The Problem With ‘New’ Oil

From the The Economist:

Nowadays, new oil tends to be found in relatively inaccessible spots or in more unwieldy forms. That adds to the cost of extracting oil, because more engineers and more complex machinery are needed to exploit it—but the end of easy oil is a far remove from the jeremiads of peak-oilers. The gooey tar-sands of Canada contain almost as much oil as Saudi Arabia. Eventually, universities will churn out more geologists and shipyards more offshore platforms, though it will take a long time to make up for two decades of underinvestment.

I agree: We’re not running out of oil in the near-term. Peak-oil is not the point of zero extractable petroleum though. It’s the point in which oil extraction ‘peaks’ and then forever declines. While that point could reach us soon, we’ll never live to see a world void of oil. What can be seen today is a world in which cheap oil is dead.

The Economist’s assessment of the prospects of Canada’s tar-pits, or any tar-pit for that matter, is hollow. Missing is the fact that the Energy Returned on Energy Invested ratio for these fields is abysmal, at best 5:1. That means that for every 1 unit of energy invested to extract oil, 5 units are returned. For comparison, oil extracted in Saudi Arabia has an EROEI of 30:1.

EROEI tells us that oil from tar-pits is costly. Surely new technology will arrive to make that ratio more favorable. Regardless, ‘new’ oil will never be as efficiently obtained as oil from Saudi Arabia. As traditional fields begin to run dry and force us to extract from tar-pits, we’re going to see a dramatic rise in oil prices. Simply put, oil prices will skyrocket because of a falloff in EROEI–not to mention a rise in global demand.

So The Economist’s ho-hum indifference to tar-pits is troubling. Tar-pits may not equate peak-oil, but considering the difficulty of extracting from them, they must be an oil company’s last resort. Aside from a major discovery off the coast of Brazil, that should tell you something about cheap oil: We’re out.