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I'll try here to clar up som misconceptions about the oil and gas biz that seem rampant in the body politic.  See below for more on:

Gas Prices
Drilling and Production Technology
"Peak Oil"
The Mississippi Canyon

I realize this will raise more questions than it answers.  Ask away.  I will try to address them in subsequent posts.

Gas Prices.  Modern refining technology allows a gallon of crude to be turned almost completely into a gallon of gasoline.  So at $55/bbl, gas coming from a refinery is $1/gal just for the raw material.  The rest is tax, distribution, and the insane amounts of energy required to disassemble the carbon chains and reassemle them as gas.  Gasoline is a commodity, subject to the whims of supply and demand.  Currently global demand is outstripping supply by about 10%.  In the US the problem is exacerbated by the fact that we haven't built a new refinery since the 1970s.  Our existing refinery capacity is stretched to the breaking point.  That's why they keep blowing up.  A lot of them haven't had annual maintenance downtime in over 3 years.  Think about that the next time you want to attack the evil oil companies for trying to build a disgusting refinery within 300 miles of your house.  The supply bottleneck in the US was the refineries, even before Katrina.  Nobody is price-gouging you, regardless of how good it feels to blame us.

Drilling and Production Technology: A typical offshore oil well costs $5 million to construct.  It is not the simple gushing hole in the ground that Hollywood has fed you.  It is a 20,000 foot deep, 9" diameter, steel-lined hole in 5-15 layers of rock.  It contains at least $100,000 worth of hardware to control pressures exceeding 30,000 psi at temperatures above 300° F in a highly corrosive bath of chemicals.  The materials used to survive this environment are range from highly chrom-alloyed stainless steel through to titanium.  Most of it is made of nickel-based superalloys which are in very short supply.

As God's own joke, most of the oil AND most of the nickel come from parts of the world that are perpetually unstable, like Africa.  (Of course everything Bush does makes this problem worse.)

Since all the tools required to construct a well are very expensive, they are all rentals.  The drilling rig alone can cost around $100,000 PER DAY to rent.  For large developments of multiple wells in the same area, an oil company will commision a dedicated platform to drill all the wells and babysit them during production.  These are typically constructed on the model of a "party barge."  You can see the two pontoons on the one in the Mobile Bay/Bridge wreck.  Most are built in Korean shipyards and floated to their locations, where they are moored for the life of the project, typically a decade.  For smaller projects, a drill rig is rented and when the well is complete, the rig leaves a small, unmanned platform behind to control the pipline or "tie back" to a larger production platform.

It is understood that at some point in their lives, these platforms will be smacked by a hurricane.  Every well is provided with two safety valves.  One will shut automatically within 15 seconds at the slap of a panic button.  The other is a fail safe design that will slam shut under its own force if it is disconnected from the platform.  Both of these valves are located below the ocean floor where even Katrina couldn't reach them.  Every manned rig has a weather radar and satelite link to NOAA.  Crews are evacuated 24 hours before a hurricane strikes.  The first thing they do before they leave is "shut in" the wells, in hopes they can just throw the "on" switch when they get back.

"Peak Oil"  60% of the oil discovered on Earth is still in the ground.  We are not running out of oil.  It's just getting more expensive to extract it.  The reason so much is still in the ground is because it costs too much to get it out.  As the cost of extraction continues to mount, alternatives become economically feasible.  This is what caused the dropoff in US oil production in the late '70s that is used as the algorythm to predict world production drop.  Most models peg this date around 2010.  This is not a cliff, it is a ROLLOFF.  Oil will continue to be produced for your grandchildren's lifetimes.  We just won't keep burning it in cars.

The Mississippi Canyon is the name geologists have for the Mississippi River delta as it spreads onto the floor of the Gulf of Mexico.  Such ancient river deltas are a prime source of oil, and most of the oil produced in th GOM comes from the Mississippi Canyon.  This was, of course, the direct path of Katrina.  Most natural gas in the Gulf comes from the western half.  So don't let any blowhard BS you about gas disruptions.  It's the oil we will sorely miss.

Originally posted to Nineteen Kilo on Wed Aug 31, 2005 at 06:32 PM PDT.

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Comment Preferences

  •  We Asked You To Write This Diary (none)
    And I'm not disappointed.  Thanks, it helps to have some expert perspective on some of this stuff so those of us who aren't engineers, geologists or oil economists can make better sense of everything.

    I'm recommended this, this is the type of sober assessment we need.

    The revolution will not be televised, but we'll analyze it to death at The Next Hurrah.

    by Dana Houle on Wed Aug 31, 2005 at 06:34:05 PM PDT

  •  Perhaps (none)
    (speculation, I am definitely not an expert) no new refineries have been constructed since the 70s, partially because of environmental/regulatory  considerations, but also because companies realized that with Hubbards Peak approaching, there would be that much less oil to refine, so why build something that would take decades to be profitable?

    But it does me no injury for my neighbor to say there are twenty gods or no god. It neither picks my pocket, nor breaks my leg.

    by calipygian on Wed Aug 31, 2005 at 06:36:41 PM PDT

    •  Not so (4.00)
      There is plenty of oil to refine, just not from the US.  We don't typically import pre-refined gasoline.  It's too dangerous to transport, and foreign refineries make high-sulfur crap.

      There are at least three refineries that have been stuck in red tape for a decade.  ABC news did a great story on this about a week ago.  I was shocked that the MSM finally got their facts straight about the true driver of high gas prices.

      "Out here in the middle, where the center's on the right, and the ghost of William Jennings Bryan preaches every night..."

      by Nineteen Kilo on Wed Aug 31, 2005 at 06:41:53 PM PDT

      [ Parent ]

  •  Generally right on, (4.00)
    one small quibble about Peak Oil:

    You say "60% of the oil discovered on Earth is still in the ground.  We are not running out of oil.  It's just getting more expensive to extract it."

    Your numbers are ballpark correct, however, what needs to be remembered about the Peak Oil hypothesis is that it is not based solely on volumes, production rates, and etc.

    It is based on the physics of oil reservoirs and the viscosity of oil, and what those values mean in terms of the energy expenditure required to extract each given dollop of crude oil.

    First, since different grades of crude have different viscosities, and different reservoirs have different pressures, permeabilities, and porosities, those numbers vary...a lot.

    Second, with each successive dollop of crude extracted, the energy required to extract the NEXT dollop increases.

    At a certain point, unity is attained, and one kilocalorie of energy is required to extract a kilocalorie's worth of crude oil. At that point (which is reached at around 60-70% depletion of the reservoir), it does not matter what the price of oil is...it is not economically feasible to produce the reservoir at all.

    In the 30's to the 50's, 50 barrels of crude were produced with the energy provided by one barrel of crude - this was a result of the high pressures and low viscosities of the reservoirs being exploited at that time...

    Over time, as older reservoirs were depleted and as newer, deeper, nastier quality reserves were brought on line, that ratio decreased. Currently we produce about 5 barrels of crude for every barrel invested.

    And that number will continue to drop.

    The only way to ensure a free press is to own one

    by RedDan on Wed Aug 31, 2005 at 06:39:56 PM PDT

    •  I concur. (4.00)
      I was trying to keep it simple.  Most people's eyes glaze over when I start in on the physics of oil recovery.

      "Out here in the middle, where the center's on the right, and the ghost of William Jennings Bryan preaches every night..."

      by Nineteen Kilo on Wed Aug 31, 2005 at 06:43:30 PM PDT

      [ Parent ]

      •  Thanks for this (none)
        If you could give orders on how to deal with this, how would you prioritize things?  
        Or just your top 5 things that need to be done soonest?

        War is not an adventure. It is a disease. It is like typhus. - Antoine De Saint-Exupery

        by Margot on Wed Aug 31, 2005 at 07:37:16 PM PDT

        [ Parent ]

      •  Glaze Away (none)
        People prepared to wade through the details and actually understand stuff, are in good supply round here, keep it jargon free, but don't spare the detail.

        One small point on the economics, you say "So at $55/bbl, gas coming from a refinery is $1/gal just for the raw material.  The rest is tax, distribution, and the insane amounts of energy required to disassemble the carbon chains and reassemle them as gas"

        But as Dan points out, not all that gas ends up in the tank because an "insane amount of it" has to be devoted to produicing, refining and distributing the barrel full. That energy has to come from somewhere and it might as well be from the barrel itself.

        So a 55 gallon barrel actually yields about 50 gallons net, and falling.

        •  Sure (none)
          You can parse it either way. Dan is putting cost in terms of equivalent barrels of oil.  I just left it in raw dollars.  Money's money, whether you burn it or sell it.

          "Out here in the middle, where the center's on the right, and the ghost of William Jennings Bryan preaches every night..."

          by Nineteen Kilo on Wed Aug 31, 2005 at 09:06:53 PM PDT

          [ Parent ]

      •  very informative! (none)
        thanks to both you and reddan for putting this into a nutshell version.

        "Democrats: Always standing up for what they later realise they should have believed in." -Jon Stewart, the Daily Show

        by anna on Wed Aug 31, 2005 at 09:03:16 PM PDT

        [ Parent ]

    •  So wouldn't the big question be... (none)
      at what % depletion are the Saudi and Iraqi oil fields?  Are they anywhere near half depleted?  How viscous and nasty is the oil they are extracting today compared to, say, the 1970's?

      I gather that the North Slope is past its peak? North Sea too?  What about the Caucasus?

      •  The Saudis (none)
        aren't saying...but Matt Simmons says much closer than we have previously assumed, plus the fact that water cut and reservoir damage are much worse than previously thought.

        North Sea is past Peak, as is North Slope.

        The Caucuses/Caspian are not really fully on line yet, but are proving to be a serious disappointment in many ways, so far.

        The only way to ensure a free press is to own one

        by RedDan on Wed Aug 31, 2005 at 07:37:05 PM PDT

        [ Parent ]

      •  The Saudi and Iraqi Oil... (none)
        Is some of the shallowest, easiest to extract in the world.  And yes, most of their fields are "mature,"  meaning they are past their prime.  But on sheer volume, they still outrank anything else in the world.

        "Out here in the middle, where the center's on the right, and the ghost of William Jennings Bryan preaches every night..."

        by Nineteen Kilo on Wed Aug 31, 2005 at 07:57:37 PM PDT

        [ Parent ]

  •  Yes thank you. (none)
    It's very informative.

    "poverty is infinitely expensive" by sarac

    by coigue on Wed Aug 31, 2005 at 06:40:45 PM PDT

  •  Nice (none)
    For more detail on the nuts'n'bolts of things, see the oildrum's series on drilling.  Here is the latest installment pre-Katrina with links to earlier 'techie Saturday' installments in the text.

    Oildrum.com is the cream of the crop on things Katrina right now and I recommend them highly.

    It could be worse. msaroff could still be living in Texas.

    by George on Wed Aug 31, 2005 at 06:58:13 PM PDT

  •  thanks (none)
    I added my encouragement on the other thread before I saw, further down, that you had done it. I live in Wyoming where the gas boom is in hyper-high mode. The only thing restraining them here is a little bit of regulation still and, increasingly, the shortage of equipment they need. From what you've written -- here and in the other entry -- it seems that that shortage of equipment might get worse as a result. Or is the equipment used to drill (mostly nowfor coalbed methane) in the middle of the Wyoming desert so completely different from that used to drill oil in the gulf that there will be no impact?  

    We need not stride resolutely towards catastrophe, merely because those are the marching orders. -- Noam Chomsky

    by kainah on Wed Aug 31, 2005 at 07:00:49 PM PDT

    •  Land based Equipment... (none)
      Is cheaper and simpler.  BUT...

      The number of wells you have to drill, and therefore the total volume of equipment you need, is greater, so cost is a wash.

      Also, gas wells tend to have some really nasty things in them besides methane.  Particularly hydrogen sulfide and carbon dioxide, which when mixed together under high pressures and temeratures will eat through a steel pipe in about 48 hours.

      "Out here in the middle, where the center's on the right, and the ghost of William Jennings Bryan preaches every night..."

      by Nineteen Kilo on Wed Aug 31, 2005 at 07:55:02 PM PDT

      [ Parent ]

  •  Thanks for the lesson (none)
    the information was sorely needed here ... I tend to curse the petro companies alot these days. ;)
  •  Question (none)
      I am till wondering how the oil companies are making record profits if they are not gouging us.From what you say they are just about giving it away at production cost. Where are these record profits coming from?
    •  Two separate things (none)
      Oil is a commodity and producers are price takers, not price makers. Right now they are very happy to take the prices. Refining oil into gasoline is not where the profit is except in flooded markets where you need to refine the oil to find a buyer for your production.

      It could be worse. msaroff could still be living in Texas.

      by George on Wed Aug 31, 2005 at 07:16:41 PM PDT

      [ Parent ]

    •  They aren't giving it away (4.00)
      They are selling it at their cost, plus expenses and a profit margin of about 8%.  The record profits come from 2 places.

      1.  Sheer volume.  World oil demand continues to grow.  The more we sell, the more profit we make.

      2.  No reinvestment.  Oil companies are loath to invest in new production capacity.  The up-front costs are massive, and the risk that the price will fall while their investment is still at the erecting yard is very real.  The Saudis have about 60% of the world's oil reserves.  All they have had to do in the past is turn on the spigot and prices fell.  In the '80s they did just that and it hurt Houston so bad there are still neighborhoods that haven't recovered.  People lost everything and just abandoned their houses and moved away.  And with only and 8% ROI, the Wall Street weasels won't invest in us, either.  So we are basically a self-financing business.  Only in the last year, as world demand had CONSISTENTLY outstripped supply, and local banks have filled with cash, has the industry lost their risk aversion and gotten serious about reinvestment.  Of course if you take our big pile of money away to punish us and score political points, you will just reduce investment in the capacity we sorely need.

      More on the Saudis:  Note I said "in the past."  Most of us down here are just as mystified as you why they haven't turned on the spigot.  Rumors are flying that Aramco (the Saudi state oil company) has been lying about its reserves.  But keep your eye on the ball.  Gasoline prices are caused by a REFINING bottlneck, not an oil supply bottleneck.

      Also note that most analysts peg the "fear premium" caused by Shrub's Iraq disaster, at about $10/bbl.  That is to say, anybody with a barrel of oil can sell it for $10 more than it's intrinsic value just out of the fear that you won't be able to buy it tomorrow.  That's the futures market.  Get an economist to explain that bit of black magic.

      "Out here in the middle, where the center's on the right, and the ghost of William Jennings Bryan preaches every night..."

      by Nineteen Kilo on Wed Aug 31, 2005 at 07:48:21 PM PDT

      [ Parent ]

  •  Hooray (none)
    information.  Keep it coming, 19K, and don't skimp on the specifics just becuase folks' eyes begin to glaze.  You won't have to put up with that nonsense here (at least as far as you can tell).  

    This is precisely the kind of expert information we need (much) more of on DKos.  We've got a stable full of political smarties, but we're notably thin on experts in "real" fields--natural resources and energy production, telecommunications, commodities, manufactured goods, homebuilders and contractors, timber industry, automobile manufacture and research, etc.

    We seem to have done pretty well lately with the military (more is always better, of course). There are likely a host of reasons why we haven't seen more from the likes of you, but my .02 is that we need it.  Thanks for the breifing, and please, keep it coming.

    ...some others hear the song of the Sausage Creature

    by Gooch on Wed Aug 31, 2005 at 07:25:36 PM PDT

  •  I'm totally subscribed (none)
    you're my new favorite kosPerson
  •  Couple of nitpicks... (none)

    Aside from typos like "clar up som" in the opening paragraph, there's this:

    So at $55/bbl, gas coming from a refinery is $1/gal just for the raw material.

    This seems to imply that the barrel measure used with crude oil is 55 US gallons, like the steel drums used to store and deliver various industrial chemicals. It's actually 42 US gallons, a standard that's been around since 1886 (when crude was actually stored and delivered in barrels of this size).

    So this sort of throws the math off, with $55/bbl working out to about $1.31/gal.

    Other than that, recommended.


    k.

    --
    "In spite of everything, I still believe that people are really good at heart." - Anne Frank

    by ktakki on Wed Aug 31, 2005 at 08:32:22 PM PDT

    •  OK you got me (none)
      Somebody always has to be more right.  You win.  Sleep well.

      "Out here in the middle, where the center's on the right, and the ghost of William Jennings Bryan preaches every night..."

      by Nineteen Kilo on Wed Aug 31, 2005 at 09:09:25 PM PDT

      [ Parent ]

      •  Sleep well? (none)

        I'm not going to sleep well until I hear from my dear friend Ada, who lives in the French Quarter. With any luck, she'll return my voicemail messages to her cell phone tomorrow.


        k.

        --
        "In spite of everything, I still believe that people are really good at heart." - Anne Frank

        by ktakki on Wed Aug 31, 2005 at 09:25:46 PM PDT

        [ Parent ]

  •  Excellent Diary (none)
    Recommended and subscribed.

    The physics, engineering and economics POV are greatly appreciated. Well written and contain enough facts to be illuminating.

    I encourage you to write more diaries as you deem valuable, realizing that the one of the greatest values of dKos is the opportunity for specialists who actually know the details and parameters of a subject to educate fellow citizens.

    Your analyses on alternative energy would be very welcome. Policy proposals would also be very welcome.

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