Fuel to Byrne

Summary:Energy columnist Chris Nelder digs into the dirty details of U.S. "oil" supply and finds that only about two-thirds of it can actually be used as vehicle fuel.

The mainstream press never seems to tire of re-writing the new "energy independence" story, despite my repeated debunkings ( here , here , and here ) of recent Pollyannish articles projecting massive growth this decade from marginal unconventional oil resources.

An April 10 article in the New York Times ("Fuel to Burn, Now What?") raised the bar on American oil optimism once again, going so far as to suggest that the U.S. might become "a top energy exporter, rivaling some members of the Organization of the Petroleum Exporting Countries." This was a remarkable claim, considering that we are still the world's top oil importer by far, at a net 8.4 million barrels per day (mbpd) according to the Energy Information Administration.

One statement in particular that just begged for debunking was the claim that the U.S. produced 9 mbpd of oil in 2011.

When oil is not oil

To come up with 9 mbpd, one needs to include several categories of liquids that are not actually oil. It is these additional categories that have posted the greatest growth in recent years, and without them, there wouldn't be much of an optimistic oil story to tell.

Source: Gail Tverberg, Our Finite World, from EIA data

Actual U.S. crude plus condensate (natural gas liquids that are naturally associated and produced along with crude oil) production was 5.7 mbpd in 2011, or 56 percent of the 10.1 mbpd total, according to the EIA.

Natural gas plant liquids—liquids that are separated from "dry" methane gas at natural gas processing plants—accounted for 2.2 mbpd, or 22 percent of the total.

"Other liquids" in the EIA's definition—mainly corn ethanol—contributed another 1.1 mbpd, or 11 percent of the total.

Refinery processing gains made up the final 11 percent at 1.1 mbpd.

There are two problems with counting these liquids as if they were oil: One, they are not equivalent to crude oil on an energy basis. And two, some of it isn't even used as fuel for motor vehicles.

Natural gas liquids

Natural gas liquids, or NGLs, have a variety of uses, but only isobutene, pentane, and "pentanes plus" (also known as "natural gasoline") are typically used in the making of gasoline, as this helpful chart explains:

Source: EIA

The NGLs that can be used in the making of gasoline make up about 30 percent of a barrel of NGLs, and have far higher energy content than the others:

Considering only the NGLs that are usable in gasoline production, and discounting for their energy content, I find that only 19 percent of a barrel of NGLs should really be counted as vehicular fuel. The rest will find its way into cigarette lighters, barbeques, plastics, and so on, but it won't power any vehicles. This is an important distinction when one is telling an "energy independence" story that is implicitly about transportation.

With this adjustment, 2.2 mbpd of NGL production actually contributes just 0.4 mbpd of vehicular fuel.


Corn ethanol is a big subject unto itself, entailing food-for-fuel tradeoffs at a policy level, and other thorny issues like energy return on investment .

When used to power a vehicle, ethanol only delivers 67 percent of the energy that oil does. Discounting our 1.1 mbpd production of "other liquids" accordingly gives us 0.77 mbpd of actual oil-equivalent fuel.

Refinery gains

Refinery gains, or processing gains, are another complex subject.

Generally speaking, refinery gains are due to the expansion, in volumetric terms, of crude oil when it is "cracked" into smaller molecules. The finished products take up more physical space than the original crude, but the energy content is the same.

It's actually more complicated than that. For a little illumination, I consulted my friend Robert Rapier, an experienced fuel engineer and the author of the new book Power Plays, an excellent primer on energy.

He explained that natural gas (methane) is used as a source of hydrogen in the refining process, so it does add a small amount of additional energy, but that energy is coming from an external (non-oil) source. The easy way to account for it, he suggests, is to compare the energy value of a barrel of oil (5.8 million BTU) to finished products like gasoline (around 5 million BTU/bbl), diesel (around 5.7 million BTU/bbl), and heating oil (around 5.9 million BTU/bbl). Even so, he says, the overall energy content of 44 barrels of finished products will be comparable to that of 42 barrels of oil, with the addition of external energy. Net, the actual energy content of refinery gains is negligible.

The EIA takes a different tack in explaining refinery gains. It counts them at the refinery, after various imported fuels are incorporated. Alternatively, discounting the imported fuels removes about 68 percent from the total, but then does not account for "certain refinery inputs other than crude oil and unfinished oils, which are primarily domestic in origin."

Finally, there is also a significant amount of energy lost in the process of reforming natural gas into hydrogen.

Again, refining is a complex subject and one can argue its finer points, but on the whole, I think it's reasonable to assume that none of the refinery gains should count as actual additional vehicle fuel energy.

Fully-discounted "oil"

After discounting NGLs, other liquids, and refinery gains as detailed above, the 10.1 mbpd of total U.S. liquids production is really only equivalent to 6.85 mbpd that should be counted as actual vehicular fuel.

In other words, counting "all liquids" overstates our oil supply by about one-third.

The details on NGLs are important for another reason: they are why producers of shale gas have been producing natural gas at a loss (or simply flaring it off) since 2010, while gradually shifting their drilling activities away from shales that produce "dry" methane and toward "wet" plays that have some associated NGLs. On the whole, a barrel of NGLs is worth about half the price of a barrel of oil. So while it may not be profitable to produce the gas at $2 per thousand cubic feet, NGLs at over $50 per barrel make the overall effort worthwhile.

No doubt those who have speculated about a "100-year supply" of natural gas in this country aren't accounting for the $235,000-a-day's worth of gas (at today's $2.29 per thousand cubic feet)—enough gas to heat half a million homes for a day—that we've been flaring in North Dakota just to get rid of it while we're producing the liquids. I haven't seen a full nationwide accounting of gas flaring yet, but if gas remains under the profitability threshold of roughly $5 per thousand cubic feet and drillers remain focused on the liquids without building enough shale gas pipeline capacity, the U.S. soon could be blowing as much as half a million dollars per day worth of gas into the sky for nothing.

And no doubt those who really want to tell an optimistic story about incipient U.S. "energy independence" wish that I would stop making sense and stop worrying about the details. On an all-liquids basis, they're not really lying; they're just putting U.S. oil production in that suit that David Byrne used to wear in the '80s.

Photo: David Byrne of the Talking Heads, from the 1984 Jonathan Demme concert film Stop Making Sense

May 4, 2012 Correction: An alert reader pointed out that I uploaded the wrong graph at the top of this post, showing world, not U.S. production. It has been corrected. I regret the error.

This post was originally published on Smartplanet.com

Topics: Innovation


Chris Nelder is an energy analyst and consultant who has written about energy and investing for more than a decade. He is the author of two books on energy and investing, Profit from the Peak and Investing in Renewable Energy, and has appeared on BBC TV, Fox Business, CNN national radio, Australian Broadcasting Corp., CBS radio and France... Full Bio

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