The Future Of Oil

Extreme oil--from the deep Atlantic to the arctic, from fracking in the U.S. to sands in Canada--is replacing dwindling supplies. But it comes at a heavy economic and environmental cost

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Those days are gone. Today major oil producers are pumping flat out. The Russians and Saudis, for instance, need expensive oil to power their wobbly economies and placate their people. It suggests more booms and busts ahead, especially if the global economy slows again. "If OPEC can't play that price-stabilizing role anymore, then we can't banish oil's natural volatility," says Robert McNally, founder of the Rapidian Group and a former White House adviser on energy. "That means we could see prices ranging from $200 to $30."

We've already seen something like it. When the economy crashed, so did oil, falling from $145 a barrel in mid-2008 to $30 by the end of that year. Now prices have spiked again, high enough that economists are warning that oil costs could endanger the economic recovery, which would send prices spinning down again.

The True Price of Oil

Then there's the environmental cost. Oil has never exactly been clean, but the new sources coming online tend to be more polluting and more dangerous than conventional crude. Producing oil from the sands in northern Alberta can be destructive to the local environment, requiring massive open-pit mines that strip forests and take years to recover from. The tailings from those mines are toxic. While some of the newer production methods eschew the open-pit mines and instead process the sands underground or in situ, which is much cleaner, they still require additional energy to turn oil sands into usable crude. As a result, a barrel of oil-sand crude usually has a 10% to 15% larger carbon footprint than conventional crude over its lifetime, from the well to the wheels of a car. Given the massive size of the oil-sand reserve--nearly 200 billion recoverable barrels--that's potentially a lot of carbon. It's not surprising that environmentalists have loudly opposed the Keystone XL pipeline, which would send 800,000 barrels of oil-sand crude a day to the U.S. "There's enough carbon there to create a totally different planet," says James Hansen, a NASA climatologist and activist.

Tight-oil production isn't as polluting as extracting from oil sands, but it does make use of fracking, which has quickly become the most controversial technique in energy. Fracking fluids contain small amounts of toxic chemicals, and there have been allegations in Pennsylvania--where fracking has been used to produce shale natural gas--that it contaminates groundwater. The federal government is considering stricter regulations on the practice. "The federal rules have loopholes, and the state rules are too weak," says Amy Mall, a senior policy analyst for the Natural Resources Defense Council. "There are risks to groundwater, and there are risks to air." So far, there have been few complaints of water pollution from tight-oil wells in North Dakota and Texas, though both those states have notably oil-industry-friendly attitudes.

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