Not all Oil is created equal. A look at Extreme Oil.

The cover article of the April 2012 edition of Time Magazine highlighted a trend in the oil exploration industry where major oil companies are drilling oil in nonconventional locations around the world. The article termed these oil sources ‘extreme oil’, due to the intensive exploration process required to access and recover the oil. These oil companies are developing oil wells in the Artic, off of the coast of Brazil, and in the oil sands region of Canada.  The oil from these regions is more viscous and contains different chemical make-up from traditional sources. Three of the major sources of Extreme Oil include:

ARTIC OFFSHORE

·         Background: As the climate changes, a substantial amount of ice is melting in the Artic Sea. As a result, more land area is becoming exposed and creating more opportunity for offshore drilling and oil shipping.

·         Production Cost: +$100/barrel

·         Reserve Estimates: 90B barrels

BRAZIL OFFSHORE – (Deep-water Salt)

·         Background: Reserves are below thick layers of salt beneath the ocean floor. Companies have to drill down 9000ft to the ocean floor and then an additional 5,000ft through salt. These are some of the deepest wells in the world.

·         Production Cost: $55 per barrel

·         Reserves Estimate: 50-100B barrels

CANADIAN OIL SANDS

·         Background: Sandstone is saturated with dense petroleum called bitumen. Gasoline results in 10% more greenhouse gas because of the extensive refining process.

·         Production Cost: $50-75 per barrel

·         Reserves: 170B barrels

With the rise of more expensive and dense oil sources, many traditional refineries are not properly equipped to refine the ‘extreme oil’. As a result, refining companies are experiencing and increase in operating costs and in some case have to close sites. Many recent refinery closings have occurred in the Northeast US. Recently, Philadelphia based Sunoco cited losing a $1M per day and closed its Philadelphia-area Marcus Hook refinery. Sunoco is also seeking a buyer for the Northeast’s largest refinery, in Philadelphia, due to poor operating margins. If the company is unable to sale the refinery, they will close the Philadelphia site. Also, Houston based ConocoPhillips recently closed its Trainer, PA refinery citing high operations cost. These refineries coming off line is creating a substantial shortage of refined oil in the Northeast.

As of 2011, there were 141 operating US refineries, most are located in the Gulf and western US. Many energy experts are concerned of the loss in refining capacity because the gasonline would have to be shipped from the refineries in the Gulf or Western US. Ultimately, the increase in logistics cost will add to the price consumers pay at the pump, creating a spike in northeast gas prices.

Below are the major Northeast refineries, their national rank, and their refining capacity

·         #9 Sunoco – Philadelphia  335,000 barrels per day – FOR SALE Potential Closure

·         #24ConocoPhillips -  Linden, NJ 238,000 barrels per day

·         #36 ConocoPhillips - Trainer, PA 185,000 barrels per day - CLOSED

·         #39 Sunoco - Marcus Hook, PA 178,000 barrels per day - CLOSED

-Bernard
April 11, 2012

Natural Gas FW11

Natural Gas: A potential solution to foreign oil and a source for US Job growth

The US’s future job outlook, dependence on foreign oil, and the emergence of natural gas have been popular topics dominating news headlines and political debates. Due to the recent discoveries of gas reserves in Texas and the Appalachian Basin, many energy experts are pointing to natural gas as the cheapest option for new power generation.  In a recent Bloomberg energy report, many energy companies are scrapping new coal and alternative energy projects because of the surplus in natural gas supplies, most notably, CMS Energy’s cancellation of a $2B coal plant and NextEra Energy deciding to halt 2013 wind projects. Recent studies have estimated that the U.S. has more than 2,200 trillion cubic feet of gas reserves which can be enough to meet nearly 100 years of current U.S. natural-gas demand.

Map Source: Wall St Journal

If the US is able to increase its use of this domestic energy source and widen the application of natural gas, especially into transportation, the large natural gas reserves can help offset the country’s dependence on imported oil. In a 2009 report by the Energy Information Administration, natural gas only accounted for 25% of the Country’s energy supply, of which only 3% was used for transportation applications. When breaking down oil’s contribution, petroleum energy sources accounted for 37% of the overall supply. In addition, there is no surprise to oil being the primary transportation fuel source, where 72% of its supply is set aside for transportation.

From an investment perspective, major energy stakeholders including utility companies, auto makers, leading research universities and even VCs should focus a portion of their R&D spend on developing emerging technologies that can widen the use of natural gas. Currently there is a high cost to retrofit current transportation infrastructure, which is built around gasoline and oil. Based on some estimates, the cost to retrofit a mid-size truck to run on natural gas are as high as $75,000.  New technologies could be focused on reducing retro-fit cost, engine design, refueling stations, and railways.

Finally, in regards to job creation, US consumption has steadily increased while the country has maintained a low level of gas imports. Based on DOE projections, the US consumes about 69 billion cubic feet of natural gas every day. Currently, only 4.2 billion of the 69 Billion cubic feet is imported (3 Billion comes from our neighbors to the north). Extracting, refining, and transorting gas to market is a labor intensive end-to-end process that requires a skilled work force. These main street type of jobs are exactly what the country needs to drive productivity and the economy. Considering the consumption of natural gas is expected to increase, the US should continue its trend of lowering imports and focus on meeting the growing consumption demands by developing domestic wells. Drilling companies, community colleges and both National and Regional governments should focus on increasing the current workforce, training workers, and meeting future growth demands. 

Bernard

March 13, 2012

Welcome - FW5

Welcome!! 

We want to welcome students, professionals, environmentalist, and the casual blog reader to our blog dedicated to Energy, Sustainability, and the Environment. We hope this forum will serve as a dynamic platform to inform anyone interested in gaining a deeper understanding of the energy industry and challenges facing our society. 

Justin and I are former mechanical engineering majors (Go Terps! and Go Blue!) and graduates of GE Energy's Operations Management Leadership Program. We both currently work within the Power & Water organization of GE Energy and have been expose to a global network of energy professionals and experts within and outside of GE. We both have a deep passion for the energy industry and aspire to become future industry leaders. 

Through this blog we intend to not only provide interesting information, but also articulate and refine our own opinions, gain feed back from readers, and deepen our passion for the industry.

Each week, each of us will update the blog with interesting articles, expert interviews, book reviews all focused on Energy, the Environment, and Sustainability. 

Again, Welcome and enjoy.

Bernard 
January 2012