Sunday, May 06, 2012

the technical and economic magnitude of an ultra-deep oil well project

lifeitself | In the summer of 1858, Edwin Drake punched 33 ft of cast iron pipe into the earth to prevent near surface water from collapsing the hole. He then lowered drilling equipment into the cased hole and used a steam engine to drill a successful, 69 ft deep well. On August 27th, shallow oil flowed almost to the surface and was recovered with a sump pump. Edwin Drake made absolutely no money on developing modern drilling technology and died a poor man.

Let us go back to Colonel Drake and his technology. Do you see the fundamental difference between producing 20,000 barrels per day of shallow oil from 5 simple wells that may cost 0.04 million dollars each, versus 20,000 barrels of ultradeep oil and gas from one well that will cost 200-300 million dollars?

In the first case, the initial and ongoing expenditures of energy were nothing compared with the heating value of the oil. In the second case, in addition to the well hardware, we need to throw in two hundred miles of a seafloor steel pipeline or a bunch of tankers, seafloor facilities, ships, and other energy-intensive means of assuring production from our well for a few years.

Net energy gain from the ultradeep wells can be much, much less than producing the old East Texas oilfields. Net energy gain from the various oil and gas shale projects can be less yet. And this is the main energy problem the twenty first century Earthlings face. Most are ignorant, others are in denial. The current state of affairs is not a prescription for a meaningful social discourse on what to do next, when the current global economy is strangled by the lack of cheap reliable crude oil. For those in chronic denial, please note that I said "when," not "if."

P.S. What I just showed you is translated into the official business language as follows:
Our analysis of the 50 largest publicly traded oil and gas companies (ex-FSU) shows that cost inflation continues to increase sharply within the global upstream oil and gas industry. In 2011, production costs increased by 26% while the unit cost of production increased by 21%, which was higher than longer term trends. In 2011, the marginal cost of production the same companies increased 10.8% to US$92.26/bbl.
"Era of Cheap Oil Over As Secular Growth in Upstream Cost Inflation Underpins Triple Digit Oil Prices," Bernstein Research, May 2, 2012.

Do not feel guilty if you can't understand this quote, but it surely is scary when you superimpose it on top of the actual declines of production by most major oil companies.

13 comments:

Uglyblackjohn said...

I just had a conversation at my club with a guy who owns a company that builds oil rigs. He says that liquified natural gas is probably the next source of affordable energy. He says that oil companies make less money on LNG than they do on petroleum so there is no incentive to make the switch.

CNu said...

Look at the rapid depletion rates on that natural gas  http://www.roperld.com/science/minerals/shalegas.htm

Uglyblackjohn said...

Yep, you're right. I should have said, "last" source of cheap fuel not "next".
By the time we have to depend on LNG we will literally be running on fumes.

Dale Asberry said...

There is yet one more source of fuel left to consume, and, I hope it isn't discovered until after our ability to consume it is mostly gone.

Big Don said...

Soylent EBT-swiping, OOW-Breeding, IQ-75, Flash-Robbing LOOTerz...

Dale Asberry said...

Go somewhere else, Little Boy. I tire of you.

CNu said...

Nah, them clathrates not gonna give it up any time soon...,

Dale Asberry said...

That would be a truly horrible scenario. I'm thinking something that would be only disastrous.

CNu said...

Soylent EBT-swiping, OOW-Breeding, IQ-75, Flash-Robbing LOOTerz...

lol, now that MCA kicked it http://en.wikipedia.org/wiki/Adam_Yauch and John Derbyshire's been bounced out of his day job http://en.wikipedia.org/wiki/John_Derbyshire and Charles Murray's despairing your current tribal malaise  http://douthat.blogs.nytimes.com/2012/02/14/what-charles-murray-gets-right/- seems to me there may be an opening and an opportunity for you to live the fantasy, take center stage, and showcase your lyrical style and flow BD.

Just thinking out loud here, spitballing, as it were, The Crusty Boyz - whadda you think?

CNu said...

But you KNOW it's what's next on the queue...,  http://marine.usgs.gov/fact-sheets/gas-hydrates/title.html - if they get it right, and I suspect they will get it right, it's the only thing that can take profits back to the heady days of Edwin Drake and beyond!!!!

CNu said...

Plan B.  http://3.bp.blogspot.com/-GHNHzp2M9xw/T56tvy4SgOI/AAAAAAAAAI0/7iCvqCj9kro/s1600/nobleultradeepwater.jpg

Wood gas or Clathrate unobtainium?

John Kurman said...

You know if Edwin Drake had drilled two feet in any direction from where he did, he would have needed to go down another 40 feet, gone bankrupt for sure, give it up for dang sure, and the oil extraction industry postponed... how long? 10-20 years maybe. Interesting counterfactual lurking there. 

arnach said...

probably manganese nodules