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December 05, 2007

Why "peak oil" is bullshit, and why the price of oil will collapse

A commenter at Tigerhawk put me onto this DOE document that is a Rand Corp report from the 2005 timeframe (its a PDF so you'll need Acrobat reader).

Here's the beef:

The largest known oil shale deposits in the world are in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming. Estimates of the oil resource in place within the Green River Formation range from 1.5 to 1.8 trillion barrels. Not all resources in place are recoverable. For potentially recoverable oil shale resources, we roughly derive an upper bound of 1.1 trillion barrels of oil and a lower bound of about 500 billion barrels. For policy planning purposes, it is enough to know that any amount in this range is very high. For example, the midpoint in our estimate range, 800 billion barrels, is more than triple the proven oil reserves of Saudi Arabia. Present U.S. demand for petroleum products is about 20 million barrels per day. If oil shale could be used to meet a quarter of that demand, 800 billion barrels of recoverable resources would last for more than 400 years.
...Shell anticipates that, in contrast to the cost estimates for mining and surface retorting, the petroleum products produced by their thermally conductive in-situ method will be competitive at crude oil prices in the mid-$20s per barrel. The company is still developing the process, however, and cost estimates could easily increase as more information is obtained and more detailed designs become available. [PA note: even if costs turned out to be 3X, its still economically viable at today's prices]

Development Timeline. Currently, no organization with the management,
technical, and financial wherewithal to develop oil shale resources has announced its intent to build commercial-scale production facilities... [PA note: by 2007 Shell had already started ramping this in Canada]

If you take 1/4 of the US demand out of the world market, world oil prices would have to collapse to whatever OUR baseline production costs+profit are -- which would be fixed by petro engineering economics rather than the whim of dictators, Arabs, and various loons. Prices today are arbitrary and build in worry factors about supply. If we know we can produce and sell a barrel for say $50, and then do it, it compels the arbitrary pricers to meet our price or lose business. Worry factors for American/Canadian oil would be near zero - foreign wars, loony dictators, etc would have little effect on production and delivery capability from CONUS and Canadian facilities.

I'm sure this will generate all sorts of screeching from the Oil Drum crowd and the peak oil loons.

The bottom line here is - the US and Canada have within our grasp the power to blow the crap out of the world oil prices, maintain fat profits for our oil companies for hundreds of years to come, and make our economies freaking juggernaughts all at the same time.

Do we have to stones to do it? Gotta tell the enviros to STFU first. Then make a righteous looking effort - which in itself might be enough to collapse world oil prices considerably. Another commenter at Tigerhawk suggested a clever method of long term recovery of development costs -- long term oil price option puts. If you know you're going to hammer the market, might as well pick the pockets of the "chicken little" crowd's in the process right? Hell yea.


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posted by Purp at 12:49 AM

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