Unconventional Oil: Illuminating the Global Paradigm Shift to New Petroleum Fuels

IMGXYZ3537IMGZYXThe make-up and geography of oil is changing. The International Energy Agency (IEA) projects that several new oil types will be introduced into the market to replace the loss of nearly 50 percent of conventional oil by 2035. Yet despite expert warnings, global policymaking communities lack a comprehensive understanding of the changing composition of the oil supplies and their impact on the global climate.

Brenda Pierce of the U.S. Geological Survey, Jim Burkhard of IHS-CERA, the Washington Post’s Juliet Eilperin, and Carnegie’s Deborah Gordon discussed the world of unconventional oil and the paradigm shift underway in petroleum resources. Carnegie’s David Burwell moderated.

Chemistry of Unconventional Oil

Gordon presented a taxonomy of unconventional oil based on what is known about their chemical make-up:

• Conventional Crude Oil:  Conventional oil consists of hydrogen-rich hydrocarbon compounds, with fewer carbon atoms and a comparatively lower molecular weight compared to most unconventional oils. Carbon content determines whether a crude oil is described as “light” (less carbon) or “heavy” (more carbon); sulfur content is used to categorize crudes as either “sweet” (less sulfur) or “sour” (more sulfur). Lighter, sweeter crudes yield a higher volume of marketable petroleum products, such as gasoline, diesel, and jet fuel.
   
• Heavy Oil and Extra-Heavy Oil Sand: Bitumen is the petroleum component in oil sands. Heavy- and extra-heavy oils can contain up to three times more carbon than conventional oil, and high concentrations of sulfur and heavy metals. Their high carbon content makes extra heavy oils so dense, viscous, or even solid that they cannot be pumped, and must be mined or liquefied in-situ underground. Oil sands must be pre-processed into synthetic crude oil before it can be further refined into marketable petroleum products.
   
• Oil Shale: Kerogen is the petroleum component of oil shale. It is “young” oil that has not yet been fully transformed into crude oil or gas, and cannot be pumped directly from the ground or refined with traditional techniques. Kerogen contains even more carbon per hydrocarbon compound than heavy oil, and must be heated at a very high temperature to liberate oil from shale rocks before it can be transformed into an upgraded hydrocarbon product.
   
• Tight Oil: Tight oil, often referred to as shale oil (not to be confused with oil shale), is the oil equivalent to shale gas. It must be recovered from shale rock through hydraulic fracturing and horizontal drilling. While tight oil tends to have similar density and sulfur content as conventional oil, it is far more energy intensive to produce than conventional oil, thereby resulting in higher fuel-cycle carbon emissions.
   
• Carbon Footprint: The exact carbon footprints of each type of unconventional oil are not yet fully known, Gordon said. She reasoned that due to their high carbon content, greenhouse gas emissions from the extraction, upgrading, processing and utilization of conventional oils is likely to be very carbon intensive. Moreover, many unconventional oils must shed significant amounts of carbon as they are upgraded, yielding large volumes of high carbon fuels, such as petroleum coke, which are not currently produced in large volumes by conventional oils.  As a result, emissions from the production of some types of unconventional oil might be up to seven times the emission of conventional oil. The management of carbon-rich by-products poses an additional challenge.

Geology of Unconventional Oils

Pierce explained how unconventional oil differs from conventional oil geologically and the wide variance in the geological make-up of unconventional oil.

• Conventional Oil: The formation of conventional oil and gas requires four preconditions:
  
  
  1. Rich organic material must be present in abundance in the subsurface of the earth.
      
  2. This organic material must be heated to within a certain temperature range by a source rock.
      
  3. Migrations pathways to the rock surface must be present to allow buoyant oil and gas to move upward from the source rock.
      
  4. Traps above oil and gas forming areas are needed for the buoyant oil and gas to collect in. Rising oil and gas accumulates in traps below impenetrable layers of rock above. 
  
   
• Unconventional Oil: While conventional oil has migrated from the source rock and collected in traps, unconventional oil has stayed in the source rock, kept in place by tight pore spaces and the lack of connections and pathways between pores. This lack of interconnected pore spaces makes the production of unconventional oils comparatively more difficult. New technologies have enable the production of unconventional oil, but have also raised a number of issues, including the burden on water supplies, aquifer contamination, landscape and ecosystem disturbances, and waste issues, added Pierce.

Economics of Unconventional Oils

The 2008 revival in U.S. oil production overturned conventional wisdom, which predicted ever-declining U.S. oil production, said Burkhard. From 2008 to 2011, U.S. liquid fuel production grew by 1.3 million barrels per day, making the United States the world leader in oil supply growth. Burkhard listed the alignment of three factors as the main drivers for this development:
 

1. Market Signals: The rise in oil prices over the last decade has provided a strong incentive for exploration and development of new oil resources.
   
   
   • The production of tight oil becomes economically profitable at US$40 to 60 per barrel. For oil sand development to become economically profitable, the price of oil per barrel must rise to $60 or more. As 90 percent of the global oil resources are owned by national oil companies, political considerations may play a role in addition to market forces, Pierce added.
      
   • Contrary to widespread belief, oil prices will not continue to rise indefinitely, said Burkhard. Factors such as a reduced demand for oil in response to the global economic recession will moderate oil prices and increase downward pressure within the next decade.
      
2. Innovation: Horizontal drilling and hydraulic fracturing have enabled the development of unconventional oil resources whose exploration was not previously economically profitable.
    
3.  Access: The combined ownership of property and mineral rights by landowners in the United States improves access to oil and gas resources and provides ideal conditions for their development.

Juliet Eilperin rounded out the discussion by asking probing questions of the three panelists and then moderated questions with those attending the event.