By Douglas Ugochukwu Agbo
The growing concern for potential energy gap in the near future has given rise to unconventional petroleum development. While there may be available statistics to buttress this argument, unconventional petroleum is a certain alternative that can be used to forestall this crisis. However, the challenges of technology, production costs, environmental concerns and the much needed fiscal terms need to be surmounted in the extraction of this resource. These have become imperative in order to reduce the entry market price of this commodity and to make it competitive with its conventional petroleum counter-part. This analysis intends to look at unconventional petroleum and their role in the dynamics of the future energy markets.
The growing concern among energy experts that global oil production will soon peak has given rise to unconventional petroleum production. A decline is expected to follow this peak period thereby creating a huge energy gap in world demand and supply. There have been several debates about global peak oil production. According to IEA (2006, 2007) and Centre for Global Energy Studies (2006), they submitted that there are inadequate oil resources to meet global demand for decades to come unless a swift political will and the right financial and fiscal atmosphere are created to stimulate exploration and production of petroleum products. Some authors like Salameh (2003) and Simmon (2005) are of the opinion that global oil production may have or will soon peak due to limited resources. Salameh (2003) posited that peak oil production may have been achieved between 2004 and 2005 leaving an energy gap that would be developed between 2008 and 2010. Salameh (2003) submitted that production of unconventional petroleum and technological advancement in the area of gas-to-liquid (GTL) technology are among the viable options available to extend peak oil production.
In 2008, fossil fuels accounted for over 81% of global energy consumption with crude oil maintaining the lead consumption at 33.5%, coal 26.8%, and gas 20.9% (IEA, 2009). Economic and population growth have been identified as major sources of pressure on global energy demand. Salameh (2003) holds the view that there is a huge link between energy demand and economic output. This is evident in the energy demand and the size of GDP of developed OECD regions. By 2020, global economy is expected to make a steady growth of 3.1% annually. World GDP is projected to rise from $33 trillion in 1997 to $67.3 trillion in 2020 with population expected to reach 8 billion in the same 2020. It is clear that ever increasing industrialization, population growth and improving standards of people exert enormous pressure on global energy demand. In order to bridge this potential energy gap, experts and stakeholders are considerably looking into unconventional petroleum resources. It is undeniable that fossil fuels are finite resources; the expansion of these resources through investment in unconventional petroleum resources has become imperative. The sustainable level of investment in this field has been fuelled by the rising prices of oil in the market which has provided an investment climate for stakeholders.
Unconventional Petroleum
This is oil that is extracted or produced using methods that are unusual to the normal oil well extraction method (Oil Gas Glossary, 2011). This is derived from (IEA ETSAP, 2010);
· Oil sands
· Extra heavy oils
· Oil shale
· Tight and shale gas
· Coal bed methane (CBM)
· Natural gas hydrates.
Erturk (2011) categorised unconventional petroleum into;
a. Syncrude: which are produced from oil sands, extra heavy oil and oil shale.
b. Synthetic Fuels: which are produced from biomass, coal or natural gas feed stocks.
Oil Sands
This is also known as tar sand. Its composition is made up of 83% sand, 10% bitumen, 3% clay and 4% water (Alberta Energy Dept., 2011). Bitumen is extracted from the oil sand in the form of heavy oil. Bitumen has negative attributes compared to conventional crude oil which are (Erturk, 2011);
· It has a low API gravity of less than 10.
· It is very rich in carbon and contains poor hydrogen long chain molecules.
· It has a high viscosity compared to conventional petroleum.
· It also known to contain large amounts of nitrogen, sulphur and heavy metals.
Exploration of bitumen before now had remained abandoned or undeveloped due to environmental concerns associated with its extraction. The challenges of discovering large conventional crude oil reserves and also the rising price of oil have picked up bitumen extraction activities. The improvement of technology has also helped a great deal which has resulted in production of liquid fuels from tar sands.
Oil sand can be extracted either by surface mining or in-situ method. Oil sand situated at a depth of 75m is considered suitable for surface mining (Alberta Energy Dept., 2011). On the other hand, oil sands in depths of more than 225 feet are considered suitable for in-situ mining (IEA,2006). In surface mining, about 90% of the bitumen is recovered in the process (Humphries, 2008). It is extracted by physical separation. In in-situ process, two wells are drilled for injection and production. Steam or gas is pushed down through the injection well in order to heat up the bitumen and lower its viscosity while it is collected through the production well. The processes of coking, distillation, catalytic conversion and hydro-treating are applied in order to produce syncrude whose average efficiency is put at 86% (Erturk, 2011).
Fig. 2. Bitumen upgrading process [Source: www.bantrel.com]
Global oil sand reserve estimates stand at 3.3 trillion barrels with Canada having the largest reserves put at 2.4 trillion barrels (IEA ETSAP, 2010). Of this global reserve figure, only 256 billion barrels are economically viable for production under current conditions[1]. Two-third of the global oil sand reserve is located in western Canada sedimentary basin of Athabasca, Peace River and Cold Lake. Currently, Canada remains the only country where oil sand is explored in commercial scale (IEA ETSAP, 2010). Production of oil sand as of 2008 stood at 1.1mmbl/day (Humphries, 2008). Production is expected to rise to 3mmbl/day by 2015 (NEB, 2006).
Extra Heavy Oil
This could be classified as crude oil but with a very low API gravity of less than 10. It is highly viscous in nature and does not easily flow under normal reservoir conditions. The traditional extraction method of extra heavy oil is the CCS. It also involves the use of injection wells which inject steam or gas to heat up the viscous oil and it is collected at the surface through the production well. However, a technology called Steam Assisted Gravity Drainage (SAGD)[2] is now a preferred method for extraction of this oil because of its high recovery factor.
Extra heavy oil deposits are found in many countries with Venezuela holding the largest reserve which is located at the Orinoco belt. Petroleos de Venezuela SA (PDVSA) estimates that 1.3 trillion barrels are in place at the Orinoco belt with a recoverable reserve of 270 billion barrels under current conditions (EIA, 2006). The recovery factor for extra heavy oil in this region ranges from 8% to 12% (World Energy Council, 2007). This is anticipated to increase with research and developments efforts in in-situ recovery technologies. Extra heavy oil is normally upgraded to lighter oil due to its high viscosity.
Oil Shale
This is one of the most popular unconventional petroleum resources in the last decade. Research and development efforts have been intensified in the U.S. towards making oil shale a viable alternative to crude oil. This involves the conversion of oil shale into syncrude (Erturk, 2011). Oil shale is a sedimentary rock containing an organic bituminous substance called kerogen. Researchers believe that kerogen is immature oil because it is in the previous phase of petroleum on the maturity path. In other words, because of their location in shallow depths, they are not exposed to high temperatures which makes their formation incomplete. Thus, if they were buried deeply under extreme hot temperature over a period of time their maturity would have been complete i.e. resulting to oil.
Shale oil is obtained through a process called retorting. Retorting involves heating kerogen up to 520oC in the absence of oxygen to produce oil (Koel, 1999). Oil produced from the retorting process is commonly rich in nitrogen and other impurities which require an upgrading process. Just like oil sands, oil shale can be extracted through surface or in-situ mining. There have been serious environmental concerns about in-situ method of extraction. This is because of its location in shallow depths which have tendencies to contaminate ground water during extraction process. Therefore, in-situ extraction requires meticulous approach of isolating ground water in order to prevent contamination (IEA ETSAP, 2010). Shell is currently making some efforts in research and development in this area through their electric heating model (IEA, 2008).
Shale oil has huge potential because of its large recoverable estimate of 3 trillion barrels globally (Dyni, 2005). U.S. is estimated to hold three quarters of the global reserve (EIA, 2006). U.S. with a daily petroleum consumption of 19.1mmbl (EIA, 2011), this source of petroleum can meet its demand for over 100 years (Erturk, 2011). Exploration of oil shale is currently going on in Brazil, Estonia, China, Germany and Israel with total production standing at 5 million barrels as of 2005 (IEA ETSAP, 2010).
Tight and Shale Gas
They exist in low permeability reservoirs (< 0.1mD) which makes them difficult to flow under normal reservoir conditions (IEA ETSAP, 2010). The distinctive difference between tight gas and shale gas is that tight gas is contained in oil rocks while shale gas is contained in shale rocks. Extraction of tight and shale gas is by hydraulic fracturing. This involves pumping fluid at a very high pressure into wells in order to produce fractures in the formation rock.
Technology is only available currently for on-shore production with a recovery factor of 20% of volume in place (IEA, 2009). Horizontal well technique has been adjudged to be better than vertical wells because it provides greater access to the deposit thereby facilitating more recovery of gas in place (IEA ETSAP, 2010). Shale gas is estimated to be the largest unconventional gas resource with about 456 trillion cubic metres while tight gas reserve estimates is put at 210 billion cubic metres (IEA ETSAP, 2010). North America ranks highest in terms of unconventional gas production (mostly tight gas) with an estimated increment of 72% from 1996 to 2006.
Coal Bed Methane
This is a natural gas mostly made of methane that is found in coal beds (Wyoming State Geological Survey, 2011). Ordinarily, methane gas is trapped in coal deposits which have low permeability ratio; which decreases further with an increase in depth. The methods for extraction of this methane gas include hydraulic fracturing and/or extraction through horizontal wells. Because of the miscible nature of methane gas in water, it is trapped by the water during hydraulic fracturing and extracted on to the surface. Coal bed global reserve estimates is put at 180 trillion cubic meters (IEA ETSAP, 2010). CO2 flooding in CBM production has gained considerable attention in recent times. This is buoyed by recent activities in the area of carbon capture and sequestration technologies. The ease at which CO2 is absorbed by coal enhances methane production. This technology is actually a unique one because it is aimed at reducing CO2 in the atmosphere.
Natural Gas Hydrates
This belongs to the class of substances called Clathrates which are gas molecules surrounded by a host lattice of water molecules (EIA, 1998). They are primarily composed of water and natural gas (mostly methane) formed under high pressures and low temperatures. It is these conditions that make them rather or slowly dissociate.
At the moment, natural gas hydrates are still seen as a problem than a petroleum resource. This is because of the problems caused when drilling for conventional petroleum. During drilling operations, two sources of heat are generated; the friction and circulating drilling mud, that can cause the dissociation of hydrates which leads to borehole wall failure[3] (EIA, 1998). Another source of problem associated with natural gas hydrate comes from the free gas zone beneath the hydrate cap. Because this free gas zone can be over-pressured, very careful approach is taken during drilling operations to prevent a blow-out especially if drilling for conventional oil. There are three methods of exploitation of natural gas hydrates;
a) Depressurisation which entails reducing the pressure in the free gas zone under the hydrate stability zone thereby causing it to dissociate and making the freed gas move towards the well bore.
b) Thermal Injection involves stimulating the hydrate stability zone through the use of heat in the form steam, hot water or any other liquid in order to raise the temperature of the hydrate stability zone which results to its dissociation.
c) Inhibition Injection is the use of chemicals (Inhibitors) to restrict the formation of water ice thereby displacing natural gas hydrates from its equilibrium state in the hydrate stability zone.
Natural gas hydrates are by far the largest unconventional gas resource with estimates varied between 1000tcm and 5000tcm (IEA, 2009). However, there is no commercial exploitation of it at the moment.
Synthetic Fuels
These are classified according to their feedstock. The basic feedstocks are coal, gas and biomass which are used to produce synthetic fuels. The production of synthetic fuel involves two stages;
a) Producing synthetic gases (carbon monoxide and hydrogen) with the feedstocks.
b) Converting the synthetic gases to liquids using Fischer-Tropsch process.
The liquid production phases of these feedstocks are (EIA, 2006);
i. Coal to Liquid (CTL)
ii. Gas to Liquid (GTL)
iii. Biomass to Liquid (BTL)
Coal to Liquid
Coal is known to be a solid fuel that is very rich in carbon. A liquefaction process is required to convert coal to liquid in order to make it suitable for transportation purposes. The CTL process involves either enriching CTL fuels with hydrogen or removing carbon contents from it so as to increase the hydrogen content (Erturk, 2011). CTL technologies are currently used in South Africa by Sasol to produce about 160,000bbl/d of synthetic fuel (DTI, 1999).
Gas to Liquid
This process uses natural gas as a feedstock which entails conversion of natural gas into longer chain hydrocarbons. This process is in two phases;
a) Reaction of natural gas with air to produce synthetic gases.
b) Reaction of the synthetic gases with a catalyst using Fischer-Tropsch process to produce liquid hydrocarbons.
Considering the heavy cost of setting up a GTL plant, about 100cubic meter reserve magnitude needs to be an available feedstock to a GTL plant capacity of 75,000barrels/day for over a period of 25 years in order to make the project profitable (EIA, 2006). Qatar currently has the largest investments in GTL technologies with the Oryx GTL and Pearl GTL of which the latter is estimated to cost $19 billion (Reed and Tuttle, 2010).
Biomass to Liquid
Just like the CTL and GTL, the BTL makes use of the Fischer-Tropsch process using waste wood and other non-edible plants sources as feedstock. Synthetic gases are generated from this process which is further turned into hydrocarbon. Renewable resources such as wood waste, grain waste, crop waste, garbage, straw and sewage/sludge are used as primary feedstocks in BTL technology (EIA, 2006). BTL production is yet to be commercialized even though there is an ongoing project in Europe (Emerging Markets online, 2008).
NUTSHELL:
This is the first of a two-part analysis on unconventional petroleum resources and their role in the dynamics of future energy markets. In this first installment Douglas outlines the various options the world has turned to in order to diversify its energy mix. Due to the pressures of demand, the possibilities of peak oil, environmental concerns and others mentioned by Douglas we find that these are indeed unconventional times which call for unconventional answers to the energy question. For more information on this article and to view Douglas's professional profile, click here -->
[1] The conditions stated here is the level of technology available and the current production costs.
[2] SAGD involves drilling of two horizontal wells. Steam is injected into the reservoir through the upper well in order to heat up and reduce the viscosity of the extra heavy oil. The heated oil then flows down to the lower well and it is extracted from it.
[3] This problem leads to the loss of downhole during drilling operation.
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