And you thought CO2 was the only problem fossils had us facing?

Nuclear’s friends and colleagues – Episode 1: Oil

OIL.
Oil is not part of the history of the 20th century.
It is the history of the 20th century.

Oil (along with its less dense, less efficient, less transportable, and just as useful variations, gas and coal) has made the world as we know it, and brought in a whole geological era, the Anthropocene. Why? Because it’s the most efficient form of energy we have, and energy determines the degree of effort that each person must invest, first just to survive, and then for their well-being. Oil has made and destroyed empires, models of society, the fortunes of individuals and corporations, which have attained leadership and sometimes kept it, it has won wars.

But all this is coming to an end. Not just because oil emits greenhouse gases when it burns, but because we are running out of it anyway.

But… a sidestep. Pause. Why talk about oil in a Voices (of Nuclear) newsletter?

Because what ultimately concerns us at the Voices is neither oil nor nuclear power. It is our societies’ energy supply, which we came to love because it has brought millions of people, including ourselves, out of hunger, poverty, disease, and slavery brought by others or by shear necessity.

With this newsletter, we hence inaugurate a series on other energy sources, so as to situate the role of nuclear energy among them and highlight the lessons to be learned and the respective strengths to be shared.

This series ushers in the year 2021 (Happy New Year!!!), and inaugurates it with oil, because of the uttermost role it plays in our energy supply. We want to examine its history now that it is coming to an end – sooner than many of us had foreseen and especially sooner than we are prepared to face it.

So, we must find an alternative. And urgently. Another energy that will mark the 21st century as oil did for the 20th.

And luckily for us, physics do provide one essential alternative to combustion: fission. Welcome to the Nucleocene…

 

The boom in non-conventional hydrocarbons over the last ten years may have overshadowed the uncertainties surrounding the sustainability of oil supply. Whether to achieve carbon neutrality or to face this constraint, nuclear energy will have a role to play in Europe in the coming decades.

 

 

By Maxence Cordiez,

engineer in the energy sector, administrator of the NGO Voices of Nuclear

The principle objective of our energy transition is to achieve carbon neutrality by 2050 in order to keep global warming below 2°C. Achieving this goal is indeed a vital necessity for a large part of the world’s population. Yet, this is not the only reason we need to stop using fossil fuels. The other main reason is the depletion of these resources, which sustain our current way of life, but although still abundant, are finite. And we are probably nearing their limit, especially for oil.

Climate change and the depletion of fossil fuels together constitute the “double carbon constraint” to which the energy transition must offer a response.

 

OIL RESERVES ARE GETTING DEEPER

 

extraction of a finite resource will always reach a maximum before declining

 

Oil is the leading source of energy in today’s world. The volume of oil consumed each year has continued to grow ever since the first oil well was drilled by Edwin Drake in Pennsylvania in 1859. From its origins in the United States and in Baku on the shores of the Caspian Sea, the oil industry at first exploited conventional deposits — oil trapped in rock that is porous enough to be pumped once the well is drilled — easily accessible on land.

The extraction of a finite resource will reach its highest point before it declines. Higher costs may discourage extraction methods which become too complex. Exploitation of a resource may also be constrained by another finite resource; for example, iron, although relatively abundant, may see its extraction peak due to other limiting materials such as oil.

Extraction peaks are not a novelty, nor always in the future. US conventional oil extraction began to decline already in 1970. The surge in the price of a barrel had several consequences. It led to the Messmer plan to build a nuclear power fleet in France, and it encouraged a search for resources less readily accessible, notably under the sea. It’s as though we had put another coin in a machine to make it continue to produce.

However, with the passage of time, the cost of extracting the marginal barrel of oil increased. As early as the 1990s, there were warnings of the risk of the world’s conventional oil extraction peaking in the 2000s, as had happened in the United States in 19701. This prediction came true, with conventional oil extraction stagnating from 2005 and then entering a slight decline from 20082.

 

THE SHALE OIL BOOM

 

The shortfall in supply relative to demand resulting from the global peaking of conventional oil extraction pushed the price per barrel to over $100 from 2008 to 2014. This opened a window of opportunity in the United States. While unconventional oil extraction techniques have been known since the 1950s, it was only with the surge in the price per barrel in the 2000s that this industry took off. Extracting “shale” oil is indeed an arduous practice: the rock must be fractured and kept open, which requires large amounts of energy and materials, and the wells run out very quickly. To maintain or increase production, drilling must be continuous.

With the boom in bedrock oil that began under Barack Obama’s presidency — Joe Biden was Vice President at the time — the US oil industry experienced a new golden age, reaching 13 million barrels per day (Mb/d) in 2019 (about 13% of global extractions). The United States had returned to the lead in the race for black gold extraction. Its reduced energy dependency allowed it to disengage from the Middle East and return to a more isolationist policy. This boom in non-conventional hydrocarbons also allowed the country to experience significant economic growth over the last ten years, while at the same time rolling back coal, now less competitive than natural gas.

History of oil extractions in United States

 

“SHALE” WAS ALREADY SLOWING DOWN BEFORE THE PANDEMIC

We need to understand that the non-conventional oil industry has seldom been profitable (an exception being in 2020 due to a drop in investments during the pandemic)3. If the sector has survived and prospered for the last ten years, it did so by going into debt and issuing shares, sowing a multitude of bankruptcies along the way4.

So the situation was becoming strained even before Covid. By the end of 2018, investments began to slacken and drilling started slowing down while the barrel of WTI (West Texas Intermediate) was at $50-60. The Covid pandemic slashed global demand and caused the price per barrel to collapse. This put a powerful brake on drilling. Extraction continues today thanks to the reserve of wells already drilled but not yet fractured. But this reserve is becoming depleted, and it is uncertain whether drilling will resume significantly with a barrel price ceiling of $55 as it is today5.

The result is that extractions are expected to fall in the coming months. According to some industry analysts, total U.S. oil production could fall from 13 Mb/d at the end of 2019 to 6 Mb/d by mid 20216. When demand picks up again, the probable inability of supply to adapt means that the price per barrel is likely to rise. However, many unknowns persist: will investors who have lost hundreds of billions of dollars in “shale”7 reinvest massively, not knowing how long the price per barrel will remain high enough to justify their investments?

Even if they reinvest, it will take months, maybe a year, before oil extraction from bedrock resumes its upward trend. So we can expect a decline in shale extraction in Joe Biden’s first year in office, independent of whatever policies he will eventually put in place.

 

WHAT ARE THE CONSEQUENCES FOR THE NUCLEAR INDUSTRY?

 

beyond the climate issue alone, the depletion of fossil fuels also underscores the relevance of nuclear energy

As in the 1970s, we may expect the rise in the price per barrel of oil (which will somewhat affect the price of natural gas) to have repercussions on other energies. Thus, beyond the climate issue alone, which unfortunately has little motivating effect on our actions, the depletion of fossil fuels, whether we anticipate it or are (more likely) simply subjected to it, also underscores the relevance of nuclear energy. It is thus likely that in the coming years, for economic if not climatic reasons, the debate around nuclear energy will calm down somewhat on the European scene.

Notes

C. Campbell, J. Laherrère, « La fin du pétrole bon marché », Pour la science, mai 1998

2 IEA, World Energy Outlook, 2018

3 Rystad Energy, Just 10% if shale oil companies are cash flow positive, 29 mai 2019

4 Oil Patch Bankruptcy Monitor, Haynes and Boone LLP, 31 août 2020.

5 M. Cordiez, « Pétrole de schiste : un géant aux pieds d’argile ? »,  La Tribune, 22 octobre 2020, https://www.latribune.fr/opinions/tribunes/petrole-de-schiste-un-geant-aux-pieds-d-argile-860363.html 

6 Arthur Berman, “Stop expecting oil and the economy to recover”, 3 septembre 2020, https://www.artberman.com/2020/09/03/stop-expecting-oil-and-the-economy-to-recover/ 

7 Oil Patch Bankruptcy Monitor, Haynes and Boone LLP, 31 août 2020. https://www.haynesboone.com/-/media/Files/Energy_Bankruptcy_Reports/Oil_Patch_Bankruptcy_Monitor 

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