150 Years from Oil to Natural Gas -

by Don Briggs/Gifford Briggs -

On August 27, a major landmark will be reached in the oil & gas industry. For all but a small few Americans, this day will pass by without even a thought about what happened exactly 150 years ago. However, on that day 150 years ago the most important step towards industrialization was taken in Titusville, Pennsylvania.

Edwin L. Drake drilled down 69-½ feet into the ground near Titusville, Pa., and struck oil. It was the first well deliberately drilled for oil, and was the launching point for the modern petroleum industry. Unfortunately for Drake, about a month and a half later that same well caught fire and burned to the ground and was the first well fire on record.

The world has changed quite a bit since Mr. Drake drilled that first well, and most of those changes occurred because of his actions. The industrial revolution, creation of the automobile, planes, space travel, plastics, and polymer are just a few of the accomplishments that have come about because of oil. The United States economy quickly became the largest economy in the world as we embraced oil and energy. The more oil we consumed, the more we wanted. We became addicted. There was always going to be plenty of oil for everyone. Right?

Fast-forward 150 years from Edwin Drake’s discovery and you will find a nation in the middle of an energy crisis. A nation that was once a global leader is now dependant on foreign oil. We have become accustomed to extremely low gasoline prices, and when those prices climbed a little, the country went into an uproar calling for the heads of the companies causing these high prices. We have begun to think that low energy prices and abundant oil are a RIGHT of the American people.

Unfortunately, the numbers don’t always agree. The United States makes up 5% of the world’s population and we consume 25% of the world’s oil (20 million barrels/day). We also hold only 2.5% of the world’s reserves. Combine that with the fact that ageing fields a running out of oil faster than they have in the past (depletion rate), and fewer large fields are being discovered, and now you see a national disaster brewing.

For the past 25 years, our Presidents have said to the American people that they are going to end our addiction to oil. Campaign promise after campaign promise has been left unfulfilled as Presidents met face to face with the truth about our oil addiction. Once again we are faced with the same campaign promises. The current administration has promised to end our reliance on foreign oil by increasing renewable energy supply in the U.S. The two areas that are receiving the most attention from the administration are wind and solar.

Wind energy and solar energy have been around for years, but have never made a substantial impact on the US economy. The President has told the American people that this is the answer to our addiction to oil. Congress has allocated BILLIONS of taxpayer dollars to fund these sources of energy in an effort to make true on the President’s promise. These dollars may help build more wind farms and solar panels, but it will do absolutely nothing to end our addiction to oil. Wind and solar currently make up a combined 0.35% of the US energy supply. Even if we double the amount of energy produced by wind and solar, it would not account for 1% of the total US energy consumption. What is worse, it doesn’t even address the real problem – transportation.

Everyday, Americans drive over 250 million cars and trucks as they head to the office, school, friend’s house, shopping malls or wherever else their desires may take them. These 250 million vehicles are powered by gasoline, which is produced in refineries and comes from oil. In fact, 76% of the oil we consume (~15 million barrels/day) is used in transportation. We could cover the US with wind farms and solar panels, and it would not replace oil in its role in transportation. Why is the President not talking about this? Why isn’t he focusing his attention on the 250 million cars and trucks running on oil? “Cash for clunkers” is not even a band-aid on this problem.

150 years after Drake successfully drilled the first oil well, the very solution that can end our addiction to oil was the very thing that burned his well to the ground – natural gas. Natural gas will not be the end all solution to our transportation needs, but it will be the bridge fuel that gets us there.

The biggest challenge is the “chicken or the egg” question. Who will buy a car if there are no stations to fill up, and who will build the station if there are no cars to fill up. The great thing about natural gas or CNG (compressed natural gas) is that the technology exists to convert existing automobiles to run on CNG. Each year more and more conversion kits are being built for other models, and as demand increases more kits will be designed. Since existing cars can be converted, we don’t have to purchase a new car in order to take advantage of the new fuel.

The second biggest challenge is the distribution network that needs to be in place to service the 250 million cars – how are we getting the fuel to the fueling stations and then how are we retrofitting the stations to provide the new fuel. One great thing about natural gas is that the distribution network already exists. Natural gas vehicles run off the same natural gas that you use in your home to cook with. Stations need a bigger line, but the network is there. We don’t have to re-invent the wheel to get CNG into the transportation network.

And the last challenge is the one that CNG can’t promise, at least not forever, and we don’t expect it to. The problem that all administrations have had over the past 25 years is that they are looking for the Silver Bullet- the one thing that will solve all their problems. The problem is, that bullet does not exist. Natural gas is not the end all solution to our reliance on oil. Eventually we will run out of natural gas as well. However, with the recent discoveries on the shale plays in the US, it has been calculated that the US has enough natural gas for the next 100 years. Natural Gas is the bridge fuel to the future.

150 years ago Edwin Drake began the largest expansion of the US economy. One might say that he is responsible for just about every major accomplishment and innovation the world has seen over that time period. The next 150 years will not belong to oil; it will belong to natural gas.

Louisiana Oil & Gas Association – Don Briggs -

While the United States continues its moratorium policy of locking up 85% of its natural resources from exploration and development, the Red Dragon is continuing her desperate quest for oil, locking up every oil deal it can get hold of.

China is now “Big Oil”, knowing full well the world economic downturn provides economic opportunity. China is investing heavily to secure oil and natural gas concessions for their growing economy, which is growing at the rate of 2% in a time the world is in an economic recession.

The Red Dragon’s oil demand has grown from 4.8 million barrels of oil per day in 2000 to 8 million barrels today, a whopping 67% growth. In comparison, the U.S. growth for that same period is basically flat. China imports 50% of their crude oil demand. Growth in Chinese oil consumption has accelerated mainly because of a large-scale transition away from bicycles and mass transit toward private automobiles. It is estimated that by year 2010 China will have 90 times more cars than in 1990. With automobile numbers growing at 19% a year, projections show that China could surpass the total number of cars in the U.S. by 2030.

With China’s crude oil demand growing at 20% a year, there is great concern over the growing dependence on outside sources for energy. China knows for her economy to continue as the world’s new industrial giant, she must secure oil reserves for the future. China is also aware of the economic reality of taking advantage of today’s economic crisis.

With a $2.3 trillion pile of cash, the Red Dragon is well positioned to wheel and deal in the world energy market. China imports 58% if its crude oil from the Middle East. A report by the International Energy Agency predicted that by the year 2030, Chinese oil imports will equal imports by the U.S. today.

In the past seven months:

· China signed a contract with Russia to construct an oil pipeline from Russia directly into China, supplying China with a 20-year oil contract. The contract is estimated to be worth trillions of dollars.

· In Africa, China is working to purchase a $1.3 billion interest in an Angolan offshore development from U.S. Marathon Oil.

· In Iraq, China is rumored to be buying an interest in Iraq’s Rumaila oilfield from BP. The Rumaila oilfield is Iraq’s largest oilfield, producing one million barrels of oil per day.

· In Brazil, China is rumored to be working with Brazil’s Petrobras in developing Brazil’s recently discover monster field offshore Brazil.

Closer to home, rumors were abound this year that China would soon be drilling off the southern tip of Florida in Cuban waters.

While China is locking up oil supplies that will provide her with energy for decades, Western oil companies are on the outside looking in. As the world’s largest crude oil consumer, the U.S. is falling behind in the world oil game.

Is that as bad as it seems on the surface? Maybe not. Seventy six percent of our domestic oil consumption is used for transportation. Why not ease the pressure of growing oil imports by using our own home grown natural gas to power the engines of our trucks and automobiles. Now that is a good idea.