North Dakota data from the NDIC is out. Bakken Three/Forks data shown in chart above (NDIC Data) with a Red Queen Model (based on Rune Likvern’s original work) using data gathered from the NDIC by Enno Peters to develop well profiles.
The model uses an estimate of the well profiles based on the NDIC well data. For Feb 2016 ND Bakken/Three Forks output fell by 3 kb/d to 1064 kb/d, Lynn Helms estimates that 63 wells were completed in February. North Dakota output fell 4 kb/d to 1118 kb/d.
Clearly the model has been underestimating output since Sept 2016, I do not have a good explanation, it may be due to variation in the monthly well profiles.
If we assume 63 wells per month are completed each month from March 2016 through Jan 2017 we get the following scenario, output is 840 kb/d in Jan 2017, or 160 kb/d less than the model output in Jan 2016 (1000 kb/d).
A few excerpts from the Director’s cut:
Oil Production
January 34,796,333 barrels = 1,122,462 barrels/day
February 32,431,669 barrels = 1,118,333 barrels/day (preliminary)(all-time high was Dec 2014 at 1,227,483 barrels/day)
1,064,108 barrels per day or 95% from Bakken and Three Forks
54,225 barrels per day or 5% from legacy conventional pools
Producing Wells
January 13,141
February 13,012 (preliminary)(all-time high was Oct 2015 13,190)
10,898 wells or 84% are now unconventional Bakken – Three forks wells
2,114 wells or 16% produce from legacy conventional pools
Permitting
January 78 drilling and 0 seismic
February 70 drilling and 1 seismic
March 56 drilling and 4 seismic (all time high was 370 in 10/2012)
ND Sweet Crude Price
January $21.13/barrel
February $18.07/barrel
March $26.62/barrel
Today $31.25/barrel (all-time high was $136.29 7/3/2008)
Rig Count
January 52
February 40
March 32
Today’s rig count is 29 (lowest since October 2005 when it was 29)(all-time high was 218 on 5/29/2012)
Comments:
The drilling rig count fell 12 from January to February, 8 from February to March, and 3 more from March to today. Operators are committed to running the minimum number of rigs while oil prices remain at current low levels. The number of well completions fell from 71(final) in January to 63(preliminary) in February. Oil price weakness is the primary reason for the slow-down and is now anticipated to last into at least the third quarter of this year and perhaps into the second quarter of 2017. There was 1 significant precipitation event, 6 days with wind speeds in excess of 35 mph (too high for completion work), and 0 days with temperatures below -10F.
Over 98% of drilling now targets the Bakken and Three Forks formations.
The estimated number of wells waiting on completion services is 907, down 38 from the end of January.
The estimated inactive well count is 1,439.
Hi here are some new graphs from me. First how gas to oil ratio has changed. You can see that it is still increasing quite fast for most years. Dennis I think this is the reason why the model has been underestimating the output. It appears as if they are pumping up the oil faster the lower the oil price gets. I must say it seems quite desperate to me.
Next is a similar graph, but it shows oil production instead and I have moved the curves to the same starting point. It may look like the production profile graph I used to post, but it´s not because the age of the wells are not the same in the same data point. So it does not give an accurate profile, but the good thing is that you can see the very latest changes. The last data point for each curve has only data from February this year. I have also zoomed in a bit as the first years of data is not that interesting anyway.
Compared to January we can see that the decline is quite small or production even increasing in some cases, but the trend is clearly declining production for all years except 2007. So it´s a bit hard to see what effect the increasing gor has. I would guess that the decline would have been steeper without it increasing, at least for a while. Why do it otherwise? Also notice the bump for 2008 which is believed to be caused by refracking and/or the “Halo effect”.
We should start to see a negative impact from the increased gor at some point. I wonder when…
Freddy,
Yes GOR is still on the way up. February is an all time high for ND gas production, while oil is down 100,000+ bopd from peak.
Gas Production
January 50,870,396 MCF = 1,640,981 MCF/day
February 49,028,332 MCF = 1,690,632 MCF/day (preliminary)(NEW all-time high)
How long before the producers start to pay the price for this over production is hard to say, but those long tails, that were going to produce for decades look very much at risk. I had always thought the long tail was the only thing that gave the shale players any chance of pay back their debts. But once the gas is drawn out of the fractures, there will not anything to drive the oil flow, the game is over.
Yes perhaps its more of a long-term effect that may be difficult to see.
Freddy,
N. Dakota has been pushing fairly hard to reduce flaring of gas. How does that figure in here?
Nick,
They are well ahead of their gas flaring quota, with more gas processing capacity being built.
From the directors cut
The price of natural gas delivered to Northern Border at Watford City is up $0.34 to
$1.46/MCF. This results in a current oil to gas price ratio of 21.4 to 1. The percentage of
gas flared was down to 11%. The Tioga gas plant operated at 84% of capacity. Even
though the expansion of gas gathering from south of Lake Sakakawea was approved, the
approval came too late for the 2015 construction season, resulting in a 1 year delay. The
February Bakken capture percentage was 89% with the daily volume of gas flared from
January to February down 21.9 MMCFD. The historical high flared percent was 36% in
09/2011.
Gas capture statistics are as follows:
Statewide 89%
Statewide Bakken 89%
Non-FBIR Bakken 90%
FBIR Bakken 87%
Trust FBIR Bakken 87%
Fee FBIR 89%
February – February 2015 capture target=77%
April 2016 – February 2016 capture target=80%
February 2016 – February 2018 capture target=85%
February 2018 – February 2020 capture target=88%
After February 2020 capture target=91%
That’s a pretty good accomplishment – it wasn’t so long ago that it was at 35%.
So, the question is: how does that affect the Gas to Oil ratio?
Does the GOR ratio just include gas that’s produced and sent to market? In which case, as less gas is flared, the GOR ratio would naturally go up…
Nick,
As this question about gas number comes up every month, I will answer it this time around. GOR is based on produced gas, not sales gas. The ND govt gives both. but the gas produced number against every well in their report, is exactly that. Produced not sold.
Interesting, thanks.
Thanks Toolpush.
You might be interested in my post, just up today, looking at Bakken data—specifically how many wells were spud and how many completed:
https://www.beaconreader.com/mason-inman/new-wells-in-the-bakken-continue-to-plummet
This is data I compiled directly from North Dakota’s database, and is not relying on the Director’s Cut, which I’ve found is generally untrustworthy on well completion numbers.
The most recent data point of 63 completions in Feb 2016, matches my count fairly closely; I came up with 53. But in general I’ve found weird anomalies in the Director’s Cut count—sometimes much too high, sometimes much too low, as I talked about in another post from Jan 2015:
https://www.beaconreader.com/mason-inman/early-signs-of-the-bakken-oil-slow-down
It seems like with the data Enno Peters is compiling, he’d have a better count of well completions than the Director’s Cut.
Also, assuming that well completions would continue at 63 per month seems pretty unrealistic, given the trend over time. I know the post said it was just an assumption, but it seems likely the completions will continue to drop further before (at some point) rebounding.
HI mason
I agree. ANY suggestions for an average number for the next 9 months. Enno’s data suggests 65 wells in Feb.
Thanks for your post Mason,
In the past I’ve also noticed the large discrepancy between the Director’s cut completion numbers, and the actual numbers. From communication with the NDIC, I learned that sometimes a wrong query was used to get these numbers. I find it more helpful to just take the number of wells that produce for the first time in a month, instead of relying on reported completion numbers. Even the reported completion date for wells doesn’t seem always so accurate.
In my opinion, the small drop in February is a bit of a fluke (the kind of which we’ve seen several times over the last year). The average drop in oil production in ND over the last 3 months is > 20 kbo/d, per month. I expect several more months of drops of this order of magnitude, given that well profiles haven’t changed significantly at all, and the low & declining number of completions.
What is interesting to see is the difference in strategy of some of the operators:
The last time EOG had new wells flowing was in last September, and it has been building up its DUC count. XTO, which Shallow already mentioned, actually has been reducing its DUC count, with quite a lot of wells starting flowing in January and February this year.
You can see this on my site, by
1. going to the “Well status” tab
2. Selecting the category wells “spud” (which are wells that have at least been spud, but not yet producing), and selecting “keep only”
3. Checking the total number of wells spud , for the different operators.
These numbers track the DUC count very closely, and I can follow this for individual wells.
Enno. There could be delays between well completion and first month production, for various reasons. I agree that first month is a better measure.
If I recall correctly, EOG hasn’t had a rig running in the Bakken for awhile.
Thank you again for your shale profile.com site. Incredible how quickly you get the new data up and makes it very easy to see what companies put new wells on in 2016.
I am still not sure what the various strategies are, although I have a feeling WLL’s was made for them. XTO makes the least sense to me. It would seem they would have the best ability to sit on DUC wells and wait for higher prices.
Thanks Shallow,
I am also surprised about XTO. Their average well has performed quite poorly in the past. Maybe the explanation is in their well costs, or existing contracts.
Enno, thanks for your update.
I just browsed the data and had a look at shaleprofile.com and I found that there is not reported any additions of producing wells for Continental since Nov-15.
And FWIIW, I found no wells had started to produce in Grail (pool) since Nov-15.
Rune,
Interesting, especially since CLRs SPUCs (spudded and uncompleted wells..) have increased with just 7 since then until end of Feb, while having at least 4 rigs.
Whiting is releasing Q1 earnings 4/27.
NASDAQ site has earnings estimate at ($0.72) per share.
Will also be interesting to see Q1 production for WLL.
HI Enno
What’s your expectation for average completion rate for the rest of 2016?
HI Enno
What’s your DUC estimate for February 2016?
Dennis,
“What’s your expectation for average completion rate for the rest of 2016?”
There is not much info in the data that would help me make a good estimate for this. It really depends on the circumstances these operators are in, and the oil price. My WAG is 50 wells/month, with a very wide uncertainty range of +- 30.
This compares with the average in 2015 of 120 wells / month.
“What’s your DUC estimate for February 2016?”
In the “Well status” tab, you can see my approximation of DUCs, which I call SPUCs (spudded and uncompleted), as this is something I can measure, for individual wells (even the ones that are not fully drilled yet). By the end of Feb this total stands at 1010, compared with over 1200 in Jan 2015. Most of these are actual DUCs, a few of them are still in the process of drilling.
Thx Enno
50 to 76 seems reasonable if shallow sand’s estimate of 26 rigs minimum is correct. With 900 DUCs if half are completed in 9 months that is 50 per month plus 26 wells drilled would be 76. So 50 to 76 seems ok.
20 per month seems very unlikely.
What is the physical mechanism for the increased GOR? Production is due to the pressure differential between the formation and the well bore and methane molecules travel faster than oil molecules, or is it because the methane molecules come out of solution and gas bubbles travel faster. So perhaps it is ongoing pressure drop in the formation over time that is allowing bubbles to form deeper in the formation. If that is the case, the GOR plot should keep steepening up.
As the pressure drops the gas comes out of solution in the oil. In conventional fields this is prevented by maintaining the pressure through water or gas injection.
The gas comes from all the oil in the reservoir, not just that which is recovered at the surface, so the oil remaining gradually gets heavier.
At the rate the rig count is dropping we should be negative territory around October. (ba da bump)
But seriously folks, from January to February dropped 23%, from February to March dropped 20%. How low can you go.
I know this has been discussed, but I’m still not clear how much of it takes to get those 9,000 odd uncompleted wells completed. How much more do they have to spend to complete a well and how does that compare to the total cost of the well? I’m kind of stunned that they are drilling at all with a back log that big.
It does make you wonder how many are actually dry holes. Maybe not completely dry but not worth completing and fracking.
I could see where a company would not want to admit that their investment had turned into a liability and would require scarce money to P&A.
That was a typo by me it is 907 ducs .
SVO,
Shallow Sands, laboriously went through all the annual reports, and counted low to mid 20’s of rigs the oil companies expected to have working during the year in ND. The early drop in the rig count this year, is just aliening the count with their 2016 budgets.
The thing to watch is whether the recent uptick in the oil price, allows any of them to put rigs back to work, or whether the April bank loan reviews puts a total clamp on their operations?
Toolpush. The wild card on rigs from the 10K was XTO. No mention in XOM’s 10K of specifics that i recall
If I am reading it right, their production was up significantly in February. At least that is the way it looked to me on Enno’s site.
The others that I am not sure about, or may have messed up were Statoil and Hess. Statoil I am not sure of. I thought Hess was dropping down to two, but they haven’t yet.
It looks like one of Statoil’s rigs is drilling an SWD well. I thought rigs would bottom around 26. Pretty close now. I’d say more relevant are/will be completion of DUC’s.
Shallow,
BH is actually showing 26 for ND. As you say SWD well. Burlinton has a 20 thousand well. Most likely a workover/re-frac, that will not be counted by BH, so you are getting pretty close to the money.
I feel with this little up tick in oil price, may have kept a few rigs out there a little longer than expected. It seems from H&P, there are still rigs with on going long term contracts, which will cost money to get out of. I suspect XTO with all their support can afford to ride the oil price out, and at least get some value out contracted rigs, where the more cash strapped companies just have to write off cancellation fees as a bad call.
You should be getting close to throwing the red pen away, well at least putting in back in the draw, and buying a brand new black one?
There is a better model for Bakken. It’s Hubbert-based. It’s been published here for 27 months now. I zoom in on actual data now.
950 kb/d in Nov 2016 seems a bit high
The Baker Hughes North American Rig Count came out earlier today.
I wonder if Cana Woodford are treated as oil or gas rigs by BH?
Certain companies would have us believe they are drilling for oil there, but after a few months the wells turn to all gas. Always report IP rates in BOE.
Shallow.
If you down load the excel spreed sheet, it has each basin broken up into oil and gas.
Cana Woodford, currently has 30 oil zero gas rigs!
ps
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjI5NzM1fENoaWxkSUQ9MzMyNzg3fFR5cGU9MQ==&t=1
All be darned, Toolpush. I’d say that isn’t accurate.
Assuming a rig is defined by the majority of the product it produces, it seems those 30 should all be deemed gas rigs.
Shallow,
Just remember the old adage,
lies. damn lies and statistics!
Is it worked on value? maybe the value of the oil produced is greater than the value of the gas?
Just guessing.
Toolpush. I really don’t know how wells are classified.
I do know that from the querie I have done on OK horizontal wells, out of all of those that have been producing one year or more, only about 1.75% are still producing 100 barrels of liquids a day, or more.
I also know that CLR’s production mix is moving toward a greater gas weighting, per their own guidance. I have also looked at their OK hz wells. All but the Springer wells produce mostly gas, liquids are 10-50K cumulative, with about all of that coming in year one. There are some tremendous gas wells, over 3 million mcf (thousand cubic) in year one.
I think Springer activity has slowed, the wells are not generally as productive as in the Bakken and EFS.
OPEC upstream investments for 2015 through 2018 are about one third of what it was before the price crash. (As per the official OPEC web site.)
OPEC Upstream Investments
I wonder what the split of oil to gas projects is? Based on the $270 billion quoted I’d guess that represents about 4 mmbpd (equivalent) coming on stream over the next five to eight years (assuming there isn’t much cheap onshore oil left to be developed – even Iraq is costly now because of security issues). At 3% decline they are losing 1 mmbpd (oil only), so it’s probably not enough to arrest an accelerating decline.
With a 75% cut there it is no surprise that the main well service and EPC companies are laying off up to half their staff, and more to come to if it stays that low through 2018.
A decline of over 10% per year since July doesn’t seem little to me.
Hi George,
My expectation was that decline rates would be higher than this for such a low number of well completions. So little decline is relative to the 20% annual rate of decline I expected. Also I tend to look at longer periods than 8 months and look at trends. If we look at the trend since the Bakken/ Three Forks stopped decreasing in Nov 2014, the rate od decline has been about 4% per year. If we look at the last 13 months the rate of decline has been about 5%.
Dennis,
Thanks for the post.
“Clearly the model has been underestimating output since Sept 2016, I do not have a good explanation, it may be due to variation in the monthly well profiles.”
An important property of any model is to stay in sync with reality. So instead of watching it divert from your projection, I recommend updating it very once in a while, so that it closely matches the actual production in the past. This means adjusting the typical well profiles you use. Also, I’m not sure how many different average well profiles you maintain (just 1?), but as you can clearly see, wells are somewhat changing over time: Recent wells have a higher initial output, followed by a steeper decline. You could model this by having one well profile per starting year.
I suspect the biggest reasons for your model mismatch are:
1) The increase in IP in wells from recent years
2) A slower decline in older wells. A few percent of completions a year is performed on existing wells, which has quite some impact on the average decline rate of those wells.
The actual mismatch is just a few %, so I belief these factors could have easily caused this.
For those who missed my comment at the end of the last post: I also have an update on the ND production, here.
“Clearly the model has been underestimating output since Sept 2016″
Sept 2016 is not here yet in Oklahoma.
Clueless
9/2015 is what I meant.
Thx
“An important property of any model is to stay in sync with reality. ”
Not a requirement for chart worshipers.
Thx Enno
I use an early low well profile for 2004 to 2007 wells, a 2008-2013 well profile and one each for 2014 and 2015. This is using the data you put together. Well counts also from that data.
Some wells (2008/2009 vintage) has been refracked. Has the model been adjusted to reflect this?
HI Rune
I have updated well profiles using Enno’s spreadsheet from time to time. Perhaps the 2008 to 2013 well profile has changed since my last update.
Short answer
no. I should update my well profiles.
Thx.
Hi Rune,
It seems mostly the 2008 wells may have been refracked. Possibly I could update the average well profile for 2008 only to reflect this better in the model.
So far I have simply updated the 2008-2013 average well profile, as well the 2014 and 2015 well profiles. I have also assumed 2016 and later wells will look like 2015 wells until June 2018 and then have assumed the new well EUR will start to decrease, reaching 9%/year 12 months later and remaining at that rate of decrease until 2026. If new wells added return gradually from 50 wells per month in June 2018 to 155 new wells per month in Jan 2019 and remain at that level until the end of 2026 we get a 9 Gb ERR with 28.8k total wells completed, no wells are completed after Feb 2028 in this scenario.
The scenario is very optimistic because oil prices are unlikely to be sustained at $150/b for many years. Lower prices will result in fewer profitable wells and lower output. Scenario below.
A some what more realistic scenario below. Clearly we don’t know future prices or when EUR decrease will begin, this is just one possibility if oil demand is higher than oil supply from 2019 to 2026 and USGS estimate are approximately correct.
Hi Enno and Rune,
Thanks for the advice on my “Red Queen Model”.
I updated the 2008 to 2013, 2014, and 2015 well profiles. The new model matches the data a little better, but still is lower than the data from Oct 2015 to Feb 2016, perhaps the newer wells have slightly higher output than the “average” 2015 well.
In Feb 2016 model output is 1020 kb/d vs actual data of 1064 kb/d.
I also used Enno’s WAG of 50 new wells per month from March 2016 to Dec 2016 for the scenario below, model output is 881 kb/d in Dec 2016. A scenario with 65 new wells per month would have 925 kb/d output in Dec 2016.
One more interesting thing you can see in the latest statistics is that with only 3 active drilling rigs in Mountrail, production is dropping very fast. It´s now down about 25% from the peak in December 2014. 50% of the active drilling rigs are in McKensey. Dennis perhaps it could be of interest if you published the production for the top 4 counties?
I just had a look at Peakoil.com, where Dennis’s post was put up. The level of comments just shows how that site has gone down hill. I think the National Enquirer readers would have a more intellectual. conversation
Rockman, Pops and Roc Doc are awesome posters.
Otherwise, it is a bizarre community. I used to read it early on and after I freaked all my family out, I feel like a twat.
Peak Oil is a very serious problem. But don’t trust some of the guys on that site.
I wish Rockman would post here more often!
I used to read it early on and after I freaked all my family out, I feel like a twat.
Yeah, that happened to me a couple times – very embarrassing. Now I’m feeling the reverse – like PO can’t come soon enough, and it’s time for better stuff.
Full of crazy
But at least peakoil.com does not harbor a den of chart worshipers like some other sites lol
As a remaining poster (and otherwise expert) from the old pre-peak days at peakoil.com I am quite conversant with the um . . . changes. It used to be a good place for generalists and blessed with RM Rockdoc. I learned a lot from them. Now as the prognosis for our world has become more dismal, many folks truly motivated by science and passion have flown the coop. Leaving us crazies on the roost. Clucking and pecking.
I forgot pstarr from my list of posters on po.com.
I have learned a lot from him too. Good talent!
sorry mate!
And yet, and yet…
PO.com has a very open format, with members able to start their own threads, each thread focused on it own theme. There is an ebb and flow of “good” dialogue. I find, on the whole, that somewhere in all the troll-esque static that fills 3/4 of the posts, there gold nuggets found no where else. Even some well-known trolls occasionally, as if to prove the theory on monkeys, typewriters, and Shakespeare, post a coherent, original thought. I hope my posts there contain, if not Shakespeare, at least a few coherent thoughts.
POB has a higher-level dialogue, but is both by-subject and by-thought more restrictive, as is its structural nature. To flesh-out my “online day”, I seem to require both a dose of PO and a click on POB.
But frankly, nothing has replaced TOD, which in my mind was the gold-standard of high-end energy-based forums. It was probably the largest assemblage of world-class volunteers from various professional energy-related sectors ever gathered at a single site, with articles and posts rivaling the professionally-published studies, analyses, and books on the subjects at-hand. But that high bar was probably too-high. the un-reimbursed labor, operating costs, and general hassle must have just worn out those who managed it.
RIP, TOD.
RIP TOD indeed. I had to give up on PO.com forums, they were just unreadable, except for rockman, who I must assume has personal reasons for not posting here. Maybe a few others, not enough to make it worth sloughing through the babble and conspiracy junk. I’m a huge rockman fan, and will now and then return to read his recent postings and threads, which are often enlightening, but after that it falls off too rapidly.
I think really what happened with the TOD was a mistake, they should have just handed over management of the resources to a group willing to do it, though they had their weak points too, I certainly haven’t missed nate h’s pseudo-intellectual nonsense for a second since it closed. There were a lot of top flight people there, but it’s easy to forget in the rear view rosy view, there were also a lot of mediocre people who went off to start their own blogs as well since then, but I think the overall top level of people managed to keep control of the overall quality levels in a way that successful groups / teams manage while active, and which is very hard to maintain once the core disperses. Still some gems out there though. Ugo Bardi, always a fan. A scientist who grasps simple science concepts and can explain them well.
Even though the media trumpeted its demise as disproof of peak oil, I looked at it as exactly the opposite, it shut down when it was quite clear the plateau and rockman’s Peak Oil Dynamic (POD) were in fact here, so it was no longer a matter of actually having to prove the stuff, once you hit the bumpy POD driven peak, intellectually, it’s just not that interesting anymore, it’s like staring a site to prove global heating/climate change today instead of 20 years ago, only the most clueless/thickheaded/corrupted really don’t get it, and it’s really well understood by those who actually know the stuff, so it’s no longer an interesting problem though it is a problem and it does exist.
But I sorely miss the quality level.
Dennis, it would be great if you would keep up your non oil thread posts with every new oil one, that is working well, I want to read the real oil guys talk about oil etc, I for one have read far more than enough of the ecobabble, sloppy poorly reasoned climate denialist nonsense, or wind will save our consumer non sustainable way of life stuff, and it seems to live well in the non oil threads, which I can then safely ignore.
I am thinking that the explanations put forth for oil production falling off so slowly in the face of so great a reduction in drill rigs running are ALL good , with each one of them being responsible in part for the actual data being what it is. In total, they probably add up to enough to match the production numbers. Producers selectively high grading their sweet spots, check, longer laterals, more stages check, more DUC’s actually being completed, check, etc.
In the mean time, my personal favorite is that the oil industry is in the running and winning the contest for being the world’s slowest moving industry, in terms of adapting to changing market conditions.
Here is a link about the only actual LABORATORY experiment related to oil that is moving along even slower.
http://www.nature.com/news/world-s-slowest-moving-drop-caught-on-camera-at-last-1.13418
Of course, if you have any skin in the game, the most important statistic in the post is that the average posted price for oil in the Williston Basin for the last three months is $22.
The severance and extraction tax takes 10% off the top. So call it $20. Then look at company 10K for LOE, gathering and transportation, G & A. Also, look at the interest expense. Keep in mind those figures are in BOE. There was very little, if any, cash flow for the past three months.
A typical Bakken producer had $8 LOE, $3 of G & A, $2 of gathering and transport and $5 of interest expense, all on a BOE basis.
I have looked at the earnings forecasts for Q1, WOW!!
So with a 20% royalty (I have no idea what their nets are) they are getting back $16 before you take out the $8 LOE, $3 G&A, $2 gathering and $5 interest for a loss of $2 per barrel produced. All before you factor in the Drilling and Completion and acreage costs.
Reno. US companies report BOE produced after payment of royalties.
Example:
Bakken well produces 3,000 barrel of oil and 3,000 mcf of gas. Assume 20% royalty (in TX I’d say assume 25% royalty).
Net is 2,400 barrel of oil and 2,400 mcf of gas. Divide the gas production by six and we get 2,800 BOE.
Assume $22 oil price and $1.50 gas price at the well. So we sold $52,800 of oil and $3,600 of gas. So if my math is correct, the $ realized per BOE is $20.14.
10%, or $2.01 comes off the sales, in state severance and extraction taxes, so now down to $18.13.
Then subtract the rest.
There couldn’t have been much, if any cash flow for CAPEX.
I will say the larger companies likely received closer to $25-26 per barrel of oil in Q1.
Thanks for the clarification
Hedging will make a tremendous difference in Q1 2016.
Seen the earnings forecasts for Tesla? You can make up anything you want, call it non GAAP, and that’s what will be splashed publicly.
Tesla’s actually got extremely comprehensible P&L statements, and their non-GAAP accounting makes sense (it’s actually more conservative than GAAP in cost allocation). But I read the statements for American Express and Wells Fargo in 2008, and for General Electric before its big accounting fraud scandal, and for Cheseapeake… yeah, CEOs will trumpet any old “non GAAP” number even if it’s blatantly suspicious, and the media will go along with it.
BREAKING:Pennsylvania #naturalgas data out:
Feb2016 13.58 bcf/d,
Jan16 revised up +0.17,
all others unchanged
#Marcellus #Utica
http://www.theoildrum.com/node/9821
A good discussion from yesteryear worth reviewing.
10,898 wells at 6 million each is a major investment.
The more than 64 billion dollar gamble.
No different than launching a satellite into space, flying it by wire to Mars then it crashes into the Martian surface because you forgot to change from miles to kilometers.
Everybody makes mistakes.
The KSA prince say they could increase output to 11.5 million barrels a day immediately and go to 12.5 million in six to nine months “if we wanted to”.
Is he:
1. Dreaming
2. Confused
3. Just playing around and bs everyone
4. Thinking it can be done
5. Don’t know the what the hell he is talking about
I know there as been dissuasion here on how the actual reserves look like.
Whats your thoughts?
http://uk.reuters.com/article/us-oil-meeting-idUKKCN0XD0OV
4
I can’t believe I agree with you. If the USA can go from 5 million to 9 million in less than 5 years. I wouldn’t be surprised if 20 mbd with time and investmentime was possible.
The increase of 4 has not been paid for yet. America has its entire energy future invested in the worse rock imaginable; shale decline rate is horrific and it costs upwards (CLR and Concho) of 90 dollars a barrel to find it. It is unprofitable to produce at anything less than about 60 dollars a barrel. If anyone thinks unconventional shale resources can ultimately go to 20 MBOPD, and another 65,000 shale wells drilled… cut the BS and tell us how it’s going to get paid for.
Because the shale industry cannot stand on it’s own two feet. It is totally reliant on credit. To all of you oil analysts out there so intent on predicting the future, stop ignoring the reality of unprofitability and debt that can never be paid back. Who is going to PAY for the shale oil abundance miracle?
I am standing by for an answer…
We are going to sell the US Military to China for 20 trillion cash and gold.
That’s how Mike! /sarc
Debt gone, Oil flowing like wine……
Now what do we do about those 100 trillion of unfunded liabilities…..
With Globalization enabling nothing but poverty for everyone except for the 1%ers, the jobless “consumer” cannot afford anything so your question is silly.
The answer: The Fed.
So you don’t pay it back? As long as people get food shipped, who would declare it a failure?
This is not the world you grew up in. It all disappeared in 2009.
Watcher,
In the short run the fed can play money games. When the laws of physics show up, they are in trouble.
I agree that desperation would lead to money printing from a bunch of clueless apes (humans).
I won’t be lending my pitiful money at 1% interest if peak oil strikes.
If that basic commonsense idea is accurate, than where is the capital to run the economy going to come from???
thanks!
You might want to read up on how bonds provide capital gains, not interest, if rates fall.
So we would need to multiply by how many factors the number of rigs and fracking crews to get the USA to 20 million barrels per day?
I suppose we need $300 WTI sustained for that to occur?
It took close to $100 sustained from 2007 to 2014, with a financial crisis and $100+ drop in the price, followed by a remarkably quick run up, to get USA from 5 million to 9.7 million. I figure $300 sustained for 8-10 years could get us to 15-17 million, for a short time. Drill the heck out of everything, everywhere. LOL!! Please note, I am not serious. Just trying to get real on this 20 million bopd idea.
He has at least admitted they don’t have 2 mmbpd spare capacity immediately available, contrary to usually quoted figures. With enough money and stupidity you could get 20 mmbpd out of a 20 million barrel reservoir, but next day there would be a lot of expensive scrap metal around. To add enough to get there for Saudi would cost all of their remaining wealth fund as of today (and which only has three years left at current draw rate anyway).
HI Mike
The 20 mbpd was KSA.
Dennis, I did not read the referenced link; I thought the discussion was relative to the BP bunk. My apologies. That the KSA could increase its daily production to 20 MBOPD is almost as absurd as the US LTO industry finding some place to drill another 65,000 shale wells. We just had over 31,000 shale wells drilled in the US and the LTO industry has not made a dime of profit yet.
Hi Mike,
I agree KSA will never get to 20 Mb/d, but it is more likely than the US ever getting to that level.
On the shale wells, the NDIC has forecast between 40,000 and 55,000 shale wells in the North Dakota Bakken/Three Forks, lets be conservative and say it will be 35k, there have been 11,000 wells drilled already so that gives us 24,000 wells, if we assume another 19,000 wells in the Eagle Ford (30,000 total) and 19,000 in the Permian basin, that is about 62,000 wells in the big 3 plays. I agree that sounds like too many, it may be only half that number. Most of the 30k wells have been drilled over a 5 year period at roughly 6000 wells per year.
So 5 more years at that rate (when oil prices are over $90/b) gets us to 30k wells and 10 years to 60 k. I think the real number will be somewhere between 30k and 60k and will depend on all the factors you list, if demand is low and supply high it will be closer to 30k due to low oil prices and if the reverse is true it will be closer to 60k.
What is your guess for future LTO wells completed, as I assume you don’t expect that there will be no more LTO wells completed (we have an LTO DUC count of 3000 to 4000, so I would think this would be the minimum)?
Hi Mike,
At higher oil prices the debt can be paid back. If oil prices remain low forever, there will be defaults. If the assumption by me and many others that oil prices will rise is incorrect, there will not be 50,000 more wells drilled in the Bakken and Eagle Ford.
Looking at Rune Likvern’s work, it seems cash flow was positive just before the crash in oil prices. Since that time well costs have fallen, so perhaps $90/b will be enough to make the LTO plays profitable (so that the annual rate of return is 10% or higher). Higher rates would be better, if oil supply is short oil prices may be north of $115/b. In that case the economics will work and we will see 50,000 more stinking shale wells in the Bakken and Eagle Ford (and maybe another 30,000 combined in other plays such as the Permian and Niobrara).
It all depends on oil prices, and nobody knows what they will be.
Dennis. I question if the debt would be paid back, under your price scenario.
Unless interest rates rise substantially, wouldn’t there just be another debt fueled drilling frenzy?
Hi shallow sand,
It is possible the debt will not be paid back. If that is the case, I would expect interest rates for shale drilling will rise or it will not be available.
Let us assume that by 2018 that peak oil has arrived (if it has not already), under those conditions oil prices will rise to $120/b or more. The cash flow for the average LTO well gets pretty high at those oil prices, perhaps the oil companies that are still operating will be a little smarter about how fast they accumulate debt in the next boom phase.
You do think there will be a peak, I assume.
What do you think will happen to oil prices?
You may assume there would be an immediate recession, but from 2011 to 2014 we had high oil prices with slow World growth (2 to 3% per year in constant dollars).
A combination of slow supply growth (or a plateau in output) with reduced demand through better fuel efficiency might keep prices from rising to a point that causes a recession, at least for a couple of years. Eventually output will start to fall and the economy will not be able to adjust and there will be an economic crisis.
My WAG is that this arrives between 2025 and 2030.
DC Wrote:
“Let us assume that by 2018 that peak oil has arrived (if it has not already), under those conditions oil prices will rise to $120/b or more.”
Its extremely unlikely that the world could support sustained prices above $100. From roughly 2005 to 2008 (Western economic debt bubble) and from roughly 2010 to 2015 (Asian/BRIC debt bubble) it could temporarily support higher energy prices. During both periods credit became very cheap and available.
At this point both the East and West are saturated in debt and deflation is the dominate economic factor in the global economy. The cheap and easy credit days are gone for at least a generation.
Perhaps at some point the world’s central banks will collaborate, or currency war, to induce a global currency devaluation (race to the bottom) that results in a commodity price rebound. Short of a global wide currency devaluation, its unlikely that Oil will bounce anywhere near $120/bbl because of deflationary forces. Even if Oil does breach $120/bbl I doubt it would trigger another drilling boom, since the costs for everything else will also be very expensive: very high interest rates for most borrowers, expensive materials (ie steel, pipe). High energy prices will also lead to demand destruction. Consider that QE and currency devaluation almost always results in wage reductions (adjusted for inflation). The QE in the US/EU, never trickled down to the working class. All we ended up is asset & commodity price inflation.
I also think global demand for oil will decline, due to a combination of demographics (boomers retiring), declining wages (wages & worker hours per employer are falling), and much more automation (leading to the elimination of jobs). Most of the replacement jobs after 2009 have been part-time and are low-wage service jobs. There is already an over capacity of factories, housing, etc, leading to less construction demand for perhaps a generation or more.
My guess is that Oil prices will likely be very unstable, with dramatic swings been high prices and very low prices. In this environment, Drillers are unlikely to make any long term investments, as they fear the bottom could fall out at any time.
HI Techguy
Possibly demand will fall faster than supply, but I doubt it.
Why do interest rates rise in your scenario.
In a deflationary scenario with lower aggregate demand, not a lot of demand for liquidity. So basic theory suggests low interest rates will continue in the scenario you present.
DC asked:
“Why do interest rates rise in your scenario”
Gov’t bonds will never rise except for small weak nations (ie Brazil) or nations that can’t borrow in their own currencies. I think Interest rates on US bonds, Japan and a select few EU nations will remain low to negative for quite some time.
On the flip side, I expect borrowing cost for weak nations such as Brazil and other So. American nations, EU PIGS (portugal, Spain, etc) to rise.
Borrowing costs for consumers will rise as the the risk of defaults increase, even in the EU and the US. (ie the default premium). More and more business and consumers will be downgraded to subprime borrowers forcing them to pay for much higher rates if they choose to borrow.
http://247wallst.com/banking-finance/2016/01/13/corporate-credit-outlook-worst-since-financial-crisis-sp/
DC wrote:
“Possibly demand will fall faster than supply, but I doubt it.”
I suspect demand will become volatile, swinging between a tight market (rising prices) and demand destruction. To unstable for driller to make long term investments. The Oil production will likely adjust to falling demand.
Supply is unlikely to ever outpace demand, except for short periods during periods of economic contraction (ie the economy falls faster than the Oil market can adjust).
Dennis, the future of shale oil development does not simply depend on oil prices. It will depend on hydrocarbon demand, the role the KSA will have in the future in manipulating oil prices to keep the US shale industry on the floor and not let it back up, it will depend on rising extraction costs, public sentiment, politics (anti-frac’ing, climate change, fresh water usage), the availability of financing and what the new costs will be for that financing. And finally it will depend on Mother Nature says about it all. Do not confuse technically recoverable with recoverable; it is naive of you are anybody else to assume that all unconventional resource plays are one big homogenous ATM machine.
Jeffrey Brown and I once decided that fewer than 35% of LTO wells in the US would ever pay back drilling and completion costs. After reviewing Enno’s 114,000 average BO per shale oil well drilled since 2007, I think we were being far too optimistic. Shallow is correct, most of the outstanding debt now owned by the shale oil industry will never be paid back.
Making predictions based on the “hope” crude oil prices will rise, and stay high, is a mistake. If you need an example of that, we’re in the middle of it.
Adios from S. Texas where the Eagle Ford shale play is in hospice care now. Watch what happens to rig counts, and production, the next 8 weeks and don’t get caught standing behind it. It will suck you plumb off your feet.
Mike
Hi Mike,
As I said if oil prices remain low forever, you will be correct.
I wouldn’t bet on that. Let’s say oil prices remain at $60/b or less forever as shallow sand hopes for.
Do you think there will be adequate oil supply at that price?
I have serious doubts that oil supply will meet demand in 2020 if oil prices remain $60/b or less from 2016 to 2020.
There certainly won’t be a lot of LTO wells drilled at those prices, probably about 2400 wells per year in Bakken, Eagle Ford and Permian combined or roughly 10,000 wells over that 4 year period.
It will be interesting to see what happens, maybe oil demand growth will be more modest than the EIA and IEA believe and supply will be more resilient.
The future is not known, on that we might agree.
Dennis,
Let me see if I get this right.
You claim that at $60/bo (WTI or at the wellhead?) that [about] 2,400 wells annually will be manufactured (drilled and completed) in Bakken.
Would you care to describe how this would be funded?
Hi Rune,
No not 2400 in the Bakken, that is the total for all three plays and is an assumed average over a 4 year period if oil prices average $60/b, is too optimistic. I was thinking 60 wells per month in the Bakken and 70 wells per month in both the Eagle Ford and Permian basin, for 200 wells per month for all 3 plays.
720 wells per year is too high, thank you for pointing out this error.
If we maintain a rig count of 25 rigs and get 1.3 wells drilled per rig each month, that would be 32 wells per month, if we take the SPUC count of 1000 and divide by 48 months we would have 20 wells per month, probably 10 per month would be more reasonable as this count may not approach zero, so maybe 42 wells per month or 500 wells completed per year is more reasonable.
1500 wells completed per year for all of the US LTO sector at oil prices of $60/b or less would be my minimum guess and 2400 wells completed per year for all of the US is not realistic.
Looking at your recent post it seems 35 to 45 wells per month can be financed, if we call it 40, that would be only 480 new wells per year so 1500 wells for the total US LTO sector might be reasonable (or at least closer to a reasonable number).
Thanks for your insight.
The $60/b was WTI, I think this was shallow sand’s number and the 720 wells was the number completed only (some of these would be wells that had already been drilled but had not yet been completed.
Dennis. I hope I didn’t say forever. I think I said a long time. I’ll clarify a long time by it being 2-3 years.
And I didn’t mean less. A $55-65 WTI price range would be just fine for 2016, 2017 and 2018. Maybe longer if costs do not increase substantially.
A $55-65 WTI price band puts Bakken oil around $50 for an average? So if an average well, net of royalties, generates 120K barrels of oil in 3 years, that is just $6 million of revenue, not to mention the taxes, LOE, G & A, transport and interest expense.
So, I’m with Rune. Who would be loaning on that, especially to companies already several billion in debt?
Hi Shallow sand,
No you did not say forever, you didn’t say how long. The average Bakken/Three forks well has cumulative output of 152 kbo in 3 years (2008-2013 average well), so that is 7.6 million in revenue just from the oil.
Now let’s say I have some DUCs which will cost 5 million for completion. I get 100 kbo in the first year, maybe I complete the DUCs to keep the lights on, as I have already spent 2.7 million to drill the well and its not helping me at all to leave it uncompleted. I would think those that are cash strapped would stop drilling and focus on their DUCs, Enno estimates there are 1000 wells that have been spud but not completed, at 500 per year that would be two years worth of wells (if the SPUC count can ever go to zero). Also lease costs have been spent and G+A will not change much by completing another well, the question is will the company have more money by completing these SPUCs or not. If they will have less money, they should leave the well as is (as a DUC).
For some reason wells continue to be completed, so perhaps these businesses think it is in their interest to do so. Or there is some other explanation I have not heard.
”No you did not say forever, you didn’t say how long. The average Bakken/Three forks well has cumulative output of 152 kbo in 3 years (2008-2013 average well), so that is 7.6 million in revenue just from the oil.”
Is 152 kbo gross extracted?
Is the $7.6 M based on $50/bo gross at the wellhead?
Dennis, I said net of royalty, so I was off by less than you note.
156 x .80 NRI (assumed) is 124.8K barrels.
So $6.248 million.
However there would also likely be another $200-300K of natural gas revenue?
I would say wells continue to “keep the lights on”. If all wells stop, frack companies shutter their offices. If all wells stop, company exploration personnel are laid off. If there is absolutely any money to keep doing something, these last few companies are going to do it, even if it is a money loser. I assume shutting down the in house exploration unit in the Bakken results in a much larger writedown than losing on a few wells? Add to that none of the companies can believe this is a permanent situation, $30 oil or lower, so they are going to keep doing the minimum in hopes for a rebound.
The problem, of course, is the rebound needs to be more than $55-$65 WTI for the business model to be valid, as Mike, Rune and I (and many others) have argued for quite awhile.
Hi shallow sand,
Sorry, I missed “the net of royalties”, which I guess is 20%, so yes 122 net barrels, if we figure 9% taxes as well, we would be at 108 kb net. So at WH we would have about $45/b, if the price you suggest is WTI. If LOE is $9/b, we are left with $36/b and net revenue of $3.9 million, if we assume interest expense and G+A are covered by wells already completed. So this well would not meet the 36 month payout standard (not even close).
I agree $60/b is not enough, probably $85/b is needed. I am surprised that there has been as many wells completed in the past year as there has been. At the oil price it doesn’t seem to make sense.
Dennis wrote;
”….if we assume interest expense and G+A are covered by wells already completed.”
Dennis, can you point to any company where such a thing (assume interest expense and G&A are covered by wells already completed) is SOP (Standard Operating Procedure)?
FWIIW, estimates show that in aggregate for Bakken $0,4 – $0.5B above cash flow was used in Bakken in both Jan and Feb-16.
Dennis, there is no net cash flow anymore to drill 200 wells a month, in any shale play, anywhere. There is no more deferring interest payments, there is no more chingling service providers and suppliers on 120-180 day terms; how many more reverse splits do you think these public shale companies can undertake? CLR is the jefe of shale oil development; as Shallow so poignantly points out, at the end of 2015 CLR had only enough liquidity to drill 1 1/2 more shale wells. There is no more money, Dennis. Its gone.
Respectfully, may I suggest you read the little words at the bottom of every shale oil earnings report, or stock tout, that goes something like past performance is not an indication of future results.
Hi Mike and Rune and shallow sand,
I am simply trying to understand how wells continue to be completed at such low oil prices. At $50/b at the well head and borrowing for 15 years at 12 % interest an equal number of SPUCs and drilled and completed wells will have a NPV of $63,000 at a discount rate of 14% over the 20 year life of the well.
If the Bakken continues at 60 wells per month with half coming from SPUCs, the SPUC inventory falls to 500 if 30 wells are spud each month. Although not very profitable, it keeps the lights on.
Maybe this kind of thinking is the reason wells continue to be completed at a low rate.
Do you want to make accurate oil price predictions?
(1) The oil price *floor* is set by the marginal cost of production. This varies by volume transacted, of course. Excursions below the floor are possible but will last less than two years, as they end when companies run out of cash to sink into a money-losing business.
(2) The oil price *ceiling* is set by the cost of alternatives, such as electricity for electric cars or heating, or natgas for industrial processes. Excursions above the ceiling are possible but won’t last more than a few months — that’s how long it takes industries to retool, how long it takes for people to buy new cars, etc.
If you want to know the ceiling you need to look at the price of alternatives. In 2018, electric cars will have purchase-price parity in the upper half of the US car market. Electricity averages 12 cents per kwh and the cars average 300-350 wh/mile. This is 3.6 to 4.2 cents per mile.
In very expensive electricity markets, the price of electriciy is being capped by the price of home solar panels — which of course also varies geographically by amount of sunlight, but it’s under 12 cents per kwh in most of the expensive-electricity markets I know about.
The most efficient gasoline cars are hybrids which get 50 mpg. For these to be cost-effective vs. an electric car with purchase price parity, given the above electricity prices, gasoline has to be below $1.80/gallon. (Technically the best are 55 mpg, and this seems to be the theoretical limit — this would give a gas price of $1.98/gallon.)
This sets a… fairly aggressive ceiling on oil prices. Using a rough calculator to convert gas price to oil price, basically they can’t rise above $55/bbl or maybe $60/bbl for very long.
They could rise higher prior to 2018 (because electric cars don’t reach purchase price parity until then). They could rise higher because electric cars will have trouble manufacturing fast enough to meet customer demand, but that would be a very short-lived phenomenon.
Or oil prices could rise higher *after automobiles are no longer the main users of crude oil*, at which point a different calculation applies (what alternatives are there for oil for airplanes? for factories? how much do they cost?) But at that point, the volume of crude oil sold would have dropped so massively that all the shale plays would be dead — the volume would presumably be supplied by easier fields.
In fact, since most gasoline cars do not get 50 mpg and the ones which do carry a price premium, I expect that the effective cap on the price of oil will actually be below $55, though I expect excursions as high as $65 due to the lag times involved (several months) for consumers to respond to oil prices by buying different cars, etc.
Oil’s currently around $45; at this price, only hybrids with 41+ mpg can compete on fuel costs with electric cars (non-hybrids basically can’t get better than 40 mpg). Even switching to hybrids will cut oil usage. The result is that the gasoline car will die quite fast and the reduction in sales volume for oil will keep pushing the price down. But not until 2018.
I’m going to stake a solid prediction here, and I’m going to be conservative about it. We will not see oil prices above $60/bbl for more than 9 months at a time, starting in April of 2018 (by which time the electric cars will be very firmly on the market and mass produced). You can rely on that oil price ceiling prediction until automotive use stops being the major demand for oil.
The shale producers claim to have breakevens below $45, but most of them are lying — they’re lying in order to try to get more funding, I suspect. A few sweet spots do seem to have lower breakevens. The drilled-but-uncompleted wells probably have cheaper breakevens (considering the drilling a sunk cost) so they’ll probably be completed.
As oil demand drops, the most expensive marginal producers disappear first (typically) which lowers the floor on oil prices.
We may see very very low oil prices.
“If the USA can go from 5 million to 9 million in less than 5 years. I wouldn’t be surprised if 20 mbd with time and investmentime was possible.”
To add to Mike’s Financial description of the problem which is spot on, there is also the problem of availability. There are only a few locations where shale drilling is possible (sweet spots). The current locations have been know for a long time in some cases more than 50 years. Shale drilling is likely a one time deal since they will eventually be depleted.
There is also the problem of the “Red Queen” factor, which would likely have been breached either this year or in 2017, if the price of Oil hadn’t collapsed. Since Shale Wells decline quickly drillers have to ever increase the pace and the number of wells they drill to continue expanding production. At some point it becomes physically impossible to drill fast enough to continue expanding production.
HI Techguy
So far EUR has not decreased. It will at some point we do not know when.
At 150 wells completed per month the Bakken would still be increasing. The only problem is low oil prices. Your basic description is correct but at $100/b oil the peak occurs in 2022 and decline begins due to decreasing EUR.
“Your basic description is correct but at $100/b oil the peak occurs in 2022”
I have doubts we will see Oil back up near $100 anytime soon. Nearly the entire globe has reached debt saturate, unable to take on more debt. Thus limiting the economy to supporting much higher energy prices. As I stated in a previous post. High Oil prices occured during the two recent debt bubbles. The first being the US housing bubble, and the latter, the BRICs Debt bubble.
Can you foresee another debt bubble happening anytime soon?
There will be another debt bubble (there always is one!) but it’s going to be in renewable energy (the hot new sector!) and it’ll give precisely *no money at all* to fossil fuel companies.
He is bluffing.
His remarks are aimed at financiers of higher cost non-conventional production. Saudis and Russians are not afraid of other conventional producers they are terrified by the possibility of higher cost non-conventional oil flooding the market using debt-fueled growth.
In order to keep banks in check, Prince takes to the media to warn of consequences, but in essence he is bluffing. Saudis cannot increase and sustain production above current levels.
Dan wrote:
“Saudis and Russians are not afraid of other conventional producers they are terrified by the possibility of higher cost non-conventional oil flooding the market using debt-fueled growth.”
KSA and Iran are locked in a deep cold war. Much as the US & Soviet Union was. One of the primary reason why the Soviet Union collapse was the low cost of Oil. There is a FOIA release documet from the CIA that discussed that the West could collapse the SU by lowering the cost of Oil, which the SU was exporting for use as hard currency. I believe there are numerous articles that Reagan had asked KSA to increase production in order to defeat the Soviet Union.
I am pretty sure that KSA is trying to keep prices low in its cold war struggle with Iran, hoping that the low prices will harm Iran economically and lead to an Iranian collapse. As far as Market share theories go: KSA anounced a couple of weeks ago to create a $2 Trillion fund and end its dependence on Oil exports. This indicates to me that they are running out of Oil. That the smart decision would be to cut production as much as possible to husband their remaining reserves.
“Building Bridges Between Egypt and Saudi Arabia”
https://www.stratfor.com/analysis/building-bridges-between-egypt-and-saudi-arabia
My guess is that the bridge will permit Egyptian troops movements to KSA in the event they are needed with it ongoing cold & proxy war with Iran.
Peter Schweizer wrote a book about it called Victory
The actual reason the USSR collapsed was that Stalin and Brezhnev had messed the bureaucracy up so bad that nobody was giving honest reports any more.
The result was gross mismanagement of agriculture, and failure to produce enough food domestically to feed their own people. This is what led the USSR to need “hard currency”, which otherwise they would have had no need for whatsoever.
Well there has been a lot of talk like that by Saudi Arabia and Iran before the meeting today. I think its just talk to give more weight to the decision they make. I don´t think Saudi Arabia can or even want to try to increase production from the level it´s on today. Iran I´m not sure about. Production was in decline before the sanctions began. If the decline rate has been the same then current production would something like 3.1-3.3 million barrels per day. But perhaps they have some new fields coming online. If you google on Iran oil discoveries you find that they say that they found 20 billion barrels in 2012 and 14 billion barrels in 2013 alone, which is a lot of oil if true. Will Iran agree to produce 3.2 million barrels per day if they can easily produce 4 million barrels per day? No most likely not. So I think what Iran agrees to produce, if they agree to freeze production, tells us a lot what they think they can produce, at least in the short to medium term. It will be interesting to see what comes out of the meeting.
FreddyW,
I think that actual number of barrels that Iran can additionally produce is lot less meaningful than WHO will be the long term customer and beneficiary of additional production from Iran and what will be the political consequences of that. The real reason for this “trash talk” before the meeting is just to hide the real issue. This has to be viewed in the broader context of changed geopolitical landscape in the ME and Iran’s coming of out of the closet in the international politics and in the broader sense of new world’s multi-polarity.
No agreement was made and Iran was apparently not even there. So seems like it was just SA and Iran that arguing through media in that case.
My feeling after this No “freeze” deal is that sticking point is not so much about Iran’s actual barrels of increased production but a bigger issues. Looks to me that SA insistence on Iran as part of the “freeze” deal is just a convenient excuse but an actual response to US policy move of removing Iran’s sanctions.
Been looking at SPR content.
Doesn’t seem to be any criteria for what goes in it, constituent parts-wise. Anything labeled oil goes in and diesel or kerosene component yield is not considered, from what I’ve found.
Not good.
Jeffrey, can you post a link to that little bar diagram showing the fall off of middle distillate content as API increases? It’s hard to search for here.
The headline of the post is that the model is under-estimating production. An alternative is that production is being over-estimated. In his comment here Mason Inman provides data on rig count, spuds and completions, which show completions now at around 25% of their December 2014 level. At that point in time Bakken production was growing at 22000 bopd per month. At that time, the EIA estimated legacy well production decline at 77 000 bopd per month (which is a larger estimate than drillinginfo newsletter information suggests). So 200 completions a month was overcoming that decline by 22000 per month = 99000 new production per month. That in turn suggests a first month production of 495 bopd per well. That may be a reasonable average number comparing data that Rystad provided in a monthly newsletter. The EIA monthly drilling report suggests N Dakota April 2016 legacy well decline is 57000 bopd per month, and the DMR data tells us that production has only dropped by 4000 month on month. So 53 new completions (according to Mason) provided 53000 bopd or 1000 bopd for first month production per well. Is it really possible that average first month production per completed well has moved from 495 to 1000 bopd in 15 months?
I tend to think it’s “lower decline” caused by the hyperbolic performance coupled to operators learning to lift these wells more effectively. Don’t forget they rushed into an area they didn’t know very well, which means they had a bit to learn.
The slower work pace also allows operators to shed inexperienced and low performing employees, which usually leads to much better performance. Some of this learning will be transferred around, the statistics will reflect the improved performance, and you will see this reflected on a global basis as lower decline rates.
The other side of the coin I’m sensing is the gradual decrease in rock quality. This means you do have to decrease future well reserves. That decrease rate will be extremely hard to pin down.
One other comment: if prices increase to say $130 per barrel, most of the non OPEC operators will increase investment. The question in my mind is where do we have large volumes of conventional oil the industry can develop in large volumes at very high prices? There’s quite a bit in Russia, for example in Timan Pechora, Eastern Siberia, and Sakhalin/Sea of Okhost. But those are very long term projects.
Where else do we have large conventional volumes we can get after at $130 per barrel? Does anybody keep a list?
Thanks for the response. I don’t buy the massive increase in efficiency and productivity. Even in sweet spots wells are variable. Also published decline curves are not very different – frac wells still reduce to about 50% in 4 months and to about 30% of initial production in 12 months. That’s the basic reason for the large legacy well declines calculated by the EIA drilling productivity report. Energent showed in recent monthly newsletters that fracs per month had declined even more than Dakota Department Mineral Resources (DMR) figures show. So where is the comensurate decline in production? Regarding where are the new reserves being found? Woodmac and IHS data show that the industry is finding less than we burn each year. 2015 was a bad year for new discovered reserves. Major discoveries recently have been dominated by deep water, and have been more gas than oil.
Hi Keith,
I was using a well profile that declined too steeply. I used actual NDIC well data to recalculate the well profiles and the new model (using the updated well profiles suggested by Enno Peters and Rune Likvern) matches the data better.
The drilling productivity report does not account for DUCs, so it gets the completed wells wrong by assuming this correlates with rig count with a 2 month lag. The lag is more like 5 months and some completions simply come from excess DUCs.
Thanks for the response Dennis. Yes the drilling report declines are always larger than the EIA monthly or weekly data show. The legacy declines they suggest for recent months are reducing though. I still think there is a disconnect somewhere. Even the DMR itself suggests that 115 wells a month are needed in N Dakota to keep production flat. Other analysts have suggested 105, yet apparently we have 53 a month (Mason) or 63 a month (DMR) and production is only declining very modestly. You say your revised model matches the data better – excellent. What is your prediction for the rate of decline over the following months as the number of fracs reduces?
Hi Keith,
If 60 wells per month are completed for the next 9 months output falls to 910 kb/d by Dec 2016, if it is 50 wells per month output falls to 880 kb/d in Dec 2016, 40 wells per month, 850 kb/d, and 70 wells per month output is 940 kb/d in Dec 2016.
No wells completed (zero) for 9 months will drop output to 735 kb/d and 20 new wells per month from March 2016 to Dec 2016 would result in December 2016 output of 795 kb/d.
Rune Likvern thinks it will be 40 wells per month (possibly less), Enno Peters thinks 50 and I think 60, the average of those 3 would be 50 new wells per month and output of about 880 kb/d if my model proves correct. Verwimp’s seasonal Hubbert model predicts about 925 kb/d in Dec 2016.
Note that the model predicts 1020 kb/d in Feb 2016, about 44 kb/d too low (4.3%).
For the model from July 2015 to Jan 2017 with 50 wells per month assumed from March 2016 to Jan 2017 the average annual decline rate is 19%/year.
BP released its “2016 Energy Outlook – Focus on North America” this week.
http://www.bp.com/content/dam/bp/pdf/energy-economics/energy-outlook-2016/bp-energy-outlook-2016-focus-on-north-america.pdf
It forecasts that “After a brief retrenchment due to low prices and falling investment, US tight oil production is now expected to plateau in the 2030s at nearly 8 Mb/d, accounting for almost 40% of total US oil production.”
US shale gas is expected to grow by around 4% p.a. over the Outlook. This causes US shale gas to account for around three-quarters of total US gas production in 2035 and almost 20% of global output.
An alternative scenario implies that tight oil and shale gas have even greater potential.
“North American tight oil output increases to 16 Mb/d by 2035, nearly twice its level in the base case, with its share of global liquids output reaching 14%. “
North American shale gas production is around 72 Bcf/d higher by 2035, with North American shale gas accounting for almost a third of global gas supplies in the ‘stronger shale’ case.
——————————–
What do they know about shale oil and gas that we don’t know?
And what has changed since BP’s last year’s forecast?
Base case U.S. tight oil forecast vs. previous years’ projections
HI Alex S
Not sure what they’re smoking at BP. Good stuff no doubt. 🙂
Wet Oily Dreams.. @ what $$ ?
It would be interesting if one of the math wiz guys that post here could compute what the oil industry would look like if US were actually producing 16 million b/d. That is, in 2035 [as Keith above noted above with the recent past], what would be the legacy decline each month; so how many new wells would need to be completed each month to overcome that? It would make the “boom” prior to 2014 look like a recession.
And, in less than 20 years, what would it take to double US pipeline capacity? With the permitting processes now taking years, I do not think that it could be done – unless there is a world-wide catastrophic shortage of oil.
Hi Clueless,
The US will never produce 16 Mb/d, the Red Queen problem will make it impossible.
Let’s say 5 Mb/d of the 16 Mb/d comes from the Bakken, even 3600 wells per year only gets output to 2.5 Mb/d (not realistic, but 5 Mb/d is ridiculous).
Hi Clueless,
To attempt to get to 16 Mb/d of US LTO output, I assume there is no decrease in new well EUR as sweet spots get fully drilled (not at all realistic) and that 48,000 more wells get drilled in the Bakken/Three Forks (roughly 59,000 total wells drilled and completed). I assume the new wells added rapidly ramp up to 305 new wells per month from March 2016 to Feb 2017 and remain at 3660 new wells per year until July 2028. Output peaks at 3370 kb/d in Aug 2028 and then declines rapidly as the play runs out of profitable places to drill.
At previous peak for US LTO Bakken/ Three Forks output was about 27% of the total, if that remained true in August 2028 total US LTO output would be 13.5 Mb/d in this
highly unlikely scenario.
In 2031 the annual field decline for the Bakken is 18% (the maximum rate when new wells are no longer completed after 2030), by 2034 the annual decline rate falls to about 9.5%. Chart below shows scenario to 2040, note the TRR is 21 Gb to 2040, the F5 estimate for the USGS(April 2013) is about 14 Gb for the North Dakota Bakken/Three Forks, my estimate is that this scenario has close to zero probability of happening.
Hi Clueless,
An alternative scenario below that has an ERR (economically recoverable resource) of slightly less than the USGS F5 estimate of 14 Gb for the North Dakota Bakken/Three Forks. It is still not realistic because the number of new wells added ramps very quickly to 300 new wells per month by 2018 and also assumes oil prices increase much faster than is realistic, so this is still a very optimistic/unrealistic scenario, but a little more realistic than the first scenario presented. The peak is 2140 kb/d in 3Q 2021, if we assume the Bakken/Three Forks is 27% of US LTO output in 2021 (as was the case in 2015), we would have a peak in US LTO output of about 8 Mb/d, so BP’s base case estimate is not too far fetched, but for me it would be a “high case” rather than a base case. The “base case” should probably be 5 to 6 Mb/d imo.
Chart below.
“WASHINGTON — Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks.”
What the chance we will see the conclusions before Oil exports fro KSA tank?
http://www.nytimes.com/2016/04/16/world/middleeast/saudi-arabia-warns-ofeconomic-fallout-if-congress-passes-9-11-bill.html?_r=0
Based upon the experience that BP had, I am positive that they would take some kind of protective action. BP did not intentionally kill thousands of people. So the SA liability in US courts would be trillions of $’s. I wonder what Watcher thinks.
I assume you must be referring to the Courts taking protective Action not KSA.
Beyond Oil – Har – “Saudi Arabia’s war on shale is doomed, warns BP”
http://www.thetimes.co.uk/tto/business/article4687532.ece
Denninger chimes in.
http://market-ticker.org/akcs-www?post=231328
Hot Oil on a Hot Fire?
A credible UK think tank says we could get away from fossil fuels in only ten years. I don’t believe it could be done even under a war time economic plan with that goal in mind, in so short a time, but there is a possibility that the cards could fall just right for the electrified auto industry, and so exactly wrong, for the oil industry, thus cutting sharply into the predicted market for oil a few years down the road.
If it turns out that the Saudis are implicated in Nine Eleven , as suggested or indicated in Longtimbers link just above, there will be a substantial political uproar that will play out in favor of the renewable energy industries, helping them to get scaled up faster via new and renewed subsidies, etc.
Politics makes for strange bedfellows, witness the low rent district love fest between environmentalists and the farm lobby, and their bastard child the ethanol fuel subsidy.
Between a Nine Eleven bombshell and populist politics, we could see the needle move from favoring more highways to favoring more mass transit, and even tighter fuel economy standards, etc.
This sort of thing is worth thinking about if one has money or career tied up with the oil industry.
A credible UK think tank says we could get away from fossil fuels in only ten years. I don’t believe it could be done even under a war time economic plan with that goal in mind, in so short a time, but there is a possibility that the cards could fall just right for the electrified auto industry, and so exactly wrong, for the oil industry, thus cutting sharply into the predicted market for oil a few years down the road.
That thinking is in line with Tony Seba’s as well. And, as he so clearly explains in his talks about disruption, back in 1900 there were only horses on the streets in NYC and by 1913 there wasn’t a single horse to be seen. If I’m not mistaken back then there was no war time economic plan with that goal in mind either. Disruption emerges, it is never planned and it always take the experts completely by surprise. Those who are still betting on a recovery in the oil and gas business should take note!
Now Tony may still be wrong and those who argue that without a heavy continued use of fossil fuels, there is no way that we can even try to transition to electric transportation, may still be right but I’m hedging my bets against the continued use of fossil fuels! I think given where we are today with disruption well underway on so many fronts, 10 years may seem like an eternity. I think the world will be a very different place ten years from now, socially, politically and economically!
As a concrete example, I think it is no coincidence the The president of Brazil a former executive in the state run oil company Petrobras is facing impeachment proceedings today. Also something I read this past week, sorry I don’t have a link handy, Brazil has the highest percentage of citizens in the world, 68% who given the chance would buy an electric vehicle instead of an ICE today!
What you are describing is organic change. I think everyone would agree that is healthy. Unfortunately many greens, at least those in power, hope to get there through mandates, subsidies and regulating fossil fuels out of business. This is a recipe for disaster.
I am a green, by anybody’s measure, but I don’t believe the green camp has ten percent of the political muscle necessary to push renewable energy and efficiency, etc, fast and hard enough to result in anything that can be realistically referred to as a disaster.
On the other hand, IF it turns out that oil production does do a nose dive , if the production curve assumes a shark fin shape on the way down, THAT WOULD BE A DISASTER SURE ENOUGH.
Nuclear subs, ICBM’s and airborne divisions are sure as hell expensive, but we long ago collectively concluded they are PRICELESS. Such assets must be in place PRIOR to the need.
I believe a robust renewable energy and efficiency program, etc, is just as important to our long term peace and security as the MIC.
For what it is worth, I do believe the Yankee MIC could stand a severe pruning, without much endangering us Yankees.
I would put the savings into renewables, lol.
IF it weren’t for oil, the people who live in SAND COUNTRY would still be riding camels, and the only Yankees who ever visited would be tourists and archeologists, rather than soldiers. They wouldn’t be exporting either their religion of war and conquest, or nickel and dime terrorism.
If we quit buying oil, they will dry up and blow away in the wind, and cease to bother anybody outside their usual haunts.
( I fully understand that my own religion has exported war at times. )
A good many of my old R type friends are calling be a libtard these days, but a real conservative, one well informed concerning the big picture and the basic sciences, understands that we NEED to get away from depending on oil, before oil gets away from us.
I suppose if we are lucky, there will be enough oil to run ESSENTIAL agricultural, industrial , and transportation infrastructure for another generation or so. So we have a generation or so to electrify our transportation network as best we can.
Just one assassination in Sand Country could mean sucking our SPR dry within a year, and drafting sailors, with every available ship in friendly navies tasked to escorting oil tankers indefinitely.
Every body who calls himself a conservative is not scientifically illiterate, or in the vest pocket of big biz, lol.
Seba might be right in that nearly all new CARS and maybe light trucks can be electrified within ten or fifteen years, but I just can’t see it happening in terms of farm machinery, commercial trucks, construction equipment, etc.
And then there is the legacy fleet, most of which would still be running ten or fifteen years later, if gasoline is available.
There are alot of what ifs and assumptions in that OFM, so I will just refer to your first paragraph.
The Obama administration and Democrats have said they will put the coal industry out of business (doing a pretty good job so far). Bernie Sanders has said he will ban fracking and Hillary said she would regulate fracking to the point where nobody would use it (sounds familiar to what Obama said about building a coal plant in 2008).
Gas is making up for the decline in coal, but there is no alternative that can fill the gap if Bernie or Hillary get their wish on gas production.
You may dismiss their words as political rhetoric but I don’t.
No alternative! What about quit all the crap we do now without thinking, like hauling soft drinks long distances when anybody can make it in his cellar?
Or knock off the megatons of crap we import from China straight to the trash bin??
Etc. Makes me sick even thinking of it.
I had no trouble at all taking my house and car entirely off ff’s and on to 100% solar, with gobs of solar given to the grid free every year.
With way less $ than friends spend on flitting to foreign places.
Energy shortage? Bullshit. Brain shortage.
Excellent wimbi.
I wonder if many species go this way. Evolve to a pinnacle point, their abilities and tools honed for success. When success is achieved, the forces that shaped them are no longer in play and the defects start to build up. Maybe it takes constant stress to keep evolving.
In our case the brains start to go as we became too successful. Our survival became less of a point and the quality of our lives the greater point.
Maybe we missed the point.
“For what it is worth, I do believe the Yankee MIC could stand a severe pruning, without much endangering us Yankees.”
I followed the “military reform” movement for a while and I still read a lot of military strategy and grand strategy articles.
Bluntly, the MIC is run for the purpose of enriching “defense contractors”. We’ve created a useless Potemkin army, navy, and air force which would fold like a cheap suit in a week in a serious war. Even when it is pointed out that there is currently a known, perfect counter-strategy using very cheap missiles *and that China has already implemented it*, the US continues to spend money on aircraft carriers and manned bombers — which are basically worthless in a real war thanks to the newer missile technology.
For more on the complete worthlessness of the US military in an actual war, see Millennium Challenge 2002.
The MIC is the US’s version of the “Iron Rice Bowl”, a system for handing money to favored cronies and employing people doing make-work. It has no military value.
HI Reno
With appropriate pollution taxes on fossil fuels, mandates and subsidies would not be needed.
Unfortunately in the US tax is a four letter word 😉
appropriate is a very subjective word. My guess is “appropriate” is defined as whatever amount is needed to tilt the scales in favor of renewables. But that still does not, in my opinion, give us the energy needed to feed and run the world. All it does is change the mix.
Hi Reno,
There is not a lot that is objective in the World, so let’s set that aside, if you believe there are objective policies, then we have a serious disagreement. “Appropriate” means that the external costs of pollution are taxed, this is basic neoclassical economics, very mainstream. Not taxing the externalities is effectively a subsidy for fossil fuels. Part of the reason for subsidies for renewables is to offset the “hidden subsidy” which is granted to fossil fuels. So the choice is simple, if you don’t like the subsidies, then allow the tax for pollution on fossil fuels. It is actually the most efficient solution according to economic theory.
The energy will be provided if externalities are taxed properly and the market is allowed to work. If there is not enough energy, its price will rise and less will be used (through efficiency improvements) and more will be supplied as profit seeking firms innovate and try to drive down costs and as economies of scale and “learning by doing” also drive the price of energy lower.
In principle, there is no reason why there should be be a long term energy shortage (say more than 5 years), though the transition to alternatives as fossil fuel peaks may be quite difficult.
The Telegraph has a story indicating Chinese oil imports are jumping from 6.7 million barrels per day in 2015 to 8 million barrels per day in 2016. Estimated to be 10 million barrels per day in 2018. Barclays estimates.
Chinese production is set to fall slightly in 2016.
US production looks to fall to 8 million bopd by end of 2016. US oil
demand is also rising.
Yeah I’m biased. I’m sick of sub $40 in the field. We have been below $40 in the field since 7/15. Haven’t seen above $55 in the field since 11/14. Havent seen these oil prices since 2003-2004.
Great weather here today. People driving all over the place in our little burg. Didnt see one electric
car today. Still know of one Tesla in town. There is, however, also one
used Leaf. That is new in the past
year. It is driven by a teenager to and from school. Her father has an F350 diesel, her mother has a Chevy Suburban. The Tesla owner also has two gasoline powered vehicles.
Oil is still very low, yet gasoline has popped up over $2. Low here was $1.29.
Refining friends say US gasoline
demand will be very high this summer. Their turnaround is winding
down, they are going to refine
a record number of barrels this year.
Just observations.
Hi SS,
Best wishes to you and yours, and although I hope to save a couple of thousand bucks on some diesel for a big project before the price goes up again, I also hope it does go up, starting soon.
As a working man ( now mostly retired ) I pass on the price of diesel just like I pass on the price of everything else, from fertilizer to insecticides to new machinery to hired help. So nobody who is a small businessman need worry about the price of fuel REALLY impacting his business very much.
We don’t need fifty million MORE late model six year financed gas hog trucks and suv’s on the road when the next price spike hits, with their owners suddenly finding themselves ten or fifteen grand or more in the hole on them.
For what it is worth, I have believed all along the Chinese have been putting large quantities of crude into storage since the price collapsed, getting it for a bargain now, while at the same time getting rid of a lot of dollars that could become worthless to them in the event things go south world wide. We yankees might flood the world with worthless green paper, or just renege on our debts.
Of course I can’t prove the Chinese are stockpiling crude hand over fist, but it seems likely.
With (IF) all the chips down, and us in possession of the most awesome imaginary military power,and some other face trump cards, there is not much the rest of the world could actually DO about us just saying we ain’t paying.
I’m not sure what the Chinese are using their oil for. I don’t think they’re stockpiling it and I also don’t think they’re using it for transportation. I’m guessing industrial production… but industrial production is down and oil imports are up? Maybe they are stockpiling it now…
“Havent seen these oil prices since 2003-2004.”
Back then if I recall correctly those prices were considered high. Now they’re considered low. That’s an interesting change of perception that has occurred since 2004.
Yes. If our LOE were $15, like in 2003-2004, we’d be fine. We have cut like madmen since the beginning of 2015, but can’t get back to those levels.
HI shallow sand
The model 3 will be similar in price to an F250
At $4/gal they will sell well for those that do not need the pickup.
Texas RRC data are out for February 2016. As the decline stands unabated at -2% to -5% per month, there is a dramatic shift towards an accelerated decline through the increase of plugged wells, which have reached an all time high versus new oil permits at a new all time low (see below chart).
This is exactly why I think my model towards a more accelerated decline is realistic as it includes lower oil and gas price, weaker bond market and the net decline of the number of wells.
Am I reading this right and are they reporting only 2,4 MM BBL per day (which would be a 8% drop from January)? This seems like a huge drop. I hope there will be a post on this soon – seems very starnge after the apparent production increase last month (shame that Ron does not do the historic charts for Texas any longer): I felt that they were ver revealing on what is going on.
daniel,
The last months are always revised up in the Texas RRC. So, the drop looks always deeper as it then actually is.
However what counts is the trend. The latest net decline of wells (1000 in March 2016) will be accounted for in the next few months. So, itwill be interesting to see the numbers for the next months.
Hi heinrich. Things are becoming interesting now though, after the “strange” numbers from last month. Will the numbers be corrected less and did we witness a significant collapse or what is going on? Looking forward to the official post.
Super interesting Heinrich. I think there has to be an acceleration in the decline as production reflects the sharp reduction in fracs per month. I was unaware of the sharp increase in plugged wells – thanks for the information. You have to be careful with TRC data though, because the initial estimate is always low, and over the next 8 months or so it is gradually increased, as pointed out repeatedly here by Ron Patterson and Dennis Coyne.
Keith,
Thanks, I am aware that the Texas RRC numbers will be revised upwards. However, the trend is clear.
As I have indicated to toolpush, completion, drilling and plugging numbers are published for March 2016:
http://www.rrc.state.tx.us/oil-gas/research-and-statistics/well-information/monthly-drilling-completion-and-plugging-summaries/
It is more an indication what will happen in the future.
Heinrich,
Where are you getting your numbers from?
http://www.rrc.state.tx.us/oil-gas/research-and-statistics/production-data/texas-monthly-oil-gas-production/
This link is only showing January numbers!
You have to do a query at the moment. Table is updated a few days later normally.
try this one: http://webapps.rrc.texas.gov/PDQ/changePeriodAction.do
Toolpush,
Go to the ‘Research and Statistics’ page
http://www.rrc.state.tx.us/oil-gas/research-and-statistics/well-information/monthly-drilling-completion-and-plugging-summaries/
There the numbers for drilling, completion and plugging are published already for March 2016.
As I am in this industry for quite some time, I have learned my lesson that it is important to accept cycles and that it is not possible to fight the cycle.
So, I am trying to anticipate the trends, keep my powder dry and go in again when there is a realistic chance, which undoubtly will come again in full force. What is happening now is laying the foundations of a massive upswing in one or two years. It is just a matter of riding the cycle.
Was that the first reference to Red Queen in Sep 2012 by Rune?
I had a post in May 2012 on the same mechanism for Bakken:
http://theoilconundrum.blogspot.com/2012/05/bakken-growth.html
Unfortunately I did not call it Red Queen, but the more historically accepted terms of Gold Rush and boom-bust cycle. These things have happened in the past with respect to other resources, but the only difference with the Bakken is that it now has a different name. Yet the name is just a name and what is important is the mathematics and physics behind the behavior.
I recall a geophysics professor equating what he called the “Red Queen Effect” to self-organized criticality, a property of certain dynamical systems that have a critical point as an attractor. That would’ve been in the mid-1960s. However, other than when reading Lewis Carroll’s Through the Looking-Glass to my kids I haven’t heard the phrase used regularly until encountering Rune employing the expression here. Googling it, apparently biologist Van Valen developed a “Red Queen Effect” hypothesis whereby species have to “run” or evolve in order to stay in the same place or remain extant. That was in the early 1970s. Whatever, it’s a rather nice metaphor that seems to fit LTO production perfectly.
Gold Rush and boom-bust cycle describe the same thing as Red Queen.
Look at the behavior of gold prospectors in California. Did they have to run faster and faster to stay in the same place as the gold rush played out?
Doug – There’s a pretty good book called ‘The Red Queen Effect: Sex and the Evolution of Human Nature’, although I’m not that keen on the author, Matt Ridley, who owns the last open cast coal mine in UK and writes the most condescending op-ed crap in the Times.
WebHubbleTelescope – Red Queen, as I understand it, is having to run faster and faster to stay in the same place, that doesn’t conjure up the same image as boom-bust (moving up and then down) or gold rush (which I’ve never heard as a metaphor for anything except what it was, the madness of crowds attracted to a new resource play).
The Red Queen effect was in reference only to shale oil drilling. Because the wells decline so fast they must keep drilling faster and faster to stay in the same place. At some point, not yet reached when the term was first used, the decline will be so great that drillers will not be able to even stay in the same place. That was the point Rune was making even though that point had not been reached then. But his point was that point would eventually be reached. And that is the case even if the bust had never happened.
I understand the Red Queen effect, no problem, it’s fairly simple.
What I am having a problem with is finding a clear answer to the question , how many previously drilled wells are being completed IN ADDITION to the ones being currently drilled?
In other words, how fast is the DUC backlog being cleared out?
What are the current best estimates of the number of DUC’s being completed on a month to month basis?
Hi Old Farmer Mac,
It is hard to keep track of all this, but Enno Peters does a good job on this. Check out his website.
https://shaleprofile.com/
Click on the well status tab and you will find sin the last 12 months the count of wells drilled but not flowing yet has decreased by 163 wells (Feb 2015 to Feb 2016.)
If we assume the rate was constant over the past 12 months, that would be 14 wells per month were completed from the SPUC (spud but uncompleted) inventory. The last time the SPUC count was under 500 was Feb 2011 and it was around 600 in early 2012, this is probably the basis of a 50 wells completed per month estimate (26 rigs times 1.3 plus 14=47 completions per month). I think it plausible the number of completions from the SPUCs could rise to 30 per month which would result in 63 completions per month, but much will depend on oil prices.
Like I said, I posted the same mathematical description of “the Red Queen effect” pertaining to Bakken before Rune had anything up:
http://theoilconundrum.blogspot.com/2012/05/bakken-growth.html
Can’t change history and so may as well cite my post whenever you cite Rune’s.
Hi Webhubbletelescope,
You are correct. As far as the Bakken and applying the idea of an average well profile multiplied by the number of completed wells,
there is Mason in Feb 2012, your work in May and July 2012,and then Rune Likvern’s work.
Sorry for not giving you credit, I got mixed up because I read Rune Likvern’s work before finding yours and I wrote up this post too quickly without checking back. My mistake.
Interesting that The Oil & Gas Journal is more like one of the engineering trade journals than actually a research journal, and likely isn’t peer-reviewed. Kudos to them for publishing that Mason article.
Ron, (and others taking an interest)
There is also another element to the Red Queen effect (also caused by the rapid decline in extraction and over time poorer acreage [story of lowest hanging fruits]) and that is funding [and profitability, but I will leave this now].
In one piece I alluded to that a slower pace of shale developments would also reduce risk of exposure to lower prices, reduce cost inflation and as we have learnt, better support a higher oil price by better balancing supplies and demand [shales are very responsive].
What I did not expect/foresee back in late 2012, was the extensive use of external funding, primarily debt. The model used a funding feedback and constrained debt leverage.
Most of the oil companies went on a debt fueled spending spree expecting the oil price to have reached a permanent high level. And few of these oil companies acknowledge anything about peak oil.
Financial dynamics and realities also apply to shale activities.
The near future developments in the shales are now all about financials and debt service and many companies will find this reality much harsher than most of the physical realities they so far has encountered.
Hi WebHubbletelescope,
I forgot about that post, sorry.
Rune’s was the first study I saw that used actual well by well data to develop a well profile along with the number of new wells added per month. I guess I tend to remember Rune Likvern’s work because he made this rather famous with his work at the Oil Drum.
There was a piece by James Mason in Feb 2012, your piece in May 2012 and a follow up in July 2012, Rune Likvern’s work was first published in Norwegian in early Sept 2012.
My apologies to James Mason and Webhubbletelescope, the “Red Queen” name is very catchy, but the original idea for modelling the Bakken/Three Forks in this way was in James Mason’s work.
http://solarplan.org/Research/Mason_Oil%20Production%20Potential%20of%20the%20North%20Dakota%20Bakken_OGJ%20Article_10%20February%202012.pdf
Possibly there was earlier work that I have missed.
Dennis, You are right. James Mason was the first. From Mason’s PDF “Oil Production Potential of the North Dakota Bakken”:
It’s important to cite previous work and give credit where credit is due, otherwise repetition will work to rewrite history … like I just about did, forgetting that I missed Mason’s work the first time through.
Hi Webhubletelescope,
I agree.
You did cite Mason in your July 2012 blog post and perhaps you had not seen Mason’s work before your May 2012 blog post (it was accepted for publication in Feb 2012, but was published in April 2012).
http://www.ogj.com/articles/print/vol-110/issue-4/exploration-development/bakken-s-maximum.html
I will try to do better in the future.
No problem Dennis, I believe I missed the Mason piece the first time through, but obviously caught it by July.
See this:
http://www.theoildrum.com/node/9292#comment-903251
I always had trouble commenting at The Oil Drum. I think the moderator ( Leanne?) was very capricious about what comments of mine she would decide to delete. And if I ever complained about her moderating policies, that was it and I would be banned from commenting for a period of time.
Kuwait Oil Company (KOC) has lowered crude output to 1.1 million barrels per day (bpd) from its normal production level of about 3 million bpd, company spokesman Saad Al-Azmi said in a posting on the KOC Twitter account.
Now thats a cut to write home about. So not sure about that how much the “glut” is but if they take of 2mb/d does it mean we are below daily demand now.
Some talk about freeze – the are definitely not talking, 🙂
http://uk.reuters.com/article/kuwait-oil-strike-idUKL5N17K0GX
Amatoori, due to a labor strike. You forgot to mention that. But with 2 mbpd less and Doha, tomorrow’s markets should be interesting!
Oh sorry. Just copied a slice of the article and missed that vital information.
Anyway, let the market party start. It will definitely test the fundamentals of the oil market. Words vs. Supply
This could be a really big deal. First sign that the people of the GCC are not going to take reduced living standards easily.
SS,
How convenient that strike starts on the same weekend of no “freeze” deal 🙂 Pure coincidence ?
And the oil price did not sink as many have anticipated of “no deal”. Shorts on Wll Street must be pissed 🙂
This is all some part of games that we don’t really know. Nobody goes on strike for better living standards among GCC minions. France, Greece – yes, but no in GCC. Looks to me SA wanted No freeze deal for public, but in private they would like the price at least to stay at $40 level. So let’s Kuwait workers have a short break and call it a strike.
I am thinking along the same lines. This is an obscene coincidence to be real at all. What you say there, makes absolute sense.
So the strike is a sham?
I don’t know if I buy that, but who knows?
One thing I thought interesting is that the expats did not strike, only the natives. Is there anything to be read into that?
I also thought it very interesting that there are 20,000 workers. That seems like a lot for 3 refineries and what is basically one big 3,000′-4,000′ sandstone waterflood. And the 20,000 are not all of the workers, there are thousands of foreign workers also.
I thought Kuwait had just about 2,000 oil wells total. I am not familiar with ME operations, but what are all of these people doing?
Do contractors drill all the wells in Kuwait, or does this suspend those operations?
As for refining, it would seem maybe 3,000-4,000 total would be needed, maybe even less.
Anyone with information on this, it would be most appreciated.
I wonder what G & A in the GCC countries is anyway? Maybe they are not clearing as much as per barrel as they would like the world to believe. I hear a lot of talk about sub $5 LOE, but what if G & A is $10+?
Keep in mind, Kuwait is not KSA. Differences abound, not the least of which include human rights and religious freedoms.
SS,
All GCC are in the same boat so the difference is superficial among them if we are talking about oil business. And this is only about oil business and dollars and cents. We can call it “strike”, or forced “layoff” or forced “vacation” and it does not change one thing on the ground. We can even argue that 100.000 of laid of oil workers in North America are on “strike” because when you are on strike you don’t get paid, oil production slows down and oil price firms up.
I am not there, so I don’t know other than from what anyone can read online.
However, Kuwait appears to be much more liberal than KSA. There are about 3 million foreign expats v 1.5 million nationals.
I’d be very happy to hear from someone who has worked in Kuwait. My view is that Kuwait is in much better shape financially than KSA, yet even they are feeling the oil price pinch.
I suspect LOE in Kuwait is lower. Funds needed to support the populace are likely not as high per barrel as they are in KSA.
Also, does Kuwait have a huge family of royals, most of whom don’t do much besides spend a lot of $$?
Again, just from reading. I’d like to be corrected by someone who knows.
DOHA OIL PRODUCERS MEETING ENDS WITHOUT AN AGREEMENT
“A summit in Doha between the world’s largest oil producing countries ended without an agreement on Sunday, as country leaders failed to strike a deal to freeze output and boost sagging crude prices.”
http://www.cnbc.com/2016/04/17/doha-oil-producers-meeting-ends-without-an-agreement.html
Good! I will go with Ron. They are all maxed out anyway. If they had signed a freeze agreement, then everyone would say that the price is rigged and blame the oil companies. I am willing [lost my ass on a lot of oil stock investments] to just wait and see how everything plays out without artificial agreements, that, in my opinion, would have meant nothing.
I wonder if Shallow Sand agrees?
Clueless. I understand where you are coming from.
Given early signs from Kuwait, there may be no need for a cut or freeze.
Assuming Kuwait just went down about 2 million, wouldn’t it be prudent for the rest to wait and see what happens?
I think austerity in the kingdoms maybe is not going so smoothly?
As for us, we are kind of like Russia, don’t want to see another sub $30 test. Would like to get to $55-60 WTI and see how shale, tar sands, etc react. So, if freeze talk is why we had a bounce, and we drop back below $30 WTI, we wont be happy campers about no freeze deal.
In retrospect, costs got out of hand at $100 oil. Pretty much everything is cheaper now, except for electricity.
$55-60 WTI would be wonderful. It would better if the market achieves it than through a cut. However, history is that a cut is necessary to get the traders to dump their shorts.
There are a lot of John Kilduff’s out there who are almost maniacal in their desire to drive WTI back below $26.
I long ago quit trying to figure out why oil trades like it does, or how it can get so high or low for periods of time.
I’d say the new Saudi prince who is apparently now in charge seems to be taking a different approach than his predecessors.
We will see.
This far WTI futures are down over $2. Yikes.
http://www.bloomberg.com/news/articles/2016-04-16/saudi-prince-says-he-could-add-a-million-barrels-immediately
“world’s largest oil exporter could increase output to 11.5 million barrels a day immediately and go to 12.5 million in six to nine months “if we wanted to,”
Oil shorts have the good life. God loves them.
Where is Ron to call BS on that?
Shallow sand:
“Assuming Kuwait just went down about 2 million, wouldn’t it be prudent for the rest to wait and see what happens?”
I would think that Iran’s Parked tankers now sailing to markets, is going to overwhelm Kuawaits cut. If Iran does indeed have +20M barrels in route than its likely going to cost a double dip in Oil prices soon.
Iran’s Massive Oil Fleet Begins To Move: 29 Million Barrels Depart Iran In Past 2 Weeks
http://www.zerohedge.com/news/2016-04-14/irans-massive-oil-fleet-begins-move-29-million-barrels-depart-iran-past-2-weeks
If you believe you own words, you would be shorting oil when the trading day starts.
Clueless.
I have read many times the upstream MLP is dead. Do you agree?
I was just reading over LGCY annual report. Went public in 2007 and has distributed $18.36 since inception.
Of course, like all MLP’s in upstream, they eliminated distributions and their units are around a buck.
They were founded by a CPA and his son. They seemed to me to be fairly well run, but of
course long term debt is $1.44 billion and PV10 is just $695 million. They went on a growth binge fueled by debt, just like all the rest.
My question is, why are the MLP’s a dead concept but the shale companies aren’t?
Wouldn’t the MLP’s recover fairly quickly with oil back at $70 and gas back at $4? Units of LGCY dropped to very low levels in early 2008-2009, yet recovered. However, distributions were never suspended.
From the unit holder letter. “unfortunately, we are currently in a dark hour. We have been here before, and while each oil and gas downturn is different, we have learned through experience that this is a time for efficient operation, capital preservation and liquidity maximization. The opportunities presented on the backside of this dark hour will be incredible for the company. The goal here is to ensure that we make it to the other side.”
Basically, these guys are a large version of stripper well owners thought the United States. They have an interest in over 12,000 oil and gas wells, with net production of about 40,000 BOEPD.
The founders have skin in the game, owning an interest in about 6.6 million units that were trading between $25-30 per unit and paying out around $2.20 per unit. Now, no distributions, $1 per unit, maybe going BK and being wiped out all together?
Just a company I’ve followed over time, there are many more getting ready to “reap it.”.
A few of these “penny stocks” might make it. Have to be skilled to pick the ones that will.
I have a cousin who is a long time oil man in Midland. He has told me that LGCY’s assets were crap. Says that PXD and Endeavor (private company) have some of the best acreage in the Permian.
John Keller. Is he talking about LTO assets or all assets?
They farmed out some of their LTO assets, which are basically HBP conventional production that apparently has LTO potential.
Right now I’m sure most people would say what we own is crap too , even though it produced a ton of cash flow from the middle of 1999-2014.
I have heard of Endeavor. If I recall correctly, they were one of the companies featured on a true TV show back around 2007-2008 about drilling vertical Wolfberry wells in Upton Co. EXL was another one on that show, which was kind of hokey, but yet interesting no less.
PXD has admittedly had some big hz wells on the O’Connor and Hutt leases. However, many other wells have not been as good as the “typical”. Middle Bakken well, in terms of oil production. I do agree PXD has a lot of acreage, and assuming oil goes back up to 2011-14 levels, it will be drilled up.
Endeavor has a “unique” reputation in the Permian Basin. Its founder, Autry Stephens is a frequent subject of the morning coffee drinkers. Burdened with enormous debt. Until recently, Autry had the reputation of never selling anything. Bankers “encouraged” recent sale to XTO/Exxon. Matrimonial issues too. Those may have been resolved partly through bankers “encouragement”
Autry is a petroleum engineer who was involved in the old 1st National Bank which failed spectacularly in the 80’s which some old timers may remember.
My cousin drills vertical wells in the Permian. He never got caught up in the LTO. It is difficult to find independent oil men like you and others on this board who drill with their own cash that think that LTO is a good idea. I believe my cousin was refering to LTO results though. He has said that LTO drilling in the Permian can be good but that it is limited to spots. PXD and Endeavor are in some of the best spots while LGCY is in the crap. But, he also says that companies are finding new spots as well.
john keller
I really do not know about LGCY LTO acreage, other than it was likely acquired by chance, when they bought producing conventional leases pre LTO boom.
LGCY operates in several states and in many fields, so therefore as to their conventional production, I assume they have some good, average and some not so good, which would likely be the same for other companies with the low decline conventional production.
Again, I do not know anyone involved with LGCY, I have just followed them over the years because they appeared to have a similar model to ours, albeit on a much larger scale. Also, due to being public, they had to keep buying, I assume, when lease prices were high. Wall Street seems to insist on things such as constant growth, whether it makes sense or not at the time.
In 2016 they have budgeted 3.8 net wells, all appear to be non-operated. So they are not drilling anything in 2016 on their own. Yet another example of the dearth of conventional development, which I am assuming outside of the Middle East, is a world wide phenomenon and will not be noticed until the equilibrium has passed.
I do not necessarily think LTO is a bad idea, it just is not all it is cracked up to be, and definitely was not worth drilling on borrowed money. Several companies are in the middle of determining that now. I have read statements from some long time independents who wish maybe they had not gotten caught up in the “gold rush mentality” that is LTO.
Hopefully you set aside enough of that cash so that you are still eating the same way you did then, lol.
I am betting you did, because you sound like a level headed guy who learns from experience.
OFM. No missed meals. Not as much cash as two years ago, but it’s not gone yet either.
Admittedly, we were spending more than absolutely necessary. Have surprised ourselves on cutting expenses, although cutting back on employees wasn’t fun. But both found jobs pretty quickly, and in other, less volatile lines of work, so probably worked out for them, in hindsight.
Just hoping we can get to $55-65 price band, and stable. We can do really well there, and I don’t think that would drive the gasoline and diesel prices up to a point the economy would be hurt.
One thing, seems that people who can do things like weld, operate heavy machinery, have CDL’s, etc can always find work. Maybe not the high wages in the oilfield, but at least enough to stay in their houses and pay their bills, if they didnt get overextended.
Just hope we don’t get back into $20s or lower. That is bad for stripper well operators.
Hi shallow sand,
Yes $55-$60/b would be good and might be high enough for DUCs in the Bakken to payout. For 3 years or so this is a possibility (I think 2 years more likely), but then oil supply is unlikely to keep up with growing World demand. The decreases in OECD demand will be more than offset by growth in the non-OECD. So by 2019 at least we should see oil prices rise to above $85/b, imo.
I’ve got bad news for you. At the $55-$65 price band, it becomes extremely valuable for people to (a) switch to highly fuel-efficient hybrids, (b) buy battery-electric cars. Those with the means will do so (some in 2017, but lots in 2018), and it will cut oil demand, which will cause the price to drop. You’ll never be at that price band for long again.
I’ve also got good news for you. Oil prices below $30 are fairly unlikely to persist for long. At that price, it’s actually cheaper to operate a plain old 25 mpg gas car than it is to operate an electric car, so the demand destruction will halt when the price drops below $30.
SS – I like the midstream MLP’s, and my money is where my mouth is. For example, a closed end fund Kayne Anderson, KYN, invests in midstream MLP’s and pays a healthy distribution. And you get a 1099 rather than having to file partnership returns.
Midstream because a tremendous amount of infrastructure still has to be built to take natural gas to the billions of $’s being spent on new chemical plants, etc in the gulf and well as to LNG facilities and the Northeast. Apparently BP thinks that US oil production will rise again. If it does, it also will require a lot of infrastructure spending funded by midstream MLP’s.
I am not smart enough to invest in upstream MLP’s having worked for Mesa Petroleum in the 1980’s when we transformed into an MLP – eventually turned out unsuccessful and Boone had to sell out.
Clueless. Look at TYG. As I have detailed I am not the most successful stock investor out there by far, but I assume this one is similar to the one you refer to?
Yes – Also see: AMLP, CEM, FMO, NML, etc.
I have been reading a few of the Aramco technical papers, and came across an interesting paper making the most use of the energy, contained in a high pressure gas well.
http://www.saudiaramco.com/content/dam/Publications/Journal-of-Technology/Winter2014/Article10.pdf
Instead of just using a choke to control flow and pressure in the well, a turbine is placed in line with the choke, and the excess energy is used to generate electricity. The wells the Saudis are talking about are big 100,000+ mcfpd, and offshore, but I would have thought the Utica deep hp wells would be a good candidate for the same process.
A solar Array would make juice after the well peters out and has no moving parts.
I’ve often wondered about this (use of a turbo expander to generate electricity) from gas wells.
Might have complications from mixed phase (gas and liquids) flow.
And then what to do with the electricity?
If the gas is under pressure, then no need to compress into the pipeline.
You might run a dryer at the well site, but how much electricity does that need?
(the Saudis were talking a few MW – e.g. 1000’s of horsepower).
A great many well sites are out in the boonies – no utility lines to tie in to.
Same issue with another additional energy source in oil wells,
use of the heat in the produced fluids to run a geothermal unit.
http://energy.gov/sites/prod/files/2014/02/f7/gtp_coproduction_factsheet.pdf
Nice if you have a need for that much power,
or a power line runs nearby AND the local utility/PUC allows easy connection to the grid.
Also, the legal aspects of geothermal resources vis-a-vis an existing oil/gas lease are unclear.
http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1580&context=wmelpr
Those Saudis have done some clever things though – my favorite is use of an upside down electric well pump to pump water from an overlying non-potable aquifer DOWN to do water flood in Berri.
Because the aquifer is sealed, they don’t have to sanitize/treat the water like they must do with seawater.
My apologies in advance if somebody has posted this previously.
It’s political commentary about Russia and energy markets, and well worth the time it takes to read, given that it is perfectly obvious that the price and supply of oil is influenced as much by sovereign power politics as it is by market forces.
http://www.huffingtonpost.com/the-conversation-us/russia-a-global-energy-po_b_9693032.html
“In truth, Russia has been building an altogether new kind of energy state, one with more global influence than even OPEC. A fundamental reason is Russian prominence in multiple energy domains, especially oil, gas, coal and nuclear power.
This multi-pronged energy strategy — from fossil fuels to a reinvigorated nuclear power program — has geopolitical and economic implications that stretch from its neighbors in Europe to developing countries around the world.”
Speaking as a life long observer of power politics and a lover of history books, I strongly recommend this link as food for thought.
Russia may be struggling economically, but Russians are used to hard times, and Russia is superbly positioned to be at least no worse than in third place in the world power structure for so long as the fossil fuel age lasts.
And with all due respect to the cornucopians and technocopians, that’s going to be a good while yet in human terms, a half a century or longer even using the most optimistic of assumptions.
The energy soup discussion needs to be “flavored with a dash of reality”. Fossil fuels are here and they are DIRT cheap, in terms of upfront investments, compared to renewables. In fact, since the upfront costs are now SUNK costs for the most part, fossil fuels are essentially almost free in the short term, in dollars and cents terms, compared to renewables. Politicians are mostly compelled by their OWN realities to deal in short term solutions to big problems.
I agree OFM. We should be acknowledging Russia role as being a major energy power for the longterm, as well as a critical partner in the long struggle against Islamic fundamentalism.
We should be looking forward to relations for the times beyond Putin, and they should be invited into NATO.
For an eye opening intro to the Russian oil shale behemoth -the Bazhenov formation- here is a link-
http://www.forbes.com/sites/christopherhelman/2012/06/04/bakken-bazhenov-shale-oil/#64553545182f
Generals and ambassadors learn early in their careers that a nation has permanent interests, but no permanent friends. Any study of history over any long period of time reveals that even the best of friends occasionally go at it tooth and claw for one reason or another.
Nations are about as likely to fight and then kiss and make up and then fight again as teenage lovers. The biggest difference is that the time scale is measured in decades and centuries rather than days and weeks.
We Yankees, and the rest of the world, would do well to remember that there WILL be a post Putin Russia, as Hickory points out.
It is highly hypocritical for countries that are current winners in the imperial game of conquest to insist that other countries not be allowed their turn at playing the game. I haven’t noticed any serious movements aimed at giving the USA back to the people we stole it from, lol.
The Mexicans may reclaim the southwest , which we stole from them, and which they stole from the locals there before them, but if so, they will do it via simply crowding us Anglo types out, rather than with guns.
What Professor Montgomery is saying in that article, is exactly what I have been saying about Russia’s true energy reserves as well as her global strategy. It also explains why the mighty NATO-GCC-ISR Empire is so worried about a superficially mid-level country, with a mid-level economy and a mid-level population. It also explains why this mighty Empire is so hell-bent in destroying Russia before the long-term and natural tendencies of the global economy begin to really kick-in.
Edit: Notice also another thing that I have said on this blog before. That the persistent predictions over Russia’s imminent decline as an oil producer are not only peddled by the histrionic and propagandistic Western media, but also from the Russian state itself. This is the good and time-tested tactic of “Maskarovka” or “feigning weakness”
http://www.cnbc.com/2016/04/15/doha-oil-price-rise-looks-unlikely-russia.html
Linked from http://eastwestaccord.com/ – Alternative for the Anti-Russian MSM Slant.
From the above article “There remain the vast resources in Russia’s Arctic to be explored …”
How would anybody know if there are large resources in Russia’s Arctic if this basin hasn’t been explored?
Good one, Frugal.
Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle. // USGS, 2008
http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf
ELM + Putin = bad news for nato aligned countries ( oil importers)
“This multi-pronged energy strategy — from fossil fuels to a reinvigorated nuclear power program — has geopolitical and economic implications that stretch from its neighbors in Europe to developing countries around the world.”
Sorry, one should here and there make a reality check.
1) Russia was unable to use its oil/gas to influence European politics when the price was high, why do you assume that this will change?
2) The ability to translate economic strength into political gains has not been very impressive in case of Russia, you can check then value of Gazprom and its failed strategy.
3) Their most important customers are trying to perform an energy transition. How does the prospect of 80% less imported oil/gas within the next 30 years affect the Russian position?
4) Russian NPPs are only an asset on paper, Russia is not able to sell them in meaningful numbers. Only hot air and no realistic chance that this will change.
5) The dependency of the Russian government on oil/gas exports has not decreased, quite contrary. How gives this an advantage, esp. with 2 and the interesting Russian demography?
While I do not see a collapse of Russia, the assumption of an Russian energy based hegomony is pure fantasy in my opinion.
Russia has the population of Poland, Germany and the Netherlands (with worse demography) and the GDP of Italy, a real super power looks different, especially with the complete lack of soft power in Russia’s case.
Sorry, one should here and there make a reality check.
1) Russia was unable to use its oil/gas to influence European politics when the price was high, why do you assume that this will change?
Sometimes the pitcher wins, sometimes the batter. The game goes on forever. Russia will have many more turns on both the offense and the defense.
2) Their most important customers are trying to perform an energy transition. How does the prospect of 80% less imported oil/gas within the next 30 years affect the Russian position?
Hopefully within thirty years WE WILL have collectively built out enough renewables infrastructure to SURVIVE the depletion of fossil fuels. But even thirty or forty years from now, Russian oil and other mineral wealth will still be critically important.In human terms, thirty years is a very long time. We naked apes conduct our business on a time frame measured in single years or less. A hell of a lot can happen in just a year or two. We must cross a LOT of bridges in the next FIVE years, never mind the next thirty.
3) The ability to translate economic strength into political gains has not been very impressive in case of Russia, you can check then value of Gazprom and its failed strategy. See my reply to number one.
4) Russian NPPs are only an asset on paper, Russia is not able to sell them in meaningful numbers. Only hot air and no realistic chance that this will change.
Russia has the REAL ASSETS that matter in spades, for as long as the world runs on the conventional BAU industrial model.
5) The dependency of the Russian government on oil/gas exports has not decreased, quite contrary. How gives this an advantage, esp. with 2 and the interesting Russian demography?
Russia IS a relatively small country, and only recently has RUSSIA freed herself of the OLD VERSION of central control we called communism. Russia has a mixed economy now, and talented people. There is plenty of reason to expect the Russian economy to perform better, over the long term. You yourself threw out a thirty year scenario up above, but now you are talking short term.
I am not especially interested in taking SIDES in this discussion, either betting on Russia, or against Russia, in terms of her long term role in the world.
My point is that when two teams play ball, you can hardly ever be SURE which team will win, even if one is an unquestionable underdog. Circumstances change, and with changing circumstances, the rules can change.
Right now, today, Russia has the power to force the price of oil up to a hundred bucks, simply by turning off the taps to Europe. Europe would FREEZE this coming winter without Russian gas.
Bluffing and playing energy politics for advantage is one thing, and that is all Russia has done, so far, on the world stage. In actual fact, Russia has been a far more reliable and trustworthy supplier than the Saudis have, because the Russians have not cut production to increase the price of oil. YET.
The Saudis have used their pricing power to subject their oil consuming customers to some involuntary sex with no lubricant in the past. Russia has not. YET.
Now think about who has power, and whether Russia MIGHT decide to USE that power, rather than just THREATEN to use it.
While I do not see a collapse of Russia, the assumption of an Russian energy based hegomony is pure fantasy in my opinion. Russia has the population of Poland, Germany and the Netherlands (with worse demography) and the GDP of Italy, a real power looks different, especially with the complete lack of soft power.
I agree Russia is not likely to achieve an “energy based hegomony” but otoh, Russia does have the power, and will have the power, indefinitely, to totally disrupt the business as usual apple cart of the world, simply by doing what the Saudis have done in the past.
And in the end, there is not a damned thing anybody could do about it, other than sanctions that would matter not a whit, in terms of the big picture, once all the chips are on the table . Russia is backward, but she is a military superpower on her own turf, and quite capable of maintaining her basic infrastructure and feeding her people using domestic resources.
We hear ENDLESS crap about how the AMERICAN economy is dependent on CHINESE money, but I am old enough to remember when we did just fine without the Chinese, from experience.We built up new industries based on our own domestic markets and resources. In essence, China has almost ZERO in terms of REAL stuff to offer, excepting a few minerals, and stuff made with CHEAP labor.
In REALLY BASIC terms, we have near zero need of the Chinese. They need US , not the other way around.
In basic terms, Russia can get by without the rest of the world, but the rest of the world cannot get by , short term to medium term, without Russian energy exports.
I am a big believer in progress in science and engineering, but I don’t believe we are going to free ourselves from our dependence on what the Russians have within the next two or three generations at the earliest. What they have is the world’s greatest supply of unexploited natural resources, in general terms.
Having said all this, your position is as defensible as mine. Like Yogi said, predictin’ is hard,’specially the future.
If Russia was managed well, it could be very successful. A little less tough guy, and a lot less vodka.
They could be great partners for other countries with similar interests. I believe the USA and many countries in Europe do have similar interests with Russia- when we all move beyond the stupid 20th century battle.
A Russia-Iran partnership is a dangerous one for the west, but Russia has been pushed that way by the arrogance of the west.
2) Their most important customers are trying to perform an energy transition. How does the prospect of 80% less imported oil/gas within the next 30 years affect the Russian position?
Hopefully within thirty years WE WILL have collectively built out enough renewables infrastructure to SURVIVE the depletion of fossil fuels.
30 years?! Nah, I think it will happen in a much shorter time span than that. I think it is more and more likely that Tony Seba is right!
http://www.sciencealert.com/the-netherlands-is-making-moves-to-ban-all-non-electric-vehicles-by-2025
The Netherlands is making moves to ban all non-electric vehicles by 2025
No fumes in the future.
But yeah, Yogi is still right! 🙂
“30 years?! Nah, I think it will happen in a much shorter time span than that. I think it is more and more likely that Tony Seba is right!”
While I assume that the transition in case of cars/small trucks will be fast; the hard truth is that most fossil energy is used for space haeting and generation of industrial process heat, transition in these fields is much slower; assume an optimistic 2% conversion rate of buildings in central Europe and you get the picture.
“Right now, today, Russia has the power to force the price of oil up to a hundred bucks, simply by turning off the taps to Europe. Europe would FREEZE this coming winter without Russian gas. ”
Not without destroying herself, that is the huge strategic limitation of Russia. BTW Oil is not possible as specific weapon against Europe it hits all countries, not only European. Gas is more interesting, but not that clear cut. How much could be saved in larger countries? How much could be substituted by imports of LNG?
If you really want to make a point for a 30 year timeframe, then the decreasing demand for fossil energy in central Europe is the 800 pound gorilla in the room, an issue Russia has to solve.
Russia has only 30-40 years to convert her economy from exporter of fossil fuel to an alternative that uses muc h less fuels as cash cows. All attemps in the past have failed.
All threads to cut NG for example may simply provoke an increased program for efficiency. Gedankenexperiment: How much would it cost to cut NG imports by 2% per year in Germany, Austria and the Netherlands? I bet less than 20 billion EUR per year. That would be around 4-5% of the annual Russian exports.
And while I do not support some aspects of the EU politics against Russia and support a cooperation I do not buy the claim that Russia is an economic powerhouse that is able (in a useful timeframe of 30 myears) to make far reaching politics with her oil/NG. Russia needs urgently a lot (and does not get it now) which Europe could deliver to convert her economic system, and the clock is ticking.
The ugly aspect IMHO is that Europe makes politics that only benefit in some field the USA, not Europe.
The fossil fuel age is dead in roughly 2032-2035 — 16 to 19 years. Russia is making really really terrible moves for the long run by doubling down on fossils. Nuclear has already priced itself out of every market.
China is poisitioning itself to be the dominant industrial power in the world and has largely succeeded already. They practically own the solar panel industry, unfortunately for the rest of us, and are dominant in the battery industry too — as well as lots of other older industries which we used to dominate.
One of your statements is really odd. You do know that solar is totally free once you put up the panels? This is a dynamic which fossil fuels can’t beat because they cost quite a lot in the short term, in dollars and cents terms, compared to ‘nothing’. When solar panels get installed, they keep being used until they get destroyed by hailstorms — if one place takes them down, someone else puts them up.
As for Russia — their *non fossil fuel* mineral assets remain extremely valuable (nickel, for instance). But they have lots of competitors, including African mining.
40,000 wells with a 20 year production time at 40 bpd average should yield a total recovery of 292000 times 40,000 equals 11,680,000,000 barrels of awl.
Should only need 10,000 wells for an URR of 5.84 billion barrels. If URR per well is higher by double, should only need 10,000 wells at all times over 20 years.
200 bpd year one, 73,000 barrels
176 bpd year two, 64,240 barrels
161 bpd year three, 58,765
142 bpd year four, 51,830
125 bpd year five, 45,625 barrels
111 bpd year six, 40,515
98 bpd year seven, 35,770
87 bpd year eight, 31,775 barrels
77 bpd year nine, 28,105 barrels
68 bpd year ten, 24,820 barrels
60 bpd year 11, 21,900
53 bpd year 12, 19,345 barrels
47 bpd year 13, 17155
41 bpd year 14, 14,965
36 bpd year 15, 13,140
32 bpd year 16, 11,680 barrels
28 bpd year 17, 10,220 barrels
25 bpd year 18, 9,125
22 bpd year 19, 8,030 barrels
19.5 bpd year 20, 7,118 barrels
Amounts to a ninety percent decline in 20 years.
587,122 barrels of oil cumulative, IP 200 bpd, 12 percent decline, 20 years of production.
20,000 wells times 587,122 barrels equals 11,742,440,000 barrels URR
10,000 shut in twenty years, should only have to drill 30,000 wells.
11,742,440,000 barrels is probably too high by double. Means 1.6 million barrels per day of production which is too much.
1.1 million barrels per day times 365 days times 20 years equals 8,030,000,000 barrels is a closer estimate. Another 12,000 wells over the next 20 years should be good.
After that, there might be another 3 billion barrels.
An early spring, so the planting will be much sooner than any time in the past 7 years.
It’s Monday, so a person can start drinking beer early. One of the rules that can’t be broken.
My fav day of the month is when the OPEC MOMR comes out. Is it likely the POB ‘OPEC Charts’ will be maintained?
I second this
I don’t have the database. So unless Ron would like to send me his Excel Files, I would have to splice together EIA and OPEC data, which is not good because one is crude only and the other is C+C.
Too much work to go back and recreate the database, hopefully Ron will keep it up to date.
Sorry, my time is limited. If there are volunteers that would like to pull together the data from OPEC, I would be happy to post it, otherwise I will use EIA data which is easily accessible though not up to date.
Sorry, I will try to update “OPEC Charts” tomorrow, April 20, or the day after.
Hi Ron,
If you are willing to share your excel spreadsheet with the data. I can continue your work on the OPEC charts.
To reproduce what you have already done (putting together that data over many years),would require too much work.
Thanks.
I have updated the OPEC charts page. I can create a post from them also but I am waiting to hear form you.
Apparently you don’t check your email very often.
YIKES!! WTI oil just had a $40 print.
Sounds good to me. I hope the down draft Sunday night, followed by recovery, is the end of the hard times.
IMHO labour troubles in Kuwat will keep them down by almost 2 million barrels a day for a while.. Kuwait is a fragile little bunch. Lots of pent up discontent. It won’t be long until some Sunni there shoots up a Shia shrine. They’re in a tough neighbourhood.
$40.50 as I post this. Doha just a big nothing.
I wouldn’t say that Doha was a “big nothing” but we just don’t know and Bloomberg is not telling us or they don’t even know either. All so called “internet oil experts” predicting that price is going to sink after “No Deal” are wrong again 🙂
Not only that price is not sinking but is going up.
Ves,
I think the argument is that Doha was a big nothing all along. Sure, it was bound to move markets temporarily because it was a big ? hanging over the market.
Thing is, countries in South America (who were part of the talks) already have declining production. Venezuela’s production is down 11.6%. Saudi Arabia brought online every mothballed field they have and has radically increased their rig count… This resulted in a 500,000 bpd increase in production over 2 years. Russia’s own agencies say their production is going to decline in 2016.
That’s why Doha was a big nothing.
It was only ever going to be a 1 week blip in prices because the fundamentals are already there for even an arm-chair scientist to see in plain sight.
“Russia’s own agencies say their production is going to decline in 2016.”
Russia’s Energy Ministry projects growth in Russian oil production from 534 million tons in 2015 to 537-540 million tons this year.
According to current forecast, output will remain at this year’s levels in 2017.
In the first quarter of 2016, production was up 2.1% year-on-year and 1.8% above last year’s average levels.
————————————
Russia to increase oil export in 2016 — minister
Crude oil production will reach 536-540 mln tonnes in Russia this year
http://tass.ru/en/economy/868378
MOSCOW, April 8. /TASS/. Russia will boost oil export in 2016, Energy Minister Alexander Novak said on Friday.
“We also see growing conversion ratio this year. It means export volumes will become higher. Hence the export volume will grow in comparison to 2015,” the minister said.
Russia increased oil export by 20 mln tonnes in 2015 against production growth by 7 mln tonnes only on account of conversion ratio increase, Novak said.
————————-
Russian Oil Output, Exports May Rise After Doha Deal Fails
http://www.bloomberg.com/news/articles/2016-04-19/russia-may-raise-oil-output-exports-after-failure-of-doha-talks
Just two days after the collapse of international oil-supply talks in Doha, Russia signaled it isn’t afraid to play a game of chicken.
Freed from a plan to coordinate output with OPEC members, Russian officials said Tuesday that the country may boost both production and exports. Daily output in 2016 could grow by 100,000 barrels to 10.81 million, according to Deputy Energy Minister Kirill Molodtsov.
Russian crude producers can boost output even in an environment of low oil prices as their operating costs don’t exceed $4 per barrel, Maxim Nechaev, director for Russia at IHS Inc., said at the forum. “Irrespective of whether the oil price is $45 to $50 per barrel or goes even lower to $35 per barrel, we’ll probably see an even more significant output increase this year than last year.” In 2015, production rose 1.5 percent, according to CDU-TEK data.
Russian crude exports to countries outside the former Soviet republics could grow to as much as 255 million metric tons this year, or 5.11 million barrels a day, First Deputy Energy Minister Alexey Teksler said at the forum. Such an increase, more than 4 percent, would send an extra 300,000 barrels a day into international markets
———————————————————
Goldman Sees Russia Oil Output Rising Amid Doha Freeze Talks
http://www.bloomberg.com/news/articles/2016-04-08/goldman-sees-russian-oil-output-rising-amid-doha-freeze-talks
Russian oil and condensate production will rise through 2017, even as the nation prepares for talks on an output freeze with other producers, according to Goldman Sachs.
Russian output will climb to 11.2 million barrels a day this year from 11.1 million barrels in 2015 due to a weak ruble, low-cost deposits and a tax rate that adjusts to lower prices, Goldman analysts including Geydar Mamedov said in a research note dated April 7. Production is projected to increase to 11.4 million barrels a day in 2017, it said.
Support for Russian growth comes from free cash flow yields, boosted by tax rates that drop in line with oil prices and a weaker ruble that reduces costs. The industry generated $6 per barrel free cash at $40 a barrel versus $8 a barrel at $100 oil, according to the note.
AlexS. I don’t see an oil price concern with Russia on the upside or downside.
It doesnt appear Russia intends to rapidly grow production like US did, or GCC did in response to US shale.
This is probably heretic for a US citizen to say, but as far as the big three producers go with regard to oil production, Russia appears to be the most responsible. No debt fueled LTO bubble like USA, no politics like KSA.
Just slow, steady growth out of cash flow. Kind of like what the US conventional producers were doing until Thanksgiving, 2014.
Further, it seems Russia is more aligned with US conventional folks on oil price. Russia got nervous, as did we, when oil crashed below $35 this winter, but can be happy in the $50s-$60s?
Disclaimer. Before anyone gets the wrong idea, I’m referring only to oil production, and really as to US only since 2010.
I would not live anywhere else in the world besides the USA, excepting possibly some Carribean islands during the winter months!
shallow sand,
” I don’t see an oil price concern with Russia on the upside or downside.”
It is certainly a concern, both for the oil companies and the economy in general. But the oil sector was not crushed, contrary to what some people in the West and in Saudi Arabia were expecting. And it is not just surviving, but continuing to grow within cashflows.
A flexible exchange rate policy helped a lot ( unlike in 2008-09 when the Central bank was trying to defend the ruble). Sharp currency devaluation is negative for the consumer of imported goods, but positive for the industry, particularly for commodity exporters, and for the state budget as well (the fiscal deficit was only 2.7% of GDP last year).
“as the big three producers go with regard to oil production, Russia appears to be the most responsible. No debt fueled LTO bubble like USA, no politics like KSA.”
I think Russia has done all it could for the success of the Doha meeting. And at the same time was trying not to create excess expectations. Unfortunately, Saudi behaviour in the oil market is getting more and more politisized.
Fortunately, market fundamentals work for a gradual recovery in oil prices.
I think we may still see a downward oil price correction in 2Q (which is imminent after a 50% growth since February lows). But, according to the IEA, in the second half of 2016 the excess supply should decline to just 200 kb/d from 1.5 mb/d in 1H16. This is largely due to seasonally higher global demand, but also to the declining non-OPEC output. My forecast is $50 by the end of the year.
And by the mid-2017 global demand should exceed supply, which should support further price rises.
“it seems Russia is more aligned with US conventional folks on oil price”
With all the differences between the Russian companies and the U.S. conventional producers, I tend to agree with you
AlexS. My initial statement was not clear, I will try to clarify.
What I meant to state is that Russia does not look like it will either drive the oil price higher, nor crash the price of oil, by either making a drastic production cut or by rapidly increasing production. Slightly increasing or decreasing production should not move the oil market. Growth of 1-3% annually, or a drop in that range, shouldn’t make a big difference in the oil price.
Russia clearly does care about the oil price. Russia initiated action when it saw the price being driven below $35 by traders. Hopefully we will not return to those levels, nor immediately spike either.
A slow, steady rise to $60 will be good.
shallow sand,
Yes, in the past several years, there was no big fluctuations in Russia’s oil production.
In that sense, Russia is a price-taker, rather than a price-setter
AlexS,
Interesting!
I guess Lukoil over-reacted last year: http://www.reuters.com/article/russia-crisis-lukoil-idUSL5N0W537K20150303
And this from the Russian Finance Ministry July 2014 (which was before the price collapse began): http://tass.ru/en/economy/739324
Clearly both of those predictions turned out to be false, at least thus far, so perhaps another case of production declines being slower than anticipated.
Russia did have a lot of turmoil due to sanctions and currency movements that likely led to pessimistic predictions at that time. The currency movements ultimately helped shelter the oil industry instead of hindering it, so maybe that is why those predictions never came to fruition.
Still very interesting to compare estimates with the reality that unfolded!
Brian,
I understand now how these kinds of international meetings can be characterised as “big nothing”. Elite love these “big nothing” meetings. Like that “Green” meeting in Paris last year. Do you know why Paris was picked as host? There is a good food in Paris. French know how to cook well and elite loves to eat well 🙂
But joking aside. The meeting where 70% of world oil producers meet in a time when the price is below replacement cost for the most of them cannot be about nothing. Even if they did not make a deal everyone was expecting it means something. It means that that all ducks are not lined up for a deal and we will have to have more geopolitical shenanigans. It means more pain for high cost producers at least until mid 2017. For oil consumers that means another year of cheap gas 🙂
“The meeting where 70% of world oil producers meet in a time when the price is below replacement cost for the most of them cannot be about nothing.”
Better to say “the price is below fiscal breakeven”, which is much higher than replacement cost for most of them
But in generally I agree with you. The first output freeze deal (in February) did nothing in terms of physical supply/demand balance, but helped to change market sentiment at a time when many experts were predicting $20 oil
Kuwait Oil production is gradually beeing restored. It is now 1.3 mb/d below March levels, and may return to these levels in 10-15 days.
from Bloomberg:
Kuwait Oil Output Rises to 1.5 Million Barrels a Day Amid Strike
http://www.bloomberg.com/news/articles/2016-04-19/kuwait-oil-workers-strike-over-pay-dispute-enters-third-day
Kuwait’s crude output edged higher to 1.5 million barrels a day as the state oil company brought more production facilities back on line after halting some operations at the start of a labor strike now in its third day.
Production in northern Kuwait returned to a normal level and Kuwait Petroleum Corp. restarted units in the country’s southeast, helping boost overall output, the oil industry’s spokesman, Sheikh Talal Al-Khaled Al-Sabah, said in a post on Instagram.
The work stoppage, which began Sunday, had caused the OPEC member’s output to plunge 60 percent to about 1.1 million barrelsa day. The initial decline of 1.7 million barrels a day from March levels surpassed the surplus in global supply.
Kuwait pumped 2.81 million barrels a day last month, while worldwide supply surpassed demand by 1.5 million barrels in the first quarter, according to the International Energy Agency.
“If the Kuwaiti strike persists, it re-balances the market,” Robin Mills, chief executive officer at consultant Qamar Energy in Dubai, said Monday. “So far it looks like Kuwait is meeting demand and supplying their commitments out of storage.”
“The substantial impact of the Kuwait strike has added significantly to the various short-term shut-ins around the world,” consultants FGE said in a note on April 18. The Kuwaiti cuts are “pretty well trebling the shortfalls” from unplanned disruptions in countries including OPEC members Nigeria, Iraq and Venezuela, it said.
The “strike is on,” Kuwait National Petroleum Co.’s spokesman, Khaled Al-Asousi, said in a text message, confirming that union members were staying off their jobs for a third day in a dispute over benefits. Attempts to reach a settlement failed after talks with the union broke up at 3 a.m. Tuesday.
The strike may last 10 to 15 days, because the government set up a joint committee to negotiate with the union over 10 days, said Virendra Chauhan, a London-based oil analyst at Energy Aspects Ltd. “Assume a bit of time to return to work and ramp up,” he said Monday. “Basically we are not expecting months of delay.”
Oil companies are using skilled workers from the Ministry of Electricity & Water to help run their plants, Sheikh Talal said. The government discussed bringing in foreign workers from Saudi Arabia and Bahrain to operate facilities during the strike.
I think the strike is already over.
Kansas posted 12/15 production information last week.
Oil production for 2015 was below that for both 2013 and 2014.
Production for 12/15 was about 19K bopd lower than in 1/15.
Kansas has a very detailed and easy to navigate website.
There is an interesting article why oil will not be higher than USD 50 per barrel for a long time:
http://oilpro.com/post/20301/opinion-here-real-story-why-oil-prices-remain-low
However, as soon as all low cost capacity has been placed on the market, we might see a catapult rise of oil. This may take up to two years.
Just manufacturing high mpg cars (45 mpg) will drop the demand by 3.5 million barrels a day in the US. Since all cars are supposed to be moving in that direction and EV’s are coming on, that is almost a guarantee within ten years.
So will that keep the price of oil down also, as demand falls? One more factor to consider.
It’s going to be a race between higher prices FORCED by higher extraction costs, and declining consumption due to more efficient cars, etc.
The wild card is growth in developing countries. Fast growth on a large scale could more than offset the reduction in oil consumption brought about by more efficient cars.
Depletion never sleeps. The manufacture and sale of more efficient cars may be a stop and go proposition but I expect it to be MOSTLY go. My personal opinion is that pure electric and plug in hybrids will be VERY popular within five or six more years, because the cost of batteries is falling fast, and a BIG spike in oil prices by then seems extremely likely, to me at least.
Analysts from Sanford Bernstein believe that growing demand may bring one more super-cycle in oil prices.
From Bloomberg:
Forget Doha, Oil Demand Could Create Another Super-Cycle by 2030
http://www.bloomberg.com/news/articles/2016-04-18/forget-doha-oil-demand-could-create-another-super-cycle-by-2030
Emerging market economies will increase global oil demand about 1.4 percent a year through 2020, stronger than the past decade, Bernstein analysts said in a research note e-mailed today. Demand will peak between 2030 and 2035, creating a window for one final spike in prices before the fossil fuel begins its inexorable slide to irrelevance amid greater fuel efficiency and more electric vehicles.
“We still believe that there could be one more super-cycle in oil before demand peaks in 2030-35,” Bernstein said in its note. “Assuming tight oil peaks out before demand does, it could result in another period of supply tightness as OPEC becomes a dominant force in supply, just as it did in the 1970s.”
The world is well supplied with oil, which will keep the average price between $60 and $70 a barrel through the end of the decade, Bernstein said. The relatively low prices will lead to more use, with demand growth from 2016-2020 expected to be the highest since 2001-2005.
Emerging economies will spur global oil demand growth from 94.6 million barrels a day last year to 100 million by 2020 and 108 million between 2030 and 2035. In developed countries, crude demand is beginning to shrink amid improvements in energy efficiency and as consumers switch to alternative fuels, outweighing expanding populations and economic growth.
If U.S. shale oil production peaks before demand does, the world will have to go back to higher cost oil production, such as deepwater and Canadian oil sands, necessitating higher prices to justify investment. In previous super-cycles in the 1970s and 2000s, inflation-adjusted oil prices rose about tenfold, Bernstein said.
In the long run, oil demand will peter out to about 20 million barrels a day by 2100 as the world becomes more energy efficient and switches to lower-carbon energy sources. As that happens, the intensity of oil decreases and economic growth no longer creates crude demand growth.
Emerging countries will go directly to renewable energy and skip fossil fuels. This is already happening. Either there will not be another supercycle, or it will be much faster this time. The total end of coal happens in the 2030s as does the total end of oil for ground transportation. Peak oil probably has already happened, but will certainly have happened before 2020.
Old Farmer
Yes, there is always the wild card, which I consider a self-limiting case. But here is what Cambridge experts think:
“However, investing in low carbon transport and greater efficiency would dramatically cut down such prices. In such a scenario, global oil demand would be cut by around 11 mbpd in 2030, 33 mbpd in 2040 and by 60 mbpd in 2050.
These savings are already starting to happen, the analysis finds. Vehicle efficiency standards implemented globally between 2000 and 2015 have already prevented the consumption of around 5 billion barrels of oil.
But the ‘tipping point’ in this scenario would be 2025, when policies for increasing the adoption of electric vehicles while reducing fuel consumption in the aviation and maritime transport sector would lead to a steady, irreversible decline of oil demand.
Such policies could cut oil demand by 260 billion barrels between 2015 and 2050, the report states, leading to prices that will vary from US$87-83 per barrel from 2030 to 2050.”
Investing in low carbon mobility would save $330 billion a year
http://www.theclimategroup.org/what-we-do/news-and-blogs/investing-on-low-carbon-mobility-would-save-330-billion-a-year-new-report/
The Cambridge analysis is reasonable and fits tolerably well with the modelling I’ve done to predict what year things will happen. But they still seem awfully pessimistic about the rate of demand destruction. I think it will happen faster.
@GoneFishing-
The 2016 Ford F-150 gets “Up to 19 city / 26 highway”. So, is the reverse true? Does “just manufacturing” low mpg cars/trucks increase demand?
I am perfectly willing to believe that the world would LIKE to consume another one point four percent of oil annually for the next few years, and even more after that.
But given that no new supergiants have been found, and that the oil that IS being found is mostly in ever smaller fields that are ever more expensive to produce, everything else held equal, why should we believe there will be MORE instead of less oil available at sixty to seventy dollars a barrel?
The oil in the fields that are producing today is oil that is basically free, except for the day to day operating costs involved in extracting it, because the INVESTMENT in those fields is now a SUNK investment. It cannot be recovered.
Do the hands on people here believe that enough NEW production can be brought online to offset depletion in legacy fields, AS WELL as ENOUGH MORE to actually increase overall production for a decade or two, at sixty to seventy bucks ?
“If the kingdom chose to increase investment in its oil industry, total production capacity could be increased to 20 million barrels a day, the prince said at King Salman’s private farm in Diriyah, the original home of the Al Saud royal family.”
Ask and you shall receive. That quote is from the Bloomberg article I linked to earlier.
Given a finite resource, higher rates of production increases the rate of depletion. So the kingdom will either become solar farmers or camel herders that much sooner.
The biggest waste of the Saudi’s is in all that expensive above-ground infrastructure. They should have been building underground. Much more energy efficient and gives them a place to hide and work when the really hot days come along.
Greenbub,
Of course, low mpg vehicles use more fuel per mile therefor put a greater demand for gasoline than high mpg vehicles. Just imagine if all the cars and trucks got mpg as they had in 1960, demand would exceed supply by a wide margin, but not for long.
Licensed drivers in the US have been increasing by about 1 percent per year. If we halve the mpg of vehicles in the next ten years, there would only be about 10 percent more drivers and the vehicles would use 50 % less fuel. That is demand destruction. BTW, it’s already in progress.
There may be even more demand destruction, since the demographics show that there are less licensed drivers in their 20′ s and 30’s than in their 40’s and 50’s, by about 10 percent. Driving demand is decreasing with time.
There was also a driver increase in the past as proportionately more women became licensed drivers. That surge is over in the US.
I surveyed a number of people and asked them if they cared if their vehicles ran on electric or on gasoline. Most said they didn’t care as long as they could get where they wanted to go. So there is little resistance to changing. As soon as price point levels out, the change will occur quickly.
What will we do with all those service stations (really only fuel stations now, not much service at them)?
The fuel stations are toxic waste sites because of the underground fuel tanks. They’ll have to be cleaned up Superfund style… it’ll take a long time. After they’re clearned up we’ll probably build on the urban ones and the rural ones will revert to wilderness.
GoneFishing,
There is demand destruction, yet for gasoline I guess it will take some years. However, the use of residual fuel oil (RFO) declined over the last ten years from ten mill barrels per day to just seven mill barrels per day today. And the annual decine stands now by half a mill barrels per day and year.
In my opinion, the strongest force, holding the oil price down is already built capacity which comes online over the next years. Kashagan, which has been hailed as the biggest oil field coming online within the last year, is supposed to start production this year with 0.3 mill barrels per day and 1.5 mill barrels until 2020.
Also the Saudis will produce whatever it takes and whatever they have to keep the oil price below USD 50 per barrel. Simply to increase and keep its market share.
However, when the pipeline of already developed projects drys up, oil prices will rise.
Demand destruction for fuel oil, gasoline, and diesel is quite predictable at this point and will happen like clockwork.
What I can’t predict is demand destruction rates for natgas. It’s much less obvious what’s going on there.
Poor GS. No Mention of Specific Sectors. hmmm ? Any guess what % the Suadi’s own?
https://www.yahoo.com/news/goldman-sachs-profit-slumps-fourth-straight-quarter-114645813–sector.html?ref=gs
I like thirty dollar oil much better than 120 dollar oil. 120 dollar oil causes more problems than worth the money.
If thirty dollar oil gets the kids off of the street, then I guess that is what it will do and probably supposed to do.
Now it’s forty-one dollar oil and it is providing some relief, but not much.
Inexpensive gas is better than expensive gas, expensive gas involves lots of theft and bodes for more turmoil. Too much inexpensive gas is not enough, not enough expensive gas is too much.
Once upon a time, two dollar oil was a good price and eight dollar oil was the price in outer space.
Just going to have to bite the bullet and get by with less. Kind of a double-edged sword, no good deed will go unpunished.
I’ll have to just buy one case of beer a day instead of three and learn how to make pizza. har
How long will it take to shut 12,000 wells in the Williston Basin?
Might as well keep them pumping, the cost to stop pumping is prohibitive.
Flat out lies, the sort of thing that RW can write about better than I can. He has a keen sense of the absurd, and a way with words when it comes to bullshit.
“The analysis showed that oil cane with 20 percent oil in the stem, grown on under-utilized acres in the southeastern United States, could replace more than two-thirds of the country’s use of diesel and jet fuel. This represents a much greater proportion than could be supplied by soybean, even if the entire crop went to biodiesel production. Furthermore, oil cane could achieve this level of productivity on a fraction of the land area that would be needed for crops like soybean and canola, and it could do so on land considered unusable for food crop production.”
This is about work done by a major agricultural university. I don’t know what the limits are to genetic engineering of sugar cane, nor does anybody else, until they hit them and bounce off , repeatedly, lol, but I do know THIS.
There is NO significant acreage of agricultural land in the southeastern USA that is NOT SUITABLE FOR FOOD PRODUCTION. If it will grow sugar cane, it will grow grass, which feeds cows, etc, at the very least.
Yes, all lies. They’re good lies though, so they count more than the truth, which is too much to bear. If the truth be told, I’ll take 120 dollar oil, it’ll help a lot. However, I’ll lie, it makes more sense right now.
The lies formed a perfect turd blossom, you have to give credit for that.
Interesting article about how to measure future production through the consumption of proppant:
http://oilpro.com/gallery/825/11189/williston-proppant-trends
The use of proppant is down by 65% from last year and is significantly down from 2013. It looks like the industry is now aggressively serious about a cut in production, which can bring prices up much earlier. The fight for market share is much more expensive for the shale industry than for Saudi Arabia and Russia who could live for decades at a price of USD 20 +/- 10 per barrel and can still make healthy profits at a price of USD 40 +/- 10 per barrel.
It is much better for the shale industry to keep the barrels in the ground and wait until prices are high enough. The shale industry simply lacks economies of scale. Shale wells are 10 times smaller than the average wells in Russia and 100 times smaller than the wells in Saudi Arabia. It is questionable more than ever that shale becomes ever cost competitive at low prices. Shale is more a backstop to prevent an escalation of oil prices.
ND rig count could be as low as 24. 28. One to stack, one on location since 1/16 and two HRC reappear on location since 2/16?
Continental Resources still have 4 rigs operating and Hess 3, I recall their plans for 2016 was each to have only 2, the same for Whiting who have mow reduced to that number. Oasis, QEP and SM Energy have another 5 total, and each has been identified in the past as a bankruptcy risk.
Russia and Saudi Arabia is in big trouble with these prices – they need more from oil than just getting the costs + a small profit.
Russia has a shrinking economy because of this, SA is burning money fast, Iran is already in tatters from the boycott – but it’s a chicken game, everyone hopes the other moves first.
On the other hand, 20 or 40$ oil is not sustainaible at all. Only if you need only 50-60 million barres / day. Nobody will create new deep see projects, milk old holes with newer technique or develop small fields in new regions. Only infill drilling in 50 year old fields is profitable at this level.
And lot of company or states won’t invest anything into their fields now – because they need the money for the army, for state affairs, for debt, for dividends. This comes first, not the investment into fields that pay off only in a couple of years.
I think we are in a big pork cycle here – near the bottom. Lets see how high prices can get if the prices stays at 20-40$ for a couple more years.
Eulenspiegel,
Russia has devalued the ruble and oil prices are not much lower than five years ago. The costs are also in ruble for the Russian oil industry. Russia can still afford a lot of military spending and the currency reserves are still growing (up 25% from last year):
http://ticdata.treasury.gov/Publish/mfh.txt.
Saudi Arabia has still plenty of currency reserves, as much as other oil exporters (see link above).
It is probably not the best time in Saudi Arabia and Russia, but it is far from an emergency.
This is now a very important outcome of Federal debt expansion over the last ten years. Emerging countries including oil exporters and China are today in an excellent financial condition and it is not possible anymore to trigger a second Asian crisis or bring the oil exporters that easily to its knees.
As an example, China had nearly a currency crisis over the summer 2015, yet China sold 250 bn US Treasuries out of their pockets from presumably its Belgian account and China still sits on more than USD 1200 bn official foreign reserves in USD (including other foreign reserves Chinese reserves are still more than 3000 bn USD). Through its own debt policy, the FED has lost leverage over other countries.
Heinrich,
I agree with your assessment of Russia. They aren’t really comparable to Saudi Arabia for a lot of reasons.
I also understand your assertion that Saudi Arabia is in ok shape because they still have a lot of foreign reserves. They are not even close to being broke today. However, I think that’s not a good way of viewing the total picture. I see Saudi Arabia as a wealthy person who has an incurable disease — the money is nice, but doesn’t solve the problem. They are becoming even more repressive than ever, engaging in expensive wars, cutting back on the social programs that have kept their population quiet, and they are burning through foreign reserves.
I’ll let the facts speak for themselves.
Executions in 2015 were up four times the level of 2010
Their wars in Yemen and Syria are a continuing drain on the economy
30% youth unemployment rate – Two-thirds of Saudi population is under age 30.
Currently ran a record $98 billion budget deficit in 2015
Government net debt in Riyadh will rise to 44 percent of GDP by 2020
Their population continues to grow by about 2% per year!
“The House of Saud has long kept the populace in line by spreading out oil riches, what the scholar Toby Craig Jones calls “the very social contract that informally binds ruler and ruled.” Now, a population of which a large majority is under 30 will be the first in memory to face economic privation.”
The kingdom is taking no chances. It has initiated a new security law that lists “disrupting public order,” “risking national unity” and “harming the reputation” of the royal family as terrorist acts.
http://www.bloombergview.com/articles/2016-01-07/saudi-arabia-has-bigger-problems-than-iran
According to the IMF, Saudi Arabia’s fiscal breakeven — the price per barrel of oil that it needs to balance its budget — was about $106 in 2014, and it is estimated to remain at about that level for this year as well.
http://www.cnbc.com/2015/12/03/biggest-cash-issue-for-saudi-arabia-goes-beyond-oil.html
Saudi Arabia is raising $10bn from a consortium of global banks as the kingdom embarks on its first international debt issuance in 25 years to counter dwindling oil revenues and reserves.
http://www.cnbc.com/2016/04/19/saudi-arabia-takes-out-10bn-in-bank-loans.html
Silicon Valley Observer,
There are many issues in Saudi Arabia,yet there are 100 mill or one third of Americans ‘not in the labor force’ and not counted as jobless, The US has a current account deficit of over 500 bn USD, which means for the current account deficit alone the US has to take on new debt by 500 bn USD each year; Europe has in big parts 30-50% youth unemployment, there are also 6 mill Germans – or 7% of the population – in Hartz IV – and not counted as jobless. Japan has the same issues.
The point here is that some issues in a country do not matter – at least financially. As long as Asian countries have investment demand in US Treasuries through their account surpluses, the US can afford 100 mill jobless and a current account north of USD 500 bn per year. No other country could afford to live like the US without going bankrupt immediately. But the US can do it thanks to it special status of issuing a reserve currency.
So, as long as Saudi Arabia gets some 30 dollars per barrel net, it can survive some bad months without going under. Saudi Arabia survived an oil price of USD 10 per barrel for a while, why should they not survive USD 40 per barrel for a while? In my view Saud Arabia can survive a struggle for market share. And the actions show it: Saudi just bought a refinery in the US…..
However, time will tell and we will see over the next months how this turns out.
I’m not sure I get your point. If you are saying that the current health of the American economy is evidence that certain things don’t matter, I find that unconvincing. The American economy is cratering which explains the rise of Donald Trump. OFM can attest to what life is like outside the major metro areas, and even in those areas there are real problems.
But the U.S. is not Saudi Arabia — we have several great aces in the hole. One is our relative stability. That is what props up the dollar around the world and that is what has kept us afloat for the last eight years. I see it every day here in Silicon Valley — moneyed people from around the world want to get their whatever currency into dollars, usually in the form of real estate.
Other aces up our sleeves include an educated populace, and incredibly productive agricultural sector, and military muscle. Saudi has none of these things.
But I don’t think we will see how this plays out over the next months. It will take years — but to me one thing is clear for KSA: the good days are past.
https://www.youtube.com/watch?v=sxLtXJzo3Ew
Trump campaign song.. Anyways Merle is gone..
HL – 100 million jobless in the US. You must not be from the US. That would count everybody over 18 and under 65 not in the workforce as jobless.
So – everybody in college. All the wives with children that “choose” not to work. For example, Donald Trump’s wife. All the “totally” disabled with “social anxiety” etc., problems. All of the stay at home dads that “choose” not to work because their wife has a great job. All of the spouses of professional athletes who make more than $1 million/yr. And on and on. There are probably 5 million between jobs – such as they moved from the state of Washington to Florida – 3500 miles in the US.
About 15-20 million are happy working off the books. So, the real number of people in the US that really really want to work and cannot find a job – maybe 12 million. And, even then, a lot of those will not move to a location that has a job. For example; the coal mine shut down in 1946 and I am not moving until it reopens.
U-6 unemployement rate is about 11%, which would be about 36 Million unemployed in the US. A lot of full time workers have been forced into part-time jobs or are forced to switch from skilled labor to unskilled labor (ie Bars, resturants, retail). Going from a $40-$20/hr job to a $10-$7/hr job isn’t going to help.
Retail sales are declining, I would suspect that layoffs in retail will begin to pick up.
http://www.tradingeconomics.com/united-states/retail-sales
About 35% of the US population ~100M are on some form of wealthfare. so HL is probably not that far off. Even if these people are retired or disabled, they still aren’t contributing to the economy. They are an economic drag, since capital is being diverted to support them instead of being used more productivity in the economy.
http://www.statisticbrain.com/welfare-statistics/
The key thing about peak oil is that *volume* of oil *demanded* is going to drop. There’s no way around it. So we will get down to 50 million barrels/day. Question is when.
A couple of the local railroads are hurting because fracking sand and other fracking material transport has essentially dried up in this part of the Marcellus. One even shut down for a while but found some other business so started up again.
A few transfer stations were built in the area just for Marcellus drilling materials, they are mostly idle now.
The 4fold collapse in 2016 should be interesting with regards to future production
daniel,
There is a huge jump in natgas this week. In my view this has to do with the much reduced activity in the Marcellus region. Oil, gas , metals should get a massive boost from the substantial reduction of oil and gas production in the US.
The US EIA weekly production survey shows that oil production went down 24k bd/d, yet other supply (NGL and ethanol fuel) is down 100 kb/d. Last week had similar numbers – so in just two weeks 250.000 b/d liquids came out of the market. So, these are truly big numbers. I am not sure if this is sustainable as this would mean 2.5 mill b/d hydrocarbon liquids coming out over the next 20 weeks.
Something starts moving now. Reflation is here again.
I agree. It really looks like the decline is picking up serious momentum.
Heinrich,
The few drops of rain, they had down Houston way, may also had something to do with the price rise as well?
Domestic oil has gained about ten dollars per barrel since mid-February.
http://crudeoilpostings.semgroupcorp.com/
http://finance.yahoo.com/q?s=RRMS
This is a good US company, if you have money to invest. They have a lot on the ball, they’re busting out at the seams, so to speak.
http://www.semgroupcorp.com/BusinessUnits/RoseRock.aspx
No, I don’t own any, just on the watch list. Good to know what’s out there.
Maybe this whole oil move is just dollar weakness? Grain has moved higher, more good news for us “flyover folks.”
This article at RESILIENCE is well worth reading for insight into the future market for oil and gas.
It’s mostly a summary of the latest BP outlook. It is WELL written.
http://www.resilience.org/stories/2016-04-19/british-petroleum-2016-energy-outlook-reasonable-base-case-assessment
Let’s all remember what Yogi sez about predictin’. lol.
The article may be well written, but how reasonable are BP’s forecasts?
Ask Ron, Dennis, shallow sand, Mike, Rune, Enno and others if they believe that US LTO output may peak at 8 mb/d (base case) and even 16 mb/d (high-growth case).
What are BP’s assumptions as regards tight oil recoverable reserves, well EUR by key play, costs, company financials?
Hi Alex,
I agree.
That’s WHY I wrote “read it for insight” and “remember what Yogi sez”, lol.
A war of words:
In riposte to Riyadh, Russia says ready to ramp up oil output
Apr 20, 2016
http://www.reuters.com/article/us-opec-russia-idUSKCN0XH1ST
Russia said on Wednesday it was prepared to push oil production to new historic highs, just days after a global deal to freeze output levels collapsed and Saudi Arabia threatened to flood markets with more crude.
The deal had been meant to help the market rebalance by removing a large chunk of oversupply and a stockpile glut.
But Saudi Arabia said it could jack up output instead – by as much as 2 million barrels per day (bpd) to over 12 million, which would allow it to overtake Russia as the world’s largest producer.
“They (Saudis) have the ability to raise output significantly. But so do we,” Russian Energy Minister Alexander Novak told journalists on the sidelines of an international energy conference in Moscow.
He said Russia was “in theory” able to raise production to 12 or even 13 million bpd from current record levels of close to 11 million bpd.
Russian oil output has repeatedly surprised on the upside over the past decade, rising from as low as 6 million bpd at the turn of the millennium. Oil experts have repeatedly predicted an unavoidable decline but it has yet to happen.
I’ll believe it when I see it.
“Oil experts have repeatedly predicted an unavoidable decline but it has yet to happen.”
This is a “WHEN” question, rather than an “if” question.
Let’s hope and pray to the Sky Daddy or Sky Mommy of our choice that the supply of oil holds up well enough, long enough, for the renewables and electric car industries to grow up.
Otherwise, we are headed for some incredibly rough times.
We need for oil to be just like Goldilock’s porridge, not to hot, not too cold, not too plentiful and cheap, not too scarce and expensive, for at least another couple of decades.
>> We need for oil to be just like Goldilocks’ porridge, not too hot, not too cold, not too plentiful and cheap, not too scarce and expensive, for at least another couple of decades. <<
Agreed. I'm seriously contemplating my first electric car, a brand new Renault Zoe. Monthly costs (including replacement) would be broadly similar to my ageing Audi A4 TDI quattro…
The solar industry is crossing “grid parity” as we speak (grid parity is at different prices in different places), and continues exponential growth according to Swanson’s Law.
The electric car industry is growing as fast as Tesla can build factories, and other carmakers are finally starting to do the same. (Including several huge ones in China which we never hear about here, for example.) Electric buses and motorcycles are more quietly traversing the same growth curve.
Batteries for stationary storage of power overnight are moving on a slower curve but it’s being accelerated by the electric car demand. They’re “good enough” anyway, and most power isn’t used overnight in any case.
Wind is already the cheapest form of electricity generation and tends to produce more at night,which helps too.
Oil’s only major ‘unavoidable’ use at the moment is airplanes. Yes, there’s plastics and lubricants and chemicals, but the volume for that is insignificant and weirdly most of them have major research into biological feedstocks (maybe because biostocks give purer feedstock, less of a chemical sludge).
It’s actually natgas I’m worried about, not oil. Natgas is heavily used for heating, cooking, and industrial feedstock (where it largely replaced oil because oil is *so* much more expensive). It can be replaced for heating with electrically powered heat pumps, but heating system replacement tends to be slow. Cooking usage is insignificant. But what about the industrial feedstock?
I am sorry to say I don’t know what is in it, but a bill involving energy has just been passed.
http://www.naturalgasintel.com/articles/106121-senate-passes-long-awaited-omnibus-energy-policy-bill
Most likely one of the other regulars can summarize it for the rest of us.
I heard that the bill had things attached to it (non-energy) that Obama said he would veto. Just more con games in the congress.