September 12, 2005
ANWR More Valuable To Exploit Once Oil Peaks

Matthew Simmons is a Houston energy investment banker who has written a much discussed book (Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy) arguing that the Saudis have far less oil reserves than they claim. In a recent interview Simmons makes an important point about projections on how long oil in the Alaska National Wildlife Refuge (ANWR) could run the United States If ANWR goes into production well after the point of world peak oil production then the number of months oil from ANWR will operate the US economy will be much longer because the US economy will be running on much less oil as world oil production declines.

The environmental community’s claim that ANWR contains only a six months supply of oil is a calculation that assumes the nation has no other source of oil when ANWR oil comes on line, Simmons said.

“On that standard, we end any new energy development, period,” Simmons said. “What is very important about the urgent need to find more oil at ANWR, the Naval Reserve or somewhere else on the slope is the inevitable decline of North Slope oil, and the fast decline that will happen if a gas pipeline is built and the gas caps (are) blown down.”

Moreover, it would not take 10 years to get a big oil find in ANWR into production since the infrastructure is in place, Simmons observed.

“At some point, the oil that flows through the 2 million bpd pipeline must fall to a level insufficient to get oil over the Brooks Range other than by shutting in for part of a month so the oil can be batched,” he explained. “If all ANWR does is extend the life of the pipeline, it has filled a very valuable role.

The view I've had about ANWR for a very long time is that some day it will get put into production once world oil production peaks. The environmentalist opposition to ANWR will end up being a blessing but not for the reasons that motivated the environmentalists. The delay in the ANWR drilling will make oil available to the United States from a US field when prices are much higher.

The environmentalist opposition to ANWR drilling should probably continue just so that ANWR remains effectively as a national petroleum reserve tappable when oil gets scarce. This is a position assured to anger both environmentalists and ANWR drilling advocates. But, hey, I call 'em as I see 'em.

If the peak oil pessimists are correct then the debates we have today about ANWR drilling, continental shelf drilling, car efficiency standards, nuclear power, and many other energy policy areas will soon seem old and perhaps quaint. Higher energy prices will change many energy policy debates. All those years of attempts at rational debate on energy will get wiped away by a wave of rising oil prices.

I see one irony in all this. If oil production peaks sooner then opposition to nuclear power will dissolve. The only way that environmentalist opposition to nuclear power can prevent a resurgence of nuclear power in Western countries (excluding France where the public never wavered in support for nukes) is if oil production can continue to rise for long enough that solar power and wind power can get cheap enough to serve as substitutes.

Looked at from this perspective Shell's promising technology for extracting oil from oil shale probably works against nuclear power. If Shell's efforts with oil shale succeed the US might again become a net oil exporter - which would represent a huge shift in the US's financial position vis a vis the rest of the world. Since about 80% of oil shale is on federally owned land the US government looks set to rake in big royalties when oil production peaks.

Coal, wind, solar, and nuclear power are currently all poor substitutes for oil. We need better batteries or other ways to convert electric power into forms that can power vehicles. But if peak oil comes sooner (say in the next 10 years) then the incentives to produce better batteries will probably solve that problem.

Share |      Randall Parker, 2005 September 12 03:24 PM  Energy Policy

Kurt said at September 12, 2005 6:45 PM:

If peak oil is real (which I doubt) and the tar sands are extractable (which I think is true), the U.S. could become a net exporter of oil. On the other hand, it may be that tar sands is the most usual form of oil in the Earth and that they are essentially everywhere. In this case, tar sands will be extracted in many other countries of the world as well (China, India, Australia, etc.) and the Japanese will be into extracting gas hydrates.

Such a scenario is likely if peak oil is correct (about regular non-tar sands oil) and the price of oil remains above US$30 per barrel into the indefinite future. In this case, there is powerful economic incentive for nuclear power for electrical generation because why burn US$30-40 per barrel oil to make gasoline when nuclear power can be used for this and the relatively expensive oil be used exclusively for transportation. Increased price of oil makes all other sources of energy more cost competitive in comparison, even if wirtually inexaustible tar sand oil keeps the price at US$35 per barrel for the next 500 years.

I do not agree with peak oil pessimism, in general. But I do think that Matt Simmons may be correct that the Saudis (and Arabs in general) have cooked their books on how much oil they actually have left. Simmon's suggestion dovetails well with my experiences with Arabs and Arab culture in general. However, his observation needs refinement. I do not believe that the Persian Gulf is running out of oil. I believe that the Persian Gulf is running out of shallow reserve oil that can be extracted at 75cents per barrel. They have lots and lots of oil that can be extracted for $7-10 per barrel, which is right in line with the extraction cost of Texas crude (as well as the rest of the world). This means that the middle-east will loose its cost competitive advantage in oil production with respect to the rest of the world.

In other words, the oil age is not coming to an end. Rather, it is the middle-eastern dominated oil age that will come to an end. The rest of the world economy will adapt to oil being US$35 per barrel and get on with living life to the fullest.

Randall Parker said at September 12, 2005 7:14 PM:


The Canadians have the tar sands with lots of oil in Alberta. The United States has large amounts of oil in shale.

If the Shell oil shale experiments work out then the US will have more extractable oil in shale (perhaps a trillion barrels) than the Canada has in sands.

However, Some estimates for future extractable Canadian oil from oil tar sands go as high as 1 trillion barrels. The energy ratio for oil sands extraction is a lot worse. If the energy ratio could be improved (see the article for new extraction methods under development) then much more oil would be extractable from the tar sans and less energy would be used to do it.

Suppose the US can get 1 trillion barrels from oil shale and the Canadians can get 1 trillion from tar sands. At that point North America would become the biggest producer of fossil fuel energy. Add in remaining natural gas, remaining oil, and lots of coal and the fossil fuel era could get extended for decades.

Kurt said at September 12, 2005 8:07 PM:


You're right about oil shale having a higher concentration of oil than oil sands. The point is that there is around 2-3 trillion known barrels of oil in the form in North America. The key word is known. I suspect that there is alot more and that there is oil shale or sands all over the world. if so, it won't just be the North American reserves that are extracted. Hense, North America will not become a major exporter of this. Also, my comments about the economics of nuclear power stand.

The reason why I believe that shale and tar sands are more common than currently believed is based on the following line of reason:

Coal comes from land life. Oil comes from ocean life. Coal is so common that noone has ever prospected for it. Coal is mined from places where people happen to stumble on a coal seam, sticking out of the ground (BTW, our coal reserves are equivalent to around a trillion barrels of oil as well, in the places that we actually mine coal). As we know well, the biomass of the oceans is probably 10 times that of land life. The oceans have had life in them far longer than there has been life on land. Given the aformentioned, it would be logical to assume that there is alot more oil than coal in the Earth (at least 20-30 times as much). The question is, where is it?

Most of the oil will be under the ocean (the continental shelfs) for obvious reasons. The deep ocean floors are unlikely to have much oil, because the deep ocean is essentially a life "desert". Any land areas today that were underwater for millions of years is also likely to have oil. One such area is the entire Mississippi river valley. Another area is most of Australia. Large parts of Asia (especially China) were also underwater for millions of years as well. These places should be saturated with oil.

Currently, oil is extracted from salt domes. These formations trap the oil and allow it to accumulate in reservours that are quite liquid. This is probably a small fraction of the oil in the Earth. I would bet donuts to dollars that much of the oil (maybe 90-95%) in the Earth is going to be in the form of shale or tar sands. I would also bet donuts to dollars that there are many such places on the Earth, not just in Colorado, Alberta, and Venezuela.

In short, I think that there is alot of this stuff and that it will be produced in many parts of the world, especially China and Australia.

Joseph said at September 12, 2005 10:11 PM: of the most depressing chunks of land on earth. Fortunately I don't have to go to that area anymore.

As to the gas issue...actually exploiting the gas would have little impact on oil production. Yes they do re-inject gas into the wells (after processing out the high value liquids) but salt water would work approximately the same. Please note that estimates run into the trillions of cubic feet but there's one area not discussed to any extent. Methane hydrates. These deposits are under the tundra and off the coast in fairly shallow water. I believe an outfit from Denmark has come up with a potential system for harvesting the hydrates (catalytic heating system inserted into the hydrates to bring about a controlled thaw/release).

Jim said at September 13, 2005 9:05 AM:

we should keep pumping oil from north alaska to keep the pipeline fully operational. if this means we start tapping anwr reserves as the non-anwr oil dries up, so be it. it's silly to let the entire pipeline rust away along with the alaskan oil industry, which supports much of the state's economy.

other than that, i agree with your assessment that the oil is more valuable in the ground for future generations than for today's generations.

Kurt said at September 13, 2005 11:46 AM:

Methane hydrates are an benormous supply of natural gas and exist on the continental shelfs of almost every continent.
The equivalent amount of barrels of oil locked up in the hydrate deposits is estimated to be in the tens of trillions of barrels.

The Japanese are the world leaders in developing hydrate extraction technology and expect to be energy self-sufficient by 2020, by a combination of hydrates and nuclear power. The Japanese have a much more sophisticated natural gas distribution network than about any other country in the world and have been importing LNG for decades. The same ports can be used for the hydrate distribution as well.

The basic fallacy of the peak oil people is in assuming that once the middle-east runs out of oil, its all over. This is simply not the case. The middle-east has the most amount of oil that can be extracted at $1 or less per barrel. If the price of oil is consistantly below $20 per barrel then, yes, the Arabs are the only supplier in the world. On the other hand, there is plenty of oil all over the world to be had for $30-35 per barrel. If Matt Simmons is right (and he may well be), the middle east will become economically irrelevant and the rest of the world will learn to live with $35-40 per barrel oil (which is about like much of the 80's, not a bad time at all).

The peak oil people simply do not understand economics.

BTW, I found Huppert's original paper on the net some months ago. It was very interesting and said much of of the same things that I and Randall have been saying for some time here about this issue. The peak oil people base all of their position on one subset of that paper.

Randall Parker said at September 13, 2005 12:01 PM:


Regards the great methane hydrate hope: More recently (last 3 or 4 years) explorations by geological researchers have found less methane hydrates than expected and reserve quantities have been greatly scaled back. I never got around to posting when those reports came out and I'm too busy at the moment to google on it. But try googling on it if you have the time.

As for the quantity of more expensive oil available: The big problem with that view is that the many old fields which contain lots of oil can not produce rapidly. Yes, their extraction costs may be quite affordable. But the oil doesn't pool fast enough to pull up quickly.

If many new fields can be brought on line that'd change the equation. But where will these fields be found? Maybe in the Arctic north of Alaska and north of Siberia. There is talk now of drilling up there. Maybe in Antarctica. But then again, maybe not too.

Oil shale and tar sands strike me as the two biggest sources yet to be seriousl exploited. They might make the overall peak come later and the decline to happen less slowly. But remember that total demand is growing and total demand is strongly correlated with economic growth.

hh gwin iii said at September 13, 2005 1:07 PM:


On the formation of coal, oil and nat gas:

When plants/animals/plankton die, they may drop to the bottom of a body of water or a swamp. If there is oxygen available, they rot. If no oxygen is available, they are compacted as layers of dead organic material accumulate. Ultimately, the organic matter is compressed to form peat, which is spongy but can be dried and burned to make a delicious Scottish beverage.

As overburden continues to compress the organic material, and as the material is heated (temperatures rise as depth increases) the very long, organic molecules begin to decompose into shorter chains and the peat begins to become lignite. This is nasty, brown coal with low thermal value. Typically, it begins to break down at about 200 degrees F. As heat and pressure continue to break down the hydrocarbon chains, bituminous and anthracite coals are formed. Anthracite is a shiny, hard coal and has about twice the thermal content (heat per lb) of lignite and is to lignite what marble is to limestone.

As heat and pressure continue to build (by this time, more from plate techtonics than accretion), hydrocarbon chains continue to break down into simpler molecules called “alkanes” or “Paraffins,” collectively referred to as “oil.” The “oil window” is between about 5,000 feet and 7,500 feet…below 7,500 feet, the hydrocarbon chains are further broken down into natural gas, which is primarily a normal alkane with 1 carbon atom (CH4, methane) but also usually includes butane, propane, and pentane.

Oil can and is found below the “oil window,” but this is because the oil was formed at shallower depths and moved deeper due to plate techtonics.

When oil deposits come to the surface (primarily due to erosion, although they might (like the La Brea tar pits, seep all the way to the surface)) they may start to evaporate. This leaves the heavier (longer chain) hydrocarbons and the source rock. This is harder to produce and to refine, as the longer hydrocarbons need to be cracked.

Oil shales are immature oil deposits. If we waited long enough, they, too, would become oil and nat gas.

Your point about salt domes is almost correct. Oil is extracted from salt domes because they are impermeable. The source rock has two characteristics: Porosity (the size of the microscopic cavities in which oil forms) and permeability (whether the pores are connected. Pumice is porous but not permeable, as an example. When a source rock is permeable, the oil may start to migrate as a result of water or gas pressure, until it reaches a crack (fault), area of impermeable rock, or some kind of a trap that prevents further movement.

Areas like the Arabian peninsula are in a geologic “sweet spot”: they were in a swamp, then were buried deep enough to crack the organic molecules into oil, but now so deep that they were cracked into nat gas (we know this because the Ghawar field in Saudi is water drive, not gas drive) where the source rock was both porous enough to collect oil and permeable enough to allow it to flow into formations, and where it was shallow enough to allow easy production but not so shallow that the overburden eroded and allowed the volatiles to evaporate.

Summary: Coal = young rotten stuff; oil = middle aged rotten stuff; nat gas = old rotten stuff.

Joseph said at September 13, 2005 4:43 PM:

There are also assesments out there that deny that what is now called Saudi Arabia ever had enough life upon it during earth's history to produce even a fraction of the "fossil" oil. While western nations still subscribe to the fossil origions of oil the former Soviets and others are punching wells into basement rock. The current theory there is that hydrocarbons are a consequence of long term percolation of simple (methane as example) carbon compounds into the upper mantle where they form long chain hydrocarbons. Many western experts disagree yet the presentations I've read make a helluva lot more sense than the fossil origion of oil. Coal, before someone points it out as a rebuttal, is an entirely different creature than oil.

gmoke said at September 13, 2005 7:52 PM:

"The environmentalist opposition to ANWR will end up being a blessing but not for the reasons that motivated the environmentalists."

One of my, as you say, "motivations" for opposing drilling in ANWR is to keep at least some reserve capacity. Always thought that "the environmentalists" (that great, green generality) should emphasize that point. Zero emissions production processes would be good too bu that seems to be concept few people have tolerance for.

Jim said at September 14, 2005 1:15 PM:

at the least, this country should survey the quantity of reserves in anwr. wouldn't it be lousy if we went along assuming all this oil existed there, as reserves, and they turned out to be pretty much empty...

Marvin said at September 16, 2005 2:12 PM:

If you want more research and development into new energy storage devices and cleaner energy sources, the high price of oil is exactly what you want to happen. You want the price to go high and stay high. The worst thing that could happen to the alternative approach, is for the price of oil to go back down below $35 per barrel. Cheap oil simply kills the backing for alternatives. If you are a green, or just like cool alternative energy technologies--pray for high oil prices. More effective yet--send a generous contribution to a Saudi Islamic Charity. If the charitable detonation of oil fields, oil tankers, oil pipelines, oil refineries, and other oil related assets cannot keep the prices high, what can? Kyoto?

Joseph said at September 19, 2005 9:58 PM:

Randall Parker

Yes estimates have been refined repeatedly on the quantities of hydrates available. Even with pessimistic evaluations the methane hydrate potential along the North Slope is still vast.

As for comments on price pushing alternative fuel developement...nothing to worry about there. World market demand will keep the prices steadily increasing. Fortunately the path for grid power is fairly clear though until there's a few more tech developements the actual path to future transportation power is still unclear. All I ask for is a smooth transition. So use the resources now. Engender greater energy independance. Make more jobs.

Randy Joger said at September 30, 2005 10:46 PM:

There seems to be a lot of non-critical, one-sided arguments on this blog. To make any sense of anything you have to consider not only the amount of energy that can be produced, but also the amount of energy to produce the energy. So, if I could produce a bazillion barrels of oil from sea water, but it took 2 bazillion barrels of oil to produce the oil from sea water, then .... You get the point.

All of these arguments are ignoring the energy efficiency portion of the equation.

I heard the argument once that there are two different approaches to peak oil: Geological/Scientific and Economic. The G/S approach looks at the data, technology, mathematics, etc, and the Economic approach ignores data, technology, mathematics, etc. and focuses on supply and demand. Try to guess which column I place this blog?

The problem is we need 10 bazillion of barrells of oil each day. It doesn't matter if there are a bazillion bazillions oil molecules available, unless I can get 10 bazillion barrells of oil each day, I'm have a problem. Soooooooooo, I'll speak as slowly as possible, when the easy to get, high quality oil is gone, then we can no longer produce 10 bazillion barrells of oil each day. Soooooooooo, when the Saudi Oil (easyest to get) oil is gone, we have a problem. It doesn't help if we can get 5 bazillion barrells of oil each day forever, we need 10 bazillion.

So, what has to happen is the world has to learn to live with 5 bazillion barrells instead of 10 bazillion.

Randall Parker said at September 30, 2005 11:04 PM:

Randy Joger,

I made the point above that the energy efficiency ratio for extracting from oil sands is worse than for Shell's new shale extraction technique. Both are much worse than the energy efficiency ratio for extracting from ANWR.

You haven't read this blog's energy debates enough to know how to categorize it. Your condescension comes with little facts or analysis, just assertion. Get off your high horse.

Ben Aronson said at February 6, 2007 7:28 AM:

If anyone missed the point... you did. I don't think whether we can get oil from a particular place is the question we ought to be arguing... even whether it is ecologically responsible to do so (although I have a tendency to lean much closer to this side of the argument)... the question is whether we ever will be able to extract enough oil to make it a non-issue. We have proved, across the globe, that we are resource exhausters. Much like viruses we are. And just like viruses we will use the resources at our disposal until we kill the host... end of ballgame. So isn't it time that everyone gets off their high horses and we steer all of this good-for-nothing but being right debate about where we can get more stuff to use up, and started a responsible conversation about developing a working relationship with our resources that will allow future generations to continue to live on this planet... period.

Just my opinion... I could be bitter.

Randall Parker said at February 6, 2007 7:18 PM:

Ben Aronson,

I have written a lot of posts about how we need to develop technologies that will allow us to stop using fossil fuels. I've written posts on why I think biomass will destroy too many habitats and that coal burning electric plants shouldn't be able to spew so much junk into the atmosphere. I've got a large assortment of energy category archives such as batteries and biomass and geothermal and nuclear and solar. You are reading a single post of mine on a single topic and then complaining I haven't talked about what you think most important.

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