Renewables may be the darling in some political and conservation sectors, but it’s the oil and natural gas industry’s investment in technology that will ensure it remains the dominant player in the global energy markets for decades to come, according to a new report published by the Manhattan Institute.
Robert Bryce, a senior fellow in the Institute’s Center for Energy Policy and the Environment, authored “New Technology for Old Fuels: Innovation in oil and Natural Gas Production Assures Future Supplies.”
“Despite many decades of dire predictions of energy shortages, along with the calamity and economic problems that would come from such shortages, the world continues to increase production of hydrocarbons,” Bryce wrote. “Those increases are a direct result of continuing innovation in the drilling sector, and those innovations provide plenty of reason to assume that oil and natural gas will remain dominant players in the global energy market for decades to come.
Environmental groups, he said, like to point out that in 2012, $268.7 billion was spent worldwide on “clean energy” resources. However, “many of those same advocates for renewables ignore the innovation — as well as the staggering sums of money being spent — in the oil and gas sector.”
Last year alone, “global spending on oil and gas drilling totaled more than $1.2 trillion, more than four times the amount being spent on ‘clean energy.’ Of that sum, approximately $400 billion was spent in North America alone.”
The huge sums of money spent in the drilling sector, combined with ongoing innovative techniques, “has had a clear result: over the past century or so, oil and gas drilling has been transformed from an industry dominated by hunches and wildcatters, to one that is more akin to the precision manufacturing that dominates aerospace and automobiles.”
The research found that between 1949 and 2010, thanks to improved technology, oil and gas drillers reduced the number of dry holes drilled from 34% to 11%. Estimates of available resources continue rising because of innovation. In 2009, the International Energy Agency more than doubled its prior-year estimate of global gas resources, to 30,000 Tcf, enough gas to last for nearly 300 years at current rates of consumption, the researchers. In 1980, experts put total global proved oil reserves at about 683 billion bbl. In 2011, global proved oil reserves stood at 1.6 trillion bbl, an increase of 130% from 1980’s level.
“In 2012, U.S. oil production rose by 790,000 b/d, the biggest annual increase since U.S. oil production began in 1859,” said Bryce. “In 2013, the Energy Information Administration expects production to rise yet again, by 815,000 b/d, which would set another record. Domestic natural gas production is also at record levels.”
The dramatic increases in output have resulted in drilling innovations, he wrote. “The convergence of a myriad of technologies — ranging from better drillbits and seismic data to robotic rigs and high-performance pumps — is allowing the oil and gas sector to produce staggering quantities of energy from locations that were once thought to be inaccessible or bereft of hydrocarbons.”
The largess in oil and gas in the global fuel mix will continue, he said. “The massive scale of the global drilling sector, combined with its technological prowess, gives us every reason to believe that we will have cheap, abundant, reliable supplies of oil and gas for many years to come.”
However, it may not be easy convincing politicians of the prizes that drilling technology offers. “Despite the advances in oil and gas production, government policies continue to be skewed toward renewable energy. In 2011, according to the Congressional Budget Office, federal tax preferences for the energy sector totaled $20.5 billion. Of that sum, $2.5 billion was allocated to the hydrocarbon sector.
“Producers of (nonhydro) renewable electricity — the vast majority of which came from wind energy — received production tax credits worth $1.4 billion. Nonhydro renewable-energy projects also got $3.9 billion in federal stimulus funds, and producers of ethanol and biodiesel got an additional $6.9 billion in the form of tax credits. In total, the nonhydro renewable-energy sector got tax preferences worth $12.2 billion, or nearly five times as much as those provided to the hydrocarbon sector.”
The renewable sector “got those tax preferences despite providing about 2% of America’s total energy needs,” Bryce said. “Hydrocarbons provide about 87%, and oil and gas together provide nearly 60%.”
The doomsayers about the end of natural gas are legend, with M. King Hubbert claiming that domestic gas production would peak in 1970 at about 38 Bcf/d. ExxonMobil Corp.’s former Chairman Lee Raymond then declared in 2005 that “gas production has peaked in North America.” However, in 2011 U.S. gas production “hit a record 63 Bcf/d,” a 7.7% increase from 2010’s output.
“Between 1980 and 2011, global natural gas production increased by 129%, and oil production jumped by 33%,” Bryce said. “What happened? Why were so many forecasters — including the chairman of Exxon, one of the world’s biggest and most technically savvy companies — so wrong?”
The answer is simple, he said. “All of them underestimated innovation in the oil patch. Today, drillers are so precise that they can drill wells that are two miles deep, turn their drillbit 90 degrees, drill another two miles horizontally, and arrive within a few inches of the targeted pay zone.”
The innovations are long: better seismic analysis, stronger drillbits, innovative drilling rigs, real-time telemetry systems, and more powerful pressure pumps. The innovations, said Bryce, are obvious when looking at the big drop in the number of dry wells that have occurred over the past 60 years.
“Between 1949 and 2010, the percentage of wells drilled that were dry — known in the industry as ‘dusters’ — has been cut from 34% to 11%. This dramatic reduction in dry holes is the result of continuing innovation in everything from drill rigs to drillbits.”
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