Comparing the Bakken to the Ghawar oilfield in Saudi Arabia

Here’s an interesting article in the Financial Post that raises some very important questions about oil production in the Bakken versus that in Saudi Arabia, and the relationship between oil coming out of super giant fields like the Ghawar and oil shale or other tight oil endeavors.

Anybody who’s paying attention to the current energy situation in the U.S. can’t miss the excitement about the recent increase in domestic energy production, as well a lot of noise about potential energy independence in our future. This article does a pretty good job of illustrating some of the common misperceptions and oversights that typify these discussions.

First, we set the stage:

Until recently, comparisons between the shale fields of the Bakken and Ghawar, which produces 5 million barrels per day, would have been dismissed as fanciful.

But Bakken’s exponential growth and enormous reserves put it on course to produce more than 1 million barrels per day by the middle of next year, which will earn it a place in the small pantheon of truly elite oil fields.

Ghawar accounts for nearly half of Saudi Arabia’s total declared capacity of 12.5 million barrels per day and has produced more than 65 billion barrels of oil since 1951.

Then, we make the comparison:

But now Bakken has burst onto the scene. Output hit 631,000 barrels per day in August 2012, according to North Dakota’s Department of Mineral Resources, up from 256,000 barrels per day in August 2010 and just 83,000 barrels per day in August 2008.

Growth has been exponential (in the true sense of the word). Output has been increasing at a steady rate of about 65 percent a year since late 2009 and shows no sign of slowing ().

If growth continues at this pace for the next 12 months, and there is no reason to think it won’t, production will top 1 million barrels a day by August 2013.

And there you have, in a nutshell, the specious argument that is so often made. It’s usually not done as explicitly as this one here, but the basic premise is the same, i.e. the production numbers are impressive, or come close, or might come close based on current trends, so therefor it’s appropriate to make the comparison between an oil reserve like the Bakken and one like the Ghawar.

First of all, let’s admit that the total amount of oil in the Bakken is quite impressive. As this article states, it’s many hundreds of billions of barrels.

Bakken contains about 577 billion barrels of oil and gas, of which about 24 billion barrels should be technically recoverable, according to Continental. But underneath Bakken in the same area is the Three Forks formation, which Continental believes could contain an even greater 900 billion barrels, of which perhaps 32 billion barrels might be technically recoverable.

We’re talking major amounts of oil here, and whether the optimistic estimates of total recoverable made by Harold Hamm of Continental Resources are accurate or not, the total oil recovered from the Bakken and Three Forks is likely to be many times higher than the initial USGS estimate of up to 4.3 billion barrels. Even the USGS is re-assessing the Bakken formation, most likely due to much higher production numbers than they expected. That initial estimate was too low, and even pessimists accept that now.

But, arguing about total recoverable oil, or even arguing that the Bakken is at all likely to produce as much as the Ghawar over it’s lifetime (highly unlikely) misses a key point, and that is something called energy returned on energy invested (EROEI). EROEI, in a nutshell, is the ratio of energy returned from a resource compared to the energy expended to obtain it. EROEI is the fundamental issue of energy production, and no discussion of oil extraction is complete or truly honest without its inclusion.

The bottom line is that the EROEI on Bakken oil is somewhere between three and six, depending on what study you believe. Either way, it is many times lower than the Ghawar oil field and similar reserves. This type of oil is relatively near the surface, and basically flows freely when you drill into it. There’s no expense of lateral drilling or fracking, separating the oil and water, and disposing of or filtering waste water. It is a completely different game, and we ignore this distinction at our peril.

Another fact that’s ignored in this comparison is that the Ghawar has already produced 65 billion barrels of oil. And, although it may be near it’s peak of production, it will still produce oil for many years to come, and all of that oil will be cheaper to produce than what comes out of the Bakken.

There’s no doubt that there’s a lot of oil in the Bakken. And there’s no doubt that it’s a tremendous domestic resource that’s been an amazing economic boon for the region. But, don’t depend on the media to give you the full story. Whether it’s due to laziness or their tendency to be stenographers rather than actual journalists, you will rarely even hear the concept of EROEI mentioned in these stories, yet it’s crucial to any meaningful discussion of our energy future.

Because our energy future, like it or not, is tight oil reserves like the Bakken. The easy and cheap oil is gone or in decline, and what remains is locked up in shale, deep under the sea floor, or in tar sands such as those in Canada. As the saying goes, “the good news is we know where the oil is; the bad news is we know where the oil is.”

But, as always, don’t take my word for it. Do you own research and due diligence and figure things out for yourself. It’s hard to find a more important issue for all of our futures than this one. Let us not believe the hype, but let us not despair either. Let’s be grown ups and figure out how to make the best use of this more and more expensive oil going forward, so that our children and grandchildren can enjoy the best quality of life possible.

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