their business necessitates dealing in environments fraught with political risk. Unable to forecast price, these companies focus on maintaining their proven reserves.

As countries embrace the vast discoveries of unconventional oil deposits, they must make policy and regulation choices that reflect both the public and private sectors. Phil Sharp of Resources for the Future, Adele Morris of the Brookings Institution, Chris Malins of International Council on Clean Transportation, and David Friedman or the Union of Concerned Scientists discuss national and international policy recommendations and their implications. Monica Trauzzi of E&ETV moderated.

• Research: The extraction of unconventional oil has been made possible by decades of federal support for research and development, Sharp noted. Most of the developments leading to this nascent energy revolution have been unexpected, and significant environmental risks remain, he added. 
   
• Carbon Tax: A carbon tax would be an excise tax, and although it is difficult to monetize the damage of climate change, the tax would be more efficient than tax credits, argued Morris. The revenue from a carbon tax could help reduce the deficit and should be part of the fiscal dialogue, she added. Such a carbon tax should be complimented by policies involving energy efficiency, battery power, and cellular biofuels that can provide a vision for reducing oil use, Friedman said.   
   
• New Rules for New Fuels:  Low carbon fuel standards such as California’s are an important policy tool to manage these new unconventional oils, Malins said. With the growth in analytic data on fuel systems, it is easier to shape effective policy, he added. There is a need for carbon standards for other goods and services, Friedman noted.

The revolution of unconventional oils has not only reshaped the policy space surrounding petroleum, but has shifted entire fuel paradigms. Tom Steinbach of Hewlett Foundation, Guenter Hoermandinger of EU Delegation, Drew Kodjak of International Council on Clean Transportation, and Carnegie's Deborah Gordon debate the future of energy and its worldwide social, economic, and political impacts.

• Paradox of Plenty: The influx of unconventional oil has not only changed the makeup of our oils as Gordon stated earlier, it has also diminished concerns regarding the scarcity of oil, Steinbach noted. The conversation should focus on addressing water, air quality, and public health concerns, he said. By rallying around issues such as the Keystone XL pipeline project, the environmental community can buy time and think of politically viable solutions, Steinbach added. 
   
• EU Response: The European Union has adopted climate and energy legislation that sets targets for emissions reductions, Hoermandinger said. Europe faces the question of how, rather than whether, it will meet the reductions. Furthermore, the new efficiency standards for cars have not resulted in higher costs per unit for the consumer, Hoermandinger mentioned.
   
• Thinking Outside the Box: There is no upstream low carbon fuel standard, Kodjak said. Efficiency in transportation could reduce demand by millions of barrels per day, he added. Oil companies should revise their business models and diversify their products, Gordon argued. Water quality and quantity will become pivotal issues, Hewlett added. 
   
• Leadership Role for US: As paradigm shifts occur in oil types, processing, marketable products, transparency and closing knowledge gaps will be critical, Gordon said. She noted that these transitions provide an opportunity to guide decision making, starting with a blend of market and regulatory policies in the United States.