Where Oil Comes From

[Paul_J]

I found this article very interesting. It dispels the myth of oil being a fossil fuel and puts it in the area of a sustaineable resource. I have read a lot of research about this in the past but this article sums it up very well. It's written by Peter J. Morgan, CFP. Oil fuels our hobby so I thought some of you might find this interesting as well.

http://canadafreepress.com/index.php/article/3952



The link to Gas Resources is broken in the article. The correct URL is http://www.gasresources.net/

[BossaNova]

Wow. Thanks for the link. V. interesting read.

[James OLC]

Holy smokes that is some funny chit! I guess if you try to make anything sound simple in the most complicated way possible it ends up sounding technically sound. And you only have to gloss over a little bit of this and that, here and there.

Ultimately though the origin arguements are moot and simply exist as a distraction rather than a solution to the current suppy situation.

[69LT1Nova]

Well, chit. If that is ture, we just need to find out where to drill. That's always the problem...

[WS6]

James, counterpoint that article if you don't mind, please. I know you're either tied to the oil industry or simply know a great deal about it from our thread about the oil prices. I'm interested to know what you think is correct and why, if you have time of course. Thanks.

[James OLC]

James, counterpoint that article if you don't mind, please. I know you're either tied to the oil industry or simply know a great deal about it from our thread about the oil prices. I'm interested to know what you think is correct and why, if you have time of course. Thanks.

Full disclosure - I am a Senior Geologist for a small public oil and gas exploration and development company. My job, on a day to day basis, is to find reserves of, and ultimately drill for, oil and gas.

I have been toying with a variety of technical counterpoints to the information presented in the article but in all honesty it really does not matter (in the short term) what the ultimate source of oil is.

I would be happy to discuss the current theories of origin if anyone is interested but suffice it for now to say that there are two major theories (both of which require pressure, temperature, and time) - biological generation from decomposition, and abiotic generation (as discussed in the article)which is fundamentally the theory of natural generation by chemical processes within the earths mantle. Both of these of course have their own unique offshoots - on the biological side is the belief that all of the biological material was sourced from the great Genesis flood while the abiotic crowd has the theory that extra-terrestrial material actually "seeded" the mantle (the original abiotic theory) . There are also some new(er) theories that are being evaluated including microbial actions.

Which is right? They are probably all right - in so much that all of the theories can and probably do create hydrocarbons - of some kind and in some quantity. Evidence suggests that abiotic hydrocarbon generation more than likely represents a mechanism to generate methane gas however probably not in economic quantities. That being said, though, the underlying principals behind abiotic generation are chemical and thermodynamic in nature and are very relevant with respect to artificial oil generation from coal which is a (fairly) proven technology that has used for several decades but requires high commodity prices to be effective).

But ultimately the mechanism of generation is pretty irrelevant in the big picture (and in the short term). This is a three dimensional problam and time is a key factor. The article seemed to advocate the unbridled consumption of oil and gas because there is more coming. The problem is, of course, that if you consume something (anything) faster than it is produced - whether is comes from dinosaurs, swamps, meteorites, or a chemical reaction - well, you run out.

Conventional oil and gas is stored underground in reservoirs (usually porous sands or carbonates like ancient reefs) which are of a finite size - consider them to be a storage tank. When they are produced the tanks "empty" - although that is way to simple because when you drain the hydrocarbons they are almost always replaced by something else (usually water or other hydrocarbons) - and they lose energy. The flaw in the "drain it all, there is more coming" plan is that we can drain one of these tanks in a matter of years or decades if we are lucky and they are large enough. But even if new oil is being produced that could refill the reservoirs, it would have to do so nearly as quickly as we use it, otherwise we will have an inconvenient (and dry) million years or so while we wait for our cups to be refilled. Which illustrates the principal flaw (again IMHO) with the abiotic theory... IFF abiotic hydrocarbons are being produced in relevant quantities and in a meaningful time frame (to the human race) how come the earth hasn't been spurting oil and gas for millions of years while these tanks have sat full to capacity with no where to go?

Sorry to bore everybody. I'll go work on the car now...

[James OLC]

ok. Im sorry. I know I apologized for boring everyone but after thinking about it there are some things that I think are worth adding (and for saying which I have a flame suit standing by).

When I said that the mechanism of generation is basically irrelevant as it pertains to our current situation I feel that I should at least offer some suggestions as to what can and needs to be considered relevant.

Economics and capitalization are relevant. There is a lot of talk about huge oil and gas reserves that are known in the US (onshore and offshore) and around the world. The problem is that many of these reserves are enormously expensive to tap into and produce. The article mentioned the vast oil reserves of Russia that are being pursued now via ultra-deep wells. They didn't mention the cost of these wells though... how about $100 million per well? We usually expect to fail (drill a dry hole) anout 1/3 of the time which really means that a company would expect to expose $150 million for every successful well. You pay this money up front and, depending on (a) how long it takes to get the wells on production (weeks to months or even years) and (b) how quickly the oil or gas can be produced it can easily be three to eight years for these wells to pay for themselves. Can it be faster? sure. Are there any guarantees? no. Where does this money come from? Well, next years money will essentially come from this years profits and ongoing income from production.

Economics of Scale is relevant. Like it or not, high commodity prices are needed to effectively produce many more complex or unconventional resources. Obviously, in the example above, I am far more to accept the $150 million risk at $140 oil than I am at $50 oil. At $50 a barrel that project is a non-starter. A big part of my job is looking at older wells that were drilled in the past but were abandoned because they were not economic at the time. I can usually tell when the well was drilled by what may or may not have been completed and produced. In the article tyhe question that is the basis for abiotic production is "how come we haven't run out of oil yet? we thought we would have run out by now." Well, in all honesty, if commodity prices didn't increase to allow for new and unconventional targets to be persued, there would be a lot less oil bwinf found and produced.

Recovery Factor - a measure of production efficiency - is relevant. Much like increasing commodity prices have allowed for targetting new reserves, improvements of technology have increased the percent of oil that is being recovered from a given reservoir. If an oil reservoir is 100% full of oil (keeping it simple) ony 15 to 30% of that oil will ever be produced without enhanced recovery programs and even then 40%ish is an currently outstanding recovery factor. New techniques are constantly being tested and utilized, but they require additional investment. Research and development capital. Profits. Interesting double standard there - if I say I think I can get 25% more energy out of a battery the world would be my oyster for getting reserach dollars. If I say I think I can get 10% more oil out of a given reservoir, not only am I on my own for dollars, the profits that I need to pay for that research are in jeopardy.

Want to increase production in the short term - increase the recovery factor.

All of that, however, is irrelevant without production (refining) capacity. $5 billion dollars but not in my back yard. Same old story that has been discussed before.

Energy independance (or at lest less dependance) is possible but not without investment and certainly not by imposing punative taxes on the companies that are going to do it.

[Damn True]

Are you talking only about drilling in new areas, or does that 1-in-3 apply to drilling in known productive area's? For instance off the coast of Santa Barbara?

What is the thinking on the REAL viability of ANWR?

[James OLC]

Are you talking only about drilling in new areas, or does that 1-in-3 apply to drilling in known productive area's? For instance off the coast of Santa Barbara?

What is the thinking on the REAL viability of ANWR?

Good point True.

In an area with known production, good well control, and a competant understanding of the area you can expect to be successful 90% of the time. No matter what, chit still happens. We would call this a developement area and the risk increases as you move away from the known core.

In an area where there is some known production and decent control and understanding the 66% success rate is reasonable. Usually we try to put together programs that are large enough to absorb these failures as to mitigate the risk a bit more. I would call these exploration areas.

In an area where there is no known production nearby - what we would call rank exploration - a 30% success rate is probably more realistic.

As a propery is developed however, the risks a reduced. You effectively start with a rank exploration target which, if successful, becomes a exploration prospect which again, if successful, will become a development project.

ANWAR will take time (I think the 7 year estimate is resonable) and money (to drill, and for a huge pipeline project) and will (you can already hear it coming - ok, drill in ANWAR but no tankers and no pipeline in my back yard) but it is real. But, I would place it between rank exploration and controlled exploration so there will be risk and someone will have to undertake that risk - so there will also need to be rewards...

And all the new crude we can pump is irrelevant if there is no increase in refining capability.

[Damn True]

Good point True.

In an area with known production, good well control, and a competant understanding of the area you can expect to be successful 90% of the time. No matter what, chit still happens. We would call this a developement area and the risk increases as you move away from the known core.

In an area where there is some known production and decent control and understanding the 66% success rate is reasonable. Usually we try to put together programs that are large enough to absorb these failures as to mitigate the risk a bit more. I would call these exploration areas.

In an area where there is no known production nearby - what we would call rank exploration - a 30% success rate is probably more realistic.

As a propery is developed however, the risks a reduced. You effectively start with a rank exploration target which, if successful, becomes a exploration prospect which again, if successful, will become a development project.

ANWAR will take time (I think the 7 year estimate is resonable) and money (to drill, and for a huge pipeline project) and will (you can already hear it coming - ok, drill in ANWAR but no tankers and no pipeline in my back yard) but it is real. But, I would place it between rank exploration and controlled exploration so there will be risk and someone will have to undertake that risk - so there will also need to be rewards...

And all the new crude we can pump is irrelevant if there is no increase in refining capability.

Good stuff man, thanks. I think though that you are a bit off the mark with resistance to drilling in ANWR. People in AK are CLAMORING for it to happen. It's the morons in the lower 48 that are against it.

...and then there are the refineries...... Chev wants to expand their facility in Richmond, CA....which is close to Berkley, which is close to S.F......how do you reckon that'll go?

[James OLC]

Good stuff man, thanks. I think though that you are a bit off the mark with resistance to drilling in ANWR. People in AK are CLAMORING for it to happen. It's the morons in the lower 48 that are against it.

...and then there are the refineries...... Chev wants to expand their facility in Richmond, CA....which is close to Berkley, which is close to S.F......how do you reckon that'll go?

I agree with the AK community being in favor of the development of ANWAR and the jobs that it will bring, the larger issue will be the pipeline which will have to cross several states and one large foreign county. Many of the NW states are already ... notable anti energy development. Besides, I would guess that 99% of the anti ANWAR movement comes from people who never have been to Alaska and will never go there. They just like the idea.

The last thing that I would want would be a refinary project of any kind planned in California.

[MrQuick]

As far as CA, it would be hard pressed. Sierra club won't even support the use of federal property to go towards solar and wind power stations. Hell they even fought the Bay Ferry systems plan to build a triple decker parking structure to provide more parking to increase ridership stating that more provided parking with increase people driving to the structure itself...but yet if people get to the current parking lot and there are no spaces they offen drive into the city.....??? Sorry for that random misdirection...Alaska

Alaskans what to drill....the Alaskan Governor wants to drill. They even stated "it was the reason they joined the union". "To provide a resource to the US." I even heard a whisper of a lawsuit against the government for restrictions.
Besides the Valdes tanker spill (and Nigeria mis treatment)...the last rig accident was in 1969. I think we are a bit more responsible these days.

Any thoughts about the 12 Chinese sideways drilling rigs off the coast of Cuba?

[James OLC]

Alaskans what to drill....the Alaskan Governor wants to drill. They even stated "it was the reason they joined the union". "To provide a resource to the US." I even heard a whisper of a lawsuit against the government for restrictions.
Besides the Valdes tanker spill (and Nigeria mis treatment)...the last rig accident was in 1969. I think we are a bit more responsible these days.

I agree 100%. Unfortunately the entire industry is a victim of history and practices of the past. I look at Texas as a great example of that. Flying over Texas (and New Mexico) is really cool because you can see all of the oil fields as you go, because the leases - the 100 yard x 100 yard patches that are cleared for drilling - are obvious. This is one of the arguements against development - because it's environmentally damaging to drill. Well that is only half the story. The oil industry is amongst the most heavily regulated in the world for reasons both obvious and not. Today, most countries require the reclamation of drilling leases after the wells are placed on production. In the past that was not the law (and so it wasn't done) and, in fact, in some areas I would hazard a guess that there are regulations stating that they not be reclaimed. Environmentally sensitive drilling and production has been a requirement for a couple of decades now up north - people need to get over it already.

Any thoughts about the 12 Chinese sideways drilling rigs off the coast of Cuba?

I think that the rumor of those rigs is a great political tool and it comes to light every time it is convenient for arguements regarding offshore drilling. Talk of this drilling started a couple of years ago (a grouper fisherman supposedly saw a bunch of rigs with chinese writing on them in 2006) but to date I have not seen one piece of evidence supporting their existence. One offshore rig is not an easy thing to miss - I think 12 would be impossible.

Whether or not it is happening today not withstanding (and if anyone have evidence that it is please correct me) it still remains a propoganda tool more than anything. International (state, county, and personal) boundaries extend into the subsurface (probably even more so than above ground) so even if there were 100 chinese "slant rigs" (a misnomer anyways) offshore of Cuba not a single drill pipe would ever penetrate United State's territory. Could they still drain the resource? To a certain extent sure they could. But face it, countries have gone to war for an oil supply - what do you think the response would be to defend a countries reserves?

Ultimately though, opening up offshore drilling is (I hope) an inevitability. Unfortunately it is still not a guarantee for success or short term relief. A deep Gulf of Mexico well is a $30 million (ish) dollar touch (and rising). Fact is probably 85 or 90% of the offshore rigs in existance are owned by 5 companies (oil and gas companies usually don't own the drilling equipment) and I think that most are probably 100 booked through 2010. The last numbers that I saw suggested that the day rates charged by the rig owners to the oil companies is in the neighborhood of $600,000 a day plus costs (then again, a new offshore rigs runs about $750 million so they have to be paid for as well). I know that new rigs are being built but with a 3-year construction time there would still be an inevitable lag between what is permissable and what is actionable - geological knowledge notwithstanding.

[Jim Nilsen]

I have always wondered when the off coast drilling would become an issue of getting that oil before someone sets up at the bondary and starts to suck it all up out of a well we think we are saving. We can't stop them yet we stop ourselves. What are the people thinking?

I also keep thinking that environmentally isn't the oil in the ground capable of contaminating ground water and therefore we should get it out of the ground before it pollutes any more than it already is,lol ,it has to be polluting because that's what it does when we leak it somewhere. I just don't trust oil in the ground and it seems like such a waste.

Environmental groups have done nothing for alternative energy other than telling you to find another alternative. I want to send them all back home and pull the plug on their power and then listen to what the say !!! as long as they have what they want they don't seem to care about what I need. Solar and wind are the future and ifyour town has a small river there are new turbines that can supply power without dams that can supply whole cities if they wanted to.

The funniest thing lately for me was my sister inlaw telling me that a wind turbine in her back yard would be too ugly. I reminded her of the utility pole in her front yard next to the drive that everyone seems to hit with their car and asked her if it was ugly? She replied that " I am used to it and never think of it" I then reminded her that if the back yard is soo sacred to be beautiful and the turbine would be so ugly , then why did the new tree they planted in that area went unoticed as being almost dead for several months. I then reminded her that the turbine would eliminate her electric bill and the utility pole is costing her and what is so good looking about the utility bill.

People are so conditioned that they won't even accept something in their lives that will make it better.

I truly believe that if we do wind and solar right we will only need oil for lubricants and good old time fun racing gas !!

[derekf]

A few years ago I worked for a large oil company in their IT department, and a day came when a protest was scheduled (I'm not sure how you "schedule" a protest, but they did).

We watched as about 25 people came and protested, and when they were done, each of them went and got in their Escalade, their Excursion, their Hummer or their Suburban and went on home. Nobody carpooled. Nobody rode a bike or walked or drove a compact car, but yet they all went home secure in having made a difference.

So now I think the environmental groups are just silly.

[James OLC]

I have always wondered when the off coast drilling would become an issue of getting that oil before someone sets up at the bondary and starts to suck it all up out of a well we think we are saving. We can't stop them yet we stop ourselves. What are the people thinking?

This is feasible and it is probably the most realistic outcome, should offshore drilling near Cuba happen. It’s legal and it happens on land all the time. Some governments actually put an onus on oil companies to drill and produce wells to counter situations like that to ensure the royalities are paid for the resource. It’s easy to stop them (if the reservoir actually extends into US territory) but of course it would require the drilling of an offshore well…

[MrQuick]

We watched as about 25 people came and protested, and when they were done, each of them went and got in their Escalade, their Excursion, their Hummer or their Suburban and went on home. Nobody carpooled. Nobody rode a bike or walked or drove a compact car, but yet they all went home secure in having made a difference.

So now I think the environmental groups are just silly.

I love that buts its so true. Even I would have carpooled. Here near berkley was always see them envirometalists driving old Volvos and smoking VW's with "Love mother earth" stickers plastered all over the back side.

[WS6]

Thanks for posting all this info James, I know I appreciated it and was not bored at all.

I do wonder though how Prudhoe Bay keeps producing oil even though it's well past their initial thoughts. Is it because they were just that, thoughts, and not accurate measurements? Could it possibly be fed by oil still coming up from deeper down? As you remove the oil on top, pressure lessens allowing the stuff below to rise. I'm guessing it's because Prudhoe is now 35, 40 years old and survey technology back then wasn't as good as now.

[James OLC]

Thanks for posting all this info James, I know I appreciated it and was not bored at all.

I do wonder though how Prudhoe Bay keeps producing oil even though it's well past their initial thoughts. Is it because they were just that, thoughts, and not accurate measurements? Could it possibly be fed by oil still coming up from deeper down? As you remove the oil on top, pressure lessens allowing the stuff below to rise. I'm guessing it's because Prudhoe is now 35, 40 years old and survey technology back then wasn't as good as now.

It's actually not that far past the original estimates...

And I will preface this with two comments:
1. The original reserves estimates were made and presented/published were by the USGS and not any of the involved companies. I am sure that the oil companies had their own internal estimates but I have my doubts that they were made public. You'll notice that this practice continues today - there are huge estimates of reserves from things like the Bakken in the Dakotas. Most of those estimates are from the government and not from the companies involved in exploration/exploitation.
2. Reserve estimates are (or should be) a science unto themselves. There has been a great deal of criticism - and in some countires legislation -directed at how reserves are estimates and how to attempt to standardize the way that reserves are estimated and reported. Unfortunately it gets much more complicated from there - they can be classed as proved, probable, possible, and more. I can get into it further or clarify it if needed but for now I'll just say that (a) reserves estimates wiithout some production history are nothing more than educated guesses that are deserving of increased scrutiny and (b) trting to estimated the performance of anything over the course of 30 years is tough.

in 1975 the reserves were estimated to be between 10 and 20 million barrels. This estimation was made before the field was actually on production so it was based on not much more than some maps, some math, and some what ifs...

in 1977 the reserve estimates were adjusted to 10 million barrels of recoverable oil. These reserves were based on two years of actual production and "declined" the production to an economic limit in the future.

in 2003 the reserves estimates were adjusted to 13 million barrels of recoverable oil. Now they had 26 years of production and declines to back their estimates as well as the influence of newer technologies for improved recovery. This estimate represents the current thinking as well.

To date the field has produced nearlay 11 million barrels of oil over 33 years. Production has declined nearly 80% from it's peak daily rate in the mid 80's (it produces about 450,000 barrels per day).

Variations that I have seen in reserves estimates seem to be related to the product and not the volume. The numbers I am quoting above are for oil production and don't neccessarily (it's complicated, sorry) include gas estimates and production.

On thing to realize is that as oil is produced from a reservoir, the pressure drops and with that pressure drop comes gas production essentially from solution. This is what is filling the void after the oil is produced. That and probably water.

If new oil was refilling or recharging the reservoir in any significant quantity, production should have stabilized - as should the reservoir pressure (as I eluded to, pressure decreases as hydrocarbons are recovered.

But that's not happening.