Coal, oil and natural gas get a bad rap due to the carbon emitted during combustion, but these wonderful resources add a enormous amount of value to society that far exceed the costs of pollution.
In the following I argue why our environmental conservation efforts could be more effectively deployed by helping fossil fuel producers become more efficient. I outline how modern oil and gas production is not optimized to protect the resource and I will even be so bold as to suggest that bitcoin — due to its superior monetary incentives — will help oil producers and mineral owners alike become better custodians of the resource.
TLDR Summary:
- Fossil fuels help our environment by displacing our need to consume the living biosphere that supports us.
- Don’t believe the propaganda — there will never be a transition off of fossil fuels. Fossil fuels are much more than just energy, they are the raw materials we use in literally everything.
- Over-taxing and over-regulating fossil fuels in North America is counterproductive because it results in a redistribution of carbon and jobs from local private sectors to the government and to foreign jurisdictions.
- Inflationary monetary policy along with counterproductive regulation is incentivizing oil and gas producers to be wasteful.
- Carbon accounting is ineffective, redundant and a net waste of energy. It is little more than a government approved protection racket dressed up as environmentalism.
- Bitcoin mining is already helping oil producers conserve waste energy. A bitcoin-like monetary standard may incentivize producers to become better custodians of the oil and gas resource by incentivizing them to waste less.
Better to consume dead hydrocarbons than living hydrocarbons
Crude oil reduced whaling pressure
When you spend money to consume something you find yourself with less money to consume on something else. Similarly, when we consume fossil fuels we displace our consumption away from our natural habitat. The economic downfall of the whaling industry is largely due to our adoption of crude oil and a shining example of why we should celebrate our continued use of crude oil.
The beginning industrial societies used whale oil in oil lamps and to make soap. In the 20th century it was made into margarine. With the commercial development of the petroleum industry and vegetable oils, the use of whale oils declined considerably from its peak in the 19th century into the 20th century. This is said to have saved whales from extinction. In the 21st century, with most countries having banned whaling, the sale and use of whale oil has practically ceased.
When a clean-burning kerosene lamp invented by Michael Dietz appeared on the market in 1857, its effect on the whaling industry was immediate. Kerosene, known in those days at “Coal Oil”, was easy to produce, cheap, smelled better than animal-based fuels when burned, and did not spoil on the shelf as whale oil did. The public abandoned whale oil lamps almost overnight. By 1860, at least 30 kerosene plants were in production in the United States, and whale oil was ultimately driven off the market. When sperm oil dropped to 40 cents a gallon in 1895, due to lack of demand, refined petroleum, which was very much in demand, sold for less than 7 cents a gallon.
Where would whales be today if we never learned to harness crude oil in the 19th century?
Coal displaces logging
The climate change hysteria is driving fickle politicians to shut down coal production and reliable coal power just to replace it with deforestation for biomass power plants. Why are we are consuming biomass and destroying living, growing things we supposedly cherish when we could simply consume dead, inanimate coal in it’s place?
As climate change rapidly escalates with worsening impacts, and with standing forests vital to achieving global warming solutions, the forest biomass industry is booming. While the industry does utilize wood scraps, it also frequently cuts standing forests to supply wood pellets to be burned in converted coal power plants.
Though current science has shown that burning the world’s forests to make electricity is disastrous for biodiversity, generates more emissions than coal, and isn’t carbon neutral, a UN policy established in the 1997 Kyoto Protocol erroneously counts energy produced from forest biomass as carbon neutral.
As a result, nations pay power companies huge subsidies to burn wood pellets, propelling industry growth. While the industry does utilize tree residue, forests are being cut in the US, Canada, Russia, Eastern Europe and Vietnam to supply pellets to the UK, EU and other nations who can claim the energy creates zero emissions.
We all depend on the fruits of the forest in the form of wood, wild game, oxygen and countless other goods. What happened to the environmentalists who focused on forest preservation? Are they happy that we are ramping up and subsidizing biomass power plants when we could be burning dead, lifeless coal?
More coal power, more forests.
Sources: [1]
Do you remember how Saruman was defeated in ‘Lord of the Rings’?
Treebeard was enraged when he discovered the Orcs had clear cut Fanghorn forest to fuel the Uruk-hai army and their machines of war. In his short sighted greed Saruman had marshalled the bulk of his armies to pillage Rohan and lay siege upon Helm’s Deep, leaving his stronghold of Orthanc and the lands of Isengard unprotected. Treebeard discovers the damage the orcs rendered upon Fanghorn forest and calls the Ents to war. Unprotected, Saruman is easily defeated as he caught by surprise, he had never considered the Ents of Fanghorn a threat.
What would have happened if Saruman had used coal instead of wood? The Ents would not have cared to engage in war of the ring and Saruman would have held his stronghold. Who knows what that would have led to.
Perhaps J. R. R. Tolkien sought inspiration for this plot device knowing the history of England, who in the 17th century the growing English economy found themselves in a crisis of wood shortage before they resorted to using coal to heat their homes and displacing their dependence on scarce wood.
In spite of its grime and stench coal had brought a new comfort to Britain’s damp, chilly climate. Already in 1651 the author from “News in Newcastle” observed that sacks of coal had heightened the joys of intimacy! Coal had been so successfully incorporated into the British technology and economy that during the last four decades of the 17th century wood prices stopped rising.
Considering our biosphere does not need or use coal to survive it is effectively a resource exclusively consumed by human beings. Why not use more coal and less lumber wherever it is viable? The biosphere is dependent on wood and has little need of coal, most of which is locked deep underground. Dead, inanimate coal is a wonderful resource that we should wield to offset our demand on our lively forests.
The byproducts of coal combustion literally helps our trees grow taller and our forests grow more massive.
Agriculture reduces hunting pressure
Sources: [1]
At this point most people around the world do not depend on hunting to put food on their table, it is increasingly a luxury and sporting activity. Our reduced dependence on hunting and fishing wild game is due to our leverage of fossil fuels in agriculture. Our ability to farm fish, chicken, beef, pork and other animal products at massive scale is wholly dependent on our ability to leverage portable, perfectly storable fossil fuel energy.
Few people realize that an enormous amount of energy is required to produce our food. In fact, 17% of all fossil fuel used in the U.S. is consumed by the food production system. As a result of the industrialization of agriculture, most food is now produced at large-scale, centrally-located facilities which use energy-intensive farming practices. Large amounts of fossil fuel are required to power heavy farming machinery, to process foods, to refrigerate foods during transportation, to produce packaging materials, and to manufacture and transport chemical inputs such as fertilizers and pesticides
According to the U.S. Department of Transportation, food and agricultural products (not including imported or exported foods) are transported 566 billion ton-miles within U.S. borders each year, constituting more than 20% of total U.S. commodity transport.7 In 1969, the U.S. Department of Energy estimated that, on average, food traveled 1,346 miles.8 Another study conducted in 1980 determined that fresh produce traveled 1,500 miles!
If we could somehow magically ban fossil fuels like some sad people want, we would be forced to hunt wild game in the oceans and on the lands to extinction in very short amount of time. Human civilization can support 7.6 billion people and counting only because we’ve learned to leverage fossil fuel energy and machines to farm fish, livestock, fruits and vegetables. Fossil fuel energy allows us to grow food in much higher density and with much less spoilage.
We will never transition off of fossil fuels.
A lot of big-talking politicians will try to convince us that we “need to transition off of fossil fuels” to avert a climate catastrophe. These people are modern day snake oil salesman, fanning the flames of fear and then selling you impossible solutions that only enrich their own political aspirations or pocketbooks.
Too many have succumbed to the ridiculous and fraudulent “clean”, “green” and “sustainable” energy propaganda while disregarding basic realities. The truth is that we have no viable substitutes today for fossil fuel resources and nothing yet showing a flicker of promise for future potential.
Fossil fuels are more than just energy, they are an incredibly useful raw material. They are used in almost everything we use today. We are stuck with fossil fuels unless we discover a better alternative, just like we were stuck with wood before we discovered coal. If we do find a better, “cleaner” resource it will likely take hundreds of years to build out the infrastructure, if history tells us anything. It took us well over 600 years to get fossil fuels to the point they are today.
Coal is more than just electricity.
It has become fashionable to write off coal and demonize it here in North America, even though it is used by every single person every single day.
Coal is integrated into almost all of our infrastructure from roads, bridges and buildings to medicines and cell phones. Everybody depends on coal in some way.
We shouldn’t demonize an entire industry of hard working people who literally risk and lose their lives and limbs to produce coal. It is an utter tragedy that we are putting our coal industries out of work through State enforced bans just to prop up foreign coal industries who supply us our coal-based products in lieu of the domestic producers we have oppressed. But more on that in a bit.
As a raw material coal is used for many things as depicted above, from coal tar used in medicinal products like Tylenol to coking coal used to manufacture steel. Coal is critical to many industrial processes and to almost all supply chains.
Even the coal burned in power plants supplies a lot more than just electricity! When coal is combusted it creates useful byproducts called coal ash. Coal ash is used in many ways, including filling in abandoned mines, structural fill for roads, buildings, homes and other infrastructure.
Most notably coal ash is used as a substitute in making cement and wall board, things we all enjoy every single day.
As of 2012, according to the American Coal Ash Association (ACAA) data, approximately 50 percent of the CCRs beneficially used on an annual basis falls into two categories: 1) fly ash used as a direct substitute for Portland cement during the production of concrete (referred to as “fly ash concrete”); and 2) FGD gypsum used as a replacement for mined gypsum in wallboard (referred to as “FGD gypsum wallboard”) during use by the consumer. Specifically, a 2012 ACAA survey indicates the largest encapsulated beneficial uses of CCRs, by more than a factor of two, are fly ash used in “concrete/concrete products/grout” (12.6 million tons) and FGD gypsum used in “gypsum panel products” (7.6 million tons).
Structural fill is typically an earthen material used to create a strong, stable base. Structural fills are constructed by compacting earthen material to develop a structural fill that can be used to support roadways or other structures when completed. Traditionally, fill materials have been composed of soil and natural aggregates. However, coal combustion residuals can be used as a substitute for natural materials in the construction of a structural fill. Source
It really bothers me that the self-loathing Climate-Doomers are calling for the end of our local coal industries and completely disregarding coal’s utility, both direct and indirect.
How much carbon would be emitted if we did not have coal ash to build our roads, bridges and the walls of our home? How much soil and minerals would we have to mine from our natural habitats to replace coal ash? How many habitats destroyed without coal fired power plants giving us this useful byproduct?
Why are we comparing coal to wind, solar and nuclear when coal does so much more than just electricity? Coal is considered “dirty” only by people who fail to attribute all the wonderful things coal offers to society and therefore the environment.
The carbon accountants do not properly account for the positive externalities of coal. They don’t care for the benefits, they only peddle the negatives like any good snake-oil salesman. The traitorous politicians enforcing the non-scientific coal bans have no problem consuming products made from foreign coal power. The hypocrisy is absolutely nauseating.
Crude oil — the lifeblood of civilization.
Beyond coal, almost all other modern comforts are derived from crude oil.
Home heating oil, natural gas heating and electricity, diesel fuel, gasoline, tools, machinery, pavement, engines, airplanes, rockets, satellites, cell phones, lighting, clothing, shoes, shelter, medicine, chemicals… Literally everything. Walk around your house and touch anything — it will already have been touched by crude oil.
All of human technology is stacked on top of fossil fuels as the foundational base layer. Even promising technologies like nuclear energy cannot be manufactured or constructed without crude oil and raw coal.
The other “renewables” — quotation marks for sarcasm—like wind turbines and solar panel rely on fossil fuels as well. Ironically if alternative energy technologies such as these succeed they will only increase our net consumption of crude oil and coal while displacing only some reliable coal and natural gas power off the grid.
All modern technologies are based on the non-renewable fossil fuels and fossil energy that made them possible. Solar photovoltaic (solar PV) technology is no exception. For example, every step in the production of solar PV power systems requires an input of fossil fuels — as the carbon reductants needed for smelting silicon from ore, to provide manufacturing process heat and power, for the intercontinental transport of materials, and for on-site deployment. The only “renewable” materials consumed in PV production are obtained by deforestation — by burning vast areas of tropical rainforest for charcoal (another carbon reductant) and to provide the wood chips that are necessary for all silicon smelters to function. Additional mineral resources and fossil energy are needed for constructing factories, process equipment, and maintaining the PV manufacturing infrastructure itself. Silicon smelters, polysilicon refineries, and crystal growers all require uninterrupted, 24/7 power that comes mostly from coal and uranium. Both media and journal claims that solar PV can somehow “replace” fossil fuels for power have not addressed the “non-renewable reality” of the global manufacturing supply chains necessary for the mining, manufacturing, and distribution of PV power systems. Some previous accounts of solar PV production have omitted the raw materials and silicon smelters from the PV “supply chain” picture, which obscures the profoundly non-sustainable, fossil-powered basis of PV technology. Source
While it sounds appealing to sell people on the idea that we are going to transition off of fossil fuels it is little more than a mirage — a magical idea that never gets any closer to reality no matter how many steps you take. There is simply no evidence supporting this ridiculous idea. In fact all the evidence points to the contrary — every single year crude oil consumption increases.
For decades the peak oil alarmists have been claiming we’ve hit the peak and for decades they’ve been wrong. The only time when we do not consume more crude oil is when we are hit with an economic recession. That is, when uncertainty and illiquidity in the markets force people to lose their jobs and results in a massive loss of productivity and prosperity.
Personally, I do not think we should support State mandated curtailing of fossil fuel usage if that means making people’s lives miserable by stripping entire industries of their livelihoods and the comforts they supply to the rest of us.
One day in the future, sometime after maximizing drilling and completions technology, we will indeed hit peak oil rates. But that day may still be a long ways off, perhaps even hundreds of years away. Technology is unpredictable and sometimes arrives in bursts of new discoveries. Every year we continue to witness significant advancement in oil and gas completion techniques, from thermal injection (SAGD), fracking, polymer floods, directional drilling enhancements and more. Even if we stop exploring for new oil and gas reserves our existing oil reserve base may increase simply from technological progress.
When we finally do hit peak oil we will see crude oil prices go up as the supply becomes constrained and cannot meet demand. Oil and gas is so critical to human civilization that higher and higher prices will simply justify novel, more expensive extraction techniques that are not feasible today.
When all the easy oil is gone and drilling and pumping is no longer feasible we may simply brute-force excavate the dead, tar-like crude oil like we do to bitumen today in Canada’s oil sands. There are many shallow oil and gas pools that would be reasonable to mine should the prices justify it. By then who knows, we may even deploy autonomous mining robots to extract every last drop.
Taxing fossil fuels in North America merely redistributes production and jobs to foreign jurisdictions.
In the wake of G7 nations forcibly banning, taxing and shaming domestic coal fired power plants into submission at the behest of their divine ESG gods — the United Nations et al — Chinese coal fired plants are coming online at unprecedented rates.
Coal plants have been closing at a fast rate since 2010 (290 plants have closed from 2010 to May 2019; this was 40% of the US’s coal generating capacity) due to competition from other generating sources, primarily cheaper and cleaner natural gas, (a result of the fracking boom) which has replaced so many coal plants that natural gas now accounts for 40% of the US’s total electricity generation. Source.
As of 2020, 350 coal-fired power plants are under construction. They include seven in South Korea, 13 in Japan, 52 in India, and 184 in China with the rest underway in other parts of the world.
China is also building and financing hundreds of other coal-fired power plants in countries such as Turkey, Vietnam, Indonesia, Philippines, Egypt, and Bangladesh. Source.
While we destroy our domestic low-cost, reliable energy sources that keep our businesses competitive here in North America, abroad they are ramping up their coal dramatically and selling us products we can no longer competitively manufacture ourselves. Effectively we are just participating in a coal and carbon redistribution game from domestic producers to foreign producers, at the cost of domestic jobs and domestic prosperity.
China’s ever-increasing investment in coal has provided them with the lowest cost basis to manufacture which is why they increasingly produce the bulk of the worlds wind and solar energy equipment. When our governments subsidize our solar and wind projects they are effectively just subsidizing Chinese coal, Chinese manufacturing and Chinese carbon.
Nearly 80% of the solar panels installed here are from China companies. In 2019, U.S. made solar panels hit a 10-year high of 19.8% of market share, but that, says Ferry, is mostly thanks to tariffs and the anti-dumping/countervailing duties imposed on Chinese firms by the International Trade Commission. Source
Who is really winning in this silly game of ‘pass the carbon’? The environment sure isn’t. How much energy is being wasted by the pointless jobs created by the carbon bean counters? How many man hours are wasted complying with ESG sustainability reporting and the idiotic carbon tax regime?
For me the real shame is the human cost to all of this. Hundreds of thousands of coal, oil and gas workers in Canada and the US are out of work, jobs mostly displaced to China. I have many friends I met while working in the Canadian oil patch who have fallen on very rough times largely due to the Canadian government’s insane carbon policies which have created uncertainty and scared capital out of Canadian energy markets.
For many it is just too easy to demonize and point your carbon-cross at an entire industry when you haven’t yet been personally deemed “unclean” by the divine carbon accountants. Don’t worry, your time will come. Perhaps if more people felt the personal loss created by the authoritarian carbon and ESG policies then maybe we wouldn’t be so tolerant of our sold-out politicians who are legitimizing this nonsense.
The carbon accounting system is ineffective, redundant and an enormous net waste of energy.
The carbon accounting scam deserves an entire essay in and of itself, which I already wrote about here. Rather than rehash everything I’ll just summarize the main takeaways:
- Carbon accounting is more costly for small businesses relative to large businesses and thus is just another pressure suppressing market competition and efficiency. ESG and carbon accounting is discriminatory against small businesses and entrepreneurs who have much more costly access to capital than established institutions. The net result is increased wealth disparity.
- Carbon accounting is heavily biased and non-scientific, the accounting methodologies are not equally applied across all technologies. For example, solar panels are not properly attributed with the carbon they emit in manufacturing. In addition, the “negative externalities” as applied to fossil fuel pollution are not applied to the pollution of the alternative energy technologies, nor are the positive externalities of fossil fuels considered at all.
- Carbon accounting is a less effective methodology for measuring resource consumption and pollution than standard, run-of-the-mill dollar accounting. The purpose of carbon accounting is to approximate pollution, but we could more effectively use spending metrics in lieu of carbon metrics. Generally speaking the more money spent implies the more resources consumed, all else being equal. In this sense carbon accounting is completely redundant.
- Carbon accounting is a top-down architecture lead by the United Nations, their creditors and partner institutions (central bankers / IMF / WEF / government / etc). The carbon accountants are stripping wealth from the bottom using a Carbon Tax then subjectively deciding what businesses are “clean enough” to be granted a “clean energy” subsidy called a Carbon Offset Credit. Instead of the competitive market choosing winners naturally, bureaucrats are artificially hand selecting the winners based on their subjective interpretations. While much of this redistributed wealth is wasted in the bureaucratic (and corrupt) administrative overhead of the carbon accounting system, very few of the chosen “clean energy” businesses that receive carbon subsidies ever actually succeed in commercially scaling a product.
More crudely speaking the United Nations’ led ESG movement is little more than a freedom-destroying socialist doctrine in disguise. They are issuing and enforcing the use of an unreserved, subjective shitcoin they call a “carbon offset credit” as the token for a carbon accounting system that all businesses must adopt else get fined or financed out of existence.
The carbon accounting fraud is in effect a net negative to our quality of life, to our health and to our environment. The carbon scam only benefits the wealthy, the institutions and the bureaucrats who administer it.
Unsound monetary and regulatory policies are incentivizing oil producers to be wasteful.
Present day energy and capital waste in the oil patch is largely incentivized by a unsound monetary policy. Let me break it down.
Oil company valuations are largely based on flowing barrels of oil equivalent (boe), among other metrics such as proven reserves. Because flowing boe’s is a critical health metric for asset evaluators (it drives other important financial metrics such as operating cost per boe, etc), producers are incentivized to maximize production flow rates and thus must constantly “chase the drill bit” and add new wells to their inventory to optimize for max valuation.
This means that after a well is completed it is often produced at maximum flow rates with reduced concern for the consequences. This way producers can leverage their inflated metrics to raise more money and drill more wells as fast as possible.
Why is this a problem?
Well pumping at max flow rate has consequences. Here are five examples demonstrating the capital or energy waste that may be incurred by this high time preference crude oil production strategy:
- When pumping at maximum flow rate the production decline curve is the steepest. The rapidly decreasing production rates means the producer has to more frequently spend capital to downsize bottom-hole pumps and modify surface facilities as they ride the decline.
- Maintenance events are more frequent because pumping at max flow rates can cause problems like rod and tubing wear (rod and rotary pumps), pump wear, etc which results in more frequent servicing events.
- Max pressure drawdown on the reservoir can draw in bottom-water, causing the well to catastrophically and permanently “water-out” (water channeling displaces the oil), leaving the producer with a non-productive zone and a lot of capital wasted.
- High oil production rates come with high associated gas volumes. Often these gas volumes are too high for the surface facilities and gas take-away pipelines and in the end much of this gas is burned off in a flare and vented to atmosphere in the tanks / facilities.
- Designing facilities for maximum production rates means the engineer has to oversize the facility equipment. For example oversizing motors, pumps, tanks and pipelines. Much of the facilities will be running at a fraction of capacity for most of their lifetime at the facility, so a lot of capital is wasted in oversized and idle equipment.
These problems can be alleviated in many cases by simply producing the well at a slower, more reasonable rate. A rate that will sustain for longer, decline more gradually and allow facilities to be sized more efficiently. With modern gas monetization technology such as bitcoin mining, a well may be produced precisely at the rate at which all oil and associated gas is used or sold. No energy need be wasted beyond what is not economically feasible to capture.
While I can envision a world where producers are incentivized to at least attempt to capture every last Joule, I won’t hold my breath just yet. There are also good reasons that justify why producers pull hard on their wells and waste the gas. For example, fixed costs weigh heavy on the balance sheet if the well is not maximizing cash flow and for many facilities flaring is a necessary safety requirement. Also, in some oil and gas completions, not producing at max flowrate can result in decreased reserves.
Inflationary monetary policy incentivizes waste.
While certainly a nuanced subject, I will take a risk here and go so far as to suggest that the underlying problem behind oilfield energy waste is inflationary monetary policy and what it means for the cost of capital.
Relentless money printing guarantees capital gets cheaper over time so corporations have an incentive to constantly raise money and refinance. Producers can leverage production and raise more money the harder they pump their wells. Larger and larger debt burdens become easier and easier to service as the cost of debt is inflated away. Producers end up maximizing profits and returns to shareholders by maximizing how much money they raise, not by how efficiently and carefully they produce the asset. The net result is incentives that make producers very poor custodians of the limited hydrocarbon reserve base.
On a bitcoin standard, which has a deflationary effect, could we expect producers to hoard capital and minimize waste? Unlike inflationary fiat money, on a bitcoin standard the cost of capital gets more and more expensive over time as prices deflate. Producers would be very wary of taking risky levered positions and certainly would work hard not to waste capital on inefficient production strategies or unnecessary servicing events.
A bitcoin today is worth less than a bitcoin tomorrow — there’s a natural incentive to save and operate conservatively.
No royalties on waste energy?
Beyond monetary policy, many state regulations may also incentivize producers to waste capital and energy. I can think of several regulations that fit this bill, but the most notable ones I’d like to point out here have to do with royalties and mineral ownership.
In most jurisdictions, oil and gas producers pay royalties to the mineral owner on produced oil and gas only if it is sold to the market. When the producer wastes and disposes of the gas in a vent or flare stack, the producer is exempt from paying any royalty at all on that gas! Considering a royalty is just a fancy word for tax and tax is just a fancy word for punishment, it is really strange that we would punish a producer for being productive with a resource and reward him for wasting it.
The royalty rules make sense when you view flaring as a necessary evil, but when you view it as potentially beneficial energy and revenue source then it really changes your perspective. There’s no reason why royalties should not be applied on all energy that is produced, regardless of how it is used. If a producer decides operating inefficiently and wasting the gas is the best course then at least the mineral owner should be made whole with royalties due on the wasted energy. Who is to say what new technology will make it viable in the future? We see it time and time again as new production techniques in thermal recovery and directional drilling unlock resources that were previously uneconomic. Now we are seeing Bitcoin mining as a way to make wasted and stranded gas economic.
Poor custodians mean poor production practices
Further to the royalty disincentive, in jurisdictions like Canada it is rare that landowners are also the title holder to the minerals as most mineral rights are owned by the Crown and leased to oil companies. I will suggest that the huge problem of shut in, suspended and orphaned wells in Canada and the US is largely due to the mineral owners being poor custodians and allowing risky production practices to take place.
I could talk about this issue for hours, but here’s a quick example that should make my point.
In my backyard near Lloydminster, Alberta we have an oil reserve that is very difficult to produce because it is very heavy and “molasses-like”, so it doesn’t flow very well like lighter, conventional crude oils will. One way of making it flow is to heat it up while it sits underground, for example SAGD (steam-assisted gravity drainage) thermal production which is seeing great successes.
However, another way to heat up this heavy oil is to set it on fire! This is called a fireflood — you pump oxygen down into the oil bearing formation then set it on fire, the fire front propagates and heats up the oil making it easier to flow and produce up nearby production wells.
So what’s the problem with fire-flooding? When you set the crude oil formation on fire you literally destroy the entire reserve FOREVER. Traditionally it is known that these heavy oil wells only produce approximately 8% of the total oil in place using conventional methods, so 92% of the oil is left downhole. A fireflood is destroying approximately ~90% of the oil left in place just to try to produce a little more than the standard 8% using current best practices. Who is to say what future technology might unlock the oil that we cannot feasibly access today? By setting it on fire you are quite literally setting on fire all hope of future technologies and destroying the resource forever.
Personally I would consider this fire-flooding practice worthy of jail time, yet here we are with local regulators allowing this to happen. I personally was the production engineer for wells surrounding an old fire-flood field just south of Lloydminster (known as Aberfeldy field) and I can tell you the nearby oil is almost impossible to treat due to the contaminants of the fireflood.
If the landowners owned those minerals do you think they would be quick to let an oil producer try this method? You would literally be lighting your entire families future potential royalties on fire. Landowners generally take great care of their land and are always looking to maximize productivity, I highly doubt they would be interested in fire-flooding, whereas some distant bureaucrat checking the clock in his cubicle doesn’t need to think twice when he signs off of such projects.
Conclusion
There is enormous potential to reduce and optimize humanity’s impact on the environment by helping the fossil fuel industry operate more efficiently. While alternative power generation technologies have been labelled “renewable” and “sustainable” it isn’t so simple because all of these alternative technologies require fossil fuel resources and therefore can only increase our demand on hydrocarbons.
I would suggest that rather than worry about the carbon we are emitting from useful activities, we should be worrying about all the resources we are wasting. We will be stuck consuming fossil fuels for a very long time to come so why not focus our efforts on using them as efficiently as possible in the meantime?
The positive news is that today bitcoin miners have already started helping the oilfield become more efficient by consuming otherwise wasted vent, flare and stranded gas. I am witnessing this niche industry find exponential growth and am hopeful that a significant percentage of otherwise wasted natural gas will be conserved in the near future.
And this is only the beginning of what sound money will do for improving fossil fuel production. I am hopeful that a bitcoin-like monetary standard could reverse many of the inflationary incentives that are presently driving fossil fuel waste. A bitcoin standard has the potential to usher in an era of custodial responsibility where people and businesses work diligently and efficiently to safeguard their scarce resources.
❤ Steve
