The Problem


Beyond Peak Oil and Gas

The world will run out of oil in 10 years.1


The world will run out of oil in 13 years.2


The world will run out of oil in 2011.3


The decline of oil and gas will affect the world population more than climate change.4


The global supply of oil is expected to meet the world’s demand through 2050.5


OIL AND GAS were never expected to last forever.6 For over a century, predictions that oil and gas would become scarce have stoked fear and distracted industry, have confused policymakers, and have vexed civil society.7 Yet oil and gas keep flowing. What accounts for this vast discrepancy between expected supply and actual supply?

It turns out that hydrocarbon resources are not in short supply. According to analysis, at least 100 years of petroleum resources exist, and even longer with continued innovations in technology.8 A 2006 study estimated that the world has used up only about 5 percent of known, technically recoverable oil reserves.9 In 2018, energy experts reconfirmed these findings.10 The sheer abundance of oil and gas may be surprising to many. But it is a fundamental fact of the energy landscape: the world must confront oil and gas supplies to tackle climate change. These resources cannot simply be wished away.

Oil and gas are not merely plentiful—they are also widespread. While some nations contain more hydrocarbon resources than others, oil and gas (often buried together) reside nearly everywhere on Earth, underwater and on land alike. Hydrocarbon building blocks are also present in outer space on other celestial bodies. Space missions have identified oil and gas resources off-planet that could be accessed someday.11

Abundance does not guarantee that all these resources can be readily recovered, however. Scientists and engineers are continually probing how much oil and gas are present, where these resources are buried, and what it will take to extract them and turn them into different commodities.

This chapter explores the ample stores of hydrocarbons located worldwide that are poised to meet the world’s rising demand for energy resources and other commodities over time and into the future. The world’s hydrocarbons are highly abundant, geographically dispersed, and quite varied in their composition and (consequently) their effects on the climate. A complex value chain links oil, gas, and other widely consumed petroleum products, for many of which there are currently few substitutes. The task of protecting the climate cannot afford to wait for the unlikely event that the mere market forces of supply of or demand for petroleum products peak (and then begin to abate) on their own. Instead, we must prepare for a future in which oil and gas are and remain abundant. This task begins with understanding the fundamental characteristics underpinning oil and gas resources to better grasp how to reduce the petroleum sector’s greenhouse gas (GHG) emissions in the short term and set the stage for a clean energy transition.

An Unreachable Peak

In 1956, a Shell geophysicist, M. King Hubbert, published a paper claiming that oil production increases exponentially in the early stages, reaches a peak when half of the hydrocarbons in a field are extracted, and then falls into a terminal decline.12 Hubbert’s work theorized “peak supply,” the point at which the global output of oil and gas reaches its maximum levels and their rate of production permanently decreases.13

Hubbert predicted that US oil production would peak in 1965.14 It did not. In fact, that still has not happened. US oil and gas production stood at all-time highs at the end of 2019, prior to the global coronavirus pandemic.15 So too did global production levels.16

Still, the search for oil and gas resources continues. In recent years, a new concept of “peak demand” has gained traction.17 Some experts project that the rapid adoption of electric vehicles (EVs), new mobility trends such as Uber and other ridesharing platforms, vehicle automation, higher oil and gas prices, and dramatic growth in renewable power will soon replace oil and gas. They suggest that the connection between economic growth and oil use is breaking down due to reduced petroleum consumption in wealthy, developed nations; more fuel-efficient motor vehicles; declining prices for alternative fuels; and accelerating urbanization by migrating populations around the world.18

Unlike Mount Everest’s lofty summit, however, there is no clear-cut sign of whether or when we will reach peak oil and gas supply or demand. This is because peak scenarios fail to consider the dynamic response of oil and gas markets to changing economic, technological, and social conditions. Like the accounting of petroleum reserves discussed in the next section, the answer to how much oil and gas remains is: it depends largely on variables that cannot be easily modeled like industrial innovation and consumer behavior.

Peak assumptions about oil markets were tested in 2020 when the COVID-19 pandemic dialed down the global economy and put the brakes on petroleum consumption around the globe. At the same time, producers refused to reduce supplies in line with shrinking demand, turning oil markets upside down. By early 2021, however, oil and gas flows were rebounding to their all-time high.19 Even historic, unparalleled events like the pandemic that temporarily snuff out oil and gas demand are unlikely to shutter the petroleum industry altogether.20 As long as any demand for some combination of petroleum products exists—such as jet fuel, roadways, roof shingles, fertilizer, synthetic fabrics, and machine lubricants—oil and gas will continue to be supplied.

How to Measure Buried Troves of Hydrocarbons

Quantifying the remaining volume of hydrocarbons at any point in time is difficult.21 Changing economic, technological, geopolitical, geological, and policy conditions affect the accounting of petroleum reserves and the prospects for recovering them. There are different measures for assessing oil and gas reserve volumes, each with its own set of assumptions that change over time and necessitate ongoing evaluations. Uncertainty resides with the type of reservoir, transformations of hydrocarbons within the reservoir, and quantity and quality of available data.

Overall volumes consider original oil and gas in place, estimating the total amount of these resources buried in the earth. These estimates can then be broken out into cumulative production to date, proved reserves, remaining reserves, technically recoverable oil and gas, economically recoverable oil and gas, and remaining oil and gas in place. Figure 1.1 illustrates these various reserve accounting categories.


FIGURE 1.1 Oil and Gas Resource Categories

Notes: Resource categories are not drawn to scale relative to the actual amount of each resource category. Gas resources include natural gas and natural gas liquids.

Source: US Energy Information Administration, “Oil and Natural Gas Resource Categories Reflect Varying Degrees of Certainty,” July 17, 2014.

The Society of Petroleum Engineers goes into great detail reporting reserve figures.22 Others, like the US Energy Information Administration (EIA), for example, do not report economically recoverable resources because they are tied to a specific set of price and cost assumptions that change rapidly.23 Yet other estimates may bundle together figures for technically and economically recoverable reserves,24 or they may use categories such as proven, possible, and probable reserves to estimate the chances of recovery based on accessibility, legality, and other assumptions.25 Since economic and technological conditions can change markedly over time, updating estimated oil and gas volumes helps guide short-term market and policymaking decision-making. This information is also useful for calculating potential GHG emissions from the future development of oil and gas resources.

Proved Reserves

Proved reserves are resources from confirmed oil and gas reservoirs that are known to be recoverable under existing operating and economic conditions. The volume of these reserves is smaller than that of other future oil and gas resources because proved reserves are estimated based on current market conditions, including the prevailing price of oil and gas. As oil and gas prices rise and operating costs fall, volumes in the economically recoverable category are redesignated as proved reserves. Conversely, the lower oil and gas prices go, the fewer proved reserves the world has. As such, proved reserves are estimated at a point in time and are constantly shifting. For example, in a single year between 2014 and 2015, the EIA estimated that US annual proved reserves of oil and gas fell 12 and 17 percent, respectively, due to the decline in resource prices.26

Since the valuations and share prices of publicly traded oil and gas companies are partly based on their proved reserves, disclosing these assets is required. In the United States, the US Securities and Exchange Commission has standardized the metric of reserve valuation.27 Other countries—such as Canada, China, Norway, and Russia—have their own definitions. And, even when countries do disclose their proved reserves, there may be too little data transparency to validate these figures, especially in countries that have nationalized their oil and gas resources. This makes it difficult for the market (and investors) to value those state-owned enterprises that control the majority of the world’s oil and gas. This helps explain why Saudi Aramco, for example, had a difficult time ascertaining its market value (from a low of $1.1 trillion up to $2 trillion) when it launched an initial public offering of its stock in 2019.28

Economically Recoverable Resources

If there is money to be made or there are government rents to be collected, hydrocarbon resources will be recovered. Whereas proved reserves are calculated by the prevailing price of oil and gas, the volume of economically recoverable oil and gas depends, at any point in time, on a host of economic and other factors, including projected global pricing dynamics, national growth trends, regional conditions, geopolitics, cartel decisions, arbitrage, pandemics, and other market imperfections and societal conditions. Lower prices and higher costs lead to lower estimates of economically recoverable resources. For example, far less Canadian oil sands reserves were economically recoverable in 2020 during the COVID-19 pandemic due to low oil prices and high production costs, increasing the volume of technically recoverable reserves for potential future development.29

Technically Recoverable Resources

Rather than considering the price of oil and gas, the determination of technically recoverable reserves takes into account current technology, industry practice, and geologic knowledge. Improving industry practices and new technologies can change such assessments. The recent history of hydraulic fracturing, for example, illustrates how industry breakthroughs can vastly increase technically recoverable oil and gas volumes. A secondary category, unproved technically recoverable resources, is calculated by taking the total technically recoverable resources and subtracting the proved oil and gas reserves. In other words, if oil and gas resources are known to be present, it is usually just a matter of time before techniques are developed to access them. Both industry and governments drive change to obtain more oil and gas to replace spent reserves. Technological advances bring new societal impacts like climate change that must be anticipated and resolved.

Remaining Oil and Gas in Place

Assessing the volume of oil and gas still trapped within rocks is difficult and speculative. Estimates are based more on assumptions than facts. Imagine trying to assess the amount of water sitting in thousands of enormous, slowly draining bathtubs over the course of a century. This amorphous figure would represent the amount of hydrocarbon resources remaining in place. Physical limitations both geologically and technologically prevent 100 percent of the original oil and gas in place from being recovered. But future innovation keeps upping recovery rates of remaining oil and gas in place. The greatest uncertainties lie and the largest resource volumes reside in this final category.

California showcases an extreme example of shifting reserves between different categories over time. The massive and highly complex Monterey formation spans the state, subject to varying geologic and seismic conditions. In 2011, the EIA estimated that the Monterey formation could hold up to 24 billion barrels of oil, with technically recoverable reserves of 14 billion barrels.30 But a big brouhaha ensued in 2014 when the EIA slashed its estimate by 96 percent, to a mere 600 million barrels.31 Experts generally agree that billions of barrels of oil are in place in California’s Monterey. But technically recoverable reserves estimates are a moving target that vacillates by an order of magnitude depending largely on drilling and enhanced recovery innovations. Economically recoverable reserves are even more fraught, depending on fluctuating oil prices, uncertain future demand, and even California’s strict environmental regulatory environment.

Resources by the Barrelful

If current projections are accurate, there are many trillions of barrels of oil and gas in place worldwide. A fraction of these resources is technically recoverable today. More will be accessible in the future due to technological advances. At current consumption rates, hydrocarbons in place are projected to last some 500 more years.32 But, if the past is any indication, we will likely have discovered more hydrocarbons in place by then.

As of 2018, the world’s total proved reserves of oil stood at 1.7 trillion barrels.33 Remaining technically recoverable oil resources are currently estimated as high as 10 trillion barrels.34 Proved gas reserves stood at 215 trillion cubic meters, or 1.3 trillion barrels of oil equivalent (BOE).35 Remaining technically recoverable gas resources are estimated at 800 trillion cubic meters (nearly 5 trillion BOE).36 To put these reserves in perspective, global consumption amounted to roughly 90 mbpd of oil and 4,500 bcm a year of gas.37 As such, if another drop was not found, today’s proved oil and gas reserves alone could supply the world through at least 2070.

Most of these supplies are not conventional hydrocarbons, however. Unconventional resources that make up the lion’s share are likely undercounted, mostly because they are not considered technically or economically recoverable at present. However, it may also be the case that some forms of unconventional oil and gas remain largely unknown and therefore undercounted. These unconventional hydrocarbons will require significant modifications to existing oil and gas value chains, as discussed in the next chapter.

Barrels Beyond Earth

Petroleum is also abundant in the wider solar system from planets like Saturn and Mars to comets and space dust.

Methane rivers flow into a methane sea on Saturn. The National Aeronautics and Space Administration’s (NASA) Cassini spacecraft, which orbited Saturn nearly 300 times over twenty years, recorded Saturn’s bounteous stores of hydrocarbons.38 Saturn’s mammoth moon, Titan, has an atmosphere that contains 5 percent methane.39 Where all this methane comes from remains a mystery, but its presence is clear in Titan’s deep, hydrocarbon lakes. Titan is one of the “most Earth-like worlds” in the solar system, with a hydrologic cycle similar to Earth’s.40 Instead of evaporating and raining water, however, Titan’s atmosphere circulates methane and ethane. These hydrocarbons are gases on Earth. But Titan is so cold that natural gas behaves like liquid gasoline. Similarly, Mars is thought to be a source of hydrocarbons. Space exploration of Mars has identified “oil-like extractable biomarkers that closely resemble terrestrial hydrocarbon source rock kerogen and bitumen usually observed in shale and carbonates.”41

In addition to planetary sources, comets and space dust throughout the galaxy could be mined for petroleum inputs. Asteroids are made of rock, water, and metals that could be mined for hydrocarbon resources, including platinum, rhodium, and other rare-earth metals.42 Many of these serve as catalysts that are essential in oil and gas operations and wider energy industry applications.43 While the emissions impacts of gathering hydrocarbons in space are unknown and could be considerable, perhaps some methods of extracting space-based oil and gas resources could be viable—such as gathering space dust or collecting methane raindrops—using negligible energy if routine space missions (powered by reusable methane-fueled rockets) get underway.44

Mapping Oil and Gas

The US Geological Survey (USGS) is an authority figure that not only issues reports on reserves but also maps out the locations of oil and gas deposits.45 Its ongoing geologic studies update the country’s understanding of the “quantity, quality, and geologic distribution” of global oil and gas resources.46 The agency has identified more than 170 basins of conventional and unconventional hydrocarbon resources. In 2019, the USGS mapped undiscovered oil and gas resources in the continental United States.47

Oil and gas resources are widespread across the globe. Every continent possesses hydrocarbons—even Antarctica,48 where a current treaty bans resource extraction until the middle of the twenty-first century (and then only if a majority of parties agree and if there is a suitable regulatory system in place).49

X Marks the Spot

Pinpointing where oil and gas resources lie is not a simple task. Neither is parsing how the USGS classifies them with its confusing forest of terminology.

It is helpful to start broadly with the survey terms used to designate the largest, continent-spanning geological units and zoom in from there. The total petroleum system is an assessment of already-discovered and yet-to-be-discovered pockets of petroleum residing in source rocks worldwide.50 From there, the USGS divides the globe into geologic provinces, areas made up of thousands of square kilometers that contain geologic resources.51 A single geologic province may contain several formations, the unique name that classifies rocks with similar characteristics in a specific location. When two or more formations exist together, they are considered a group.52 Zooming in still farther, a play is an oil and/or gas reservoir—an accumulation of hydrocarbons that share similar geologic properties.53 In most cases (but not always), a play is limited to a single formation. In the United States alone, over 100,000 oil and gas reservoirs had been documented by the late twentieth century.54

From there, the classifications become even more granular. A field encompasses connected production areas that contain adjacent pools of oil and gas.55 Although the number of fields is hard to ascertain and not routinely updated, there are reportedly more than 65,000 oil and gas fields of all sizes worldwide as of 2011.56 While that figure may seem quite high, some 9,000 fields worldwide currently account for approximately 98 percent of all current oil production.57 A smaller number of gas fields dominate global production and are concentrated in the United States, Russia, Iran, Canada, China, and Qatar.58

Numerous wells typically operate in a given field at the same time. Millions of oil and gas wells have been drilled around the globe, with nearly 1 million currently active in the United States alone.59 Many more wells have been drilled, though some of them either are temporarily inactive due to economic factors or other operational reasons or have been abandoned.

Looking beyond existing wells, as long as there is ongoing demand for oil and gas, ample hydrocarbon resources remain in place for development for generations to come.

New Finds

Over the past decade, numerous nations have announced new discoveries of large oil and gas deposits. Equatorial Guinea, Suriname, Guyana, Cyprus, and the Arctic are just a few of the live oil prospects.60 In 2018 alone, nearly 10 billion barrels of new oil and gas deposits were discovered cumulatively worldwide on every continent, and a decade earlier during the run-up in prices, some 90 billion barrels were found.61 Shale basins in Southeast Asia have abundant, untapped gas resources. Meanwhile, countries like Malaysia, China, India, Thailand, and Pakistan have been assessed for significant future oil and gas production volumes.62 And new oil and gas resources were identified in the famed Permian Basin in Texas and New Mexico, possibly denoting the largest pool of hydrocarbons on Earth.63

Discovering oil and gas is an ongoing quest. The USGS conducts assessments, studying a dozen different regions and nations each year.64 All this probing is bound to lead to new finds and increased estimates of worldwide oil and gas deposits. As these various numbers suggest, the planet’s hydrocarbon holdings are vast and continue to expand: constraints on supply are not poised to curtail the use of oil and gas worldwide anytime soon.

Despite the global prevalence of oil and gas resources and continued reserve growth, not all regions have local abundance. Western Europe, Japan, and New England, for example, are minimally endowed. However, even those places lacking oil and gas reserves, such as Singapore, can still have ample petroleum product supplies if they are home to oil refineries and gas processing plants.

Durable Demands

With the world’s supply of hydrocarbons showing no signs of abating, worldwide demand for oil and gas has climbed steadily for decades. Figure 1.2 depicts the quadrupling of global consumption since 1965, a spike that has not been deterred by global recessions followed by price hikes on fuel. At the end of 2019, global demand for oil reached 101 million barrels per day, the majority as crude oil along with small amounts of natural gas liquids (NGLs), biofuels, and refinery gains.65 Global demand for natural gas stood at nearly 4 trillion cubic meters in 2019, up 30 percent since 2009.66


FIGURE 1.2 Global Oil and Gas Consumption (1965–2021)

Note: To convert billion cubic meters (bcm) gas to million barrels of oil equivalent (BOE), multiply by 6.1.

Sources: Author’s calculations using data from BP Statistical Review, And with additional inputs from the International Energy Agency, US Energy Information Administration (EIA), Macrotrends, Investopedia, Statista, and SP Global Platts. 2021 Projected by EIA (oil) and SP Global Platts (gas).

The COVID-19 pandemic temporarily curtailed demand through 2020, though this trend is not likely to continue for a long period. Short-term forecasts on the economic recovery rate remain uncertain, but long-term oil and gas demand began trending upward again in early 2021 and are projected to grow through 2022.67 Already, China is driving a rebound in global demand for oil, as the country’s levels of demand have recovered to more than 90 percent of those seen before the pandemic—trends that could be mirrored elsewhere as vaccines are distributed.68

In 2018, the International Energy Agency (IEA) projected that, by 2023, oil demand will reach nearly 105 million barrels per day, bolstered by the growth of the petrochemicals industry in the United States and China and strong overall economic signals. By 2022, annual demand for natural gas is projected to pass current consumption levels, with China and other emerging Asian countries accounting for the majority of the growth, with demand shifting from power generation to the industrial sector, and with gas trade spurred by expanding liquefied natural gas (LNG) export capacity.69

As long as global demand for oil and gas continues to grow, it will take durable changes to supply-side oil and gas emissions to lessen the effects of climate change. And even if oil and gas consumption is ultimately curtailed, the petroleum value chain will also need to be decarbonized.

The Petroleum Value Chain

The oil and gas that flow out of the ground are essentially useless to consumers.70 You cannot pump crude into your car’s gas tank without killing the engine or wash your hair with gas condensates without harming yourself. But once petroleum is processed and refined into consumer products, the usefulness of oil and gas becomes apparent. This petroleum value chain undoubtedly generates massive profits for petroleum companies, but the public also benefits greatly—much more so than most people acknowledge. Modern society runs on oil and gas—and not just for fueling our vehicles and generating electricity. Our roads, tires, buildings, medicine, clothing, and much more are made from hydrocarbons.

Turning oil and gas into myriad petroleum products is a big undertaking. In industry lingo, this colossal task entails upstream extraction and processing, midstream refining and shipping, and downstream marketing and end use. (The industry classifies refining as downstream. Since the refinement process is quite distinct from end-use consumption, however, I separate it out here.)

Market forces largely beyond the industry’s control affect petroleum product demands that do not necessarily rise and fall in sync with each other. For example, during the COVID-19 pandemic, demands for jet fuel and gasoline plummeted, while diesel fuel remained relatively steady and plastics for protective personal gear soared. But the petroleum value chain as a whole is not readily adaptable. Infrastructure in place to produce, process, refine, and ship oil and gas takes decades and costs billions. In other words, it is not enough to simply turn off oil and gas production to meet climate goals.

Drill, Baby, Drill

At the start of the extraction process, hydrocarbon resources are initially probed using seismic sensors that render detailed images of what lies below the earth’s surface.71 The right to explore land holdings for oil and gas deposits is granted through leases, partnerships, or acquisitions, depending on whether oil and gas rights in a given place are privatized or state owned.72 The US government, for example, oversees oil and gas exploration and drilling in the Outer Continental Shelf (which consists of areas that are beyond three miles offshore),73 in national parks, and on federal lands.74 When private landowners hold mineral rights, they can control whether or not exploration takes place on their property.75 In other countries, special rules can apply when exploratory drilling is conducted to assess oil and gas resource prospects.

Companies often bid against one another to obtain a lease. Through this process, financial terms—such as rent payments, cost sharing, and royalty rates—and the leasing period are set. With a lease agreement in hand, companies drill exploratory wells to test the quantity and quality of the land’s hydrocarbon resources. If their quantity and quality are deemed sufficient, the project gets a green light.

At that point, engineers put pen to paper, modeling systems, designing equipment, and planning the necessary facilities. Depending on the location in question, multiple local, state, federal, and international government approvals may be required, each with its own conditions and associated costs. With official consents granted, oil and gas field equipment can be ordered, constructed, transported, and installed. This litany of equipment and infrastructure includes drilling rigs, pipelines, terminals, processing plants, and more that may be sourced from around the globe. Once everything is assembled and field tested, drilling and extraction operations can commence.

For over a century, vertical wells have been drilled essentially straight down from the surface of the earth into the targeted oil and gas formations. (That practice is changing with the advent of horizontal drilling and hydraulic fracturing, as discussed in chapter 2). With a vertical well, the drill bit is removed and completion techniques prepare the well for production. A cement casing typically supports the hole out of which various multiple-diameter pipes can exit. Once the source rock is punctured, oil and gas enter the wellbore and flow to the surface.

Field Notes

At first glance, the production phase, when oil and gas finally emerge, may appear to be the final stage of the petroleum value chain. But drilling and extraction are just the beginning. After oil and gas are extracted, it takes significant field work—inputting considerable energy with resulting emissions—to turn hydrocarbons into petroleum products.

When most people think of hydrocarbons, they have certain images of oil (smooth, thick, and black) and of natural gas (invisible and burning with a perfect blue flame). In reality, they certainly do not come out of the ground that way: getting crude and its associated hydrocarbon compounds into a usable state is quite a sordid affair.

When encountered in their natural state, oil and gas are typically mixed together at random ratios. Strange hydrocarbon species can be mixed in that swing between vapor and liquid phases, depending on operating conditions like temperatures and pressures. These liquid gases and vaporous oils—condensates and NGLs—can be readily removed and turned into petrochemical products that make their way into our daily lives as plastics, barbeque fuel, detergents, tires, refrigerants, and thousands of other commodities. (The growing advent of the multiplicity of hydrocarbon products is discussed in chapter 2.)

Unwanted contaminants can accompany extracted resources, including dirty water, tainted air, smelly sulfur compounds, heavy metals, volatile and sometimes toxic compounds, caustic acids, remnants of drilling fluids and other injected substances, invisible pockets of methane, potent traces of carbon dioxide (CO2), and more. Solids may also be present: mud, rock, salt, and sand. Removing these impurities starts with surface processing to separate liquids from gases, drain water, and discard solids.

These undesirable byproducts can easily leak if operators are not careful to handle them responsibly. Some byproducts, like hydrogen sulfide, cause instant death. Others, like benzene, toluene, and xylene, are known or suspected carcinogens. Heavy metals such as vanadium and nickel can leach into water and cause organ damage. Diesel exhaust from onsite engines emits airborne toxins that cause heart and lung damage. Air emissions from wells and equipment form smog and generate GHGs that pollute regional air and the global climate. All told, oil and gas production facilities present risks for workers and other nearby residents and wildlife.

Exit Gas

After surface processing, raw gas and crude oil typically part company, breaking the oil and gas value chain into two distinct branches.

Before they diverge, however, processed gas and intermediary oil products may be used in petroleum sector operations. Gas and condensates can be reinjected into formations to extract more resources; used to generate onsite heat, steam, and power; dissected to manufacture hydrogen; inserted into pipelines to clean them; or blended with heavy oils to make them flow. Up to 82 percent of the heat needed for processing in the petroleum supply chain currently comes from products and sidecuts of the petroleum industry itself.76 These quantifiable, but often overlooked, intermediary petroleum uses are crucial for calculating the total lifecycle climate impacts from the petroleum sector, as discussed in chapter 4.

Natural gas that is not needed upstream for drilling, extraction, and processing can be marketed to end users for power, heat, steam, and hydrogen production. It also can serve as a feedstock to make petrochemicals. Or it can be sold to other industrial users. Gas travels to these different users through regional pipelines as compressed natural gas or by oceangoing vessels as LNG.

As of 2015, there were some 1,500 gas processing plants worldwide in over sixty countries.77 The United States led the pack by processing a reported 525 billion cubic meters of gas, while Iran came next, followed by Saudi Arabia and the United Kingdom.78 Together, these three countries had enough capacity in 2015 to handle half as much gas as America did. Since then, the United States has surged further ahead thanks to the production of shale gas using unconventional methods, discussed in chapter 2.

The World’s Biggest Kitchens

Unlike gas, condensates, and NGLs, the oil supply chain follows its own unique path to commercialization. Crude oil cannot be directly marketed without a critical additional step—refining—which rearranges hydrocarbons into a broad slate of valuable petroleum products.

Instead of the edible foodstuff used in a kitchen, the ingredients fed into an oil refinery include hydrogen, carbon, oxygen, and various impurities. Refinery equipment—effectively the stoves, refrigerators, pressure cookers, mixers, bowls, spatulas, and knives—heats, cleaves, blends, and reconfigures crude oil into all sorts of consumable petroleum products.79 Table 1.1 provides an overview of the basic distillation of hydrocarbon fractions that result at different temperatures to produce products with different commercial uses and the estimated corresponding refinery yields. (Major refining processes are detailed later in figure 3.4 in chapter 3).

Today’s 621 global refineries are spread across 120 nations, with 29 in the United States alone.80 Several countries that produce little or no crude nevertheless refine oil, including Japan (with 22 refineries), Egypt (with 8), or Peru (with 7).81 Together, the world’s refineries reportedly processed nearly 92 million barrels per day of crude in January 2019.82 The world’s smallest facility, in Nigeria, handles a mere 1,000 barrels per day while the largest is located in India with a 1.2 million bpd capacity.83

Table 1.1 Converting Hydrocarbons into Petroleum Products


a These typical refinery yield values represent today’s generic approximations. The variation in actual refinery yields depends on the oil feedstocks used, the refinery equipment installed, and current demand.

Sources: International Energy Agency (IEA), “Oil 2018: Analysis and Forecasts to 2023,” 2018,; estimated fractions calculated using Deborah Gordon, Brown University Watson Institute, Oil Climate Index Plus Gas,; Deborah Gordon, “Carbon Contained in Global Oils,” Carnegie Endowment for International Peace, December 2012,

The world’s refineries are currently configured in one of four ways. Hydroskimming refineries, the most basic kind, heat crude oil to separate it into refined products without additional transformations. While these simple refineries turn lighter crude oil into gasoline and remove unwanted sulfur, the amount of product they yield depends entirely on the crudes fed into them. They do not perform optimally on heavier crude slates. Roughly 7 percent of the world’s crude is processed in hydroskimming refineries, located predominantly in Russia and Italy.84

Adding another level of complexity, medium-conversion refineries combine hydroskimming process units with additional equipment to crack (break the bonds of) and rearrange heavier oils that contain more carbon. These midlevel refineries are equipped to process lighter, higher-value petroleum products, such as gasoline and petrochemical feedstocks. But they also yield heavier, lower-value heavy products, including heavy residual fuels and asphalt. Medium-conversion refineries comprise 44 percent of today’s crude throughput and predominate in Singapore, Iran, Thailand, France, the United Kingdom, and Canada.85

The most complex deep-conversion refineries come in two types: coking and hydrocracking. Both utilize medium-conversion process units and incorporate equipment that applies high temperatures to crack heavier residual oil with long carbon chains into lighter, high-quality products. Coking refineries, which account for 45 percent of current refining capacity worldwide, wring the carbon out of the heaviest crudes and produce the coal-like byproduct petroleum coke.86 These refineries’ ability to process unconventional, low-quality crudes and produce customized yields of gasoline and diesel have historically made these high-cost refineries attractive. Coking refineries are common in the United States, China, India, Brazil, and Venezuela.

That being said, future refineries will have to take into account new and different oil supplies as well as changing consumer demands. This task will not be easy. Many of these so-called kitchens are older and cannot easily adapt to changing ingredients or varying consumption patterns.

As for changing oil inputs, in recent years, refining has had to shift from being “pear shaped” (whereby heavy oil accounts for a growing share of input crude) to an “hourglass” shape (with growing proportions of light and heavy oils relative to conventional medium crudes).87 These so-called dumbbell crudes are an odd mixture of light, sweet shale oil and condensates from the United States coupled with heavy, sour crudes from Canada, Mexico, Venezuela, and elsewhere.88

Dumbbell crudes are technically challenging to refine. It is far easier for refineries—at least as they are currently configured—to break down heavier oils into desired petroleum products than to recombine lighter oils to turn them into products.

Economically, refiners operate on razor-thin margins. Costly renovations are skirted. Past investments are usually viewed as sunk costs that are deeply discounted. In the United States and Europe, environmental permitting all but prohibits refineries from being built or expanded, which is why new refineries are springing up in Asia and the Middle East. All refiners aim to cook up the right petroleum product slate on a daily basis that is readily consumed. Past product consumption has historically guided refiners’ ongoing quest for optimal output combinations for the supply and product lines produced using crude. But what if future demands for petroleum shift markedly from the current refinery yields shown in Table 1.1? These questions plague the industry, for example, when considering a wholesale future shift to electric vehicles that could displace gasoline—a major refinery commodity. If this comes to pass, however, it could be strategically coupled with policymaking to shake up the oil industry and decarbonize the refining sector.

Beyond Fueling Planes, Trains, and Automobiles

The various commercial uses the oil and gas industry has found for petroleum products is simply staggering. Fictional US vice president Selina Meyer (Julia Louis-Dreyfus) found this out the hard way on HBO’s hit show Veep. In its first episode, the plastics lobby on Capitol Hill and its oil-toting benefactors thwarted her attempt to replace Washington, DC’s plastic utensils with a more ecofriendly alternative.

Petroleum inundates and abets our daily lives from morning to night. We wake up to petrochemicals, brushing our teeth with toothpaste and washing our hair with shampoo. We eat our midday snack grown with fertilizer and packed in plastic bags. At dusk, we drive home on tires made of rubber and over roads paved with asphalt. Before bed, we put on our petroleum-based polyester pajamas and take medicine made from petrochemicals. Table 1.2 showcases a few of the estimated 6,000 consumer products that are made from petroleum.89

Table 1.2 Petroleum Products in Daily Life

Relevant Industry (Common petroleum products)

Consumer Market (Petroleum in common products)

Consumer Fuels

Health and Beauty





Heating oil





Petroleum jelly


Vitamin capsules

Natural gas


Commercial Fuels

Personal Items

Bunker fuel


Jet fuel

Eyeglasses and contact lenses

Petroleum coke


Fuel oils

Toys Crayons




Computers and smartphones


Television sets

Industrial Inputs and Other Uses

Household Goods


Cleaning products


Trash bags

Paraffin wax





Roofing and insulation





LPG, liquefied petroleum gas.

Source: Adapted from Deborah Gordon and Madhav Acharya, “Oil Shake Up,” Carnegie Endowment for International Peace, April 2018,

Despite our ubiquitous daily connections to oil and gas, most people think that their only contact with petroleum is during weekly fill-ups at the local gas station.90 While gasoline is a byproduct of petroleum refining, it only accounts for one in four barrels of the world’s refined oil and none of its gas.91 That means that three-quarters of the planet’s barrels of oil and essentially all its gas provide goods and services to every other economic sector—industrial, commercial, agricultural, residential, power generation, and nonpassenger transport—for which statistics are not clearly disaggregated.92 And while renewable energy sources are making considerable gains worldwide, most of the stuff made from oil and gas cannot be made from solar and wind energy. It is no wonder, then, why rooting oil and gas out of the global economy is a far trickier task than the average person realizes.

Searching for Cleaner Substitutes

Getting off oil will be a hard and slow endeavor given the current state of infrastructure in the world and a lack of readily available product replacements. In theory, the petroleum industry could find alternatives for portions of its product slate—petrochemical feedstock, gasoline, and diesel. But replacing the nearly 1 billion cars on the road worldwide with EVs will not be a simple task.93 The IEA forecasts that alternative fuels could be swapped in for a scant 500,000 barrels a day of gasoline and diesel by 2023.94 This is a drop in the bucket (0.5 percent of current oil demand) that mirrors past shifts away from large volumes of oil in the electric power sector, which was slashed by 60 percent between 1978 and 1982 after the second oil crisis in the United States.95 Such large bites out of our oil diet have prevented US oil consumption from ultimately rising.

But the problem is even more complex than that. Even if EVs powered by renewable energy were to propagate worldwide, it takes oil to manufacture, install, and maintain wind turbines and solar panels. The same is true of the cars themselves too. The millions of EVs envisioned to help reduce demand for oil still use rubber tires, drive on asphalt roads, and contain many plastic parts (such as seats, dashboards, and bumpers) that are made from oil and gas.

Diesel and kerosene, on the other hand, have relative monopolies in road freight and aviation. Jet fuel, fuel oil, asphalt, lubricants, waxes, tar, and sulfur have no ready substitutes. Bio–jet fuel manufactured from renewable feedstocks such as sugar, corn, or forest wastes can be made in small amounts, but it will take many decades before its production equals the volumes currently consumed and before airports and aircraft are retrofitted for its universal, safe use. The prospect that liquid fuels will be obtained directly from renewable energy (the so-called solar fuels that apply photosynthesis principles using sunlight, water, CO2, and nitrogen from the air to produce fuels), while promising, is even more distant.96

The same is true of a product as humble—and cheap—as asphalt. Solar roadways, recycled tires and printer toners, and low-GHG cement notwithstanding, the residual solids left over from refining heavy oils will continue to provide pavement on which cleaner cars are driven for countless miles.

And then there is sulfur—a chemical element that serves as the backbone of many industries. Sulfur is the key ingredient in sulfuric acid, a component used in fertilizer, food production, paint, paper, detergents, medicines, cosmetics, leather, tires, plastics, dyes, construction materials, sugar, steel, and water treatment.97 Sulfur is used in batteries that store electricity. Since the early 1900s, the main source of sulfur is processing sour oils and gas. The only other sources of sulfur are volcanoes and pyrite mines.98 So when EV battery developers and billionaires hail sulfur-flow batteries as a breakthrough technology for renewable energy storage, it is troubling that a key ingredient (sulfur) is a byproduct of the very fossil fuels (oil and gas) that it seeks to replace.99

To sum up these various obstacles and complications to curtailing humanity’s carbon footprint, Table 1.3 charts cleaner substitutes for oil and gas commodities, listed from lowest to highest in terms of technical, market, and social barriers to entry. These disconcerting findings show that public awareness of the polluting effects of gasoline-powered automobiles hardly scratches the surface of the economic and societal changes that will be needed to roll back the pervasive presence of oil and gas in our daily lives and the global economy. And in many cases, the world is even further away from finding solutions than it is in the case of EVs.

Table 1.3 The Challenges of Finding Cleaner Substitutes for Petroleum Products


a The barriers to entry are lower at the top and increase on down to the bottom of the table. Barriers include cost, technical hurdles, and social roadblocks.

b Organic materials include fats, grains, plants, grasses, trees, cellulosic waste streams, and algae.

Sources: Table adapted from Deborah Gordon and Madhav Acharya, “Oil Shake Up,” Carnegie Endowment for International Peace, April 2018, The information on bio-based feedstocks came from the following source: “Biobased Industrial Products: Priorities for Research and Commercialization,” National Research Council (US) Committee on Biobased Industrial Products (Washington, DC: National Academies Press, 2000),

Market Forces

For now, market price is the best metric for gauging a peak in petroleum supply or demand. Various market factors influence petroleum prices, including the balance in oil and gas trade and exogenous forces from financial markets.100

There is no consensus among experts, however, on the efficacy of oil and gas markets. Some experts view oil and gas as durable assets that the market sets a price for based on the available supply. They subscribe to the expectations of future traders to generate changes in price and inventories.101 Others believe that resources are not durable and that the market price is determined by ongoing imbalances between oil supply and demand. According to this logic, when supply tightens, prices rise. Higher prices dial down demand and unlock new technologies that increase supply and usher new unconventional hydrocarbons into the market. Any resulting oversupply lowers prices, which in turn moderates production and reaccelerates demand. Round and round the oil and gas market goes.

In 2020, oil and gas market forces were tested by a global pandemic.102 Quarantines and travel bans squashed petroleum demands and prices fell. The normal uptick in consumption from low prices did not follow. Experts expect demand to recover once a growing share of the population is vaccinated and it is safe to travel and resume social activities. However, the rate at which oil and gas markets recover remains highly uncertain. This raises questions for future market forces as climate change unleashes new pathogens and other forms of economic and social disruption. It also highlights the perils of innovation—essential keys to unlock climate solutions—and why market forces alone cannot be relied on to successfully move oil and gas solutions to the fore.103

Future Price Uncertainty

Although oil and gas markets are closely tracked, perennial uncertainty in forward-looking supply and demand hampers price projections.104 Over the long run, future price increases depend on growing demand in emerging economies and growing supply from unconventional deposits around the world. But in the short term, disruptive forces in supply or demand—from political instability to global pandemics—can unexpectedly shift prices.

Spot markets for oil, gas, and petroleum products involve the near-term delivery of a single, large-volume sale delivered to a specific location, via a given mode of transport, at a designated time.105 While spot markets account for a small portion of overall oil and gas trade, they play an outsized role in setting market prices for those buying and selling petroleum commodities under longer-term contracts.106


FIGURE 1.3 Actual and Forecasted Oil Prices (2005–2018)

Notes: Dashed lines (e.g., F2008) plot forecasted oil prices made in that year. The dollar values are listed in 2018 dollars. Links for the International Energy Agency’s (IEA) World Energy Outlooks are available at the IEA webstore. In 2015, the IEA stopped publishing oil price forecasts in the World Energy Outlook, so other additional sources were used for price and inflation data.

Sources: International Energy Agency, Oil Price Forecasts, World Energy Outlooks 2005–2014,; International Energy Agency, “World Energy Model,”; CPI Inflation Calculator,

Numerous agencies, nongovernmental organizations (NGOs), and companies publish oil and gas price forecasts. These predictions are rarely one-off estimates. Instead, these forecasts are often updated, and projects are raised or lowered, according to changing circumstances. Figure 1.3 offers a timeline of successive forecasts over nearly two decades plotted alongside posted market prices. While this is only one example, it not only illustrates the difficulty of forecasting oil market prices but also exhibits the tendency of experts and their models to overvalue future oil prices, a habit that can prop up oil in the short term when markets decline and sustain oil in the long term. The same price forecasting concerns are expected in gas markets as global trade expands and gas markets grow larger and more dynamic.

Oil Versus Gas Markets

Even though these hydrocarbons currently satisfy largely different demands (as shown in Table 1.3), oil and gas are often extracted together. The fact that their supply is linked but their demands are not can affect their respective market dynamics. Prior to 2000, crude oil and natural gas prices hovered around parity (1:1), based on their heating values. Figure 1.4 shows that, in recent years, crude oil has captured up to five times more market value than the equivalent energy unit of natural gas. Fracking in the United States may explain this price decoupling because oil is a global commodity but gas is largely domestic. Since oil has a greater market upside than gas, producers extracting these resources together have an economic incentive to maximize oil extraction and dispose of unwanted gas, releasing methane into the atmosphere.


FIGURE 1.4 Comparing Prices of US Oil and Natural Gas (1986–2019)

Notes: This figure assumes that 1 thousand cubic feet of gas (Mcf) equals 1.036 million British Thermal Units (MMBtu), while 0.17 barrel crude equals 1 MMBtu.

Sources: US Energy Information Administration, “Price of U.S. Natural Gas Exports,”; and US Energy Information Administration, “Cushing, OK WTI Oil Spot Price,”

Market Failures

Ideally, markets are expected to sustain desirable production and consumption activities and prevent undesirable consequences and inefficient outcomes.107 This is not the case, however, in the oil and gas (and other) markets. Negative externalities can have harmful spillover effects, like climate change, when the consequences of activities affect others but are not reflected in market prices. Insufficient information results when buyers, sellers, or both are less than certain (or unequally knowledgeable) about the qualities of what is being bought and sold.108 Free competition is constrained when firms collude and when there are barriers to enter and exit markets. And intergenerational equity bestows the rights of tomorrow’s citizens (even those who are not yet born) to inherit a safe environment and conserved natural resources.109

A variety of actors recognize that the oil and gas sector suffers from market failures, especially when it comes to climate change. The National Petroleum Council referenced problems of imperfect information in 2011, when it reported that critical aspects of unconventional oils are often not well understood, including the GHG emission intensities of various operations.110 The premier of Alberta, Canada, highlighted environmental externalities in 2012, when she called for transparency, verifiable social responsibility, and comprehensive standards for oil sands.111 The Shell Oil Company’s chief executive officer (CEO) alluded to issues of market control in 2020 when he professed that his company must figure out the right bets to take amid society’s growing concerns about climate change.112 And the founder of the investment giant BlackRock addressed intergenerational equity when he called out climate change as the decisive factor in companies’ long-term economic prospects.113

Addressing these market failures calls for tailored responses. Imperfect information about oil and gas climate risks and GHG mitigation necessitates potential calls for robust, ongoing, public data transparency to build knowledge and identify gaps to scrutinize industry trends, revise assumptions, improve calculations, and develop solutions. Negative externalities, such as climate change, respond to financial incentives and disincentives, nonbinding agreements, binding regulations, and prohibitions.

Market control (like that which Saudi Arabia demonstrated when it took on Russia in 2020 to return balance in crude markets during the coronavirus pandemic) requires greater oversight through monitoring and reporting followed by financial disincentives and sanctions on efforts to hamper competition.114 And intergenerational equity necessitates a rallying call for durable actions now that will protect the climate for the well-being of generations to come.

Each of these tools is discussed in the chapters that follow. And their applications are highlighted in the pathway laid out in the book’s concluding chapter.

The Best Barrels

A decade ago, strong growth prospects in emerging nations signaled increasing demand for oil and gas. The search for new supplies led to new developments of novel hydrocarbon resources.

But what exactly is this newfound abundance composed of? Are the best barrels—those that are most accessible, cheapest, and least damaging—behind us?

Oil and gas are highly heterogeneous—they come in many varieties and are used for numerous purposes. Some resources are easier to manage than others. The easier ones require less effort and fewer inputs, they are more energy efficient, and they are more easily turned into high-value petroleum products.115 Even after benchmark prices are posted, oil and gas may be discounted according to several factors, including the share of associated gas in a given type of oil, the share of liquids in a given type of gas, an oil’s weight (how heavy it is), its sulfur content, whether it has high levels of impurities, and its proximity to trading hubs, refineries, and processing facilities. One thing is certain, however: oil and gas resources’ diverse climate impacts are not currently factored into their prices.

As long as it is profitable, the market does not care whether oil and gas are conventional or unconventional. But the changing nature of oil and gas, and the varying impacts that various types of hydrocarbons have on the climate, presents an opportunity to reduce emissions along the entire value chain. The next chapter offers details on what new forms oil and gas are taking, so that these resources can be better managed in the future.

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