History of crude oil: Modern oil: Alternatives/Energy Independence: Lifeblood of our society: Basics of the industry:17.906 The Geopolitics and Geoeconomics of Global Energy, Spring 2007 Prof. Flynt Leverett Lecture #2: The Global Energy Industry - Crude oil is widely used because of its combustibility, density, and efficiency - Some places with reservoirs lack proper cap rock, oil seeps to surface (Middle East, Caspian basin) History of crude oil: - 7000 years of trying to find uses - Early on it was known that it burned well - Used for incendiary weapons, hair dressing - No large-scale application because amount seeping up was relatively small - In 19th century modern drilling technology used to search for water, first large reservoirs of crude oil found - Used for illumination - Preferred method for illumination before that was whale oil - Whaling was not cheap, safe or efficient way of getting the fuel - People figured out you could take crude oil, process it, and create kerosene - Toward end of 19th century electricity discovered - More efficient, more desirable than oil based illumination - Oil industry unsure of its future Modern oil: - Crude oil came into its own as stuff you could make cheap/efficient transportation fuel out of - Railroads, modern shipping emerged - Diesel engines for trains, big trucks, internal combustion engines using gasoline for automobiles Alternatives/Energy Independence: - Oil is high-density, efficient in terms of energy/unit storage costs cheap - Crude oil is one of the cheapest liquids on the planet - This is the problem when you want to talk about alternative fuels - Energy independence = if we grow enough corn, make enough ethanol, collect enough biomass, we can forget about importing oil - This idea is nonsense - 2 things must be done in order to replace oil-based transportation fuels: o Must be able to produce it on massive scale o Must be able to produce it at a reasonable cost - Bush said in State of the Union Address he wants to increase ethanol use - This prompted spike in corn futures prices, corn prices in Mexico - Corn tortilla prices skyrocketed - President of Mexico had to put caps on corn tortillas, riots took place - Economics matters - If you did not care what it cost you could replace oil based transportation fuels Cite as: Flynt Leverett, course materials for 17.906 Reading Seminar in Social Science: The Geopolitics andGeoeconomics of Global Energy, Spring 2007. MIT OpenCourseWare (http://ocw.mit.edu), MassachusettsInstitute of Technology. Downloaded on [DD Month YYYY].- We will be living in a hydrocarbon based energy economy for decades Lifeblood of our society: - If you can control or manipulate the supply of oil you could create massive economic and social dislocations in societies that are dependent on this - Modern militaries cannot operate without oil - Control of oil gives you strategic leverage - In post WWII period, assuring reliable supplies of crude oil has been important goal for the US - In 1950s and 1960s we worried for benefit of our allies - By 1970s our domestic oil use was peaking, reliance on imports was greater and greater - Last 30 years we had to be concerned with supplies of oil for us and allies Basics of the industry: Exploration, Production, Distribution, Marketing Exploration: - Find oil in places where prehistoric oceans existed and in certain formations within those oceans - Over time we have developed expanding repertoire of knowledge about what kinds of formations are more likely than others to contain deposits - In early days you had to do it from surface observation - Subsurface formations tip you off - Oil companies employ geologists for this reason - If you just proceed on basis of geology there is 10% success rate - Expensive to dig exploratory well - Over last several decades oil companies started using geophysics, seismology - Sending sound waves, observing reflections back - Seismic imaging techniques more sophisticated, now success rate is 1 out of 6 or 1 out of 7 Production: - Drilling elements: o Drill apparatus o Suction o Water for cooling, washing, suction o Reserve for what is being sucked out o Target Zone - Use drilling mud – take water, mix with clay and chemicals and it produces a heavy solution, this is what you keep circulating around the drill as it goes down - “Conductor Hole” with truck-based drill rig starts the drilling process - On top of conductor hole you set up your rig, weld mast to hole - Once drilling apparatus is set up put in circulation system to take drilling mud from surface to where the drill bit is and bring it back up - Blowouts = bad drilling - High pressure system, so the proper use of drilling mud is critical - Mud engineer is one of the most highly paid people on a drill site Cite as: Flynt Leverett, course materials for 17.906 Reading Seminar in Social Science: The Geopolitics andGeoeconomics of Global Energy, Spring 2007. MIT OpenCourseWare (http://ocw.mit.edu), MassachusettsInstitute of Technology. Downloaded on [DD Month YYYY].17.906, The Geopolitics and Geoeconomics of Global Energy Lecture 2 Prof. Flynt Leverett Page 2 of 3- He looks at pressure readings, geologist info, makes constant adjustments in weight of drill mud - Tries to strike a balance between having it heavy enough to resist pressure so no blowout, and light enough so that if there is oil some oil will come back up with rock cuttings - Essentially balance pressure with need to find if there is oil in the hole - Drilling proceeds in 3 phases: o Dig surface hole with relatively large bit (20 in across) 1000 ft down, case it with heavy casing to keep water from seeping in o Dig intermediate hole from 1000 ft to within a few hundred feet of target zone, could be 1000s of feet  Use drill bit that is smaller, case intermediate hole o Production hole takes you into target zone, call it a dry hole and give up or complete the well  If completing, run liners and tubes to let oil flow back to surface - Wells can have oil and still not be economically viable - If successful, 1 well is not enough - Target zone is part of a bigger field, begin to do assessment wells and developmental wells - Unit of measurement is barrels (42 gallons) - Porosity of rock tells you rough volume, permeability tells you how well it flows - Make assessment on what we think volume is - How