What Will Power America's Future? The Case for Oil

Deep down, we all fear the world will become a scene from the film Mad Max. Global oil supplies dry up and cause a complete breakdown in law and order as we desperately search for the trace amounts of oil left. While we find the chances of this actually happening to us as extremely slim, there is a reason that these dystopian films work. Somewhere, that chance exists, and it terrifies us.

But what energy source will keep us from tumbling into this pit of chaos? For years oil has been the primary fuel choice, but does it have the legs to keep us going? Let's take at the pros and cons of oil and its place in America's energy landscape.

Pro: There's still lots of it

Source: BP Media Relations

Remember all that talk about peak oil a few years ago? It's not a new argument. Our first fear of peak oil production actually came back in the 1880's when many thought that oil would never be found outside of Pennsylvania. Today, proven reserves in the US are at 25 year highs thanks to our ability to access deeper, more complex reservoirs in the Gulf of Mexico and the formidable one-two punch of using horizontal drilling and hydraulic fracturing for extracting oil from shale.

Also, there is still lots of oil out there we have yet to consider as proven reserves. Both Exxonmobil (NYSE: XOM  ) and Russian oil company Rosneft are in the process of exploring a region of the Arctic that could hold as much as 90 billion barrels of oil off the shores of Alaska and Russia. Even more significant is the work being done by Chevron (NYSE: CVX  ) and Royal Dutch Shell (NYSE: RDS-A  ) to extract oil from kerogen deposits. This experimental form of oil could more than double the worlds current proved reserves, and could make the United States the largest oil source in the world

Pro: We're getting better at extracting it
One of the biggest reasons that peak oil theories have fallen flat so far have been because its assumption is based on the current technology in the industry. Problem is, we have continually developed ways to extract oil from more remote places and deeper, more complex reservoirs, which have pushed back the pending doomsday of peak oil.

Even now, the next generation of oil technology is being put into place: enhanced oil recovery, or EOR. Using the current methods of extraction, we can only get about 30% of all oil from a reservoir. But through new EOR techniques such as flooding the reservoir with CO2 gas, we are able to boost our reservoir recovery rates to around 60%. Occidental Petroleum (NYSE: OXY  ) , one of the leading EOR companies today, estimates that it will be able to extract another 340 million tons of oil from just the Permian Basin in Texas using EOR.

Con: It's getting more expensive to extract it
All this new technology may give oil a much longer runway than many of us originally anticipated, but it comes at a price. The cost to develop these new oil fields is skyrocketing. Chevron estimates that the costs for drilling and exploration in the Gulf of Mexico are 20-25% higher following the Deepwater Horizon spill. Also,  the break-even price for oil for most of the shale oil plays in the US are in the $55-$80 range. Granted, oil companies have been been bringing operational costs down as they become more familiar with new technology, but the simple fact that these processes are becoming more complex will inevitably mean operational costs will remain high. 

Con: Increasing Environmental Concerns
This is pretty much true for every hydrocarbon source, but its becoming harder and harder for oil companies to ignore the sentiment toward reducing carbon emissions through either reduced consumption of hydrocarbons or to implement greater carbon capture methods to prevent emissions. Some oil companies are getting wise to the idea. Total (NYSE: TOT  ) currently owns over 60% of SunPower, the 2nd largest solar panel maker in the US. While the profits from SunPower may not move the needle much for Total right now, it goes to show that some companies are taking carbon emission concerns more seriously than others. 

What a Fool Believes
Oil will be around for a very long time. To remain the premier energy source for the world, though, it will need to keep prices in line with the other emerging energy sources. As prices for oil climb, more and more consumers are going to look at alternatives like natural gas and electric vehicles despite the infrastructure shortfalls these two options have today. Luckily for us, these alternatives should keep us from living in that Mad Max type of world, but then again a massive shortage of oil didn't stop them from driving all over the place.

A Better Way?
The American energy market is like none other in the world, and one element of that market is making forward-thinking energy players like GE and Ford plow sizable amounts of research capital into one little-known company. To help you better understand America's unique position and find out the name of this under-the-radar company, we have put together a comprehensive report we're calling "The No Choice Fuel Revolution." By simply clicking here, we'll give you free access to this valuable report.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 21, 2013, at 11:44 AM, mpg2001 wrote:

    From a trader’s perspective this article is harmless and probably of little value; if you’re hopping in and out oil futures, 20 year trend lines aren't overly relevant. But, from a societal level, these kinds of breezy, random articles - by some uninformed, self-describe expert - are at the heart of what is ailing our country: feel-good (usually misleading) opinion journalism, used to curry favor with some target market, which then becomes the knowledge based for the intellectually lazy targeted group (the opinion almost always reinforces the preconceived notions of the target group – fulfilling the feel good requirement).

    I've been a peak oil proponent since 1975, when I discovered Hubert’s peak oil theory in my college calculus class. I've not lived in an underground hovel all my life; I've started a number of companies – taken one public – and raised a family, while living a fairly normal existence. But I have, given all the gifts I've received in life, felt it was important to make people aware of the concept of peak oil and the challenges it presents to our country’s future. And that’s where a flippant, seemingly innocuous article like one is so damaging. I’ll be at some dinner, having an adult discussion about oil and its place in society, and invariably, someone will utter the mantra of the uninformed, “well, I heard”. Well I heard here, or I heard there, that pigs can fly (or whatever), and the adult conversation is over. The quoting of some, allegedly, knowledgeable source makes it impossible to continue the discussion. And that is damaging, and that’s what’s happening in living rooms across America today: the epic battle between truth and the dangerous side effects of opinion “journalism” run wild.

    I am not going to go on and on about peak oil theory, I’ll just leave readers with a few facts (estimates); do with them what you will (I believe any article about the future of oil should start with these facts):

    Current global proven reserves (at $100 a barrel, with 400 Billion barrels of tar sands): 1.3 trillion barrels

    Saudi Arabia, Iraq, Iran, Kuwait share of global proven reserves: 600 billion

    U.S. Proven reserves (with Bakken at 8 billion): 27 billion barrels

    Total oil found to date – globally: 2.5 trillion barrels

    Global daily production and use (what peak oil speaks to): 90 million barrels per day (now includes NGLs)

    Current global use annually (over next thirty years: no growth): 32 billion barrels, (1 trillion barrels)

    U.S daily production (use since recession): 7.5 million, (18 million)

    U.S. use annually: 7 billion

    Daily production needed, in 2030, 2043, to support 2% Global GDP growth (current ratios): 119 million, 154 million barrels

    Somewhere in these numbers is peak oil, It’s not that the world is running out of oil, it’s that the daily global production is going to peak at some number ( Hubert stated that global production would follow the production curve of an individual oil field:. Example: Prudhoe Bay the largest field ever found in the United States (10-18 Billion barrels, it went from a peak production of 2 million barrels a day to it's current production of approximately 300,000 bbls/day - in 35 years .

  • Report this Comment On September 22, 2013, at 10:25 AM, ThatGuyInTheBack wrote:

    Tyler,

    I can only echo the sentiments of mpg2001. I would suggest a remedial course in Google search and arithmetic before you decide to write anything further. You will save yourself considerable future embarrassment.

  • Report this Comment On September 24, 2013, at 3:02 PM, Humblewizard wrote:

    This article did not do justice to the issue of the adverse consequences of using carbon based fuels. The issues are many and well understood by the scientific community. As the toxic impact to the climate and the oceans becomes more widely known and understood by all, the investments made into carbon based fuels will not be as rewarding as many think.

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