2: Will Cheap Oil Return?

The following excerpt is from chapter 2 of Sustainable Ethanol: Biofuels, Biorefineries, Cellulosic Biomass, Flex-Fuel Vehicles, and Sustainable Farming for Energy Independence

Will Cheap Oil Return?

Oil price declines of the 1980’s put a damper on many renewable energy initiatives. Through the late 1980’s and 1990’s, oil was so cheap that ethanol and other biofuels found little room for growth. Oil has been more expensive recently, but will this last?

We believe a long-term collapse in oil prices is unlikely this century. Trillions of barrels of oil remain to be tapped, but these barrels will be more difficult to access and therefore more expensive. This should allow sustainable biofuels to compete more successfully. Shorter duration declines in oil prices are likely, however, and renewable energy industries need to be prepared for them. In addition, government policies should be designed to help renewable energy survive slumps in energy prices.

Easy Energy

The era of cheap oil was made possible by solar energy, photosynthesis, geologic processes, and time. The energy potential in living matter, originally spread through huge spans of time and space, was concentrated deep under the earth’s surface in the form of fossil fuels. This concentration of energy, resulting in a high energy density, is what makes petroleum so useful.
With ideal conditions, the energy required to extract crude oil is minimal in comparison to its energy potential. In other words, oil can have a very good energy returned on energy invested (EROEI). The earth itself has done the heavy lifting for us. But the earth works at a slow pace. We are cashing in on an investment made over millions of years. The problem is, easily exploited oil reserves are steadily declining. On average, the extraction of remaining oil reserves will result in a less favorable EROEI. With the production of biofuels, we attempt to densify organic biomass more quickly. Through the application of modern technology in cooperation with natural processes, it is possible to optimize the sustainable densification of plant-derived energy into biofuels suitable for existing automobiles. (continued below)

The Search for “Easy Oil”

According to the U.S. Energy Information Administration, only 63% of world crude oil and natural gas liquids production was replaced by new reserves from 2003 to 2005.[i] The area of the former Soviet Union and Eastern Europe was the only region where new reserves exceeded production.

Petroleum varies in quality. The vast majority used over the past century has been relatively light and sweet—easily refined into gasoline and other products. Recently, oil companies have turned to sour crudes high in sulfur as well as heavy, thick crudes that in some cases, such as the Canadian tar sands, do not flow until heated. The fact that companies are beginning to tap these unconventional reserves shows that conventional reserves are insufficient. Market forces compel companies to produce oil at the least possible expense. That is why lower quality, harder to produce oil is generally left in place until easily accessible reserves run low. A 2000 study by the U.S. Geological Survey identified possible areas of new oil production, but most are in areas with high production costs or environmental concerns. Untapped reserves are thought to exist in the high Arctic, the coasts of Greenland, and the ultra-deep waters off the coasts of North America, South America, Africa, and Asia.

See chapter 2 of Sustainable Ethanol for the following additional topics:

The Rise and Fall of Big Oil
Geopolitical Considerations
Growing World Oil Consumption
How Long will Oil Production Grow?
Figure 2-1. U.S. Crude Oil Spot Price, 1995–2007
Figure 2-2. Percentage of Proved World Oil Reserves by Region, 2005
Figure 2-3. World Oil Consumption, 1985–2005

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[i]. U.S. Energy Information Administration, Performance Profiles of Major Energy Producers 2005, http://www.eia.doe.gov/emeu/perfpro/tab08.htm.

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