The oil landscape is shifting rapidly. With America’s newfound oil wealth and the growing number of oil resources around the world, governments and producers are changing their economic calculus with potentially major repercussions.
In a Q&A, Deborah Gordon explains how these unconventional oils will impact the U.S. economy and the environment. To prevent bad decisions that unnecessarily hurt the climate, Gordon says these resources must be carefully analyzed before they are depended on too heavily.
- Why is the world no longer worried about running out of oil?
- What is unconventional oil?
- What are the implications of new oils for climate change?
- Will new oils prevent wider adoption of renewable energy sources?
- How will unconventional oils impact the U.S. economy?
- What needs to be done to ensure the United States effectively capitalizes on its newfound oil wealth?
Why is the world no longer worried about running out of oil?
Basically, because the market worked. Only five years ago, the talk was all about peak oil. This conversation had been going on since the 1970s. Policymakers and those looking to influence their decisions were trying to determine what could replace oil as crude production dwindled, focusing on alternative energy sources for transportation—electric vehicles and biofuels.
But the price of oil spiked in 2008 and reached almost $150 per barrel, and the conversation shifted dramatically. The world didn’t end when these seemingly unimaginable prices were hit. Once the price was high enough, new technological possibilities became economically viable.
Conventional oil is running out—but conventional isn’t the only game in town these days. The potential for finding and extracting new, unconventional oils has opened up. The world now has the capacity and economic motivation to turn many different types of hydrocarbons into liquid fuels that people depend on. And I would argue that it’s clear that the planet will never run out of hydrocarbons.
This changes the entire landscape of solutions to problems like climate change. Resource scarcity is no longer a significant factor. It is policies in times of plenty that will determine the future.
What is unconventional oil?
This is difficult to answer as unconventional oils will quickly become conventional. But the reason so many people are starting to think about unconventional oil is because the world is transitioning from a hundred-year period defined by a certain type of hydrocarbon that flows easily, comes out of the ground under its own pressure, and makes a specific slate of products: gasoline, diesel, and jet fuel.
One definition of unconventional oil is tied to the physical and chemical makeup of the feedstock, which extends beyond crude to include everything at the margins: the ultra-light hydrocarbons with more hydrogen than carbon and the extra-heavy ones with more carbon than hydrogen can all be considered outside the norm today. This encompasses oils that have a consistency like nail polish remover, including some tight oils, as well as ones more like window putty or peanut butter, called bitumen and kerogen.
There is a second definition that deals with the production techniques of oil. This is why fracked oil (or shale and tight gas that is released by hydraulic fracturing) is classified as unconventional. Some extend this definition to Arctic and deepwater oils, which are conventional in their makeups but unconventional in their production.
What are the implications of new oils for climate change?
Climate will undoubtedly be impacted by unconventional oils. The degree, however, will depend on which new oils are tapped and turned into fuels and how much fuel is consumed and burned.
The vastly different makeups of new oils mean that their extraction methods, processing requirements, treatment additives, transport procedures, energy inputs, and petroleum product outputs are varied as well. These factors shape the ultimate impact oils have on the climate.
And the assorted byproducts that are created when these oils are transformed into marketable petroleum products contribute to the carbon footprint of the oil. The heaviest oils stand out because their transformation process involves dealing with their high carbon content, which requires extensive processing, high energy inputs, and low-quality fuels—and results in greater carbon emissions.
This will certainly have repercussions for water and the environment, but the ultimate impact is not completely understood at this point as it will depend on the choices that are made. The effects on water resources and climate should be determined before methods are used that will irreparably damage both.
The world possesses a century’s worth of knowledge about what it takes to turn conventional oil into products, but now governments and producers are dealing with hydrocarbons they don’t really know enough about.
Will new oils prevent wider adoption of renewable energy sources?
It’s possible.
It is important to acknowledge that renewables have always been a stretch for the transportation sector, which accounts for 70 percent of oil in use today. The potential for renewable resources to fuel vehicles is limited beyond biofuels because most cars and trucks cannot be easily plugged into the utility grid at this point.
But if electric vehicles took off and drove technological advancements to make that possible, renewable energy could become a more viable option for fueling transportation. The problem is that the world might not pursue the electrification of cars as aggressively as it might have absent these new oils.
This is a legitimate concern. Electric vehicles in particular are more important than ever for improving local air quality. With so many new oils to choose from, the evolution of electric vehicles could slow down and therefore the goal of increasing the use of renewable energy resources could go unrealized. The fight against climate change could be hampered.
How will unconventional oils impact the U.S. economy?
In terms of economics, trade, and security, the future dynamics are unclear.
The United States has woken up to a brave new world overnight. As an importer of oil since the 1970s, there was tremendous concern in the country about where its oil would come from and how it could guarantee access to oil as the wells ran dry.
Now the United States has discovered a huge amount of tight oil across the central part of the country—from North Dakota down to Texas and westward to the Rockies—and there is access to new sources of bitumen from Canada. This changes everything.
Theoretically, the United States might be able to supply all its demand internally. In practical terms, the new North American oils are more likely to increase petroleum product exports and possibly lead to a resurgence of the American petrochemicals industry.
But the situation is a very fluid. No one is certain which investments are the most durable. The energy business is notorious for building more infrastructure than the industry needs.
There are more questions than answers right now and there is little to no policy—particularly on the climate impacts of all of this—guiding the development of new oils. There is an opportunity to make this a more efficient and less risky process, but without a price on carbon it becomes difficult to ensure that the climate is protected.
What needs to be done to ensure the United States effectively capitalizes on its newfound oil wealth?
One of the most important things to do is understand and choose wisely among oils by ranking them. Instead of producing surplus supplies, the United States and the rest of the world need to identify the oils that should be accessed first and those that should be left in the ground until there is the technological capacity to safely manage them.
Indexing oils offers industries and governments a tool for assessing the wider social, climate, and economic impacts of developing new oils. Policies can be created based on oil indexing to ensure prudent resource development. And an oil index will inform carbon pricing and aid in the design of the best-fit regulations. After all, new oils will require new rules. These steps will ensure that the climate is protected.
It’s now clear that there is more oil on earth than people know what to do with, so it should be used wisely. The world is watching to see how the United States handles its oil wealth, and the decisions that Washington makes will have global ramifications. This is a real chance to lead in a way that will help the economy while protecting the climate.
