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Cude Oil

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Although the first oil well was drilled in the US in 1859, the era of oil did not truly begin until World War I [1]. Around the time of the war, it was realized in energy fields that, compared to coal, oil was less expensive and easier to ship. Furthermore, oil’s emergence was assisted by the fact that it was controlled by well-financed and efficiently managed companies [2]. Oil markets thrived during the 1920s, securing its position as an indispensable resource during World War II. During the war, naval vessels of all nations and 85% of merchant ships relied on oil for fuel. WWII made one thing clear: the political, economic, and military interest of the United States had become irreversibly linked to the international oil market [2].

In 1960, Saudi Arabia, Kuwait, Iran, and Iraq formed the Organization of Petroleum Exporting Countries (OPEC) and by doing so controlled 67% of the world’s oil reserves, 38% of world production, and 90% of oil in international trade [2] (reserves are classified as those well-explored shares of total resources that can be extracted with available techniques at an acceptable cost [3]). Today, OPEC is composed of 12 countries (Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela) and controls 79% of the world’s reserves.

Oil is extracted from deep underground reservoirs – an end-product of millions of years of decomposition of organic materials that have been subjected to geologic heat and pressure [4]. All oil is not the same in terms of its chemical composition. Average crude oil is 82 to 87% carbon, 12 to 15% hydrogen, with the remainder consisting of sulfur, nitrogen, and oxygen [5]. Once extracted, oil can be refined into a number of fuel products, including gasoline, kerosene, liquid petroleum gas (propane), distillates (diesel and jet fuel) and residuals that include industrial and electricity fuels [4, 6]. An average barrel of crude oil is refined to produce about 47% gasoline, 29% fuel oil, 9% jet fuel, 3% liquefied natural gasses, 3% feedstock, 3% asphalt, 1% kerosene, and 1% lubricants [5]. From the refinery, oil products are transported to power plants, refueling stations, and other industrial end-use facilities by ship, pipelines, truck, or train.

The US is the third largest oil producer, after Saudi Arabia and Russia. Proved reserves at end-2002, as published by the Energy Information Administration of the US Department of Energy in December 2003, were approximately 22 billion barrels of crude oil and approximately 8 billion barrels of natural gas liquids (NGLs) [7]. As of 2002, the US was producing approximately 5.7 million barrels of crude oil per day, of which approximately 1.9 million barrels were NGLs. The US consumes an overwhelming majority of its crude oil domestically, exporting only 9,000 barrels per day mostly to Canada [7]. In 2005, inventories of petroleum declined by 2.7% to approximately 50 million barrels by year end – a low stock due to increase petroleum product prices and increased use of petroleum-fired generation to meet high summer peak demands [8].

In April 2007, crude oil prices averaged about $65 per barrel. WTRG Economics provides a detailed 100-year history of crude oil prices.

Oil-Based Electricity Generation

The activities involved in producing electricity from oil begin with the extraction of the oil and end with its burning in boilers and turbines at power plants [4]. Although oil provides close to 40% of the Unites States’ entire power needs, the vast majority is used for transportation or home heating purposes. Less than 4% of electricity produced in the Unites States is fueled by oil, producing about 123 TWh of electricity [8-11].

Three power-plant technologies are used to convert oil into electricity: conventional steam, combustion turbine, and combined-cycle technology. In a conventional steam plant, oil is burned to heat water to create steam to generate electricity. In a combustion turbine, oil is burned under pressure to produce hot exhaust gases which spin a turbine to generate electricity. Lastly, in a combined-cycle plant, oil is first combusted in a combustion turbine, using the heated exhaust gases to generate electricity. After the gases are recovered, they heat water in a boiler, creating steam to drive a second turbine [6]. The combined cycle plant is the most efficient of the three because it uses the same fuel source twice [4].

Burning oil to generate electricity produces significant air pollution in the forms of nitrogen oxides, and, depending on the sulfur content of the oil, sulfur dioxide and particulates. Furthermore, the process creates emissions of carbon dioxide and methane, heavy metals such as mercury, and volatile organic compounds [6]. The US Environmental Protection Agency provides a detailed summary of the environmental impacts of using oil to generate electricity.

The Future of Oil

In his widely-received book Energy at the Crossroads, Vaclav Smil argues that “although the fossil-fuels civilization is energized by the recovery of finite, nonrenewable resources it is dubious to offer any fixed dates for the end of this critical dependence based on specific exhaustion scenarios” [3]. Indeed, there have been many past attempts to predict the date of the end of the age of oil – most of which we have now surpassed, still relying heavily on oil as an energy source.

Thus, many energy analysts project that oil production will continue in the future and that the future of oil production in the US is likely to increasingly move to offshore operations – primarily in the Gulf of Mexico. Deepwater oil production in the Gulf of Mexico is projected to increase from 840,000 barrels per day in 2005 to a peak of 2.0 million barrels per day in 2015. It is estimated that total domestic offshore oil production will increase from 1.4 million barrels per day in 2005 to 2.3 million barrels per day in 2015. Furthermore, rapid domestic technology growth may lead to a additional increase in domestic production [12].

Smil protests that “ultimate recoverable resources of conventional crude oil may not be three times as large as today’s modal estimates, but they may be easily 50% or even 100% higher” [3]. Thus, many analysts argue that the most likely way – and in some cases only way – the US or the world will make a considerable shift from oil consumption to an increased use of renewables is for environmental reasons [3, 13, 14].