Energy & Environmental Economics A.Y. 2015-2016

Unconventional fossil fuels

What are unconventional fuels ?

Although a strict definition is lacking, under the “unconventional fossil fuel ” heading we include hydrocarbons that have always been there and known, but up to some point in time they have been too difficult or too expensive to extract, given the available alternatives.

• In the last few years, both advances in technology and the high prices of conventional fuels have made unconventional fuels increasingly economically viable.

The unconventional fuels: Gases

• tight gas from compact reservoirs (contained mainly in sandstone)

• coalbed methane gas (contained in coal)

• shale gas (contained in shale, a sedimentary rock with a high share of clay. In Italian: gas di argilla)

• methane hydrates (contained in water crystals (“burning ice”).

The unconventional fuels: Liquids

Liquids:

• heavy and extra-heavy oils: high density oils, which require dilution before being pumped

• tar sands: even denser petroleum

• shale oils: contained in shales (It.: scisto bituminoso)

• tar shales.

Non conventional fuels require appropriate techniques for extraction which are in general more expensive than conventional ones

• In general, gases require fragmentation of the rocks in which they are contained (in the case of shales the process is known as fracking)

• Liquids require other processes (pirolysis, retorting)

The reserves of unconventional fuels

• In the case of unconventional fuels, the distinction between existing, technically recoverable and economically recoverable resources is more important then elsewhere.

• This must be kept in mind when one reads (EIA) that technically recoverable reserves of shale oil are 340 billions barrels (to be compared with 1687 billions barrels of conventional oil) and shale gas are 6954 trillions of cubic feet against the 6557 Tcf of conventional gas.

• The line between what is technically recoverable and what is economic profitable depends on the price of conventional oil: when it is high, shale fuels become profitable, when low, they are no longer sustainable

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Brent spot price ($ per barrel)

Brent spot price ($ per barrel)

The Energy Information Administration 2015 report http://www.eia.gov/analysis/studies/worldshalegas/

• EIA examines 156 sites at the world level (more precisely, they are called formations-a basin may include more than one formation) both for shale gas and shale oil.

• 113 formations contain technically recoverable shale oil, 50% of it is contained in 9 formations

• 151 contain technically recoverable shale gas, 50% of it is contained in 19 formations

• Then shale fuels are also concentrated, but in areas different from those where conventional fuels are concentrated

Latin America 21%

Australia 6%

North america 16%

Eastern Europe 9%

Western Europe 4%

North Africa 14%

SubSaharan Africa 6%

China 16%

Other Asia 4%

Caspian 0%

Middle east 4%

World shale gas reserves (technically recoverable) 2015

Latin America 18%

Australia 5%

North america 6%

Eastern Europe 23%

Western Europe 3%

North Africa 11%

SubSaharan Africa 5%

China 9%

Other Asia 8%

Caspian 3% Middle east

9%

World shale oil reserves (technically recoverable) 2015

• Independently of how optimist might look estimates of non conventional fuel reserves, they began already to change the geography of oil and gas.

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Shale Gas production US

Shale Gas production US

These data imply a growth by 44% per year

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Tight Oil Production US

Tight Oil Production US

• The recent drop in oil price made a lot of the recent investment in unconventional fuel at least temporarily unprofitable.

• However, unless one thinks that oil prices are bound to stay low forever, sooner or later the shale fuel industry is going to recover, in the US and other countries.

• The environmental costs of unconventional fuels (especially in the extraction phase) should not be overlooked: heavy water and soil consumption.