Bakken, What Is The Data Telling Us?

North Dakota publishes, every month, a Monthly Statistical Update from which we can gather a wealth of data if we dig deep enough. They publish the number of spuds, that in new wells started, each month, along with the average number of rigs that month. From this we can glean the average number of days each rigs spends on each well.

Spuds per Rig

The last data point is March, 2015. Through 2011 a rig could drill about .75 wells per month, or about 40 days spud to spud. Today that figure is about 1.14 wells per month or about 26.3 days spud to spud.

Permits & Spuds

Again, the data is through March. We can see the falloff of spuds, rigs and permits in February and March. April and May should show a further decline in all three.

Just how many new wells per month does it take to hold production flat in the Bakken and Eagle Ford? We don’t have much data from Eagle Ford but we do have a lot of data from North Dakota.

Wells per Day

Different days in each month can give a wrong impression, especially in February. So I have changed the data to wells per day to clarify things. I think we can clearly see that it takes a lot more wells per day, or month, to keep production flat than many believe.

Bakken Wells per Day

In October and November 2014 they averaged about 6 wells per day or 180 wells per month and held production basically flat. In December the average was almost 6.9 wells per day and production jumped by 39,000 bpd. Then in January wells per day dropped to 4.9, or by almost 2 wells per day, and production fell by over 36,000 bpd. In the average month, 30.417 days, that comes to 149 wells per month! In February things improved to 5.71 wells per day. That comes to almost 174 wells per 30.417 day month. Yet production still fell by over 14,000 barrels per day.

Tough one cannot directly convert the number of new wells to an increase of decrease in barrels per day, I think it obvious, from the chart above, that there is a general correlation between new wells and change in the production numbers.

Of course all wells are not the same. And production per new well sometimes varies greatly from month to month as in December 2013 an January 2014. But if production per well stays close to what the average has been in the last 5 months, then it will take 160 to 180 new wells per month to stay even.

However, there is some evidence that only the very best wells are now being fracked from the pool of over 800 drilled but unfracked wells in North Dakota. So under those circumstances I would expect the number of new wells to keep production flat to be somewhat lower, perhaps in the neighborhood of 140 or so.

North Dakota publishes a lot of information but if you dig deep enough you can also get some data out of Texas.

Here are some of the March stats according to the Texas RRC

     The Railroad Commission of Texas issued a total of 923 original drilling permits in March 2015 compared to 1,894 in March 2014.
     In March 2015, operators reported 1,547 oil, 305 gas, 109 injection and nine other completions compared to 2,965 oil, 272 gas, 131 injection and 13 other completions in March 2014.
     Total well completions for 2015 year to date are 5,946 down from 10,130 recorded during the same period in 2014.
     Operators reported 551 holes plugged and zero dry holes in March 2015 compared to 743 holes plugged and zero dry holes in March 2014.So in March Texas permits are down by more than 50% and well completions down by almost half.
Petroleum Supply Monthly
The EIA Petroleum Supply Monthly, which I consider the most accurate of all the EIA’s different reports of the same data, has production basically flat since December. However the EIA’s Monthly Energy Review has US crude production taking a drop in January but up over 200,000 barrels per day in the next two months.
EIA Weekly

WTI Price Chart

Between the two heavy lines in the chart above, that’s the range where oil companies used to make piles of money when oil traded in that range. Now some companies go bust at twice that price.

For many decades, and well into this century, it was very profitable to produce oil at well below $40 a barrel in 2015 dollars. Then early in this century we reached peak conventional crude oil. To supply the world with enough oil, the price had to rise, and it did. But that raised havoc with many world economies. The price crashed along with a lot of economies in 2008. Then it recovered but crashed again in 2015.

* The 2015 price in the chart above is the average through April 24th.

Perhaps 15% or more of the world’s oil production is uneconomical at today’s prices. That is tight oil, tar sands oil and deep water oil. The price will have to rise again or production will fall. But if prices rise again then many fragile economies will likely collapse. We live in interesting times.

And a word from James Kenneth Galbraith courtesy of Art Berman

The world oil market is undergoing a fundamental structural change in response to expensive oil. Producers are trying to survive by limiting expenditures. While analysts have been focused on rig counts, deferred completions have emerged as the initial path to lower U.S. oil production. This unanticipated outcome suggests that others may follow. While everyone is waiting for higher oil prices and for things to return to normal, what we may be witnessing is the end of normal.

__________________________________________________

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367 Responses to Bakken, What Is The Data Telling Us?

  1. Old farmer mac says:

    We live in interesting times sure enough!

    Maybe some of the hands on guys know how much it costs to keep a rig running.

    It can be very profitable to run a truck two or three shifts at a considerably lower hourly rate than is needed to justify hiring it out for forty hours a week because you can recover the initial cost of the truck much sooner and the value of the money is the greater the quicker you put your hands on it. Some costs fall too. Insurance may be a fixed cost. Property taxes and permits are generally fixed costs.

    But the truck wears out two or three times as fast on double or triple shifts.

    So – here are some layman’s questions for the pros. How many hours a month is a typical new drilling rig actually in operation or being moved? I presume such expensive equipment is routinely operated at least two shifts per day. When I worked a big highway job many years ago we ran the equipment two ten hour shifts with the two two hour breaks used to do the maintenance work such as greasing , changing oil , minor repairs etc.

    How long does a rig typically last before it starts breaking down frequently meaning lost production time?

    Ordinary construction machinery such as front loaders and bulldozers are auctioned off by the big companies than can justify owning new ones and used by smaller companies that find it easier to deal with frequent repairs than the capital expense of newer equipment.

    Old dozers and loaders are very often gone over in a shop that repairs any obvious problems and slaps on a new coat of paint- and then sold overseas where labor is often much cheaper than it is here.

    What happens to drilling rigs when they get to be approaching retirement age ?

    If the operators are running rigs two or three shifts already then there is very very little room for more improvement in rig productivity unless a brand new one can outwork last years model.

    How many men does it take to operate and maintain a new rig? How does this number compare to a a rig built five or ten years ago?

    • toolpush says:

      OFM,

      I will have a go at a few of your questions, but just remember I work on offshore international rigs, and some of your US land base rigs do work slightly differently.

      1/ Most rigs work 2 shifts, but they are 12 hour each. Drilling a well especially a deep one is a 24/7 operations. Drilling a well and running casing is a time dependent operation. Invert muds have improved things greatly, but nobody wants to leave open hole uncased, especially in shales any longer than what is absolutely necessary as hole problems may develop.

      2/Cost of running a rig. I can’t answer for US land rigs as I work in a totally different environment, but there is one cost for everyone being comfortable, and other numbers once labour cost is cut, fuel naturally has come down, but maintenance can be shifted. Equipment can be run while in hours, and pulled from service once the large overhaul cost become current.

      3/Maintenance revolve around preventative maintenance, and the records of such is amongst the first items asked for by the oil company when bidding for a contract. Most maintenance programs run on a five year cycle. starting with small services and each more and more work is required to be done, but mainly on the inspection side of things rather than rebuilds. The big one, is the 5 yearly where all the equipment requires major overhauls, and usually by 3rd party contractors or OEMs.
      The point being here is, you can run the rig for 5 years on minimum maintenance cost, but to drill into years 6, big money and one to 2 months of downtime is required to continue drilling. If rig rates are too low, nobody does the 5 year service.
      Main engines work on a hours running cycle. The older engines Cat 399 etc, require top and bottom end rebuild every 24.000 hrs, while the newer engines can be up to 40,000 hrs for the same treatment.
      4/ Offshore rigs run with a crew of 100-120 bodies onboard. Some of the double derrick deep water drill ships have up to 200 beds. Land rigs will be significantly less than that, due to less equipment, and the availability to call in extra labour at short notice locally. I have never seen crew numbers go down. As new automated equipment has come on line, more maintenance crew are required. Back in the day, when nothing was allowed on the rig floor unless is could be “fixed with a sledge hammer”, you required, 1 mech, and 1 elec per rig. These days, we are up to 1 mech, 1 elec, and 1 ET, per shift, and 1 supervisor to run the preventative maintenance program. The days of service hands working 24 hr shifts when things are not going well are gone. extra hands are now required onboard to cover the work load.

      5/ When prices are high, old rigs hang around waiting for that contract that will make it viable for them to go to work. Once the prices drop, as like now, a lot of these old rigs go on their finial voyage. Heavy equipment maybe salvaged and sold around the second hand market, but the paper work needs to be attached, or nobody will pay more than scrape metal price.

      6/Old rig hands, either get laid off and they find other work and never return to the oilfield, but for those that hang in until the end of their career, have hopefully saved enough for their retirement before hanging up their boots.

      I hope that cover all your questions, if you need anything else let me know.

      • coffeeguyzz says:

        Push,
        Good info. Thanks

        • Old farmer mac says:

          Thank you Toolpush,

          I still laugh every time I remember your telling about growing up to be just like the first hard driving supervisor you worked for.

          ”Around here the only thing we take off for lunch is one glove.”

          So one more question for somebody who works on a Fracking crew.

          How big is a typical tracking crew and how many of the people on it must be specifically skilled in Fracking operations?

          A truck driver is a truck driver. But a guy who can rig up and run the giant pump on the back of a Fracking truck is a bird of a different color.

          IF he makes a mistake the whole job might come to a very expensive halt a very bad moment.

          I am guessing that it takes only five or six hands and eyeballs supervisory people that really understand what is going on to actually RUN a Fracking job and that everybody else most likely brings the skills he needs with him to his first Fracking job- or else that he can learn them in a few months at the most.

      • Pretty good summary. The only thing I would add is the critical importance of having enough beds for the waiters, the hair stylist, and the guy who runs the karaoke lounge.

        • toolpush says:

          Fernando,

          I must admit, we have been eating rather well for the last couple of years. The manager had made the point, he didn’t want to hear complaints about the food, and the catering company had the budget to make sure there were no complaints.
          There is certainly some fat that can be cut in that that department. It was just a shame the requisitions for the dancing girls were never filled. smiles.

      • toolpush says:

        OFM,

        Here some good numbers for fuel usage, I know you will be interested in for drilling and fraccing on US land rigs. I found these PPTs while looking for articles on Nat Gas use for drilling, so there is also good information on Nat Gas substitution for drilling and fraccing as well.

        http://anga.us/exploration-production/_pdf/Natural_Gas_for_EP.pdf
        http://www.rrc.state.tx.us/media/5973/apache-corporation-mark-bruchman.pdf

        ECONOMIC DRIVER – WHAT YOU CAN EXPECT TO SAVE TODAY!
        DRILLING
        Basis:
        • Blended Fuel at 50% Diesel Substitution
        • 1,900 gpd – Average Diesel Consumption per Rig
        • $1/DGE Savings Using Natural Gas Delivered as LNG or CNG
        • All-in Cost Including Equipment Rental & Mob/Demob Charges
        • After Market Kit Conversion
        Projected Cost Savings/Rig/Yr $345,000
        Payout for Conversion 4 – 5 months
        FRACTURING
        Basis:
        • Blended Fuel at 50% Diesel Substitution
        • 30,000 gal – Average Diesel Consumption per Frac
        • $1/DGE Savings Using Natural Gas Delivered as LNG or CNG
        • All-in Cost Including Equipment Rental & Mob/Demob Charges
        • After Market Kit Conversion
        Cost Savings/Frac $15,000
        Projected Cost Savings/Frac Spread/Yr $1,000,000
        Payout for Conversion 6 months

        So drilling @ 1900gpd =45 bpd x 28.5 days= 1280 bbls
        Fraccing 30,000g per well=714b/well

        SO for nice round figures, we can say each well is 2000bbl
        I hope this helps with your understanding.

        On a side note, I find it hard to see the EROEI of 6:1 that is often quoted for shale wells. When you consider the high percentage of shale wells actually produce oil, unlike conventional exploration drilling, it just doesn’t seem to jell for me.
        Apparently it takes 2 bbl of oil per ton of steel, a quick calc for the tubulars used in the well is around 386 ton or 772 bbl. Call it 1000 barrels to take in account other steel unaccounted for, then we have 3000 bbls for the majority of the direct inputs for a well.
        Those indirect energy inputs must really be massive to get near the 100,000 barrel mark?
        http://www.steel.org/~/media/Files/AISI/Public%20Policy/saving_one_barrel_oil_per_ton.pdf

        • coffeeguyzz says:

          Push,
          Once again, thanks for taking the time and posting that very interesting data.
          The movement to power equipment by natgas is picking up speed everywhere. In the Marcellus area, it’s almost a no brainer. In the Bakken, it will help the operators significantly with their mandated flaring reduction regs. Even the truckers up north are prone to be receptive to natgas fuel as it becomes more accessible, not only for price, but for reliable starts in cold weather. (The formulation change in diesel composition a few years back has been cited as a major reason for ‘hard starting’ of engines in sub freezing weather in recent years).

          • toolpush says:

            Coffee,

            It will be interesting to watch the take up in Nat gas in the oilfield. I would suspect the rigs that have already converted would have a major advantage over the straight diesel rig in this slow drilling environment, even though the price gap between gas and diesel has narrowed, especially in the areas like the Bakken, due to reduced flaring.

            As for starting diesel engines in winter. Is a winter blend of diesel available in the US? Winter diesel is basically kerosene. We used it in Sakhalin, but had to ship it in drums, instead of pumping it in bulk. So only small quantities and expensive to ship. Otherwise I though a fuel tank/line heater would be suitable?

            • coffeeguyzz says:

              Push,
              I don’t know the particulars regarding diesel make-up, but I’ve heard of a lot of bitching about engine starting problems in very cold weather after some formulation change took effect about half dozen years ago … emissions related change, I believe.
              The natgas boys are jumping all over that aspect as an additional selling point.

              • We did some work on a diesel substitute about 20-25 years ago: dimethyl ether. It has excellent cold start capabilities, but we had problems with valve lubrication. I hear it’s back on the scene. But at today’s prices it’s not likely to be competitive.

                • Old farmer mac says:

                  It can potentially ruin a very expensive engine, but if the starter motor is capable of turning it over a whiff of starting fluid, referred to as ”ether ” by most mechanics will fire up a diesel easily even at twenty below F. Ether is like whiskey, great stuff if used in moderation and good judgement.

                  The biggest problems I have heard about down this far south have had to do not with starting an engine but keeping it running because diesel will actually jell in the fuel lines if the weather is cold enough. The lines and fuel tanks on some trucks are heated using waste engine heat but that only works if the need is anticipated when fitting out the truck before sale or by rerouting and insulating the fuel lines.

                  How cold does it have to get to force the shut down of a land drilling rig?

                  How cold to shut down a water rig? I know a ship can get iced up in a hurry in a high wind at temperatures not much below freezing .

                  I know that at forty or fifty below a man properly dressed can work outside , at least to some extent, machinery starts giving real problems. Truck springs and axles break and lubricants gum up to the point that gears may have dry spots and thus fail in a few minutes or hours.

                  • toolpush says:

                    OFM,

                    Just a few points,
                    1/ I would say ether is more like heroine, the engine gets addicted to it very quickly. the large drilling engines will be in work sheds in cold climates, an most likely day tanks in these heated areas.
                    2/as for trucks, I would have thought an electric heated flow line would do the trick. It would only need to come on a minute or two before starting. The heat from the engine can take over from there.
                    I believe -30 deg C diesel has troubles.

                  • coffeeguyzz says:

                    Push,
                    -30 Celsius being about -22 Fahrenheit, North Dakota experiences that frequently overnight, especially these past couple of winters.

  2. Dennis Coyne says:

    Hi Ron,

    Using your data for wells per day vs change in monthly output and plotting a line through the last 12 months of data shows about 161 new wells per month are needed to keep production flat. The average well profile in my model must be too high or the new well EUR may have started to decrease. One thing that this type of analysis misses is that what I see in the model is that there is an initial dip in output as the number of new wells decreases and then legacy decline decreases (due to fewer new wells) and output recovers somewhat over the next 6 or 7 months. Note that my estimate is very similar to Rune Likvern, Enno Peters and the NDIC. Rune mentioned that his model shows that 140 new wells are needed intitially and then 110 wells at a later point in time.

    For my model, I get something similar if I try to keep output flat while varying the number of new wells added each month. I start with 140 wells/month in March, to 130 by August 2015 and to 121 wells by August 2016. Note that my model assumes new well EUR starts to decrease in June 2016 and will reach a maximum of 10%/year by June 2016, Mr. Likvern does not speculate in this manner as we do not know when an EUR decrease will begin, nor how fast it will be, we will have to wait for future data to know.

    • Dennis Coyne says:

      If we assume 125 new wells per month are added from March 2015 to Jan 2017, output falls from 1140 kb/d (model value in Feb 2015) to 1119 kb/d in July 2015 and then rises back to 1140 kb/d by Dec 2016.

      Chart below.

  3. Kosoman says:

    Ambrose Evans-Pritchard is an uber-optimist, but i’ve got to be honest, to a layman, the numbers really are quite impressive. I didnt think Shale oil and especially gas would be this versatile and tenacious and tbh, i dont think anybody outside the industry did either.

    But i was wondering if people here could explain how exactly they are cutting costs for drilling so drastically? is it really all because of technology. I mean the claim that costs of drilling might be cut 60% by 2016 is quite astonishing. Is this all company propaganda or do any of you think it is actually feasible?

    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11553769/BP-sees-massive-shock-for-North-Sea-as-oil-glut-deepens.html

    “The US “rig count” – suddenly the most-watched indicator in global energy – has fallen from 1,608 in October to 747 last week. Yet output has to continued to rise, stabilizing only over the past five weeks.
    Mr Tillerson said this is more or less what happened in the sister market for US shale gas. In 2009, some 1,200 rigs produced 5.5bn cubic feet (bcf) of gas per day at a market price near $8.
    Today the price is just $2.50. Nobody would have believed back then that the industry would continue boosting supply to 7.3 bcf, and be able to do so with just 280 rigs.
    “Will we see the same phenomenon in five years in tight oil? I don’t know, but this is a very resilient industry. I think people will be surprised,” Mr Tillerson said, speaking at the IHS CERAWeek forum in Houston.
    “We’ve really only begun to scratch the surface. Shale can keep growing by 500,000 to 700,000 b/d easily,” said Harold Hamm, founder of Continental Resources. His company has cut costs by 20pc to 25pc over the past four months.
    US shale will “roll over” to some degree as producers exhaust their one-year hedges and face the full shock of lower prices. But it is hazardous to bet too heavily on this assumption.
    IHS said an astonishing thing is happening as frackers keep discovering cleverer ways to extract oil, and switch tactically to better wells. Costs may plummet by 45pc this year, and by 60pc to 70pc before the end of 2016. “Break-even prices are going down across the board,” said the group’s Raoul LeBlanc.
    Shale bosses have been lining up at this year’s “Energy Davos” to proclaim the fracking Gospel. “We have just drilled an 18,000 ft well in 16 days in the Permian Basis. Last year it took 30 days,” said Scott Sheffield, head of Pioneer Natural Resources.

    “We’ve cut spud-to-spud time to 19 days,” said Hess Corporation’s John Hess, referring to the turnaround time between drilling. This is half the level in 2012. “We’ve driven down drilling costs by 50pc, and we can see another 30pc ahead,” he said.
    IHS said shale is so competitive that it may “take off” again early next year after troughing in the fourth quarter, adding 500,000 b/d in 2016. “It could crowd out other parts of the world. In the long run the US could get a bigger share of the pie,” said Mr LeBlanc.
    Scotland’s oil industry can expect a smaller share and potential ruin, unless taxes are cut drastically, blowing apart the Conservatives’ fiscal plans. “We’re going to see massive restructuring. The North Sea is a very high cost basin,” said BP’s Bob Dudley.
    Mr Dudley is resigned to a long drought for oil prices as shale refuses to yield, with Iran poised to add a further 500,000 b/d in short order if the nuclear deal goes through.
    The International Monetary Fund listed a hierarchy of losers in a report last week. The North Sea is deemed the most vulnerable but Brazil, Australia, Gabon, Nigeria and Colombia, among others, are all less competitive than the US.

    […”There is a lot of whistling past the graveyard,” said Stephen Chazen, head of Occidental Petroleum. “We’re preparing for $60 oil and perhaps less, and we can cover all dividends and costs in this range.”
    Mr Chazen is sitting on a colossal find in the Permian Basin in West Texas. “We paid $3.8bn and thought we were getting 1bn barrels. People said we paid too much. Well, we got 7bn to 8bn barrels,” he said.

    There is a dawning realisation in the energy industry that US shale output might double yet again before the end of this decade, even if prices never come close to $100. This would demolish the assumptions behind a long string of projects in the ultra-deep waters of the oceans, often below layers of salt and blind to seismic imaging]”

    • Brian Rose says:

      We heard a lot of the same arguments when oil fell to $34 barrel in 2009. With every rise in prices, back to $40, $50, $60 everyone talked about how it was an aberration and cheap oil was coming back.

      Then, it went to $100. It stayed there for 3 years.

      The only way in which this time is different is that we now have conventional oil making up much less of the energy pie, and unconventional filling that gap. This means prices will tend to rebound faster than before as larger amounts of supply depend on higher prices than before.

      Both supply AND demand will and are making prices rebound rapidly. At some point this rally will take a breather because this rally in oil prices is happening very, very quickly over the last 2 months.

      • Jeffrey J. Brown says:

        Brent hit a monthly low of $40 in December, 2008. From 12/08 to 2/11, when monthly Brent crude oil prices averaged over $100 again, the annualized rate of increase in monthly Brent prices was 43%/year.

        Assuming that Brent averages about $60 for April, 2015, the annualized short term rate of increase in Brent crude oil prices from 1/15* to 4/15 will be about 90%/year.

        *The DCPB (Dennis Coyne Price Bottom, $48 average price for 1/15)

        And following is my Net Exports comment on 2008/2009 versus 2014/2015:

        I would argue that the most important difference between then and now is the decline in the cumulative remaining volume of net exports of oil available to oil importers.

        In round numbers, we have burned through about 100 Gb (billion barrels) of Global Net Exports of oil (GNE*) from 2009 to 2014 inclusive, as GNE fell from 46 mbpd in 2005 to 43 mbpd in 2013. The volume of GNE available to importers other than China & India fell from 41 mbpd in 2005 to 34 mbpd in 2013.

        Based on the 2005 to 2013 rate of decline in the (2005) Top 33 Net Exporters’ ECI Ratio (ratio of production to consumption), I estimate that post-2005 global CNE (Cumulative Net Exports) are on the order of about 500 Gb.

        Therefore, based on the foregoing estimate, during the six year period from 2009 to 2014 inclusive we may have burned through about one-fifth of the total post-2005 cumulative supply of Global Net Exports of oil.

        In other words, depletion marches on, at an accelerating rate of depletion in the remaining supply of post-2005 Global Cumulative Net Exports of oil.

        *Combined net exports from (2005) Top 33 net oil exporters (total petroleum liquids + other liquids, EIA)

      • Dennis Coyne says:

        Hi Brian,

        If summer demand picks up, oil prices may forge ahead in fits and starts to $80/b by early November and may settle down until the following April or May. This would be close to a 97% annual rate of increase from Jan to October (9 months). If April 2015 averages $60/b and April 2016 averages $80/b we would have a 33% yoy rise in oil prices. If that WAG is correct, I would expect oil prices to rise more slowly to $100/b over the following 12 months (25% annual rate of increase) with slower rates(10%/year) to follow until oil output decline becomes apparent (2019 to 2020).

        Once the peak in World oil output is apparent to most people, oil prices will rise at 30% per year or more until the World economy crashes.

        • Brian Rose says:

          Thanks for the actual numbers Dennis.

          Much appreciated and definitely gives a more concrete comparison than my comment.

        • Nick G says:

          Dennis,

          I know it’s not easy, but you might want to consider modeling the oil demand curve. Here are a few thoughts:

          When oil prices rose above very roughly $100 in 2008 industrial/commercial consumers took sharp short-term measures: trucks and container ships slowed down, plastics production was curtailed, etc. I seriously don’t think consumption would grow with prices consistently over $125, I’m sure of it with prices over $150: we saw sharp declines in consumption when oil hit $150, and these weren’t primarily due to economic contraction – we can tell because US GDP and manufacturing are at higher levels than before the Great Recession, yet US oil consumption has not recovered.

          You might want to consider modeling “pseudo oil supply” by creating a similar birth-death model for EVs. As an arbitrary starting point, here are some possible parameters, some of them from memory, some somewhat arbitrary:

          230M light vehicles @ average 23MPG
          Initial VMT for new vehicles of 15k/year, decling by 10% per year
          replacement rate of about 6%.
          2.5% of new light vehicle sales are hybrids @ average 50MPG
          .5% of sales EV @zero GPM.
          breakeven between ICE and EV of roughly $75.
          hybrid sales grow above $75, decline below.
          EV sales growing very roughly 50% per year – this will plateau fairly soon. EV growth will slow down with low oil prices (<75), accelerate above – they'd stay at 40% per year (doubling every 2 years) indefinitely with prices over $125.

          • Dennis Coyne says:

            Hi Nick,

            Let’s look at Brent prices, which reflects the World oil price better than WTI vs C+C consumption, using data from the EIA for C+C consumption and Brent spot prices adjusted for inflation we can see how prices and output have related to each other. A demand curve is difficult to find because income changes along with oil price.

            About the best we can do because there are so many unknowns is to look at how oil output has changed with real oil prices and GDP.
            It is best to use the log of real oil price and the log of real GDP otherwise higher numbers introduce distortions. Below is the model using 1980 to 2014 data in the regression of C+C on ln(Real GDP(PPP)) and ln(Real Oil Price). Real Oil Prices have very little influence, a doubling of oil price increases output by only 0.25 Mb/d.

          • Dennis Coyne says:

            A second model with C+C vs ln(Real GDP) regression from 1980 to 2014.
            It is assumed that real GDP grows at 3%/year from 2015 to 2020, 2.5%/year from 2021-2025, 2%/year from 2026-2030, 1.5%/year from 2031-2035, and 1%/year from 2036-2040. Output is 88 Mb/d in 2040.
            The EIA probably uses an assumption of 3% real GDP growth to get their reference outlook (which would result in 90 Mb/d in 2040).

            The problem with this model is that it ignores geological constraints. I do not think this model reflects reality beyond 2014.

            • Nick G says:

              Dennis,

              These two charts are interesting, but as you said, they don’t really help with the demand curve. Among the problems: the supply and demand curves are mixed up together, and elasticity is different in the short term vs long term, for both curves.

              What we really see is four different regimes: 1960-1973, when oil was dirt cheap and no one thought much about it; 1979-2004, when both suppliers and consumers reacted to the 1973-1979 price shocks, and supply rose while demand fell (quite sharply in the US); 2004-2014, when supply was constrained – supply rose with a very roughly 5 year delay, and demand grew more slowly; and the current period.

              Teasing out the dynamics of the demand curve requires careful thought about all of these periods. One could possibly look at differentials (rates of growth) rather than absolute levels, and try adjusting for time-delays, but (as you said) I suspect that things are too complex for such a simple analysis.

              Instead, one has to break things down by industry and demand sector, and look at their dynamics: power generation; home heating; petrochemicals; freight transportation; and personal transportation – the 800 pound gorilla. That’s the analysis that I was sketching out in my previous comment.

              • Dennis Coyne says:

                Hi Nick,

                It is both simple and complex. The simple part is that income is constantly changing and will affect demand, so finding the “demand curve” is very difficult. We can make it very complicated by breaking it into many different industries, but the initial problem does not get solved by doing so.

                You are correct that before 1980, things were very different. A regression using real oil prices and real GDP (the log of each) shows that oil price is relatively unimportant over the 1980 to 2014 period and that most of the change in C+C output is determined by the level of real GDP. A Chart below shows a comparison of the two models, oil price has very little effect on oil output. Look closely there are two lines (on the bottom left this is clearer.)

                Oh and that complex analysis, I will leave that to you.

                • Nick G says:

                  Yeah, before 2014 the level of GDP determined the “draw” on oil supply. Price changes were never sustained long enough for anyone to use them as a serious factor in planning.

                  Well, I understand why you don’t want to take on an analysis of the demand curve. OTOH, the price/supply curve was the missing element in Peak Oil analyses in the past: everyone missed the fact that sustained high prices would affect supply.

                  Now, everyone’s missing what’s happening on the demand side. It’s an exponential thing: it gathers steam slowly, then surprises you.

                  Just like cell phones surprised AT&T’s land line business.

                  • Dennis Coyne says:

                    Hi Nick,

                    The analysis seems to show that oil prices whether they are sustained or not have little effect on the oil supply, real GDP is the driver.

                  • The analysis seems to show that oil prices whether they are sustained or not have little effect on the oil supply, real GDP is the driver.

                    Really now, what analysis was that? And how much lag time are they allowing between increase or decrease in price and a corresponding change in supply?

                  • Rune Likvern says:

                    Mr Dennis Coyne,
                    ”The analysis seems to show that oil prices whether they are sustained or not have little effect on the oil supply, real GDP is the driver.

                    What does that statement really mean?

                    Can you pls list (with links) to oil companies that operates according to that dictum?

                  • Nick G says:

                    Dennis,

                    Am I correct in understanding that you’re doing a multiple linear regression with annual GDP & price as X variables, and production/consumption as the Y variable? And that the result was that the primary correlation was with GDP?

                    What percent of R2 came from each?

                • Dennis Coyne says:

                  Hi Nick,

                  The regressions were done in Excel, it was C+C output as the dependent variable and the natural log of real GDP (PPP) and the natural log of real oil price.

                  The R squared is not broken down between variables. For nat log of GDP only vs C+C r squared was 0.955. when LN(GDP) and LN(oil price)were both used r squared was 0.955.

                  • Nick G says:

                    That comparison may not tell you as much as you think – I wonder what the R squared of price alone would be. IOW, what would it look like it if you did price first and then added GDP? IOOW, what’s the covariance of GDP and price?

                    Here’s another perspective: you’d expect GDP to determine oil consumption, as long as well supplies are unconstrained and prices are low. If twice as many delivery trucks are driving, and twice as many people are commuting, then if all else is equal, oil consumption will double.

                    On the other hand, you wouldn’t expect to see significant correlation between annual price and consumption, because we know that short-term demand elasticity is low: people don’t change their behavior immediately, they don’t change the cars they’re buying immediately, etc.

                    On the other hand, it’s very clear that price is very important over a longer time.

                • Dennis Coyne says:

                  Hi Nick,

                  For the regression of C+C output vs ln (real oil price the r squared is 0.127. Chart of the model using
                  ln(real oil price) over the 1980-2014 period (this was the data set used for the regression).

                  • Dennis Coyne says:

                    Hi Nick,

                    When you have two independent variables in the regression the results are produced simultaneously. I am not arguing that oil price has no influence on oil output, only that the effect is very small relative to income. At the World level, oil output is mostly a function of World GDP.

                  • Nick G says:

                    Dennis,

                    The problem is that we just don’t have the right data: for most of the last 50 years oil supply has been abundant and prices have been low. So, the data from those periods isn’t helpful.

                    We have some price-related data: the 1973-1979 price spikes permanently reduced consumption and sharply increased production. You can see both of them bend sharply.

                    You can see the same thing with the 2004-2008 price shock.

        • Dave P says:

          Once the peak in World oil output is apparent to most people, oil prices will rise at 30% per year or more until the World economy crashes.

          Woah Dennis! Is that really you?! Here I was thinking you were an eternal optimist! Ron and the ‘doomers’ must be rubbing off on you! 😉

          Anyway, I appreciate your fine work, many thanks!

          • Dennis Coyne says:

            Hi Dave P,

            Like everyone else I consider my views realistic, I think reality will fall somewhere between the optimistic and pessimistic points of view. I see tough times ahead, but think we might be able to muddle through without a total collapse of civilization.

            I expect the peak in all fossil fuels which will occur between 2025 an 2030 (in total coal, natural gas and oil in millions of tons of oil equivalent) will lead to another great depression between 2030 and 2040. I am hopeful that World War 3 will not be the result, but more of a World wide WPA building rail, light rail, bike paths, HVDC transmission, insulating homes and replacing windows and doors, installing wind, solar, and heat pumps (air and ground source).

            Is any of this certain? Absolutely not. Possible? I think so.

        • Once the peak in World oil output is apparent to most people, oil prices will rise at 30% per year or more until the World economy crashes.

          No, no, no, this cannot possibly happen. If oil prices rise to their former long term level of around $100 a barrel then they won’t go much higher than that.

          “The World economy” will not crash because there is no such thing as “The World economy”. There are a couple of hundred world economies and they will not crash all at once. As prices rise economies will crash. These crashes will cause the price of oil to fall. Then as oil production falls further more upward pressure is put on oil prices but more economies then crash. Then pretty soon the the whole world is an unstable mess. Then that’s it.

          This whole process will likely take only a few years, from 5 to 10. That is my “fast crash” scenario.

          • Boomer II says:

            “The World economy” will not crash because there is no such thing as “The World economy”. There are a couple of hundred world economies and they will not crash all at once. As prices rise economies will crash. These crashes will cause the price of oil to fall. Then as oil production falls further more upward pressure is put on oil prices but more economies then crash.

            I’d say that has already been happening. However, I’m not sure economists and Wall Street types see this. Or if they do, they aren’t acknowledging it. They keep hoping to tweak things until recovery kicks in.

            Yes, there are a few who point out current global changes don’t resemble what has happened in the past, but for the most part policies are based either on austerity or on Keynesian spending. In other words, they believe there is a solution, although they may disagree on what that might be.

            So it seems to me that if this is the scenario we’re heading towards, we’re likely to be in a very serious state before the “powers that be” begin to panic. Right now I think they continue to believe they can fix and control world economics through financial policies. And we’ve got some truly idiotic politicians who still believe in “drill baby drill.”

            • Brian Rose says:

              The only tidbit economists seem to have learned is that when stagflation hits you lower rates to fight stagnant growth and forget about inflation.

              Stagflation really had them scratching their heads in the 70s since, according to the “science” of economics it’s impossible. Economics focuses on wages because only people matter and energy/resources can be conjured out of thin air.

              Only problem is that in the 2005-2008 stagflation the inflation hit before the stagnant growth, so, at least in the U.S., the Federal Reserve continually raised rates in 2005-2006. Put together rising rates, adjustable rate mortgages, record high oil prices (and therefore rising prices for EVERYTHING), and what do you get? A consumer that has to choose which bill to default on.

              I think we could see the same thing this time around actually. High oil prices will look like growth due to its impact on oil/gas drilling, and the fact that hits to consumer spending are delayed. In other words, we’ll see strong growth as prices rise, but the lag effect of reduced consumer spending will be magnified by rising interest rates because economists don’t know a single darn thing about physics or thermodynamics.

              • Nick G says:

                But we haven’t seen stagflation lately.

                From 2005-2008 we had very little inflation, especially outside of energy (“core” inflation). The overall CPI hit maybe 4%, and that was during strong growth, which isn’t stagflation, it’s just the classic situation late in a business cycle before the next, inevitable recession.

                During the Great Recession we had deflation.

                Since then we haven’t had significant inflation, just slow growth.

                This is a pretty classic business cycle, except for the slow recovery (which is consistent with a post-credit crunch recovery).

                • Brian Rose says:

                  Depends on how you calculate inflation. As you said, core CPI didn’t raise alarm bells in 2005-2008 (although why keep raising interest rates as they did).

                  The way inflation is calculated has been modified by a number of policy changes since the 70s. Every one of these changes acts to lower inflation measurements.

                  Shadow Stats uses the 1970s calculations, which are the only accurate way to compare current price trends to those of that era. If you change the rules of course you’ll get a different answer.

                  We DID have stagflation if you measure inflation in an identical fashion to how it was measured back then.

                  Many of the changes in inflation measurements do give more informative data, which had allowed the Fed to make the right decisions. But if you compare apples to apples the 2005-2008 oil crisis was indeed a stagflation.

                  • Nick G says:

                    AFAICT, Shadowstats isn’t realistic. If you take their approach over a reasonably long time you get very odd results. If you want more info, I can point you to an article by James Hamilton, our friendly neighborhood PO-aware economist.

              • Ilambiquated says:

                There is a perfectly good explanation for stagflation — rational expectations, as described by Milton Friedman. To make a long story short, if inflation is expected, it loses its ability to mollify workers who are losing real income. In this situation printing money doesn’t “prime the pump” because nominal wages immediately rise as well.

                Anyway that was then. This is now. Deflation is on the order of the day. Technical innovation and globalization are giant deflation machines.

                People on this forum are scarred by their experiences. Most of them formed their current opinions in a very different world than the one we see today.

                Billions of Asians and Africans are entering the global job market, and they have better tools than anyone dreamed of 50 years ago.

          • Dennis Coyne says:

            Hi Ron,

            The World Oil Price is best reflected by the Price of Brent Crude, the trailing 12 Month average real oil price in 2014$/b in the chart below.
            The average trailing 12 month Brent price in 2014$ was above $105/b from Sept 2011 to Oct 2014. As to when the oil price causes an economic crash, this will depend in part on the level of GDP and how fast oil prices rise, as well as the level of oil output. If we assume C+C output is 28 Gb/year in 2018 and Real GDP is 114 trillion (2014$) and more than 4% of World income spent on C+C causes a recession, then under those assumptions $163/b(2014$) would be ok. As prices rise further a recession results and oil prices fall to a lower level and output falls as well. Then an equilibrium is reached where output at some lower price level is maintained. A fast crash is possible but by no means certain in my view. I think it is possible for the economy to adjust to constrained liquid fuel supplies, but it will be very difficult and will take some time (10 years, maybe 15). Chart with Real Brent Trailing 12 month average price in 2014$ below.

            • Dennis, I suspect, but I’m not sure, that very high prices (say $125 per barrel) will rip undeveloped economies to shreds. I’m referring to those which can’t produce most of their energy, like Pakistan, Kenya, and Jamaica.

              • Ilambiquated says:

                My guess would be the opposite — the poorer the economy, the less likely it is to suffer from high oil prices. It is rich countries that have built an infrastructure around high oil consumption rates that are most likely to feel the pain.

                • Han Neumann says:

                  Poor economies have much less discretionary oil spending. High oilprice also means that food is more expensive.

                  • Ilambiquated says:

                    Expensive food is good for really poor people, because really poor people are primary producers (for the most part).

                    The urban middle class may fret about high food costs, but really poor people profit from it.

                  • Han Neumann says:

                    “Expensive food is good for really poor people, because really poor people are primary producers (for the most part).”

                    And the hundreds of millions that work in factories from multinationals like Apple, for a few dollars/shift of 16 hours are poor enough to suffer from rising foodprices and rising energy prices. Discretionary spending disappears with it.

            • Rune Likvern says:

              Dennis Coyne wrote:
              ”If we assume C+C output is 28 Gb/year in 2018 and Real GDP is 114 trillion (2014$) and more than 4% of World income spent on C+C causes a recession, then under those assumptions $163/b(2014$) would be ok.”

              Where does the Real GDP is 114 trillion (2014$) (for 2018) come from?

              And is it US dollars or purchasing power parity?
              IMF current estimate for World GDP for 2014 is US$77.3 Trillion.
              IMF current forecast for World GDP in 2018 is US$87.6 Trillion.

              • Dennis Coyne says:

                Hi Rune,

                I made a mistake, that figure should have been $114,763 in 2010$ not 2014$ and it is PPP from the IMF’s April 2015 World Outlook.

                Using the growth rate for GDP (PPP), I estimated GDP in 2010 international dollars through 2014, based on IMF data. So for 2014 I get 101,500 billion in 2010$ using PPP data, I also use the forecast value for 2015 and in 2010$ is $105,000 billion then I assume 3% annual growth for 2017 to 2018 to arrive at $114,763 billion in 2010$. Using current PPP dollars the 2018 forecast is $133,000 billion. When looking at Gross World Product most international economists believe PPP is the better measure.

                • Rune Likvern says:

                  When looking at Gross World Product most international economists believe PPP is the better measure.

                  Believe is the key word.

                  Any links that document that most international economists believe so?
                  And oil is still priced in US$.

              • Dennis Coyne says:

                Hi Rune,

                Using the IMF’s GDP estimate for 2018 at market exchange rates, it would be $125/b. This would be a nominal price as I believe the GDP was in current dollars. If we account for inflation (assumed at 3%/year) the oil price in 2014$ would be about $114. This assumes C+C output remains at 2014 levels until 2018, if output were lower, say 26 Gb in 2018, then real oil prices could be $123/b (2014$) before oil spending reaches 4% of World income.

            • Rune Likvern says:

              Oh, and speaking about GDP developments, Atlanta Fed just published their real GDP forecast for Q2 2015.

              The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.8 percent on May 1, down slightly from 0.9 percent on April 30.
              https://www.frbatlanta.org/cqer/researchcq/gdpnow.cfm

              No worries, that forecast is for a place called ….”The Real World”.

            • Rune Likvern says:

              Mr. Dennis Coyne
              Inquiring minds want to know how an oil price of $163/b (2014) is OK?

              ”If we assume C+C output is 28 Gb/year in 2018 and Real GDP is 114 trillion (2014$) and more than 4% of World income spent on C+C causes a recession, then under those assumptions $163/b(2014$) would be ok.

              Out in the real world American median household income has declined about 10% since 2007 according to Fed data.
              http://research.stlouisfed.org/fred2/series/MEHOINUSA672N

              The households sure look prepared to handle a tripling of the oil price.

              • Dennis Coyne says:

                Hi Rune,

                As in most thing in economics it seems there is much disagreement over PPP. So thanks for the correction, most economists was incorrect, some economists think it a useful way to look at GDP, which I imagine is why the IMF bothers to use it.

                The following paper summarizes some of the issues.

                p://www.ssc.wisc.edu/~mchinn/taylor&taylor_PPP_JEP.pdf

      • Han Neumann says:

        “The only way in which this time is different is that we now have conventional oil making up much less of the energy pie, and unconventional filling that gap. This means prices will tend to rebound faster than before as larger amounts of supply depend on higher prices than before.”

        What to think of following comment, posted by Kosoman ?

        “IHS said an astonishing thing is happening as frackers keep discovering cleverer ways to extract oil, and switch tactically to better wells. Costs may plummet by 45pc this year, and by 60pc to 70pc before the end of 2016. “Break-even prices are going down across the board,” said the group’s Raoul LeBlanc.”

        • Interesting comment. I wonder what he’s seeing when he states he sees a 70 % cut by the end of 2016. Sometimes I wonder if we aren’t getting comments intended to put pressure on OPEC or other players?

      • Old farmer mac says:

        Ambrose Evans- Pritchard generally tells it like it is, or at least like he sees it, and he has been one of the sharpest news men around for pretty much forever.

        I have read his work off and on for decades. His coverage of American political scandals over the years has generally been better than that of our major domestic papers.

        Take note that the scenario he lays out is short term – the longer term is not mentioned.

        If BP chief Dudley says he does not expect Russian production to fall off in the near term he may be telling it like it is or he may be fibbing a little hoping to get more tax breaks for his company.

        The only way I can see oil prices going up much in the very short term is if the economy stages a miraculous recovery.

        But the higher cost producers are obviously winding down.. The thing that most laymen and probably most business writers don’t seem to understand is that the oil business is like a huge ship except even more so. It takes a long time to get such a ship up to cruising speed and a long time to stop it as well.

        Even with people getting laid off right and left and equipment going into storage all over the place it is going to take at least a few more months for total world wide production to start tapering off a little bit.

        Maybe as long as a year or more ????

        It now looks as if even the most nimble players in the business, the American tight oil producers, require six to twelve months to decelerate from full speed ahead to dead slow.

        My guess is slowly rising price for the next twelve months or so and then sharply rising after that until prices get back into the ninety plus range at least.

        • islandboy says:

          Hey Mac, the end of your post tied in with some thoughts I had in relation to Dennis’ key post from April 27. I had basically composed it but didn’t post it before I left for my weekly visit to the old homestead. Here goes:

          I’ve been thinking about the oscillations in markets, not just the oil markets but, agricultural markets as well and the principle of damping. In any system capable of oscillating if a force is applied, it will result in movement away from the point of equilibrium and when the force is removed, result in movement back towards the point of equilibrium. if the system is undamped it will typically overshoot the point of equilibrium and oscillate back and forth about the point of equilibrium until the oscillation stops. If a feedback mechanism aimed at damping the oscillations is introduced, it can start applying opposing forces so as to counteract the forces that initiate the oscillation, the critical factor being the timing of the application of the opposing forces. Due to the time lags between the application of the force and the resulting change in the system, if the timing of the feedback or damping force is wrong, it can actually increase the amplitude of the oscillation.

          As this applies to markets, price is the primary forcing function. If the price of an item goes up, the typical reaction is for existing producers to increase production and for new players to enter into production of the item. As supply of the item increases the typical market reaction is for the price to fall, discouraging additional production. The problem I see with the market for many items including agricultural produce and oil is that, the time between the application of the forcing price signals and the response of the producers is long enough to result in increasing amplitudes of oscillation or increasing price volatility. The way I see it is that these markets, for all intents and purposes are undamped and prone to runaway destructive oscillation. The question is how does one apply damping in this scenario?

          The solution would seem to require some amount of regulation. Market purists will see this as interference with the market but, IMHO in light of the critical nature of oil to modern civilisation, it might be a necessary evil. One means of regulation is through regulation on pricing but that would be difficult and extremely unpopular both with producers, when prices are held down in times of tight supply and consumers, when prices are held high in times of over supply. It would seem that while still difficult, a more workable solution would be to control the rates of increase in production.

          It strikes me that the mere existence of a permitting process for drilling wells indicates some level of intent to regulate the market, otherwise why would permits be necessary? It would seem to me that the agencies that perform the role of permitting do not see themselves as market regulators and have made no effort to control the rate of increase in production.

          One solution might be to set up some sort of national petroleum council. It could be given a fancy name like the Petroleum Industry Secretariat for the Stabilisation of an Operational Funding Framework (PISSOFF for short) and limit the amount that can be borrowed, especially through the use of high risk, high yield bonds, to fund new production. Seriously though I think some effort needs to be made to apply damping to the crude oil markets with a view to decreasing volatility rather than increase it as seems to be the current trend.

          • Island boy, my comments: you visualize the basic principles pretty good. But the system is more like a fleet, with different size vessels which react differently to price signals.

            Also, the oil companies are fully aware of the overreaction issue. Many of them dampen their reaction by using an inside price deck which lies at what they think is close to the midpoint. Others use a simpler approach, a function of the futures market. Others use the last ten years’ average price, and I know one which uses a triple deck with different irr hurdles. This is why you saw some big companies slow down capex before the oil price dropped, and why we see them working on most long term projects (I bet they use 80 to 100 per barrel for those).

            • islandboy says:

              Okay so what you say amounts to this. The majors being much larger and much more experienced, have a much better understanding of the market and the risks they take when making long term investments that, can be adversely affected by price reductions that, may actually be an outcome of said investments. As a result they know that it is extremely imprudent to make an investment that is going to result in product entering an oversupplied market, especially if it is their own increased production that is going to cause the oversupply.

              With the small independents, they only focus on their “little” operations, apparently thinking that their small contribution couldn’t possibly have a significant impact on the markets and ignoring the fact that several of them, all doing the same thing, can make a significant impact. That means that there ought to be somebody or agency that says to these guys, “Look, there are 100 of you guys and you all want to add 10,000 bpd to the market. That adds up to 1 million bpd and is likely to drive prices down. Unless you guys can show us data to contradict our analysis that, suggests that you will not be able to sustain your operations with the price being half of the current price, we will not be issuing drilling permits for new wells.”

              These independents need to be protected from themselves and their investors need to be warned. Just a couple of weeks ago, I saw an ad on Oilprice.com that was heralding the greatest investment opportunity ever. When I clicked on it, they were pushing investments in LTO!

    • Jeffrey J. Brown says:

      A reminder that these tight/shale plays have very high decline rates, and the Bakken Play for example has an average production rate of a little over 100 bpd, with a median production rate of less than 100 bpd.

      Regarding optimistic scenarios, to simplify somewhat, the EIA is currently suggesting that the US may average around 10 mbpd of Crude + Condensate (C+C) production for 25 years. If we use an overall decline rate of 20%/year for existing production*, in order to maintain 10 mbpd of production with a 20%/year overall decline rate from existing production (which seems reasonable since such a very high percentage of total production comes from wells completed in the prior two years in these tight/shale plays), the industry has to put on line 2 mbpd new production every year, just to maintain 10 mbpd (note that I am stipulating a steady state production scenario, so we are declining from a constant production level).

      So, in order to maintain 10 mbpd for 25 years, with an overall 20%/year gross legacy decline rate, the industry would have to put on line about 50 mbpd of new production in 25 years, or about five times the current production from Saudi Arabia.

      *The observed net decline rate in Louisiana’s natural gas production from 2012 to 2014 was 20%/year (this was the net decline, after new wells; the gross legacy decline rate would be even higher than 20%/year)

      • Dennis Coyne says:

        Hi Jeff,

        Based on my Bakken model, if output stays flat in the Bakken at close to current levels from now until 2020 (about 125 new wells per month), the annual legacy decline rate will be about 41% from 2015 to 2020. So using 20% for legacy decline for LTO plays is quite conservative. A higher output scenario (with 150 new wells per month) and a higher peak would increase the annual legacy decline rate to 44% over the 2015 to 2020 period. Generally a higher output level raises the legacy decline rate and a lower output level reduces it.

        A scenario with 175 new wells per month has an average annual legacy decline rate of 45% from 2015 to 2020, it peaks in June 2018 at 1390 kb/d, ERR= 8.8 Gb, 32,700 wells completed. Chart below.

        • Dennis Coyne says:

          Hi Jeff,

          On a more careful reading of your comment, the 20% annual legacy decline rate seems reasonable. If we assume roughly 3.5 Mb/d of the output comes from LTO plays declining at 40%, and 6 Mb/d comes from conventional plays that decline at 10% we would have about a 21% overall decline rate, so your 20% estimate is quite good, but it will increase somewhat as LTO becomes a larger share of output (or if it does). If we assume the share of LTO output increases over time (as the EIA does), then 22.5% annual legacy decline might be a better guess.

    • Dennis Coyne says:

      Harold Hamm also thinks the URR for the Bakken will be 30 Gb, about 3 times higher than the USGS mean estimate, so his pronouncements need to be taken with many grains (maybe one tonne) of salt 🙂

      The Eagle Ford has been flat since August and might be running out of room in the sweet spots, so there won’t be a lot of growth coming from the Eagle Ford, the Permian basin may pick up a bit, possibly another 1000 kb/d over the next 3 years, the Bakken might be able to get to 1400 kb/d by 2018. Under those optimistic scenarios we might see 1300 kb/d over the next 3 years. Hamm’s 500 kb/d increase (I assume he means per year) is very optimistic. If the Permian basin takes off as fast as the Eagle Ford did during 2011 to 2014 and declines from the Eagle Ford are moderate, we might see 5000 kb/d of combined output from Bakken/Three Forks, Eagle Ford, and Permian basin by 2018 for a couple of months, but that is the highest it will go with high oil prices ($100/b at least) and the most optimistic scenario (all fields peak together or remain on plateau).

      Not all of this will be LTO, as about 400 to 500 kb/d of Permian basin output (from memory of a chart posted by MBP a while ago) is conventional oil and I am assuming this output will decline very slowly (6% per year). If anyone is familiar with the Permian basin, I would be interested if this WAG of a 1000 kb/d increase in Permian basin output over the next 3 years (333 kb/year) sounds plausible if real oil prices rise at a 20% annual rate (72/b, 87/b, 104/b) over the next 3 years and then stay at $104/b or higher on average after that.

      The Eagle Ford play increased output from 200 kb/d to 1400 kb/d from June 2011 to June 2014, about a 1200 kb/d increase in output, I believe it will not be as easy to accomplish this in the Permian Basin, so a 1000 kb/d increase over 3 years is highly optimistic in my view.

    • coffeeguyzz says:

      Mr. Kosoman,

      An analyst made a comment a few years back in this regard referring to the oil industry in general and the Exploration & Production boys in particular. To wit:
      “They’ll figure something out. Problem solving is inherent in this industry’s DNA”.

    • I think Bob is signaling he’s getting BP ready to survive at current prices. The message is in part for employees, so they cooperate cutting costs, for governments to cut taxes, for contractors to agree to lowering their fees, and for competitors not to expect BP to roll over and stop working on all its projects. Bob is pretty smart.

  4. Don Westlund says:

    Art Berman made an important point in his last post. http://www.artberman.com/blog/

    “It is not because of decreased rig count. It is because cash flow at current oil prices is too low to complete most wells being drilled. The implications are profound. Production will decline by several hundred thousands of barrels per day before the effect of reduced rig count is fully seen. Unless oil prices rebound above $75 or $85 per barrel, the rig count won’t matter because there will not be enough money to complete more wells than are being completed today.”

    “Deferred completions (drilled uncompleted wells) are not discretionary for most companies. Producers entered into long-term rig contracts assuming at least $90 oil prices. Lower prices result in substantially reduced cash flows. Capital is only available to fulfill contractual drilling commitments, basic costs of doing business, and to complete the best wells that come closest to breaking even at present oil prices.”

    Where are the oil companies going to get the money to complete wells in the future? The latest figure I have heard is that we have about 4000(and growing) drilled uncompleted wells. And the narrative in the investing community is that as prices rise the oil companies will start completing wells, which will push up overall production again and keep a lid on prices. Some of the oil companies like EOG and WLL will have some cash but most of the smaller companies might find it hard to come up with the cash to complete wells. Since this latest cycle has been broker everyone is going to be more cautious. It will be very difficult to raise money in the debt markets after what is happening right now. We might have a scenario where oil prices go up and there is no response from the oil companies on completing wells for a much longer time than most think.

    • Jeffrey J. Brown says:

      In the Haynesville Play, it looks like the gas production peak corresponded roughly to about the time when the rig count had fallen by about 50%.

      Of course, one key difference between this play and the tight/shale oil plays is that I suspect that operators were working through the backlog of cased, but not completed wells, in the Haynesville Play as the Haynesville rig count fell (and thus the backlog of cased, but not completed, wells was probably declining), while as Art noted, the number of cased, but not completed, oil wells appears to be currently increasing. Also, delays in pipeline connections were probably factors in the lag time between the rig count decline and the production decline in the Haynesville Play.

    • Watcher says:

      The closing of the money spigot must necessarily be collateral dependent. The schedule for collateral impairment is quarterly and began March 31, but the move from Dec 31 to March 31 was not huge in the valuation price of those collateral reserves. It gets steeper Jun 30 and steeper still Sep 30.

      The formula is average price over 12 months, with each month’s price defined as first day of the month. Dec’s 12 month average will still north of $90. March 31 in the 80s. Should reduce to 70s in June if the price stays low. So there won’t be a sudden closing of the money spigot. It will be gradual this year, though if we presume that many of the companies were close to covenant thresholds, the March 31 revaluation should hit many of them (and we did see massive dilution in Whiting).

      Of more interest, frankly, is what is happening with German bond yields the last several days. Someone clever is countering the dollar move via bunds. Driving the Euro up and oil up.

      • SAWDUST says:

        Those shorting German bunds are getting set up for a short squeeze. The Euro is likely to end up 20 cents on the the other side of parity like the Yen is currently before all is said an done. There is a collateral shortage that exists which is why yields are rising. But shorting bunds is betting against the ECB which can buy bunds at any price since their cost is zero due to freshly created digits.

        Yields can’t be allowed to rise anywhere. Not anything more than a small move then they will be slammed accordingly. The debt pyramid must continue at all cost.

        If those bunds yields were allowed to rise to anything significant above say 1.5% Just remember those bunds are the collateral for countless levered trades in stock markets, derivative markets you name it those bunds are the collateral behind many of deals.

        The problem all central banks, well mainly western CB’s is that in order to keep the shit show they have going, going. They must keep those government bond yields falling to ever new lows. Otherwise financial markets implode because the underlying collateral for everything is government bonds. Hell of a predicament.

        Only questions that remain to be answered is. How low can yields go? When do CB’s credibility run out? and. What happens when CB’s credibility runs out?

    • clueless says:

      Bloomberg had an article yesterday pointing out that investment funds were taking over where the banks left off. They are making 2nd lien investments that in many cases are senior to the banks. Franklin Funds, e.g., has lent the oil industry over $16 billion in the last year.

    • I dunno. Rig and associated contracts can be broken. If a company thinks it’s FORCED to drill more than 3-4 wells after it realizes the gig is over, because it has onerous cancellation clauses, then its management ought to commit seppuku. A smart company would have started closing shop in November 2014.

  5. Dean says:

    The latest data from EIA for Texas crude+condensate vs my corrected data from Texas RRC (reported with 95% confidence iintervals)

    • Dean says:

      for some reasons, figures do not appear, so here it is the link to the image posted on twitter https://pbs.twimg.com/media/CD1qcwhWAAAL2GR.jpg

      • Dennis Coyne says:

        Thanks Dean,

        My guess is that your estimates are likely to be more accurate than the EIA estimates for Texas, by eye it looks like the EIA estimates for Sept through Nov were revised down somewhat because they agree pretty closely with your estimates through Dec. what is the % difference between your central estimate and the EIA estimate for Dec, Jan and Feb.
        Where % difference might be ABS (Dean-EIA)/AVERAGE(EIA:Dean).

        • Dean says:

          Thanks. Here are the % using your formula starting from September 2014, so you have a longer picture:

          Sep 2014 0.69%
          Oct 2014 0.38%
          Nov 2014 0.44%
          Dec 2014 0.74%
          Jan 2015 4.41%
          Feb 2015 2.75%

          • Dean says:

            fully agree with you about the downward revisions by EIA: find below the differences between EIA April estimates – EIA March estimates (in b/d)

            Jan 2014 5645
            Feb 2014 1607
            Mar 2014 3323
            Apr 2014 -2033
            May 2014 -3226
            Jun 2014 333
            Jul 2014 -7710
            Aug 2014 -8258
            Sep 2014 -18700
            Oct 2014 -50097
            Nov 2014 -70467
            Dec 2014 -100839
            Jan 2015 -53968

            • Dean says:

              here are the EIA April, March data and mine https://pbs.twimg.com/media/CD2oqfJWIAA2vt4.jpg:large

              • Dennis Coyne says:

                Hi Dean,

                Thanks. Maybe someone at the EIA is reading this blog, that is a pretty big revision, but maybe once a year the EIA does a big revision of its monthly data and this may be that yearly revision. I think further revisions will be needed for Dec and Jan, but my guess is that the current EIA data through Nov 2014 will need very little revision (less than 5 kb/d).

                Were you able to get any old data from the Texas RRC?

  6. Jeffrey J. Brown says:

    Michael C. Lynch (April, 2015): Lessons In Oil Price Forecasting
    http://www.forbes.com/sites/michaellynch/2015/04/30/lessons-in-oil-price-forecasting/

    Recently, I opened a talk with a slide showing the early-2014 survey of long-term oil price forecasts published by the Department of Energy, in which my forecast of $50 a barrel was far below all the others. But in the next slide, previous forecasts in which I had called for lower prices for the past ten years were included, in part, because I don’t want to cherry-pick my record (the way some peak oil advocates do), but also to focus the discussion on pertinent lessons from forecasting, not just the accuracy of any given prediction.

    I don’t know if he referenced the following price prediction:

    Michael C. Lynch (August, 2009): ‘Peak Oil’ Is a Waste of Energy
    http://www.nytimes.com/2009/08/25/opinion/25lynch.html?pagewanted=2&_r=3&emc=eta1

    “Oil remains abundant, and the price will likely come down closer to the historical level of $30 a barrel as new supplies come forward in the deep waters off West Africa and Latin America, in East Africa, and perhaps in the Bakken oil shale fields of Montana and North Dakota. But that may not keep the Chicken Littles from convincing policymakers in Washington and elsewhere that oil, being finite, must increase in price.”

    Brent averaged $110 for 2011 to 2013 inclusive, and it averaged $99 in 2014.

    • BC says:

      The decline in the price of oil and gasoline YoY and as a share of GDP would historically have added nearly 1% to GDP YoY. However, since 2010-11, the shale and energy-related transport sectors (and local and regional ancillary services) contributed overwhelmingly disproportionately to the incremental growth of capital goods orders and thus to the growth of industrial production (IP) mfg.

      Consequently, as of Q4 ’14 to date, goods orders ex war and aircraft are signaling a marked deceleration of q-q SAAR and YoY growth of IP mfg. against tougher comparisons going into Q2-Q3, increasing the probability of IP mfg. decelerating below the historical “stall speed” and pulling real GDP down with it.

      Moreover, an added constraint is occurring that is “different this time”, namely, that total annual net flows to the financial sector equal annual US GDP output indefinitely hereafter. That is, in addition to the incipient drag on economic activity from the energy sector bust, the financial sector and its owners and principal beneficiaries now have a net rentier claim effectively on all US value-added output in perpetuity, precluding any incremental real GDP growth per capita after net financial flows.

      Therefore, despite the obvious effects from weather and port strikes in Q1, the US economy is closer to “stall speed” or risk of recessionary conditions than is generally understood. These conditions will further constrain growth of domestic petroleum demand and thus be additional downward pressure on US oil investment and production hereafter.

    • New supplies in East Africa. I guess Mr Lynch never had to consider what it takes to produce and ship oil out of the African rifts. And he thinks we will do it for $30? Talk about naive.

      • shallow sand says:

        Fernando. I have always wondered why Mr. Lynch seemingly ignored ever increasing CAPEX and production costs in making his oil price forecasts.

    • Old farmer mac says:

      I wonder if any body has ever seen one of these Lycnh type optimists actually publish his own price predictions for past years alongside the actual prices .

      My personal guess is that eighty percent or more of his entire career he has been predicting prices that have been off on the low side by half or more at least.

      If I remember correctly we used to talk about oil priced in ” Yergins” a few years back.Most of the time the actual price has been about two or three times what this guy predicted.

      But of course they have the ear of the msm- msm editors and writers cannot afford to pay attention in print to people like Jeff Brown and Ron .

      I don’t know any myself but I wonder how many of the guys who write such rosy forecasts actually believe their own shit.

      Big banks have been caught promoting things to the sky they have been quietly getting rid of.

      The Bushes who used to be presidents are reported to have substantial photovoltaic arrays on their own Texas ranches.

      Draw your own conclusions.

      The owners and advertisers obviously get rid of any editor or reporter that starts seriously questioning the bau oil forecast.

      Gotta sell them cars and them airliners and keep them new class A skyscrapers fully rented ya know.

    • Schinzy says:

      My favorite Michael Lynch quote (6/19/2014) http://www.forbes.com/sites/michaellynch/2014/06/19/peak-oil-1-what-is-peak-oil/:
      Future posts will address some of these issues, but the fact remains that there is no significant work suggesting that world oil production must peak any time in the foreseeable future, unless demand-side pressures are the cause.

      It’s like saying: “No significant work suggests the sun will set in the foreseeable future unless the earth turns!”

  7. daniel says:

    does anybody know what the p&a plans are for all those shale-wells. It costs us millions of dollars to do this for each well in norway. obviously US cost base is lower and requirements much less stringent, but i would still assume that it will sum up – just due to the shear volume of wells you have. what are the plans in this respect?

    • Norway is on a different universal continuum. Hell, last time I was there I couldn’t afford to buy a souvenir. They wanted €10 for a tiny troll figurine!!

      Onshore well abandonments can be profitable. The pipe, pumps, jewelry and wellhead will be reused on other wells. That’s the way I was taught to run things, we recycled everything, except the flowline if it was buried.

      • Mike says:

        Not a good answer. There is absolutely nothing “profitable” about plugging a 16,000 TMD well in today’s environment, I assure you. How long have you been retired, Fernando? To “recycle” salvaged surface equipment in the abandonment and decommissioning process one needs places to put the stuff. In case you haven’t noticed, its getting tough to find spots to drill oil and natural gas wells now days. Mother Earth looks like a dart board.

        I estimate there to be 125,000 436 bbl. welded tanks sitting on shale locations in S. Texas and North Dakota alone. In the next 5-8 years half these tanks will have the bottoms eaten out of them from 65,000 ppm chloride water and 5% H2S oil; all of these tanks will be subject to NORM standards and will require horrendously expensive disposal. No surface or intermediate strings will be recovered from these shale wells, but there could conceivably be 75,000 miles of 5 1/2 inch production casing and liner to be recovered and “recycled.” Into fence posts.

        Truthfully, plugging and decommissioning these shale wells, I believe, will be upwards of 150-185,000 dollars each with full restoration of the surface. That’s about 4 billion more smackers of liability the shale oil industry is ignoring. My guess is in about 10 years folks will be able to buy all the 5 BOPD shale wells they want on eBay, cheap, with an extended liability plan thrown in for free.

        Mike

        • Jesus Mike you must be depressed. I’ve been out for a couple of years. P&A can recover a ton of goodies, if you kept things in good shape. I realize today’s environment stinks, but I assumed this was a long term question.

          Where I’ve worked the old wells usually produced a lot of water, so they had an esp and cable. Or they had a 640 pumping unit. What we found was that we essentially paid for the abandonment cost by recovering the well goodies.

          • Mike says:

            Naw, I’m not depressed, just realistic. Thanks for your concern, though. I plug wells all the time, I know what it costs. For environmental and groundwater protection reasons plugging costs are set to go up, up, up; about as fast as shale decline rates go down, down, down. I don’t see lots of willing buyers down the 10 year road for 640’s. Scrap iron maybe. BTW, try leaving buried flowline in the ground now days and you and Bernie Madoff will be bunk mates by the weekend. Plugging is hardly profitable. It is a liability of immense proportions.

            • Watcher says:

              I estimate there to be 125,000 436 bbl. welded tanks sitting on shale locations in S. Texas and North Dakota alone. In the next 5-8 years half these tanks will have the bottoms eaten out of them from 65,000 ppm chloride water and 5% H2S oil; all of these tanks will be subject to NORM standards and will require horrendously expensive disposal.

              Interesting. We’ve discussed the salt encrustation in NoDak and what it does to well costs as flow rate declines. The encrustation gets easier as the wells get older. These long tails defining big EURs just aren’t dealing with these out year events.

              You’ve just offered up another. NoDak is trucks. The on site tanks have to fill up waiting for the next truck, which in outyears won’t be daily. If they have holes in them . . . . . .

            • shallow sand says:

              But Mike, the SEC reserve reports always assume that salvage equals plugging and abandonment. LOL.

              I have a good friend who owns an oil construction company which specializes in plugging wells. He’s been in business for a long time.

              I don’t think it happens too often that the salvage pays for P & A, based on our discussions.

              Mike, how much of your estimate involves restoring the surface to its “pre-pad” status. Those pads look huge to me, but I am used to the tiny foot print of shallow wells drilled with a truck mounted rig.

              • toolpush says:

                Shallow,

                Mike, how much of your estimate involves restoring the surface to its “pre-pad status”. Those pads look huge to me, but I am used to the tiny foot print of shallow wells drilled with a truck mounted rig.

                I wonder how much it will cost to put those flattened hills back together?
                I do not think too many will be “pre-pad status”, unless they were originally built on flat ground?

                • Mike says:

                  Fellas,

                  Over 60% of my cost estimates actually include the restoration of the surface. The Oil, Gas and Mineral Leases being written today by learned mineral owners and their hungry lawyers are incredibly protective of the mineral and fee estate. Some of the addendums to leases can be 25 pages long about stuff like that.

                  The restoration of the surface can include the removal of all drilling pads and roads to those pads, remediation of the under soil, new soil, grass. I have no earthly idea what they will do with all that crushed rock; there are hundreds of millions of tons of it. I hope they’ll fill in the holes they made making the stuff.

                  I am simply offering a realistic perspective to the liability facing shale operators, current or eventual. In the old days we could break even plugging wells, maybe, and use salvaged equipment on new wells; those days are gone, IMO.

                  Staying in touch with the regulatory world in the manner that I must suggests to me lawmakers have a grave concern for cement degradation over time in the plugging process. Folks are mad about that in Pennsylvania already and the hubbub about plugged wells in the GOM is very real. I think there might someday be a time where an owner of an oil well can never walk completely away from the liability of it, even after its been plugged.

                  I mean no offense but often the speculation, graphing, and modeling about the future of hydrocarbon extraction is completely void of reality. I often think its more fun to speculate than to know the real deal. But hey, I’m just pipe dope; nobody has to take my word for anything.

                  Mike

                  • shallow sand says:

                    Mike. Thanks for the information.

                    A cased hole here costs $5-10 K per thousand feet to plug around here. Would the fact that half the hole is horizontal make them more expensive? I guessed just the plugging of a 20,000′ horizontal well would be $150-200K, with maybe another $100-200K to restore the surface. But do admit I’m making complete guesses, not familiar with this stuff.

                    The permanent liability for wells is a concern for all operators. That is pretty much standard for Federal and State EPA. It’s why previous owners of a refinery will pay the current owner to keep it running.

                  • Mike says:

                    Shallow, I have an open hole gravel pack to finish today but I want to tell you that I for one appreciate the attempt you make regarding the reality of shale economics. You ask good questions that seldom get answered because how the future of LTO extraction in the US is going to be financed, in truth, is going to dictate its future and that part of the equation is almost completely ignored. Rune Likvern knows this and can hardly engage anyone about the importance of debt and it’s direct and indirect relationship to hydrocarbon supply and demand fundamentals. That astounds me. In the oil business its not the what ifs that matter. Its the hows.

                    Berman has very recently suggested that frac’ing shale wells is being delayed not by choice, but by lack of net income flow and the unwillingness, or inability for shale folks to go deeper into debt to complete those wells. If that is true, and I personally believe that it is, it has very serious implications toward the future of LTO extraction. Nobody even seems to pay attention.

                    I think you and I both agree that these shale guys are in serious doo-doo. G’day, Shallow.

                    Mike

                  • toolpush says:

                    G’day Mike,

                    In the company presentations during January and February, they all stated how they were going to cut there numbers for drilling rigs in half, but were going to increase production due to high siding the sweet spots. I do not remember any of them saying, by the way we are not going to compete many of the wells we drill.

                    That sounds like they all had a late change of plan due to the reality of there situation sinking in, and now everyone seems to be trying to spin these non completed wells as a positive.

                    It was hard to see how they were going to hold production levels, by cutting the rig number in half. It will be fascinating to see how they are suppose to hold production, when they don’t complete many of those wells drilled.
                    Results should be out this week or next?

                  • Mike says:

                    Push, howzit, mate?

                    Would it be safe to say, do you think, that we never have, and never will, get the straight skinny from the shale oil and shale gas industry?

                    Mike

                  • toolpush says:

                    G’day Mike,

                    Ok this end, though I will be heading over your way next week. I need to balance some days out of the country, so will be visiting the in laws for a while.
                    I think we will get the good oil on the shale plays through the courts, when a few of them go chapter 11 or was that 7?

                  • Dennis Coyne says:

                    Hi Mike,

                    Would 200k cover P+A maybe, that can easily be added to the cost at the end of the wells life? If we discount these costs at a 7% real rate over 25 years, then in today’s dollars the cost is reduced to about $40,000. This could be added to the initial $8 million cost of the well, but I don’t think the effect will be very large. I could run the model with a little higher well cost in the future to account for this. I doubt you would have any interest though.

                    I appreciate your input and use the tidbits you share to try to make my speculation as realistic as possible.

                  • Dennis Coyne says:

                    Hi Shallow sands and Mike,

                    How about $500k for P and A costs?

                    Hi Shallow sands,

                    On your OPEX question for the LTO plays we could do a rough calculation of increased OPEX costs over the life of the well (say a 4% increase in OPEX per year) and then add it all up to find the net present value of those costs and add it in to the initial well cost, there may be a more sophisticated way to add this into the model, but I cannot wrap my brain around it.

                    Actually I think I have it, if we do not discount the OPEX, that would be the same as OPEX increasing by 7% per year (which might be too much), but we could discount the OPEX by 3% and that would be equivalent to a 4% increase in OPEX each year. Now I just have to modify the spreadsheet properly.

                    A chart will be posted in a wider are below if you are interested. I will include $100,000 for NPV of P+A costs after 25 years added to well cost and will account for increasing OPEX of 4% per year as described above.

              • I’ve worked in lots of places, so I guess it depends on where you are. For example, let’s say we are discussing Argentina. The pads are made with local gravel, the wells are connected with buried flow lines to satellite stations, which are equipped with a manifold, a test separator, a small unit to dehydrate the gas, a couple of low pressure pumps, the injection water manifold, and a remote telemetry unit. The oil and water are taken to treating plants, some of them are as far as 20 to 30 miles away.

                In this case well abandonment involved removing the pumping unit (we used 640 air balanced), picking up the cement slab, pulling the goodies with a pulling unit, and going through a standard abandonment. Afterwards we brought a grader and leveled everything, and the natural grass would cover everything. The land owners never complained as far as I know.

                Obviously, this is quite different for offshore platforms and wells. Remember I mentioned we had been using too high a discount rate in the North Sea? This induced us to design and install the wrong type of platforms, which today cost hundreds of millions of usd to remove.

                When it comes to these “shale” wells I would use a 10 to 30 well pad, maximize the use of gravel, and put the equipment on prefab cement slabs. But I’m not used to the helter skelter way things have been done in North Dakota.

            • We leave buried flow lines outside the USA. They require cleaning and filling with an inhibited fluid.

              However, if we are discussing the shale developments I would insist a multi well pad makes a lot more sense.

              Also, why is a well cared for 640 supposed to be scrapped? There’s going to be plenty of water with a little bit of oil. Are you really serious you junk pumping units nowadays?

              • Mike says:

                No, they are not scraped these days; I didn’t say that. I implied that all production equipment is hard to sell these days for 20 cents on the dollar, which does not make plugging wells for salvage highly profitable. For more info, please see Baker Hughes rig counts. These shale wells are not being manufactured anymore like KB Homes.

                This plugging deal is an issue based on speculation and I up to my hard hat in the here and now. Besides, it will be 12 years down the road before all these stinking shale wells need plugging. Maybe there will be more shale wells to put all that junk on, maybe not. Maybe 400 BTFPD with 2% OWR will be profitable to operate in 12 years, maybe not. Maybe 640’s will be selling like hotcakes, maybe they’ll melt them all down into KIA’s, I don’t know.

                Dennis, you are right, I would not care. Thank you for offering though. If all 25,000 Bakken and EF wells had to be plugged tomorrow, I would use 150K each. Multi well pads reduce the surface restoration costs on an incremental per well basis. Those plugging and decommission costs will go up at higher rates than inflation, IMO…anything having to do with the environment and corresponding regulatory compliance is going to skyrocket. Who disagrees with that? The first time somebody’s toilet urps salt water in N. Dakota, plugging costs might go up to 500K per well.

                And speaking of speculating, the big mighty Marcellus is two leaky toilets from never being frac’ed again. Those folks back East, they ain’t exactly very hydrocarbon happy. Some rings of Radon around the ‘ol kitchen sink down in PA and that Marcellus stuff will be all over in a New York minute.

                Mike

                • Dennis Coyne says:

                  Hi Mike,

                  Thanks. To account for rising P+A costs would using 500k make sense than rather than 150k? This would help to account for P+A costs rising faster than inflation, do you have a guess how much faster they have risen, 6% or 9% per year?

                  • Mike says:

                    You can, Dennis, I just don’t want to be the one saying that. At the moment I pretty much know what it would take to plug a shale well and clean the mess up. In the future, I have no idea. That’s guessing and you know how I feel about that stuff.

                    Everyone knows the microscope the oil and gas industry is under these days regarding frac’ing, groundwater contamination, produced water injection, pipelines, rail cars, methane venting and climate change. I am not so sure the need for fossil fuels will completely trump those issues in the future. They certainly haven’t thus far; New York (Radon), Denton (frac’ing), Nebraska (XL) and California (offshore drilling) come to mind, to name a few. It is a very, very precarious situation out there. The public is just looking for reasons to permanently stop frac’ing. The issue in Oklahoma regarding induced earthquakes is scary; as the world’s reserves decline, where are we going to put those oceans and oceans of produced water if injecting it makes Mother Earth’s tummy rumble?

                    I think those kinds of “extenuating” circumstances makes predicting the future of hydrocarbon extraction…impossible.

                    Mike

                  • Nick G says:

                    Wouldn’t the sensible first step be to filter and recycle the water, to reduce the volume that needs to be disposed by 80 or 90%?

                  • coffeeguyzz says:

                    Nick,

                    Chevron has been doing just that for years by providing Kern county’s water department with filtered produced water for irrigation purposes.

                  • Mike says:

                    To be very accurate Chevron (Vintage and others) has very low chloride produced water in Kern County than can cost effectively be treated and blended with reservoir water for irrigation purposes. That is unusual; most produced water is very high in chlorides and is not potable. Yet. Maybe someday.

                    Recycling produced water for frac purposes is becoming more common and will eventually be required, IMO…providing frac’ing is allowed, and there is anything left to frac.

                  • coffeeguyzz says:

                    Mike,
                    A few short years back, Lockheed announced a new, graphene based product they called Perforene.
                    They claimed it might be an effective material for membranes to desalinate economically, but they themselves, as a company, did not want to engage, rather willing to license the product/technology.
                    I haven’t followed any recent developments (if any), but maybe some fuzzy heads in a lab or garage somewhere will come up with something workable in the water recycling/reuse field.

                  • ezrydermike says:

                    Oil giant Chevron recycles 21 million gallons of that water each day and sells it to farmers who use it on about 45,000 acres of crops, about 10% of Kern County’s farmland.

                    State and local officials praise the 2-decade-old program as a national model for coping with the region’s water shortages. As California’s four-year drought lingers and authorities scramble to conserve every drop, agricultural officials have said that more companies are seeking permits to begin similar programs. The heightened interest in recycling oil field wastewater has raised concern over the adequacy of safety measures in place to prevent contamination from toxic oil production chemicals.

                    http://www.latimes.com/local/california/la-me-drought-oil-water-20150503-story.html#page=1

                  • Nick G says:

                    The general estimate for the cost of desalinating seawater is about $.25 per barrel. That’s water that’s pure enough for drinking.

                    That seems pretty competitive with disposal wells.

              • Synapsid says:

                Fernando,

                What’s an inhibited fluid?

  8. Boomer II says:

    This isn’t related to the posted topic but has been discussed at length in the comments throughout this forum.

    Beyond capitalism and socialism: could a new economic approach save the planet? | Guardian Sustainable Business | The Guardian

    • Dennis Coyne says:

      Hi Shallow sands,

      The Bakken case with 150 new wells per month from March 2015 to Aug 2027 is posted below. This increases well cost by $100,000 to $8.1 million to provide for end of life P+A after 25 years (net present value is $200k for $100k spent 25 years in the future) and OPEX is only discounted at 3% per year rather than 7% which is equivalent to a 4% annual increase in OPEX costs. These changes make very little difference to the scenario.

      • shallow sand says:

        Dennis: Thank you for considering increasing OPEX. Not sure how increasing OPEX in real terms causes there to be little change, but I don’t doubt your math. I do wonder about your assumptions, however.

        In 1997 OPEX on what I will call lease #1 was $11 and change per net barrel of oil produced. Oil price was in the low 20s early in the year, but as the year went on, it dropped, I guess due to the Asian financial crisis, to around $14. In 1998, the posted price averaged about $12, OPEX was $12 and change, and some months were down below $10, and below $10 continued into March of 1999. Then the price began to rebound, heading into the 20s in the second half of 1999, and in 2000 the price averaged over $27 per barrel. OPEX on lease #1 was still around $11 and change in 1999 and 2000. Went from dire to making money hand over fist, at least in my mind.

        I realize that there has been inflation since those years, and I am talking about a time period 15-18 years ago, which is a long time. However, you are looking out 15 years in your analysis. It looks to me that CAPEX and OPEX have quadrupled from late 90s to now. If I am wrong, point to the data. I am just going off our experience, plus what I could glean from XON/XOM 10K from those time periods.

        What if we have another triple or quadruple between now and 2030? What would oil prices have to reach to justify investing that kind of CAPEX and paying that kind of OPEX?

        Also, I really think once well completion in the “shale plays” slows significantly, there will be a big ramp up in OPEX per barrel, due to lack of flush, flowing production. I have referred to how our best well drilled cut OPEX per barrel big time on a lease that already had 16 producers. Each of those producers was averaging about one bbl per day. The new well came in over 30 and hung in over 20 for a few months. OPEX per barrel, of course, was cut by more than half because the new well only added about 1/17 to total OPEX for the lease.

        Dennis, I may be wrong about my views, time will tell I suppose.

        I second what you said earlier about this forum. We all may not always agree, but the diverse views, with respect shown for serious posters, make this forum work IMO.

        • Dennis Coyne says:

          Hi Shallow sands,

          I agree it is more interesting when we don’t agree.

          First lets say costs quadruple in 20 years in nominal terms and let’s assume over that period the average inflation rate is 3%/year on average. That is about a 4% per year rate of increase in real terms (7%/ year in nominal terms over 20 years). We could try a 5.4% increase in OPEX per year (that would be like OPEX increasing by a factor of 6 over 20 years or we could even have OPEX increase by 7% per year. Just let me know what you think is reasonable and I will run the scenario, its pretty easy now that I have changed the spreadsheet for my Bakken analysis (I haven’t done this yet for the Eagle Ford).

          To be honest I thought the effect would be bigger than it was.

          On the CAPEX some of the increase has been because of depletion and fewer good prospects.

          This will happen in the Bakken, but I expect well costs will be flat (the investor presentations say they will fall), if the well costs rise, the model will be wrong. So far they have been falling.

          Remember I work in real terms.

          • Dennis, the better method is to use a function of well count which can be run from a single field office, the oil, gas, and water rates. The well count is used to account for fixed costs. The three fluids are used to estimate variable costs.

            I’m used to seeing data for large operators which keep costs segregated by sectors, using a central treating plant as the central cost code. The costs can be coded into say 40 different line items, some are charged to the well, some to the field, some to the plant, and so on. This allowed me to set up cost functions. But I can’t share the data. I think you can get some of the guys to give you hints.

  9. clueless says:

    Has anybody on this site come across “L. David Roper” as I did a short while ago? A retired theoretical physicist with a PHD in Physics from MIT in 1963. He had a stellar career that included work for Lawrence Livermore Labs and CERN in Switzerland. He has a bunch of stuff on the internet, and as best as I can tell, no experience with the oil and gas industry. He has a variety of interests. On his home page you can read about “Antimatter Propulsion” for example.
    He has posted a mathematical model of reserves and production for many areas in the US – Bakken, Eagle Ford, Marcellus in Pennsylvania, OK, etc. Way over my head – I feel like a 6 year old that cannot read, but looking at a magazine because of the pictures. He has good graphs. Are they right? I have no clue, maybe someone on this site can critique his mathematical analysis, but I cannot.
    Google “roperld.com/science/minerals” and go to his recent article [March 22, 2015] “Crude-Oil Boom and Coming Bust in In United States.” Ron should love this guy. If Roper is right, so is Ron [or vice versa]. He sees TSHTF in less than 10 years, and in about 2 years for the Bakken and Eagle Ford.
    I am not going to bet the farm on any one person, but this guy is so intelligent, one has to assign some level of credibility to his work.

    • I didn’t find what you pointed out, but I found other pages. He seems to be a heavy number cruncher, but he has a bit of a disconnect. I’m not sure, but I may contact him and discuss how he can improve what he’s doing. He sure looks really smart, just needs a bit of real life anchoring.

    • Patrick says:

      Triple
      Threats
      for the Human Future

      http://www.roperld.com/science/HumanFuture.pdf

      1. The next few years to decades:
      Crude oil and natural-gas availability for the World will start declining soon, with probable dire consequences for social organization. This is Threat 1.
      2. The next few decades to centuries: Anthropogenic Global Warming (see Glossary) will cause drastic changes in climates and may even cause the third Threat to happen sooner than centuries or millennia. This is Threat 2.
      3. The next few centuries to millennia: The next Major Ice Age (see Glossary) will probably begin within the next 1000 years, one of the many Major Ice Ages that have occurred about every 115,000 years for, at least, the last million years. About 10,000 years from now, the Earth ’s temperature will be several Celsius degrees colder than at present. This is Threat 3.

      • Boomer II says:

        So he is covering both bases, predicting warming and an ice age, though not at the same time.

        • Boomer, his prediction is fine in a gross sense. We ARE supposed to enter a glacial age any time. But the detailed orbital forcings are a bit different from previous cycles. This is currently under study by Dr Mueller’s group at Berkeley. But I haven’t seen any results to date.

      • MarbleZeppelin says:

        The radiative forcing that causes an ice age is negative 0.5 to 1.0 watt/ meter2. The global warming radiative forcings add up to over 3 watts positive. The effects of CO2 global warming alone will last over 5000 years. The effects of losing the Arctic sea ice sheet and portions of other ice sheets will have a 3 to 6 watt positive effect. The effects of additional methane and CO2 release from melting tundra and undersea deposits is unknown but will be larger than 1 watt/meter2.
        That is why many experts think that the next ice age will be bypassed. We may even go into a warm world scenario again where ice ages don’t reappear for millions of years. Orbital wobble is the smallest effect in the list.

        The decline of oil and natural gas will probably be the best thing that could happen.

        • Blake Dupree says:

          Truthfully, the only thing constant about our earth’s climate is that it constantly changes. The planet has been an ice cube many times over and waterworld many times over as well, and it inevitably will end up being both again regardless of the all the skim on capitalism the left is able to muster so as to monetarily empower their economic wish lists and handicap American free enterprise enough so as to make leftie economics even remotely viable…which is what’s really going on whenever the scientists come up with a new climate change proclamation.

          • Dave P says:

            These climate bots / trolls are getting pretty old. It’s always the same rhetoric, this one however left out the obligatory bible quote at the end. Lift your game Blake Dupree, the bible quote is an important part of your appeal to idiots!

            • clueless says:

              Dave – you need to step up your game. You should always use the tried and true, most sophisticated argument that your ilk has ever come up with. It is: call everyone a “denier.”

              • Dave P says:

                Meh, why bother. I have other words I imagine but won’t use here.

                It’s not like it would change your mind anyway. Good luck with your fossil fuel campaigning and the fight to save us from the communist worldwide conspiracy which is being lead by scientists against free-market neoliberal capitalism. The communist scientists want to take our freedom away

                Jesus blah blah blah 171:76:532……

        • The current net forcing is about 0.5 to 0.6 degrees C. What happens thereafter is the subject of debate. For example, at this time the total sea ice cover isn’t dropping, and the average surface temperature hasn’t increased in a meaningful fashion during the 21st century. I think there’s an excellent chance the temperature will be just fine. Time will tell, I guess.

          • Dennis Coyne says:

            Hi Fernando,

            Net forcing is measured in Watts per meter squared. Some of the excess heat is being absorbed by the ocean rather than warming the atmosphere.

            See http://contextearth.com/2015/01/30/csalt-re-analysis/

            A crude attempt by me to reproduce Paul Pukite’s CSALT model in chart below.

            • Dennis, my goof. You are right, it’s watts per m2. There’s no excess heat. The 0.5 to 0.6 is derived from ocean energy uptake (I did my own estimate).

              The fact that we are not seeing a temperature increase is very significant, because it’s either being absorbed by the ocean below the thermocline, or there’s a feedback effect we can’t account for, or the sun has a bigger impact we can’t link to the climate?

              Anyhow, what’s pretty evident is that GCM (climate models) can’t really match what we see (CSALT isn’t a valid climate model, it’s a data match tool). I suspect it’s a lot more complex than the models can work out, and the politics get in the way (you should see the way a guy called “Mike Hansen” reacted to my critique of the RCP8.5, he started along the typical lines, patronizing insults and so on and so forth). Without the darned politics we could make a lot of progress to dovetail peak fossil fuels with global warming.

  10. Dean says:

    The latest US natural gas dry production data are out:
    Sep-14 71.7
    Oct-14 72.1
    Nov-14 73.1
    Dec-14 74.7
    Jan-15 73.6
    Feb-15 74.2 (Bcf/d)

    http://www.eia.gov/dnav/ng/hist/n9070us1m.htm

  11. ezrydermike says:

    meanwhile, in the who really saw this coming file…

    Exxon Mobil Corp., BP Plc and other major oil producers beat analysts’ profit estimates by an average of 46 percent for the first quarter, according to data compiled by Bloomberg. The companies, along with Royal Dutch Shell Plc, Eni SpA and Total SA, raked in more than $15 billion in combined quarterly profit after the worst oil price crash since 2009.

    It wasn’t that the results were that impressive in a bear market — most companies reported profits down around 50 percent from the first quarter of 2014. Rather, the earnings show how far off estimates were. More specifically, they show how much easier it is to model profit estimates from producing oil than from refining or trading it, which is where most of the bigger companies saw earnings surge for the quarter.

    http://www.bloomberg.com/news/articles/2015-04-30/wall-street-models-fail-as-big-oil-crushes-estimates

    • Boomer II says:

      So, could one say that the big oil companies are actually benefiting from low oil prices?

      • shallow sand says:

        Integrated oil and to a greater extent, refiners. Look at Marathon Petroleum earnings.

        • Boomer II says:

          Yes, the spread. Buy it cheap, sell it for something more.

          • MarbleZeppelin says:

            Chart of gasoline prices and oil price.

            • Boomer II says:

              So looking at this, we can see that price of gasoline comes down at a slower rate than the price of oil, and then begins to rise before oil does.

              Gas prices appear to be less volatile than oil prices in terms of ups and downs which could allow the big oil companies to make money during favorable spreads.

              • MarbleZeppelin says:

                Gasoline does seem to have an upper limit in price and does not swing as high as crude oil prices. However, the information we really need is the margin between wholesale gasoline prices and retail. I just saw wholesale gasoline prices rise 13 cents and retail went up about 4o cents. It also appears that retail gasoline prices rise quickly with crude price rise but fall slowly after crude falls in price. Essentially it appears that the retail market is making extra money on each upswing and delaying price reduction.
                That is the info to look for. Favorable spreads may be happening at several levels. Of course, favorable for whom is the question?

                • Boomer II says:

                  Favorable spreads may be happening at several levels. Of course, favorable for whom is the question?

                  Yes, I agree.

                  I was just thinking aloud based on the article which said the big oil companies did better than expected. So I was wondering the extent to which low oil prices helped rather than hurt them. Of course, they are doing worse as producers, but in terms of selling product to the public, as long as they have a way to make money on the spread, they come out ahead.

              • The high refining margins are probably caused by the refinery ability to buy cheap light oil, make gasoline and export it abroad.

                In a sense the USA government policy is to discourage small producers and help the larger companies. The same applies when the government tries to restrict pipelines from Canada, this allows Midwest refineries to gain access to cheaper bottlenecked Canadian crude, thus increasing their profits.

            • Nick G says:

              You could also adjust for the cost of refining, which is relatively fixed. If you remove that fixed factor, the variable costs will look different: gasoline prices will be seen to fall more quickly.

          • MarbleZeppelin says:

            Gasoline as a fuel source has an extremely variable price. Prices of gasoline for a decade, starting back when peak oil was supposed to initiate. Very chaotic way to run a system.

    • TechGuy says:

      ezrydermike wrote:
      “Exxon Mobil Corp., BP Plc and other major oil producers beat analysts’ profit estimates by an average of 46 percent for the first quarter”

      Makes sense. Oil companies started cutting CapEx back in 2013 and focused on profitablity. So it makes sense that profits are up. However, without a steady investment to replace depletion, production is going to fall. We saw just recently that Shell bought BG group for $70B since it cheaper to replace depletion by buying other driller ($70B) than invest $140B in Cap Ex to bring expensive Oil to the market. Perhaps this will go on for a few of years, until there are no more drillers with available reserves to buyout. If you could exclude the possibility of a global recession, you could make a killing, by just buying stocks of the mid size drillers and patiently wait for the big companies (Exxon, BP, etc) to buy them all up, at a premium. That said the flaw is that with the US GDP stalling (0.2% for Q1 2015 and perhaps 0.8% for Q2 (preliminary estimate), Poor PMI in China, and Basket case EURO (Greece exit), the odds favor another global recession in the next 12 months.

  12. MarbleZeppelin says:

    I wonder what would happen to prices if we all just cut our use by of liquid fuels by 20 percent.

    • Within what period of time? In three years they would be around $60 to $70 per barrel. The marginal producers would stop producing, decline rates would do the rest.

      • MarbleZeppelin says:

        I have managed to reduce my fuel usage for vehicles by about 80 percent over the past decade. I would think that a 20 percent drop could be easily achieved with some simple changes in driving and travel habits. That level of reduction could be achieved in a very short time (days to weeks).

        If 15% of drilling is not viable financially then a 20% cut in fuel use would take care of that. The Europeans use about one half of the fuel per capita compared to the US.

        • Watcher says:

          Why? To save more for Chinese growth?

          • MarbleZeppelin says:

            If demand for oil products rises, price will rise. Price will rise because the new oil is so much more expensive to obtain and maintain production.
            Since 2000 the oil and gas industry has taken over an area of land in the US equivalent to Massachusetts and Rhode Island combined. The price for oil is far higher than what we pay at the pump.

            If demand falls appreciably, price will fall, production will level and fall. So what oil will the Chinese get, the stuff that is not produced in North Dakota and Texas? Maybe the Russians and Chinese will ride the Red Queen of source rock fracking in their own territories. Then they too can find out the economics of modern oil production.

            If you don’t want the Chinese to grow their economy, don’t buy Chinese produced products. Oil doesn’t grow their economy, using a lot of stuff they produce does. So stop being a big time consumer and save yourself a lot of money.

            • TechGuy says:

              1. You really can’t get people to voluntary cut consumption. If consumption did drop, prices would too, and permit more people to consume. In the US consumption fell by about a 1/3 from the Peak back in 2007/2008. Prices collapsed from about $147 bbl in July 2008 to a low of about $30 in Jan 2009. Since Jan 2009, consumption of Oil in the US has slowly risen.

              Marble Wrote: “If demand falls appreciably, price will fall, production will level and fall.”

              That simply not going to happen until another recession or depression begins. People will not cut consumption. Only probably 5% to 10% of the US population knows what “Peak Oil” is, and of that 90% don’t believe it true, or will ever happen anytime soon. You would have better luck convincing the entire congregation of a mega-church that god doesn’t exist than convincing an entire nation to cut consumption. The only thing that will control consumption is price and availability.

              Marble Wrote:
              “If you don’t want the Chinese to grow their economy, don’t buy Chinese produced products.”

              China’s economy does not need the US economy to drive its demand for Oil. China is already on its way to become the next USA when it comes to energy consumption. Chinese consumers are buying cars, and they are building, or have already built freeways. I believe Chinese domestic auto sales has exceed US auto sales for several years now. You can’t unsee something, and you can’t un-petro China either.

              • M. Zeppelin, people react to price changes, but it takes time. Their consumption habits are tied to price with springs. Some are stiff, others are like slinkies.

              • MarbleZeppelin says:

                My TechGuy, what impressive sweeping and general statements you make.
                You stated “you really can’t get people to voluntarily cut consumption”. Then why do I see it all around me, happening right now? With me it only took becoming educated and knowledgeable about energy and it’s real effects on me and the world. Once people realize that they are more economically secure by being conservative,
                once they realize how much less damage they do by avoiding excess travel and consumption, they change their ways. The trend everywhere is toward efficiency, economy and environmental awareness.

                As far as China goes, your statement about “China is already on its way to become the next USA when it comes to energy consumption. ” is laughable. Most of their energy goes to commercial and industrial production. You are saying they will raise their energy use by over three times? With what, three to four times more oil, coal, nuclear, gas? I doubt it highly. Where would it all come from? How would they breathe?
                That is what it will take to match US per capita energy use. Even here in the US the trend is shifting away from excessive energy use.

                • TechGuy says:

                  Marble Wrote:
                  ” With me it only took becoming educated and knowledgeable about energy and it’s real effects on me and the world.”

                  Sorry to say, that just not the norm. If the price of energy fell, consumers would use more of it. That just the nature of economics. The Soccer mom with four kids is not going to care. All they will see is lower fuel prices and take advantage by buying a bigger vehicle, going on vacations, or perhaps move out to the burbs to for better schools, neighborhoods, etc.

                  ” Most of their energy goes to commercial and industrial production. You are saying they will raise their energy use by over three times? ”

                  No, I am saying that Chinese consumers will go on buying cars and all the other things Americans do. If price of energy falls, it will make it more affordable for them, and they will purchase more vehicles and consume more. Since production is peaking, they can’t consume more that available supply, but of the West constricts its consumption, that amount will be available for consumption in Asia.

                  “Even here in the US the trend is shifting away from excessive energy use.”

                  Yup, as US companies shifted production to China so has Industrial energy consumption. As US moved production to China, Industrial energy use in China increased, while US Industrial use decreased. Nothing has changed, just where it happens.

                  “My TechGuy, what impressive sweeping and general statements you make.”

                  You make broad generalizations too and broad assumptions that don’t make any sense. To keep replies reasonably short, I can’t post detailed analysis. Although, It should be apparently obvious if you apply some critical thinking to your own assumptions.

                  • MarbleZeppelin says:

                    You have a very cynical view of people, modeling them as sheep with no capability to think on their own. Which of course is quite incorrect. If the price of food was halved would I buy twice as much food? No. If the price of fuel was halved would I buy twice as much fuel, did anybody buy twice as much fuel because it did go to half. No, only a little more. If the price of anything went to one-half would I buy twice as much? No, I buy what I need.
                    So with your basic assumption about how people act basically erroneous, it is good you didn’t waste time on details to end up in my circular file.

                  • Han Neumann says:

                    ” If the price of fuel was halved would I buy twice as much fuel, did anybody buy twice as much fuel because it did go to half. No, only a little more.”

                    More people would buy SUV’s (again). That is exactly what is happening in the U.S. and China now, and although modern SUV’s are more fuel efficiënt, fuel use goes up more than only a little. Still not enough increase of EV’s to offset this effect.

                  • TechGuy says:

                    Marble Wrote:
                    “You have a very cynical view of people, modeling them as sheep with no capability to think on their own.”

                    Nope, I am just a realist.

                    Marble Wrote:
                    “If the price of food was halved would I buy twice as much food?”

                    Yes, Consider if Steak, and other expensive food reduced half in price, you would certainly eat more quality or expensive foods. Another example, if Organic food was cheaper than GMO food, which would you buy? You seem to only look at the surface and do not think about the details.

                    Marble Wrote:
                    “If the price of fuel was halved would I buy twice as much fuel, did anybody buy twice as much fuel because it did go to half.”

                    Your not looking at the bigger picture, if you spend less of your income on fuel, you’re likely use the savings to buy other stuff, which needs fuel to be delivered to you. One of the reasons why the “real” unemployment rate (ie people longer in the labor force) is high is because energy is expensive. People are spending less because costs for fuel and goods have risen. Less consumption means less production which means less workers needed.
                    Perhaps if you google: “Jevons Paradox” you’ll get a better understanding.

        • clueless says:

          You can never compare European use to US use. Europe is too small. Compare European per capita use to per capita use by residents of metropolitan New York.

          • Use Pennsylvania.

          • MarbleZeppelin says:

            Clueless, Europe is larger than the United States. It has almost twice the population of the US and a similar GDP. Where do you come up with these “facts”?

          • Ilambiquated says:

            If distances traveled were the issue, American transportation would be more efficient than european transportation. But it is much less efficient.

    • clueless says:

      Great post! Very informative and educational. I wonder who will win the boxing match tomorrow night?

    • aws. says:

      If driving is believing, 2015 Ford F-150 is the best one yet

      By: Jil McIntosh Special to the Star, Published on Thu Oct 09 2014

      Fuel economy increases as well with the weight loss. Those numbers won’t be available until closer to the on-sale date later this year, but Ford says to expect a five- to 20-per-cent improvement depending on the engine.

  13. Ron, love your work. If possible, please keep an eye on the water cut of new completions as I think that will tell us of the decline in quality of what is being drilled in the Bakken.

    • coffeeguyzz says:

      Mr. Archibald,

      If one does not take into account the shift by more and more operators into using slickwater fracs, the monitoring of produced water may give skewed results versus earlier wells.
      Slickwater is increasing output by 30%/50% over crosslinked according to several company reports. To further muddle the issue, some companies are combining crosslink and slickwater during different times of the frac for each stage.
      The difference in the amount of water used is significant as 200,000 barrels of water and up are being used in some fracs. (Earlier fracs might use 1/10th – 1/4 that amount).
      While the 5/10 day post-frac period will recover the so-called flow back water, between 60% to 80% of the originally injected water remains and will only partially resurface over the ensuing years.

      • Has anybody tried using larger pipe with viscosified water?

        • coffeeguyzz says:

          Fernando,
          I don’t understand your question. The crosslinked increases viscosity to enable more proppant to be carried supposedly farther (esp upwards in the fissures) , but the ‘gumming up’ of the fissures has been considered more pronounced versus slickwater.
          As far as larger pipe, it seems that the original ‘shock’ opening up the fissures is both critical and highly desirable for an effective frac. If by utilizing larger pipe you surmise higher pressure/flow might be achieved, the huge no-no in these operations is creating fissures that draw all the fluid into the now ‘path of least resistance’. Reports by all sorts of analysis claim over one third of all entry points have contributed little or no production whatsoever.
          If you get to scan through Continental’s August/September’s (?) presentation – bout 110 pages – it contains outstanding technical info on current frac’ing particulars as well as a real-world ‘view’ of the created fissures of an actual 12/14 well frac.
          Great stuff.

  14. TechGuy says:

    FYR (For your reading):
    http://www.ft.com/intl/cms/s/0/01948d2c-ef49-11e4-a6d2-00144feab7de.html#axzz3YqZTR6bp
    Saudi Arabia burns through foreign reserves

    “High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/01948d2c-ef49-11e4-a6d2-00144feab7de.html#ixzz3YqZprYyj

    “The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz Al Saud dips into Riyadh’s rainy-day fund and increases domestic borrowing to fund public-sector salaries and large development projects.”

  15. Anonymous says:

    I think the important thing to draw from the last few months is this: U.S. shale production has likely peaked, but there’s enough money in the system (for now) to keep things at a production plateau of 2013 levels for the next 5 years or so.

    What this means is that the world can no longer rely on the U.S. to bolster production. When demand catches up within the next few years (and it will as long as that delicious QE money keeps flowing), the price will see extremely high increases.

    My prediction that we’ll see another major (and possibly fatal) financial crisis by 2020 isn’t a novel one, but I am sticking to it.

    • I think the important thing to draw from the last few months is this: U.S. shale production has likely peaked, but there’s enough money in the system (for now) to keep things at a production plateau of 2013 levels for the next 5 years or so.

      Five years or so! Hell no, not even five months. Production has already started to decline.

      • Boomer II says:

        Yes, I think the difference is money versus oil.

        Even if the money is there, if there aren’t more productive wells to be drilled, the decline comes.

      • Anonymous says:

        Of course, it has started to decline, but I don’t see an inexorable decline back to pre-2010 levels in the same time frame. We’ve hit a bottom in the price back in February, so unless another financial crisis hits, more and more wells will become profitable as the price inches back up.

        The decline will not be as slow as the EIA and others think. But that’s not the important part. Even if we magically kept production at Dec. 2014 highs, that surplus will be eaten away by increasing global demand. And even with high price increases, I do not think we’ll see so much oil go online as rapidly as it did in Bakken.

      • Han Neumann says:

        “Five years or so! Hell no, not even five months. Production has already started to decline.”

        So you strongly disagree with the production forecast given by Dennis in his recent guest post ?

        • Yes, but that is not unusual. Dennis and I often disagree on such things. If we all agreed on everything things would be really dull around here and there would be no need for this blog. It would only be a mutual admiration blog if we all agreed on everything.

          Of course it all depends on price. If the price rebounds to above $80 a barrel by years end, then LTO will pick back up again. But if it stays in the range it is today then it’s all over for LTO. Shale drillers will keep dropping like flies.

          • Dennis Coyne says:

            Hi Ron,

            One thing that is not clear to me is what you think will happen to the oil price and how sharply you expect output to decline. I think an output plateau over the next 12 months (where a plateau is +/- 2% of present output levels). Let’s take Bakken and Eagle Ford, the trailing 12 month output is 2462 kb/d for the two plays combined. I think over the next 12 months the trailing 12 month average output will stay above 2410kb/d for the two plays. How much do you expect the trailing 12 month average combined output of the Bakken and Eagle Ford to fall over the next 12 months?

            Let’s say output falls by 500 kb/d. Wouldn’t you expect oil prices to rise and that this would cause output to recover back near previous levels (maybe 100 kb/d lower than the previous peak). There are a lot of wells that are waiting to be fracked in the Bakken, Eagle Ford, and Permian basin, how low do you expect the monthly completion rate to fall in the Eagle Ford and Bakken?

            By my estimate there were about 180 new wells completed in the Bakken in March and I expect output in March will be between 1.13 and 1.17 Mb/d with my best guess 1.15 Mb/d. In the Eagle Ford there were 132 new wells added in March and output will be between 1.38 Mb/d and 1.41 Mb/d with my best guess at 1.395 Mb/d. Output will be about the same as Feb (or 20 kb/d higher which is a rounding error).

            • One thing that is not clear to me is what you think will happen to the oil price and how sharply you expect output to decline.

              As I have stated many times before, I have no idea what will happen to oil prices. I have given up on trying to predict oil prices other than state that there is a limit to how high they can go before they start to adversely affect the economy. And one place we differ Dennis, is that it is my opinion that it simply doesn’t matter how fast or how slow oil prices climb, it will have the same effect on the economy. Because prices may increase slowly does not mean they will affect the economy one whit less.

              But your question had two parts, price and decline. If WTI prices stay beteen $50 and $65 I expect total US production to be down by 500,000 bpd by years end.

              Let’s say output falls by 500 kb/d. Wouldn’t you expect oil prices to rise and that this would cause output to recover back near previous levels (maybe 100 kb/d lower than the previous peak).

              No, 500 kb/d is not enough to causes to recover that much, not nearly enough. OPEC is up almost twice that amount in March and April.

              All the very good wells are now being fracked in both the Bakken and Eagle Ford. And North Dakota has a tax that drops off after June 1st so I expect a high numbers of new wells there in June and July. However even with all that I expect production to continue to decline, slowly right now but picking up steam toward the end of this year.

              Of course that is just my wild ass guess. Yours may be better.

              • Dennis Coyne says:

                Hi Ron,

                Actually we are in agreement on the second part I think.

                Let’s set aside whether when the economy in real terms is 50% bigger, whether higher oil prices will be as much of a problem, we will just have to disagree on that point(I tend to agree with James Hamilton’s analysis).

                A big difference in our perspectives may be simply that I think oil prices will rise to $80/b (at least) by Oct 31, 2015. If I am wrong and oil prices remain under $60/b for the remainder of 2015, then output will decline in the way you forsee. A low scenario for the Bakken and Eagle Ford with oil prices fixed at $60/b and 75 new wells per month added in the Eagle Ford and 60 new wells per month added in the ND Bakken/Three Forks is presented below. Output falls for these two plays by 600 kb/d by Jan 2016, falls in Permian output would add to this probably another 200 kb/d for an 800 kb/d fall for the big 3 LTO plays. So your WAG is definitely in the cards if oil prices stay low.

          • Puffalar (Your Five-Alarm Puff) says:

            “If we all agreed on everything things would be really dull around here and there would be no need for this blog. It would only be a mutual admiration blog if we all agreed on everything.” ~ Ron Patterson

            Agreed! ^u^

        • Dennis Coyne says:

          Hi Han,

          Ron does a great job of allowing many views to be voiced on his blog.

          I wholeheartedly agree with Ron that life would be pretty dull if we all agreed on everything. I also agree with Ron that in most cases we do not agree on many different subjects such as when peak oil will occur and on what will happen after the peak.

          • Han Neumann says:

            “I wholeheartedly agree with Ron that life would be pretty dull if we all agreed on everything.”

            Well gentlemen, that is why I wanted to evoke your comments. ‘My’ opinion is that the number of well completions the next, let’s say, 6 months depends mainly on the price of oil. Apart from the supply/demand factor on oil prices, and if a drop in shale-oil production of 0,5 mb/d is enough to alter significantly the supply/demand balance, there are at least two other issues that could and will affect oilprices. The Yemen conflict and the psychological effect of LTO production dropping, no matter by how much.

      • MarbleZeppelin says:

        Ron is right. The oil prices are rising at a startling rate because it is now obvious that the top end will be skimmed off production soon and futures are rising. Of course at this rate oil will be $75 in about 1.5 months, which may encourage some investors and banks to think that this was just a temporary dip. I expect a roller coaster ride but mostly toward the upside of pricing.
        Personally I am preparing for $3.50 gasoline and upward.

        • Han Neumann says:

          MarbleZeppelin,

          IMHO the rise is caused mainly because of the Yemen/Iran/Saudi Arabia conflict and pessimism about (soon) reaching a nuclear deal with Iran. The dropping rig count (although maybe still not that important as Dennis explained, but the majority looks only at rig count), stalling LTO production rise or even slight decline and less than expected oil inventory rise at Cushing the last weeks, does the rest.

    • I’m not sure anybody in the industry was expecting the USA to bolster production. The current light oil surge is rather unique, driven by easy financing, very aggressive small and medium size companies, and incompetent regulatory authorities in Texas and North Dakota.

      I have had access to large data bases which provide insight on the thinking of a broad sample of oil companies. I didn’t sift through these trying to pick off confidential material, I was consulting for them trying to help them improve their operations. What I saw was a gradual shift to gas rather than oil, plans to move into very tough and expensive environments, keen interest in extra heavy oil and deep water, and work to improve water floods, select and implement EOR, and cut costs.

      But the world isn’t only the USA. When the prices return to the $100 level we will see much more activity in Canada, Colombia, Argentina, Central Asia, East Africa, and places like that. All of them will be active, but they will only contribute significant amounts of oil if the price is much higher than today’s $60 per barrel.

      This is where I see the “experts” who write for large newspapers have a disconnect. I can go over my head country after country and field after field, factor in the politics and tax loads, and I don’t see how oil prices can drop below $80 for a significant amount of time.

  16. scsnospam says:

    What do you guys make of this? How much does hedging affect prices in general? Seems Whiting is 30% hedged, I have heard OAS was 50% hedged through half the year.

    http://www.bloomberg.com/news/articles/2015-04-30/oil-producers-sale-of-future-output-puts-a-lid-on-price-gains?cmpid=yhoo

  17. robert wilson says:

    Re cornucopian predictions. I debated Michael C Lynch at various sites two to three decades ago. Many USENET posters were cornucopian. Jay Hanson bested all. Lynch was always polite, even with Jay. But very hard to pin down. Here is one example lifted from a post at Gail Tverberg’s blog.——————————————————————————————————————————————————–

    “Before there was energy resources and its children, there was the
    Usenet with sci.geo.petroleum and sci.energy. Michael C. Lynch
    posted (mclynch) as did Jay Hanson and others. These posts are at
    least partially archived at google groups. The search engine works.
    Here is an excerpt of a post by mclynch dated Nov 10 1999, 12:00 am.
    It was in response to a quotation by L.F. Ivanhoe on peak oil.
    http://hubbert.mines.edu
    —————–
    …We have huge amounts of petroleum resources left and there is no
    constraint on the ability to deliver oil products (gasoline,
    etc.,which is what counts) for an extremely long time, easily more
    than 100 years. …
    Michael Lynch, Center for International Studies, M.I.T.”

    • TechGuy says:

      ” I debated Michael C Lynch at various sites two to three decades ago. Many USENET posters were cornucopian”

      LOL! And not much has changed since then! The only difference is USENET has been replaced with Facebook & Twitter.

    • Mr Lynch forgot those huge amounts of resources would require ever increasing prices to justify extraction. The IPCC has a built in flaw in their greenhouse gas emissions forecasts. They prepared their system models with total disregard for the economics of fossil fuel extraction. This means a lot of follow up work is a waste of time.

  18. ezrydermike says:

    Tesla has finally taken the wraps off Tesla Energy, its ambitious battery system that can work for homes, businesses, and even utilities. The system breaks down into two separate products: the Powerwall is a home battery system, that comes in a 10 kWh version for $3,500, or a 7 kWh model for $3,000. The unit is about three feet by four feet in size and six inches thick, and comes with integrated heat management and can fit either on the inside or outside of the wall of your home. The system is connected to the internet — Elon Musk said that the system can be used to create “smart microgrids” — and can be used as a redundancy system, or potentially allow a home to go off the power grid entirely. “The whole thing is a system that just works,” Musk told reporters during a briefing this evening.

    The big brother of the Powerwall is what Musk and his team are calling Powerpack — and it’s where things get really interesting. They describe it as an “infinitely scalable system” that can work for businesses, in industrial applications, and even public utility companies, that comes in 100 kWh battery blocks that can scale from 500 kWH all the way up to 10 MWh and higher. “Our goal here is to change the way the world uses energy at an extreme scale.”

    http://www.theverge.com/2015/5/1/8525309/tesla-energy-elon-musk-battery-announcement

    • They don’t discuss prices for the industrial applications. I’m going to be generous and run a curve fit for the two prices they mentioned (for home applications), and estimate what it would cost to install 100 MW of self sufficient solar power generation in southern Spain.

      • Done. A solar power system able to deliver power 100% of the time will have to receive about $0.33 to $0.40 per kWh to make a fairly mediocre return. I gave it the benefit of the doubt, very easy financing, and energy storage costs much lower than the costs one would get from Tesla. I suspect the Tesla solar and battery kit will deliver energy at around $1 per kWh when installed in a rich guy’s home.

        • Nick G says:

          Imagine you’re back in school, and the teacher is saying: “show your work!”. We need to see your calculations to give this analysis credibility.

          That said, I would guess that you’re figuring in the cost of a week of storage, assuming normal consumption. That’s unrealistic, as we’ve discussed many times.

          I seem to remember someone saying we should keep the developing world in mind, and not just consider uses in the US and Europe. Who was that??

          In this case, think of the tens of millions of business owners and upper-middle class homeowners in India, China, Pakistan, Iraq, Afghanistan etc., who use their generators for 1-20 hours per day, paying 30 cents or more per kWh. They can buy a solar system that provides power for about 15 cents per hour for direct power about 8 hours a day, and use the Tesla battery as a substitute for *most* of the rest of the diesel generation: much quieter, much more reliable, and a bit cheaper at about 25-30 cents for the timeshifted power (15 cents for the PV, 10-15 cents for the amortized cost of the battery per charge-discharge cycle).

          Really, a no-brainer.

    • Fred Magyar says:

      Come on Bro! Give it up already, everyone knows that energy is synonymous with fossil fuels. Nothing other than fossil fuels will ever work. Well maybe with the exception of nuclear. So between those two sources, alternatives such as wind and solar don’t stand a snowball’s chance in hell. The main reason alternatives are not viable is because there will never be a battery storage technology that will allow them to compete with fuels such as coal and natural gas. Furthermore we need a centralized distribution system in the form of an electrical grid to maintain an industrial civilization. People who want to go off grid or form communities with local micro grids are mostly green commies who who are ideologically against capitalism, these people are truly evil! They are even propagating this monumental hoax that CO2 emissions are causing climate change and ocean acidification. This is ridiculous! If you want to know more about these dangerous radicals and how they intend to undermine the fossil fuel industry and power company monopolies then check out the organizations that are supporting ‘The Future is Clean’ initiative at http://www.solarimpulse.com/

    • Watcher says:

      Avg US residential power consumption (per EIA) is 909 KwH per month. That’s 30.3 KWh/day? http://www.eia.gov/tools/faqs/faq.cfm?id=97&t=3

      This thing has 7 Kwh in it? So you spend $5K for something that will need replacing eventually and gives you a few hours of power during an outtage. Better you just drive to a bar and watch TV there until the power comes on. Cheaper.

      These shills are going to pimp these things to New England and tell them if they lose power for a week in a blizzard, they’ll still have heat.

      Complete crap.

      • Fred Magyar says:

        Avg US residential power consumption (per EIA) is 909 KwH per month. That’s 30.3 KWh/day?

        Awww, I almost feel sorry for them.
        I guess a lot of people are just going to have to adapt to a new reality now, won’t they, eh?!

        As for the people in New England they will have to learn to sleep with down blankets and their dogs.

        For the record, I know a lot of people around the world who could live very comfortably with only 7 Kwh of storage right now. Most Americans don’t have a clue!

        We’re Not Facing a Shortage of Energy, But a Longage of Expectations.
        Nate Hagans

      • SW says:

        Well, if you have electric heat you aren’t really thinking straight. Another reason why natural gas should be reserved for the premiere heating resource it is rather than wasting it on electrical generation which can be accomplished by other means. I feel like I squander electricity in my 2000 sq ft house at 20 kW/day, and I do. No attempt what so ever to be frugal. That means I would need three of these or a $15K investment to store a days worth of BAU consumption during a total blackout. That starts to look interesting because everyone knows or should know that a modern inverter system capable of running a PV system can also be connected to a back-up generator that employs natural gas. So between a PV system, and a natural gas generator, you use the battery bank as a buffer that is always ‘topped off’ by the PV or the generator whichever is required keeping the batteries at charge and the batteries running the inverter which supplies AC power to the home. It is seamless, it works perfectly behind the scenes and the lights don’t even flicker when the power goes down.

      • MarbleZeppelin says:

        Oh no, I need to catch up with the rest of the people. I am way behind the norm. My house runs on 300 kwh/ month. I don’t think Tesla is aiming at the low end crowd here, I could run my house for day on $700 of deep cycle batteries. Don’t need to if I put up solar, which I will by finding a way around the greedy installers who turn $1/watt panels into $6/watt installed. If the power goes out I can live on 3 kwh per day (fridge, lights ). I also have a back-up generator which could be used to top off the battery system if for some reason it is dark for several days . People do realize that solar PV works with diffuse light and produces some power even on cloudy days?

        Tesla works from the top down, selling to the rich people first then works toward the lower income people. It’s a great strategy and they are selling a system that is easily maintained, non-intrusive and gives bragging rights. Why not just hook up your Tesla to the house and run for a few days on it’s battery?

        As far as industrial sized systems or large commercial providers, won’t the liquid metal batteries be better for that? For those who can’t run hydro storage or heat storage systems.

        Watcher, I thought the people in New England heated with propane, fuel oil and wood, not electric. Last thing you want in the north is electric heat. Where did you come up with that one?

        • Boomer II says:

          Tesla works from the top down, selling to the rich people first then works toward the lower income people. It’s a great strategy and they are selling a system that is easily maintained, non-intrusive and gives bragging rights. Why not just hook up your Tesla to the house and run for a few days on it’s battery?

          Yes, the idea is to make the technology “cool” so that instead of wanting a huge truck or a hummer, the average beer drinking guy will aspired to a Tesla. Or more like the BMW strategy. The reputation is built on the high end and then in time lower-priced models are rolled out for those who can’t afford the top of the line.

          For some groups of people, you can’t sell “sacrifice” or “frugality.” You need to sell high tech and innovation. You need to sell bragging rights.

          • Ilambiquated says:

            I also expect Telsa or some competitor to makes lots of money in the near future selling batteries to rich people in Asia and Africa, where the electricity fails all the time, especially in the middle of the day when everyone turns on their air conditioning.

            EDIT: Also if the drought in CA causes brownouts this summer, it will really help Telsa’s business.

        • I order solar panels directly from Chinese suppliers, they get delivered in about two weeks. But they are for some high school kids I’m mentoring in little electronic and programming projects. This week we are working on a prototype for a really neat electronic analog musical instrument.

          • wimbi says:

            Good for you, Fernando. VERY important to work with the kids, and fun, too.

            I now forgive you for all your sins.

      • wimbi says:

        Before I went all solar, I had got my electric usage down to about 6kW-hr/day. And I was NOT hurting at all.

        Then when I went all solar, I deliberately jacked it up- changed out all my ff appliances. My usage then went up to about 14, and when the grid went down, as it does pretty often around here in the hills, and particularly on a dead end road, I could coast along for a couple of days with my 6kW-hr lead acid batteries by turning off the unnecessary.

        Our LED lighting takes next to nothing.

        Everybody around here has a wood stove for back up heat and cooking. Used to it, no problem.

        My wood stove could easily crank out a kW of electricity, and will when I get my add-on heat engine to the point where a normal mortal would accept it as a house guest.

        As I keep saying, the solar revolution is on the tracks and accelerating real fast. People here understand first and second derivatives, but don’t seem to use that on this fact, yelling at them in the face. Kinda amazing.

        • Fred Magyar says:

          As I keep saying, the solar revolution is on the tracks and accelerating real fast. People here understand first and second derivatives, but don’t seem to use that on this fact, yelling at them in the face. Kinda amazing.

          This might help illustrate your point!

          https://www.youtube.com/watch?v=y97rBdSYbkg

          • Donupstream says:

            Great video Fred and thanks for sharing but I wonder… could this also work for a huge rally in oil. Explorers have been destroyed over the last several years with many going bankrupt. Depletion curve continues to steepen. Middle East oil fields are now 60 to 70 years old. Most supergiant fields are in secondary or tertiary recovery. Many large fields in the Middle East, Russia, North Sea have been overproduced. Investment by small operators has been killed by this rigged take down in price. Many qualified technical people will leave the oil business to pursue other occupations. In the Middle East their population is exploding thus increasing their usage of crude and decreasing the amount of crude available for export. The Middle East is a tinderbox. Low prices are encouraging people to buy trucks, suvs, and drive more. Electric car sales have fallen off a cliff. Matt Simmons said that with all the new technology we have created super straws that will create a steeper decline. So there are a few dominoes for you that may offset solar.

            • Fred Magyar says:

              Donupstream,

              You are absolutely right and what that video is really about is illustrating the cascading effect of very small perturbations in complex systems leading to tipping points that can have major unintended consequences, by possibly throwing what was a previously very stable oscillator into something much more chaotic and unpredictable.

              Which means, that none of us really has a clue as to what kind of new dynamic will emerge. In any case, if I were a betting man, I wouldn’t be placing my bets on the long term stability of a fossil fuel based economy. Which means that I’d be taking a very hard look at the potential of some very disruptive technologies coming along to to really shake things up.

              But I’m not so naive as to think that every thing will be just hunky dory. I wouldn’t be buying a flat in Cairo any time soon either.

              Cheers!
              Fred

              • Boomer II says:

                Which means that I’d be taking a very hard look at the potential of some very disruptive technologies coming along to to really shake things up.

                I’m pretty familiar with the Silicon Valley/tech entrepreneur mindset. They are always looking for the next disruptive technology. A lot of what they do will not turn out to be disruptive at all. But there is enough money floating around that place that they can fund a lot of experiments. I think they have seen what can come from the Internet and from cellphones, and how small pieces can be linked together into a global network, and those concepts can be used to transform energy generation, energy distribution, and transportation.

                As long as the money is there to pay for the experiments, or as long as passionate individuals are willing to work with little compensation, they can apply the “fail fast, fail often” mindset to energy and transportation and see what comes about.

              • Caelan MacIntyre says:

                If I was to make a bet of the cascading effects of chaos, I’d bet– or at least, hope– for the last dominoes squashing governpimps and their toxic meioses and manifestations. And the longer our species thumbs its nose at natural constraints, via these constructs, the bigger the dominoes and the more likely and harder the last ones will squash. Dominoes the size of the Empire State building should squash nicely.

                Many seem to put way too much unquestioning, even zealous, faith in the aforementioned, and a kind of unspoken assumption, to boot, that, somehow, some kind of their retooling/incarnation is the recipe for the hoped-for mythical Smooth Transition/Second-Coming-of-Christ.

                This is where I part company with many. My sense of a real smooth and lasting transition, which might appear counterintuitive to some cults, will be found closest to something closer to the re-wilding or permaculture camps– to nature, really– than to the poisonous metal-and-plastic blobs from the likes of Tesla and Toyota.

                When we teach ourselves, our children and our communities self-empowering skills like growing food and/or recognizing it in nature; how to build natural houses; and/or how to make clothing/footwear; etc.; rather than how to merely ‘job’ for an employer– really a kind of slavemaster; buy and bop around in an EV; or plunk down a solar panel on a rooftop, we likely contribute best in hedging our bets for a real smooth and lasting transition.

      • Dennis Coyne says:

        Hi Watcher,

        My consumption averages about 300 kW-h per month or about 10 kWh per day, and I have a lot of excess use that could be cut (clothes dryer), oven and stove could be used sparingly during a power outage. The idea is to provide power when the sun is not shining, usually I am sleeping and not using a lot of electricity at night, except during winter when the days are short around the Winter solstice.

      • learner2 says:

        Well, my internet speeds also started at 25kbit/s dial up, for $20/month. Now its $40 or 50 a month for 50Mbit/s. So the battery will not last all day. They are just getting started. You can get the 10kWhr for not much more. Also, perhaps the plan is to also have a Tesla car in the garage. Thats 80kWhr right there. In 2 to 3 years, the tsla 3 will be around. Even that will have 30kWhr or more.

        I don’t see the problem.

        • MarbleZeppelin says:

          Does your internet stay up during power outages? Mine goes down because the amplifiers along the way depend upon utility power.

    • Sam Taylor says:

      Teslas battery pack is lovely and all, and great for people with spacious californian homes with large rooftops (I wonder who Elon’s target market might be?). But the trend these days is towards ever denser urban living. These things are next to useless for people living in apartment blocks, or in densely packed urban housing. The UN estimates that 60% of the global population will live in cities by mid century, and most cities require much more power per unit area than the amount of sunlight that falls on them. Domestic solar doesn’t really fit that well with this trend.

      • Boomer II says:

        But the trend these days is towards ever denser urban living. These things are next to useless for people living in apartment blocks, or in densely packed urban housing.

        Solar has never been billed as the sole energy solution. The goal of Silicon Valley types is to create scalable, flexible technology that gives users more control over their energy options.

        Plus if you switch some people to solar, that reduces the need to use fossil fuels for that group, therefore extending its availability for those who do need it.

        • Watcher says:

          Plenty of energy options already. Plug in your gizmo and turn it on.

          Don’t listen to hype about 7 KwH batteries when the numbers are right there for the average household — 30+. BTW Louisiana is the highest and about 40% higher.

          This is called failure. It’s not called a step in any direction but towards failure.

          • Boomer II says:

            This is called failure. It’s not called a step in any direction but towards failure.

            How is that? This is what Tesla is doing. If Tesla and its stockholders are happy, then I can’t see how it is a problem for anyone else.

            • Watcher says:

              Dood, the numbers are right there.

              If you managed spacecraft power budgets like this, there would be none.

              • Boomer II says:

                Sorry, I still don’t get it. The product is what Tesla has put out. It’s Tesla’s business whether it sells or not. If Tesla and its stockholders are happy with it, it’s not a commercial failure.

                • Dennis Coyne says:

                  Hi Boomer,

                  Watcher needs to look at it like weapons. If one is not enough, then buy more.

                  The people who use 900 kw-hr per day must be rich folks, I het by just fine with 300 kW-hrs per month or 10 kW-hrs per day and I am not poor.

                  If you need 30 kW-hrs, you buy 3 10 kW-hr units to cover a days usage, or more if you want more backup power.

                  The people who Tesla sells to have plenty of money and plenty of space in their homes.

                  • Boomer II says:

                    Tesla is asking rich people to fund its expansion efforts and that makes total sense. They have money. Some of them like new technology. If they are the first movers and then get the market big enough to reduce costs, then that is a way for those who have more money than they know what to do with to fund innovation and product development.

                    I’m guessing that Musk knows his market very well.

                  • Boomer II says:

                    Tesla has been taking the Apple approach to its technology. It hasn’t yet built a product for the masses. That’s been part of its marketing.

                  • Caelan MacIntyre says:

                    “The people who Tesla sells to have plenty of money and plenty of space in their homes.” ~ Dennis Coyne

                    Yes, lots of commons land-grabbing, corporate-squatting, natural resource-theft and undemocratic product dev going on.

                    But really, some threads/conversations seem just plain fucked-up in a way. SpaceX?

                    We really have to try and try again to pull our collective little heads out of our bottomless asses and ease off on all this BAU-/corporate-fellatio banter and start talking about what really matters.

                    But don’t mind me. Keep talking about this shit and see what we get: Easter Island Earth.

              • Fred Magyar says:

                Funny you should mention spacecraft power budgets. Elon Musk does that pretty well too.

                In order to control quality and costs, SpaceX designs, tests and fabricates the majority of its components in-house, including the Merlin, Kestrel, and Draco rocket engines used on the Falcon launch vehicles and the Dragon spacecraft. This has allowed SpaceX to offer one of the lowest launch prices in the industry and to significantly reduce conventional rocket development time.[citation needed]. In November 2013, the French company Arianespace which is the market leader in commercial launches, said that it would take a flexible approach to pricing for the “lighter satellites” it carries to geostationary orbits aboard its Ariane 5 because of competition from SpaceX.
                Source Wikipedia

                • Caelan MacIntyre says:

                  You’ve said you’re an anarchist, Fred, but then what’s with the glazed SpaceX-and-company quips? Are these companies run laterally from a hierarchic standpoint? Do they give a shit about anybody outside of their navel-gazing fantasies, greenwashed PR or capitalistic bottom-lines?
                  Even your bamboo bike: How was it actually made? These are the kinds of questions we have to keep asking ourselves. We may not appreciate some of them, but we have to keep asking them where they matter.

                  • Fred Magyar says:

                    There is no way we are going to transition overnight from our current system to one that is sustainable. I believe that the empire state status quo can only be knocked over by starting with tiny dominoes. The powerful won’t buy your vision of moving to permaculture communities because you tell them that is better for the planet. It just doesn’t work that way.

                    In the big picture I look at people like Musk who are cornucopian technologists in their own right as beinglike the tiny dominoes that will eventually help to down the status quo.

                    If people start thinking that decentralized off grid power production is something that is doable maybe they will start seeing centralized power as unnecessary in other realms as well. Just to be very clear I don’t think of people like Elon Musk as anything other than facilitators for starting the minute changes necessary for major paradigm change.

                    To give a real life example of what I mean I have been to places in rural Brazil that would benefit greatly from small microgrids and solar PV to provide irrigation for their small farms. Yet the Brazilian government has pushed massive hydroelectric projects on these areas and communities to the detriment of the local environment.

                    If Musk helps to start people thinking differently then I’ll take him as an ally for eventually knocking down the empire state building by setting in motion those very small dominoes. If your approach is to try and blow up the empire state directly you will lose because the forces against you are too great.

                    My personal approach is to start very small avalanches where ever I can.

                  • Boomer II says:

                    To give a real life example of what I mean I have been to places in rural Brazil that would benefit greatly from small microgrids and solar PV to provide irrigation for their small farms.

                    Caelan, awhile back, I asked when the permaculture movement plans to give up electricity, thus reducing its communications options. If one is opposed to putting PV into small rural communities so they can power their cellphones, that means you may have trouble easily communicating with them.

                    Do we go back to the days when there are no telephones, no telegraphs, no radio? Do we only use letters carried by people, animals, or ships? Or only talk to people face-to-face and therefore can only reach those we have the transportation to reach?

                    If you are hoping to spur a revolution, when do you sacrifice your communication tools? Right now, to set an example? When you have decided you’ve won the revolution? Only when forced to do so after there are no convenient/affordable ways to power modern communication devices?

                    I am very curious about the plans for transitioning to permaculture society.

          • SW says:

            You seem to have a fundamental lack of understanding of the purpose of the battery in a RES or UPS. Think of a Chevy Volt and apply that concept to your home. You can drive a Volt across the country but the battery isn’t big enough to power it for that long. The battery acts as a sort of buffer. You have a RE source and a back up generator. Now you don’t have to size the RE source for the most extreme conditions and you don’t have to rely on the grid (the owners of which are progressing becoming more dickish) for nighttime power or periods when the sun isn’t shining. For extreme periods, the RE system hands off the battery charging duties to a natural gas fueled generator. So, you keep your batteries topped off with your RE source and the generator while the inverter runs off of the batteries. The batteries only have to be sized to act as a buffer not to run the entire house for long periods of time. Electrical consumption at night is not that high. Maybe a third of your daily consumption. I think that three 7 Kwhr batteries and a little honda generator paired with the proper inverter and you can kiss the grid goodbye. With a properly sized PV system in most areas you would use very little natural gas for electricity generation but you would never have to worry about intermittency. That is the key. The utilities are trying to make life more difficult for grid tied residential PV users. This approach basically puts them on notice that all we need from them is natural gas and that only as a back up.

            • If everybody uses your approach that backup natural gas is going to cost you a bundle. Have you designed a gas distribution network?

              • wimbi says:

                Why bother? Just stuff all that household trash into a can, heat it with whatever you want, like wood or its own product, and heat (pyro) will break down (lyse) all the heavier molecules and you get a nice mix of lighter gases that burn just fine. Like in a honda or a stirling, generating electricity.

                forget the big battery, a really little one would do if you had that generator.

                Think of that ! Musk outsold by trash boiling hillbillies.
                Fun.

                all that just to say I totally agree with SW. And I’m guessing we two represent here a few million other people who might have spent a couple of minutes thinking about the storage problem

                • TechGuy says:

                  Wimbi wrote:

                  “Why bother? Just stuff all that household trash into a can, heat it with whatever you want, like wood or its own product, and heat (pyro) will break down (lyse) all the heavier molecules and you get a nice mix of lighter gases that burn just fine”

                  OK if your in a rural area, but not possible in urban and suburban area, either due to regulations, or the neighbors will call the police and complain about the smell and\or hazard. Not possible at all in multifamily/apartment buildings.

                  FWIW: Musk’s home battery doesn’t really have a market, except for a few rich people that have too much money, or perhaps off-grid people. the After Joe, living in an apartment, condo, multifamily home, isn’t going to be interested. Musk battery system does not include the electronics to make the system work (ie Inverter, and probably a charge controller).

                  • wimbi says:

                    The europeans tote NYC trash to places like Stockholm and Hamburg and burn it right there to get electricity.

                    They do it, we can do it.

                    My little one does not smell at all, and, if stoked with wood, produces charcoal which can go into ground, having come from the air.

                    Carbon-negative electricity!

              • SW says:

                The gas is a pittance used very rarely and you are using it as a heating and cooking fuel anyway so you just see an incremental increase in your usage on rare occasions.

          • Longtimber says:

            In most Autonomous PV System for a home with proper load management, only a small fraction of Total household kWh consumed is Stored. So a 10kW pak is a good match for a BIG Array. The name of the game is to shift loads to Daytime where possible. It’s not hard and once the owners understand that stored power in 5X more expensive, they adjust.
            PV is cheap, Storage not.

            • wimbi says:

              Right. Real simple to adjust, for example, solar switches on all heat/ cooling things- when sun, run like hell, when no sun, no run. Store heat/cool, not electricity. Easy.

              10kW-hr is way more than I need for our house, but would be just great for the utility tractor we use for all sorts of things, so put the battery on the tractor, use it for everything it is useful for, and when and if need, plug it into house. Ditto with car.

              All kept pumped up by all that cheap PV, and of course, that on-call garbage-pyrolyzing generator

              Bravo! by-by grid.

              The end of the world as we know it. Sorry ’bout that.

            • Fred Magyar says:

              Not to mention that those who supposedly need 30 kWhs of storage can probably easily afford the $10,000 to pay for it.

      • Dennis Coyne says:

        Hi Sam,

        For densely populated areas set up solar power plants outside the city and use roofs and parking garages, wind, and nuclear can also be used and some natural gas can be used for spinning reserve based on weather forecasts. In addition there can be demand pricing where residential users can look at current prices and decide to turn down their thermostat in winter or turn it up in the summer. The industrial packs can be used for some backup at solar power plants.

        • Boomer II says:

          California’s Urban Areas Can Generate Plenty Of Solar To Power The State | CleanTechnica: According to the study, the state’s “built environment” offers plenty of space for small- and utility-scale solar, from rooftop solar systems to large CSP installations. Areas including brownfield sites, warehouse rooftops, and industrial districts together could host enough solar power facilities to generate anywhere from 17,000 to 21,000 TWh of CSP and photovoltaic (PV) power combined. That sum could provide anywhere from three to five times the amount of energy California currently requires.

    • Ronald Walter says:

      There is nothing new under the sun.

      Charged by the Wind

    • In conclusion, Tesla products are high technology toys or electric fur coats. They make the wearer feel “with it” and very 21st century, but they don’t really deliver much to society at large.

      • Fred Magyar says:

        Deleted comment, it was directed at the wrong product namely the car.

      • islandboy says:

        Same could be said for products sold under the brand name Apple. I have not yet been able to bring myself to purchase any Apple product. They are cool and they work well but when I look at the hardware, the same or very similar specs can be found for half the price (or less) of the Apple branded product. One excuse people use for buying Apple products is that they are fed up with/scared of viruses. I have been using Linux on cheap, intel based hardware since I purchased my first laptop in 2008.

        Apple customers have made Apple the “most valuable” company in the world, the first to achieve a market cap exceeding $700 billion and I think it’s safe to say, “they don’t really deliver much to society at large.”

        • Old farmer mac says:

          Apple computers are absolutely not virus proof but apparently they are less subject to malware infections than pc type machines.

          I am using one right this minute that got hijacked by a screen locker. I might have gotten it fixed cheaper but I paid forty bucks for a Kapersky program that fixed it and is good for a year.

          Never would have bought it but a good friend promised me to get me up to speed on Macs. He unfortunately thru no fault of his own is unable to do so due to health issues.

          There is something to be said for BILLGATES supposed junk- I can ask twenty different people for advice any time I have a problem with a pc- advice that will be freely given on the phone.

          I have not been able to locate a single Mac fan who will talk to me on the phone. Farting around with email and forums takes so long that I refuse to try to solve problems that way. I am now using this Mac just for email and blogging and reading the news.

          I bought another pc for everything else. A quarter the price for as good performance . It may be somewhat ” clunky” but clunkiness does not slow me down once I know the procedure needed to do a certain task.

          A Mac has to have paid anti virus no matter who tells you otherwise. It will get infected sooner or later with all sorts of nasty shit if you use it on the net much.

      • Nick G says:

        No.

        First, see my comment above: http://peakoilbarrel.com/bakken-what-is-the-data-telling-us/comment-page-1/#comment-515001

        Second, Tesla’s EV business plan is built around developing economies of scale, to make EVs cheaper at every price point, including the very cheapest (e.g., the GM Spark and Nissan Leaf, the very cheapest cars on the road to buy and own). This battery pack accelerates that process.

      • Caelan MacIntyre says:

        Glorified (death-trap) living-rooms-on-wheels, undemocratically-achieved.

  19. John says:

    So oil prices have fallen from $140 to $50. Anyone who said this could happen was roundly jeered at by all the oildrum commenters a few years ago.
    Many oildrum posts put peak oil in 2005, then it was 2008, then it was 2012. No wonder it shut down.

    http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=&syid=2004&eyid=2014&freq=Q&unit=TBPD

    Crude oil and condensate production has increased from 73 million barrels per day to 79MMbbl.
    An extra 6 million barrels per day extra since your 2005 peak. On the oil drum in 2009, I said C&C had clearly not peaked and there were still too many countries that were increasing production.
    After 9 years of crying wolf are you surprised you are not taken seriously?

    • The increase from 73 to 79 did require a much higher price environment. I’ve never claimed anything at The Oil Drum, but I do see the industry’s inability to replace current production at current prices (I assume current prices are around $60 per barrel). I think we can muddle through in the short term at $80, but I also see the need for prices to increase beyond overall inflation. And this leads me to conclude something will start replacing oil, simply because it can compete on cost. My big fear is that such replacements aren’t ready for prime time, and we may experience a serious economic depression caused by the high cost of energy. In other words, peak oil.

      • Sam Taylor says:

        Yeah, there’s plenty of oil available at $100 a barrel, we’re certainly not running out. Difficulty comes from whether we can afford $100 a barrel for that long of a time. Not to mention that fighting depletion rates will only get harder, especialyl when we eventually have to try to replace Ghawar with tar sands and deepwater.

        What will be intersting is if/when oil has to far above $100/bbl, which economies will best be able to cope with such high prices. I rather suspect that it won’t be the EU and the US, and we’ll see purchasing power further eroded.

        • Dennis Coyne says:

          Hi Sam,

          The trailing 12 month average price in 2014$ for Brent crude was over $105/b for 3 years and was close to $110/b for about 2 years (Nov 2011 to Nov 2013).

          Maybe $115/b over a 12 month period will cause problems, but as the economy grows it can afford higher oil prices especially if oil output grows more slowly than the economy (as has been the case for at least a decade).

          • sam Taylor says:

            Dennis,

            I think Steven kopits has estimated that the ‘carrying price’ for oil in the USA is somewhere around $90-100, that is the price before demand destruction happens. He estimates China may be closer to $120. Of course these numbers aren’t constant and are subject to change. Ultimately it’ll depend on what the output elasticity of energy is, and how well oil can be substituted for. I think it’ll be a big drag.

            • Dennis Coyne says:

              Hi Sam,

              Whenever I mention the oil price and its effect on the economy, I am referring to the Gross World Product and if a rise in oil prices will have a big effect. James Hamilton has suggested that if 4% of income is spent on oil (let’s say C+C) then the US economy usually slows down to recession levels. For the World economy, I think it might be as high as 5%.

              • Rune Likvern says:

                James Hamilton’s percentage of the relations of total oil expenditures relative to GDP is an observation (which likely has some merit).

                What I would like to know is to what extent does Hamilton include the effects on the oil price from (global) total debt levels and their growth.

        • I don’t think the eu or USA will have a problem. But I suspect the Jamaicans will have an eventual crisis.

          • sam Taylor says:

            If the last few years are anything to go by the EU are in a dreadful situation with energy. Consumption has crashed. Of course it’s hard to unpick the oil price response from the compete mess that the Euro is, but it’s not a petty picture.

          • Nick G says:

            Europe, especially the PIIGS which tend to import more than average, would have a bit of a problem. They need to standardize and expand their rail freight – the US has a good rail freight system, but Europe’s is fragmented.

            The US can very easily reduce imports and at least maintain domestic oil production, if prices rise.

            Jamaica and countries like it have good wind & solar resources, but their government is miserably bad – they should have dumped oil for something else (even coal) long ago. I’m worried about them too.

    • Jeffrey J. Brown says:

      If you define crude oil as crude + condensate, then crude + condensate has not peaked. But if you define crude oil as the stuff that corresponds to the price index, i.e., Brent and WTI, then crude oil production, in my opinion, has almost certainly peaked.

      Shouldn’t the price of an item correspond to the supply of that item and not to the supply of the item + partial substitutes? When we ask for the price of oil, we get the price of WTI or Brent crude oil. But when we ask for the supply of oil, we get some combination of crude + condensate + natural gas liquids (NGL) + biofuels.

      Here is a link showing the EIA’s own data and projections for the composition of US C+C production from 2011 to 2015. They show that US 40 API plus production (which would not even fall on the following global Gravity Versus Sulphur chart) increased from about 1.5 mbpd in 2011 to about 4.0 mbpd in 2014.

      EIA Chart:

      http://i1095.photobucket.com/albums/i475/westexas/US%20Crude%20Oil%20Production%20by%20Type_zpsso7lpqgq.png

      Global Crude Oils, in terms of API Gravity Versus Sulphur Content:

    • Jeffrey J. Brown says:

      EIA data show that global Crude + Condensate (C+C) production was up by about 3% from 2005 to 2013, while global natural gas and natural gas liquids (NGL) production were up by about 22% to 23% over the same time period (using BP data for 2013 gas production increase, EIA gas data incomplete).

      Following is a link to a chart showing normalized global gas, global NGL and global C+C for 2002 to 2012, with 2005 values equal to 100%. 2014 C+C was at 105% of 2005 values (78 mbpd in 2014 versus 74 mbpd in 2005, average annual, rounded to two significant figures). 2014 global gas data are not available, but the EIA puts 2014 global NGL production at 126% of the 2005 value, versus 122% in 2013.

      http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps45f11d98.jpg

      Condensate, like NGL, is of course a byproduct of natural gas production, so I don’t think that there is much doubt that rising condensate production accounted for all, or more than all, of the post-2005 increase in global C+C production, especially given the 26% increase in global NGL production from 2005 to 2014*.

      In other words, global crude oil production (45 and lower API gravity crude) almost certainly peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have so far continued to increase.

      Of course, I’m not arguing that (partial) substitution is not a factor; it clearly is, but the Conucopian argument is and has been that there is no sign of a peak in sight, and in regard to crude oil production, and especially in regard to quality crude oil production (40 API gravity and lower), that argument is manifestly false.

      *I haven’t found RRC data for Texas NGL production, but the (not updated) EIA data show that Texas NGL production approximately doubled from 2005 to 2013. However, RRC data show that Texas condensate production more than tripled from 2005 to 2013 (with 2013 Texas condensate production 3.3 times 2005 production). Texas dry gas production (EIA data) was only up by 39% from 2005 to 2013. So the rate of increase from 2005 to 2013 for Texas gas production was 4.1%/year, NGL production was up at 8.3%/year, while condensate production was up at 15%/year, from 2005 to 2013. Of course, globally, all we have are the gas and NGL data, plus the slow increase in C+C production.

      • Jeffrey J. Brown says:

        Following is an excerpt from an excellent article by Kurt Cobb. The final sentence is very interesting, “For the purpose of this contract, condensates are excluded from the definition of crude petroleum.”

        Kurt Cobb:

        http://www.resilience.org/stories/2014-04-13/did-crude-oil-production-actually-peak-in-2005

        Excerpt:

        Here’s what’s being added to underlying crude oil production and labeled as oil by the oil companies and reporting agencies:

        Biofuels – Essentially ethanol and biodiesel.

        Natural gas plant liquids – Butane, ethane, pentanes, propane and other non-methane components of raw natural gas.

        Lease condensate – Very light hydrocarbons gathered on leased production sites from both oil and natural gas wells, often referred to as “natural gasoline” because it can in a pinch be used to power gasoline engines though it doesn’t have the octane of gasoline produced at refineries.

        Refinery gain – The most puzzling addition of all to crude oil supply calculations. This is merely the increase in the volume of refinery outputs such as gasoline, diesel and jet fuel versus the volume of crude oil inputs. It is due entirely to the expansion of the liquids produced, but indicates no actual gain in energy. In fact, great gobs of energy are EXPENDED in the refinery process to give us what we actually want.

        Let’s see if any of these non-oil things are acceptable as oil at major exchanges. Perhaps the most recognizable oil futures contract is the so-called Light Sweet Crude Oil contract. The exchange sponsoring that contract details in seven pages (of a much longer rulebook) what is acceptable to deliver to those who choose to take delivery on their contracts.

        A search for three of the four items (and their subitems) listed above predictably comes up empty. But, the search for lease condensate produces a hit. Here’s what the exchange says about lease condensate when discussing acceptable delivery of oil: “For the purpose of this contract, condensates are excluded from the definition of crude petroleum.”

    • Dennis Coyne says:

      A post by Sam Foucher in 2007 put the peak at about 2016 to 2020, very similar to what I am predicting for C+C output.

      http://www.theoildrum.com/node/2430

      The SHM + Modified Arrington with tInit= 15 years and the SHM + Russian growth (tInit=1) give similar results with a peak in 2017-2018 and a URR around 2.6 trillion barrels.

  20. gwalke says:

    Hi Ron,

    Good stuff, as ever, but as you point out, we have to be careful moving from drilling to production without saying something about completion. There isn’t really a problem in the good times where companies are drilling and completing flat out, but when we are in a context like the current one, the two detach. So a question like: “Just how many rigs per month does it take to hold production flat in the Bakken and Eagle Ford?” is, I think, the wrong question.

    Completions coupled with the backlog are the values that tell us what happens to production month-by-month in such a scenario, rather than drilling, which has an effect further down the line when the backlog dwindles. Given this, the numbers from the daily reports for March and April give us 184 and 153 gross completions (if all confidential wells are completed rather than plugged) – less year on year, but enough to raise production in both months assuming 2014 well profiles. That their drilling efficiency has increased means that the backlog is cushioned more effectively than it otherwise would be by continued drilling.

    As I mentioned before, what will stop completions is financial – EOG completed a single well in March and April according to the daily reports, while Whiting and Continental carry on regardless. Laughable comments from Whiting today, where they repeat that they can “thrive” at $50/bbl, never mind that their company was just for sale and found no bidders so they sold equity.

    • “Just how many rigs per month does it take to hold production flat in the Bakken and Eagle Ford?”

      That was a mistake which I have corrected. “New wells per month” is the correct question and the data and charts I posted clearly show that was what I had in mind.

      I make one or two such mistakes in almost every post and I do appreciate people pointing them out to me.

      • gwalke says:

        The low mistake rate per post is one of the many reasons that makes this blog important reading.

    • Dennis Coyne says:

      Hi gwalke,

      Using your estimate for new wells in April and deducting 3 wells to make it a round 150 new wells, my best estimate for April Bakken output is 1.15 Mb/d, similar to my March estimate (also about 1.15 Mb/d). For the Eagle Ford I don’t have the number of completions for April yet, but if my guess of 135 new wells in April is close to correct, output will be about 1.36 Mb/d in the Eagle Ford. Combined output from the 2 plays will be about 2.5 Mb/d down 130 kb/d from the December peak.

      Permian basin output is up 55 kb/d from December levels in Feb, so for the big three LTO plays (if we assume Permian output has remained at Feb levels output is down about 75 kb/d through March.

      I expect going forward that eagle Ford will decline slowly, the Permian will rise slowly, and the Bakken will be relatively flat, with all three plays combined remaining on a plateau of about 4 Mb/d until prices get to $80/b, then we might see a gradual increase in output with most coming from the Permian basin, a little increase from the Bakken (200-300 kb/d at most) and a plateau or slow decline from the Eagle Ford through 2020.

    • Dennis Coyne says:

      Hi Gwalke,

      EOG suggested they would wait on well completions. They are one of the stronger players in the LTO business and most of their activity is in the Eagle Ford.

      http://www.eogresources.com/investors/slides/InvPres_0315.pdf

      See slide 10 in the presentation at the link above.

      Chart below.

      • coffeeguyzz says:

        Dennis, gwalke,

        For you folks closely monitoring new wells/completions in the Bak, you may be aware of the just-introduced well classification SI/NC, indicating shut in, not completed.
        EOG’s well, permit #29588 was just categorized like this.

  21. Frugal says:

    Saudi Arabia shakes up state oil firm Aramco

    Mohammad al-Sabban, a former senior adviser to Saudi oil minister Ali al-Naimi, said: “This decision will bring more flexibility to the company to take decisions on a commercial basis, and keep full financial control.”

    Maybe they’ve reached peak production and are desperately trying to do something about it, kind of like what Mexico is trying to do.

    • Jeffrey J. Brown says:

      Reuters (January, 2015): Saudi Aramco to renegotiate some contracts on low oil price -CEO

      http://www.reuters.com/article/2015/01/27/saudi-oil-aramco-idUSL6N0V60Z320150127

      Jan 27 (Reuters) – Saudi Aramco will renegotiate some contracts and postpone some projects due to falling oil prices, the head of Saudi Arabia’s state oil company said on Tuesday, stressing the top crude exporter will not single handedly balance the global oil market. . . .

      Saudi Aramco Chief Executive Khalid al-Falih, speaking at a conference in Riyadh, did not specify which projects or contracts would be affected by low prices. . . .

      Falih said the imbalance in the oil market had nothing to do with Saudi Arabia, and a fair price is what would ultimately balance supply and demand, a sign Riyadh is sticking to its strategy of allowing the market to stabilise itself.

      “Saudi Arabia has a policy, the policy is set by the government through the Ministry of Petroleum, and they have said that Saudi Arabia will not single handedly balance the market,” he said.

      “The math will tell you that our exports… are gradually declining. So the reason for the imbalance in the market absolutely has nothing to do with Saudi Arabia.”

      With the EIA’s revision to the 2005 Saudi total petroleum liquids + other liquids production number, they put 2005 Saudi net exports at 9.5 mbpd. As annual Brent crude oil prices doubled from $25 in 2002 to $55 in 2005, Saudi net exports increased from 7.1 mbpd in 2002 to 9.5 mbpd in 2005. As annual Brent crude oil prices doubled from $55 in 2005 to $110 average for 2011 to 2013 inclusive, Saudi net exports fell from 9.5 mbpd in 2005 to 8.7 mbpd in 2013. Brent averaged $99 in 2014, when Saudi net exports were probably around 8.5 mpbd, plus or minus.

  22. Ronald Walter says:

    29 Nabors rigs drilling in the Bakken.

    Seems as though they have the edge in rig counts.

    William Wilberforce

    “On 22 February 1807, twenty years after he first began his crusade, and in the middle of Britain’s war with France, Wilberforce and his team’s labours were rewarded with victory. By an overwhelming 283 votes for to 16 against, the motion to abolish the slave trade was carried in the House of Commons. The parliamentarians leapt to their feet with great cheers and gave Wilberforce the greatest ovation ever seen in British history. William bent forward in his seat, his head in his hands, tears of gratitude streaming down his face.”

    I guess if you outlaw the supply, the demand will go away.

    John Newton was singing the song he wrote, Amazing Grace, while he was at the helm of the slave ship he was sailing.

    Just a little cognitive dissonance, well, a dollop.

    So, if Mother Nature is at the helm, does away with hefty supplies of oil, the demand will go away. Nature abhors a vacuum.

    I am beginning to think that solar arrays and wind turbines are inching their way into the demand side of the market and the available supply has the oil industry in a conniption fit, renewables are becoming a force to be reckoned with.

    Solar and wind are beginning to fill the void that nature abhors.

    Just my 2 cents, which are worth much less than they were a hundred and ten years ago.

    Soon, it will be beer time.

  23. dmg555 says:

    From a Financial Time article:

    Saudi Arabia is burning through its foreign reserves at a record rate as the kingdom seeks to maintain spending plans despite lower oil prices. The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz al-Saud dips into Riyadh’s rainy-day fund and increases domestic borrowing to fund public sector salaries and large development projects.

    The latest data show Saudi’s foreign reserves dropped by $16bn to $708bn in March, driven by public sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi Arabia has spent $47bn of foreign reserves since October.

  24. toolpush says:

    New rules from DOT for oil rail cars, just out.

    http://www.bloomberg.com/news/articles/2015-05-01/safer-rail-cars-for-oil-mandated-two-years-after-quebec-inferno

    New brakes
    9/16″ steel
    3 years to update DOT-111 cars, read old
    CPC-1232s read new, to be updated by 2020
    Oops! The new rules released Friday don’t address oil volatility.

  25. Ilambiquated says:

    I was talking to a guy who works for Vallourec in Düsseldorf the other day. They make seamless steel tubing and oil rigs. He says the company is on the verge of collapse. The only people ordering are the Saudis.

  26. Longtimber says:

    http://www.teslamotors.com/powerwall

    Disruptive pricing @ $350 per kWh. Below current cost.

    • Nick G says:

      I’ve seen several analysts suggest that Tesla’s battery cost is now about $200/kWh. The Powerwall pricing supports that: the incremental cost of the last 3kWH is $167/kWh.

      • Dave Ranning says:

        Is it not still 90’s Japanese lithium ion technology?
        It’s been a while for a energy storage breakthrough that scales into major use.
        Better happen soon.

        • Nick G says:

          There have been a lot of viable alternatives to li-ion, but none have been quite good enough to dislodge it – it has “first-mover advantage”, with economies of scale, etc. Li-ion is still getting better every year, incrementally. That’s keeping it ahead of the competitors, for the moment.

          It’s good enough.

          • Ronald Walter says:

            Tesla versus Miata, both electric.

            Miata leaves the Tesla in the dust.

            • MarbleZeppelin says:

              That is a fast electric conversion. The new Tesla is about one second faster in the quarter mile than then the one shown in the video. It gets zero to 60 mph in 3.1 second which is fast for an unmodified passenger sedan.
              I doubt if the Miata could go more than a few miles though.
              Now here is a 1972 Datsun that goes zero to 60 mph in 1.8 seconds and goes 100 miles on a charge.

              https://www.youtube.com/watch?v=OfbPf3WExwU

          • Dave Ranning says:

            Not really—
            Storage, by everyones estimate, its what is the roadblock.

            http://www.lwhancock.com/Blog_140203.aspx

            But this is step .

            • Nick G says:

              I’m afraid that article uses the standard approach for someone who’s looking to reject renewables with a casual, unrealistic approach.

              Battery storage will be very useful, but it’s not really the primary ingredient for utility load-following. The variance of wind and solar isn’t nearly as hard to deal with as some opponents suggest: utilities have been dealing with such variance from *both* supply and demand since the birth of the industry. Again, every kind of generation has it’s variance: for instance, a 1GW nuclear plant can trip at a moment’s notice, and be out for days (or longer).

              There’s a wide range of proven techniques for dealing with variance. Demand side management is very powerful and underutilized, geographic diversity will reduce variance, and we have lots of NG for balancing. In the very, very long run we can use DSM and storage for daily variation, combined with overbuilding and some modest backup from “windgas” and biomass for seasonal variation.

              Forecasting is an important element:

              “forecasts are helping power companies deal with one of the biggest challenges of wind power: its intermittency. Using small amounts of wind power is no problem for utilities. They are accustomed to dealing with variability—after all, demand for electricity changes from season to season, even from minute to minute. However, a utility that wants to use a lot of wind power needs backup power to protect against a sudden loss of wind. These backup plants, which typically burn fossil fuels, are expensive and dirty. But with more accurate forecasts, utilities can cut the amount of power that needs to be held in reserve, minimizing their role.

              Before the forecasts were developed, Xcel Energy, which supplies much of Colorado’s power, ran ads opposing a proposal that it use renewable sources for a modest 10 percent of its power. It mailed flyers to its customers claiming that such a mandate would increase electricity costs by as much as $1.5 billion over 20 years.

              But thanks in large part to the improved forecasts, Xcel, one of the country’s largest utilities, has made an about-face.

              It has installed more wind power than any other U.S. utility and supports a mandate for utilities to get 30 percent of their energy from renewable sources, saying it can easily handle much more than that.

              ..forecasts from NCAR are already having a big effect. Last year, on a windy weekend when power demand was low, Xcel set a record: during one hour, 60 percent of its electricity for Colorado was coming from the wind. “That kind of wind penetration would have given dispatchers a heart attack a few years ago,” says Drake Bartlett, who heads renewable-energy integration for Xcel. Back then, he notes, they wouldn’t have known whether they might suddenly lose all that power. “Now we’re taking it in stride,” he says. “And that record is going to fall.””

              http://www.technologyreview.com/featuredstory/526541/smart-wind-and-solar-power/

      • Longtimber says:

        Supply of Panasonic 18650’s from Japan are limited and TSLA demand is starving other markets. Ebay Link of a single 11 Wh protected cell. Internal Chip and switch prevents over/under charge and thermal runaway. One 18650 is not considered Dangerous goods as per UN shipping regs.

        http://www.ebay.com/itm/1x-NEW-PROTECTED-PANASONIC-NCR18650B-RECHARGEABLE-3-7V-3400mAH-BATTERY-LI-ION-/361111758877?pt=LH_DefaultDomain_0&hash=item5413f0281d

        When the Megafactory gets humming kWh costs are expected to drop ~30%.

        This amazing Box plays a long … long time on a single 18650.
        Highly Recommended ! Should last a lifetime due to a standard Battery.
        Get an 3400 ma/h Panasonic or equal for it.

        http://www.amazon.com/s/ref=nb_sb_noss_2?url=search-alias%3Daps&field-keywords=polaris%20V8%20

        Search > Polaris V8

  27. robert wilson says:

    My all time favorite cornucopian from the USENET days was the late John McCarthy. From his web site scroll down slightly and click on “The Sustainability of Human Progress”. McCarthy believed that nuclear or solar would allow BAU. He agreed with Michael Lynch about plentiful oil. I recall McCarthy or someone calculating the need for 20,000+ nuclear power plants in the US. McCarthy was good at math. Jay Hanson was not intimidated. McCarthy has openly discussed the fact that he was a red baby. http://www-formal.stanford.edu/jmc/ http://en.wikipedia.org/wiki/John_McCarthy_%28computer_scientist%29 http://www-formal.stanford.edu/jmc/progress/index.html

    • Lady Latitude says:

      Funnily enough, the wikipedia page on ‘Cornucopian’ links John McCarthy’s page in the See Also section. Ha ha

  28. dmg555 says:

    Chinese auto demand looks quite stable

  29. The Baker Hughes Rig Count is out. Oil rigs down by 24, gas rigs down by 3. Texas down by 13, North Dakota up by 1. Eagle Ford down by 5, Permian down by 8, Williston up by 1.

    Oil rigs now stand at 44% of their level one year ago or at 42% of their high of 1609 last October.

    • Ovi says:

      Looks like the only place they are drilling in ND is Williston. Also how can Williston be 80 and ND 79?

    • clueless says:

      Per Ron, from above article regarding ND: “Today that figure is about 1.14 wells per month or about 26.3 days spud to spud.” And, “But if production per well stays close to what the average has been in the last 5 months, then it will take 160 to 180 new wells per month to stay even.”
      So, with the last 2 weeks rig count of 78 and 79, we can expect about 90 new wells/month in ND. Okay, time to go all in on ND production significantly falling.
      And, with respect to wells awaiting fracking, see Art Berman’s article.
      I anxiously await [hope for] Ron’s article – “Eagle Ford, What Is The Data Telling Us”

      • Dennis Coyne says:

        Hi Clueless,

        In March about 180 wells were completed in the North Dakota Bakken/Three Forks, gwalke has estimated that 153 new wells were added in April (this can be done by looking at the daily activity reports from the NDIC). Output will be relatively flat through April 2015. In the Eagle Ford information on the number of wells added each month can be found at the link below (video on upper right).

        http://www.rrc.state.tx.us/oil-gas/major-oil-gas-formations/eagle-ford-shale/

        Fewer wells were completed in February and March (about 130 new wells each month) where 190 to 200 is typical in the winter ( and as many as 240 per month in the summer). So output will likely fall in March by about 36 kb/d to about 1380 kb/d in the Eagle Ford Play. If the number of new wells added increases to about 155 new wells per month in the Eagle Ford output will stabilize around 1400 kb/d and then slowly rise to 1420 kb/d by Jan 2016.

      • Clueless, as of February, according to Lynn Helms, North Dakota had 900 wells waiting on completion. So it is how many wells are fracked, or completed, each month, not how many wells were drilled. If wells waiting on completion goes up, then more wells are being drilled than fracked. But if that number goes down then more wells are being fracked than drilled. That number went up, by 75, in February. But look for it to go down from here until the end of the end of the year. That is more wells will be fracked than drilled.

        • clueless says:

          Sure. But, with around 80 rigs running now [and for the last 2 weeks], at this point in time, we should be expecting future reports, e.g., to show only about 90 new wells drilled between May 15 and June 15. I think that it takes about one week after drilling to frac a well, if it is done immediately. Some of us do not believe it is acceptable economically wise to frac a well at WTI below $85. So, we would not expect that the backlog would decline at the rate of 50 to 70 per month at this time. See Dennis Coyne’s EOG posting above. Looks to me like at least $75 oil is necessary.
          As an aside, here is what I think that the EOG chart is telling us. It is labeled as a delta in the ROR. I think that it is saying that at $50, the ROR is about 1%, but at $75 the ROR is around 25%. So, the ROR is 25 times greater to wait for $75. Unfortunately, they do not label what the crude price is. But, I suspect it is the ND posted price. So, EOG would be waiting on a WTI price over $85 to get the 25% ROR that I would expect them to want.

          • Dennis Coyne says:

            Hi Clueless,

            Not all oil companies will have the same strategy as EOG, if they are cash starved they will need to complete a few wells to keep the lights on, if they can borrow money to do so. If oil prices remain $60/b or less, the borrowing will stop and some companies will go bankrupt.

            I agree with Steven Kopits and Jeff Brown’s predictions that oil prices will rise, but I also didn’t think oil prices would fall the way they have, so perhaps my guess is wrong.

            Eventually oil prices will rise, if not in 2015, then by summer 2016, if not it will be due to a severe recession or financial crisis.

  30. ezrydermike says:

    cue Fernando and Watcher as to why this won’t work and is just crap…

    The Los Angeles County Metropolitan Transportation Authority continued down its greener path Thursday when five electric buses were delivered to transportation officials downtown..

    Chinese automaker BYD manufactured the buses at its Lancaster plant. Between the plant and the company’s downtown headquarters, BYD employs at least 160 people. Company Chairman Chuan Fu Wang said he hoped to hire more people if purchase orders continued.

    Those orders may soon be coming.

    Metro’s initial contract calls for the agency to buy 20 more buses if the first five meet expectations.

    Long Beach Transit has ordered 10 buses, with the option for 50 more.

    I read in another article that these buses cost about $800k. Not sure if that is accurate or how that compares to an ICE bus.

    http://www.latimes.com/local/california/la-me-0501-electric-buses-20150501-story.html

    • Ronald Walter says:

      Those electric buses are using asphalt and concrete roads. They are not fossil free by any means.

      They also consume fossil fuels in the manufacturing process.

      Humans need fossil fuels.

      However, I would rather buy and drive an electric car for short commutes. It is the way to go. There would be no regrets.

      • Fred Magyar says:

        Humans need fossil fuels.

        That is certainly true of humans living in our current industrialized civilization!

        The question remains, will it always remain thus? Because, if fossil fuels as we use them today, are indeed an intrinsic need of humans, then humanity will destroy this planet’s ecosystems and so drastically change the chemistry of the atmosphere and the oceans as to render our very own survival impossible! Our very brief passage on the planet will then be recorded in the geological record as having had an impact on the biosphere similar to organisms such as cyanobacteria which also drastically changed the atmospheric chemistry of the planet a couple of billion years ago by producing O2.

        Homo sapiens has only been on the planet for about 100,000 years which doesn’t even qualify as a blink of the eye in terms of the geological record. Keep in mind that humanity has only used fossil fuels for the last few thousand years.

        The earliest recognized use is from the Shenyang area of China 4000 BC where Neolithic inhabitants had begun carving ornaments from black lignite.[20] Coal from the Fushun mine in northeastern China was used to smelt copper as early as 1000 BCE.[21] Marco Polo, the Italian who traveled to China in the 13th century, described coal as “black stones … which burn like logs”, and said coal was so plentiful, people could take three hot baths a week.[22] In Europe, the earliest reference to the use of coal as fuel is from the geological treatise On stones (Lap. 16) by the Greek scientist Theophrastus (circa 371–287 BC):[23][24]

        Among the materials that are dug because they are useful, those known as anthrakes [coals] are made of earth, and, once set on fire, they burn like charcoal. They are found in Liguria … and in Elis as one approaches Olympia by the mountain road; and they are used by those who work in metals.

        —Theophrastus,
        Source Wikipedia

        We need fossil fuels?! Then we are not much better than our not so distant cousins, Saccharomyces.

        http://www.yeastgenome.org/harvesting-until-the-last-minute

        In the science fiction novel Dune, the most precious thing in the universe is spice. It is harvested from the sands of the planet Dune under very dangerous conditions—every time people start to mine it, a gigantic worm comes to kill them. The spice is so valuable, though, that the miners harvest it until the very last second. As time runs out, a carryall whisks them away as the worm rises out of the desert.

    • Longtimber says:

      Buffet and Munger are all over falling PV prices and Better Batteries by backing BYD.
      https://www.youtube.com/watch?v=giAVYfzCzBc&feature=player_embedded
      ” It’s coming ” “We will get smarter on this issue” “Ethanol is stupid”

    • Heinrich Leopold says:

      Ezrydermike,

      Here are some experiences from electric buses in London. Since about five years London has tested hybrid buses in its network. I have been eagerly waiting for these buses, yet I have been also deeply disappointed. These buses go barely 5 % of traveling time electric, the rest is on diesel. I am wondering how buses can go totally electric at all. Maybe these buses in Los Angeles are hybrid buses as well. If this is the case, this is a total scam as the bus has to carry the batteries and the electric gear, which results in a much higher overall diesel consumption. I do not know the official result, yet London did not expand the electric bus program, which tells me that it is economically not feasable. The noise is reduced as long as the bus goes electric, yet when the diesel kicks in, the noise is much greater than for normal buses. So this is also environmentally not feasable.

      • Ron Short says:

        Heinrich Leopold – “London did not expand the electric bus program”. This is not true.

        After trials of hybrids London is now introducing all-electric buses.

        http://www.airqualitynews.com/2015/03/05/tfl-awards-deal-for-londons-first-all-electric-bus-route/

        “Not feasible”? Google Seoul, Amsterdam and Helsinki.

        • Heinrich Leopold says:

          Ron Short,

          Route 312 in Croydon is for sure not one of the main routes and I have never used the 312. 507 from Waterloo to Victoria and 512 from Waterloo to London Bridge must be some very short bus service and cannot be compared to the main bus lines. At least the electric buses are not a huge success on London bus lines. I would have welcomed electric buses, yet the hybrid electric buses do not give me the feeling something has changed for good.

      • Nick G says:

        That’s very odd. Hybrid buses typically are 50% more efficient, cleaner, quieter.

        I suppose every new thing has it’s failures. The Model T had dozens of competitors that disappeared.

    • I don’t see enough information to judge.

      Not too long ago we were shown a hybrid Walmart 18 wheeler. I looked it over and designed a more practical machine. The route, speed, load, and traffic design requirements change the answers, but in general a natural gas plug in hybrid would be a better buy than an all electric bus. The key is to have sufficient battery power to boost acceleration, and a small gas powered engine to provide range.

      I think the overall emissions are lower for the nat gas hybrid, in most cities, because so much electric power is generated using coal. A decision made by Californians doesn’t carry much weight, they tend to be impractical.

    • Ilambiquated says:

      This presentation shows an amazing lack of polish. He lets some of his key points disappear without even trying.

      One of those is that he sees the his battery factories as “machines”. I think what he is getting at is that he is aiming to make his entire project self sustainable and and growing both from a financial and an energy point of view. He is dreaming of building a whole fleet of solar power plants and battery plants using solar energy (and batteries) and subsequently powered by them. Then he would be competing with the fossil fuel industry.

      • Fred Magyar says:

        This presentation shows an amazing lack of polish. He lets some of his key points disappear without even trying.

        I have to agree that his public speaking and presentation skills are less than stellar. He definitely could use a bit of coaching!

        He is dreaming of building a whole fleet of solar power plants and battery plants using solar energy (and batteries) and subsequently powered by them. Then he would be competing with the fossil fuel industry.

        I also have to agree that his is a dream in the truest sense! Whether or not he and his team are the ones who will eventually turn it into reality remains to be seen.
        However he and his true competitors do have one humongous advantage, they are competing with a dying industry.

  31. aws. says:

    California Drought Puts Desalination, Fresh Water From The Sea, In A New Light

    By Keith Schneider, Circle of Blue, Thursday, 16 April 2015 16:10

    Era of ample water supply and cheap prices is ending.

    • ezrydermike says:

      “Enthusiasm for desalination tends to overlook its high costs, which stem in part from its enormous energy demand and weighty environmental footprint.”

      http://www.latimes.com/business/hiltzik/la-fi-hiltzik-20150426-column.html#page=1

      • Aws. says:

        The graph in my link clearly points that out. I tried posting the image with the link yesterday but ran into the same problem Jeffrey points out down thread.

        • Old farmer mac says:

          Does anybody know if a desalinization plant can be run intermittently without causing problems other than loss of production?

          Water is very easily stored in large reservoirs and to some extent is easily stored in tower mounted tanks for distribution in urban areas.

          At first glance it appears that desalinization plants might be one of the best possible uses for intermittent wind and solar energy – assuming of course that such a plant can operate intermittently without problems.

          • A reverse osmosis plant can be started and stopped with little cost but a distillation plant would experience considerable losses when shut down and restarted.

            Well that is my opinion anyway. Check out:
            Desalinization FAQ’s

          • toolpush says:

            OFM,

            In the very basic of concepts, a RO water plant is just a high pressure pump pushing water through a very fine membrane. Adjusting water flow with in certain parameters should not be an issue, and therefore a certain amount of load following could be achieved. Now stopping and starting it totally different, and would most likely cause damage to the membranes which only have life of a few years anyway.
            RO units are normally run flat out as they are an expensive piece of kit with high capex, but if this capex is accepted as a sunk cost, using RO plant as a demand management devise could make sense, depending on the demand of the fresh water?

            Ron,

            From my experience, these days RO beats evaporative distillation hands down. Even at sea where there is plenty of waste heat from the engines, so fuel cost is zero, RO units are the go to technology. The middle east used distillation, as they had plenty of waste heat from power generation and apparent endless cheap fuel. Though I believe they are currently using RO units in preference to distillation in their new plants.

          • Fred Magyar says:

            Does anybody know if a desalinization plant can be run intermittently without causing problems other than loss of production?

            Sure, just use the tried and true technology of passive solar distillation!

            Cheers!

            http://goo.gl/hx4xQI

            ONE COUNTRY in Latin America – Chile – could
            be defined the father/mother of modern desalination.
            Land-based applications of desalination stepped up
            their pace in the late 19th century in several countries,
            but only in Chile can it be shown that desalination was
            already applied in several sectors (municipal, mining,
            railways and military) using several of the known
            evaporative processes – multi-effect distillation (MED),
            single-effect and solar. This includes the famous Las Salinas solar
            desalination plant, built in 1878, which operated
            continuously for about 50 years and also the plant
            serving the city of Antofagasta, which was possibly one
            of the largest MED plants of the times, judging from a
            photo taken in 1882.

  32. toolpush says:

    http://phx.corporate-ir.net/phoenix.zhtml?c=147759&p=irol-newsArticle&ID=2041727

    Whiting First qtr report.
    I heard on CNBC, most likely from comments on conference call, that WLL had stated if the oil price (WTI, Bakken or Brent?) reached $70 that they would start drilling more wells. This maybe a miss quote, and may have been “completions”? But apparently $70 is a trigger point, is the interesting point.

    Edit: As I have said before, I am no accountant, but I don’t think this a good line in the report.

    (in thousands, except per share data)

    NET INCOME (LOSS) 1st qtr 2015 (106,128 ) 1st qtr 2014 109,051

    • Rune Likvern says:

      Other important numbers are;

      Discretionary cash flow- Q1 15: $ 249.3M(illion)

      Q1 15 [CAPEX]….. $ 835.2 M(illion)

      Then add;
      Interest expense per BOE $ 5.50 – $ 5.90 (Both Q1 15 and full year 2015 guidance).

      Anyone who looks at the number above (which is for all production) and break it down into individual wells (cost/profit center) will understand why The financial Red Queen will not be able to keep up…unless oil prices move higher.

      • shallow sand says:

        The model has been draw off credit line, when full, float bonds to pay off line, and then repeat. Banks always have first lien, bond holders taken on more risk.

        At some point, banks would surely become concerned that the second mortgage (bonds) would become such a burden that there would be too much stress on the entire enterprise.

        This really has similarities to the US housing bubble.

        And now the appraised value PV10 is underwater compared to the total debt. But the banks keep lending.

        • Rune Likvern says:

          Hi Shallow,

          I hold it very likely that each well for several reasons (like Working Interest (WI), and other accounting reasons) are treated as, call it individual business units (within the company).
          Within that lies several important details buried.

          If we had access to financial data for individual wells it would be possible to identify/estimate to what degree these were financed with debt (and its terms), their flows, OPEX etc. When this information is connected with income streams (oil and gas prices), it gets interesting.

          If the company has a neutral/negative cash flow, this would suggest that no debts are paid down. The longer this goes on, the higher the specific interest costs ($/Boe) become and under certain circumstances and after some time the well may not be able to cover its OPEX, other costs and interest costs.
          I take it the companies are aware of this, and therefore at some point starts to reduce the debts on wells in this category to improve the revenue streams for these.

          This takes money from the operational cash flow and likely reduces CAPEX.
          I hold it likely the banks are doing their regular stress tests of companies.

    • Did they state their well costs had dropped more than 20 %???

  33. Jeffrey J. Brown says:

    Ron & Dennis,

    It looks like we currently can’t post images as reply, only as a new comment. At least that has been my experience recently.

    • Fred just posted an image as a reply minutes ago.

      However you cannot edit a comment with an image without losing the image.

      • Jeffrey J. Brown says:

        I just tried to post an image as a reply to my comment, and here is what I got:

        Not Found

        Apologies, but the page you requested could not be found. Perhaps searching will help.

        SEARCH FOR:

        Now I get the same message when I try to post an image in a new comment:

        Not Found

        Apologies, but the page you requested could not be found. Perhaps searching will help.

        SEARCH FOR:

        (Incidentally, my experience has been that you can edit a comment with an image, but it does not initially appear with the edit, but if you close the browser and then come back, the image is still there.)

        • Jeffrey, try posting something else. I think it is telling you that the image, or page, cannot be found on your computer.

        • Jeffrey J. Brown says:

          Trying different image.

          Edit: Seems to have worked, but I checked and first image I tried to post (which I have previously been able to post) is still on my computer. Curious.

      • Fred Magyar says:

        Hi Ron,

        However you cannot edit a comment with an image without losing the image.

        Actually you can, apparently Jeff has also found this out and what he said is my experience as well. If you edit the comment and save it it seems as though the image has been lost but if you close and open your browser it will reappear. I have been using Google Chrome as my Browser of choice across multiple platforms including my cell phone.

        Having said that, I have experienced some issues with trying to post graphics recently and if I’m not mistaken Fernando also mentioned some problems with charts he was trying to post. Maybe just a coincidence but I had problems almost at the same time and date that he said he was having issues. Dunno, might have been some kind of intermittent internet or bandwidth glitch.

        Edit: I just re-read what Jeffrey said:
        I just tried to post an image as a reply to my comment, and here is what I got:

        Not Found

        Apologies, but the page you requested could not be found. Perhaps searching will help.

        That was also the message I got the day I was having problems posting an image. That message is from browser telling you that it can not find the Peakoilbarrel site. It has nothing to do with finding the image on your own computer.

        Still a bit of a mystery…

  34. toolpush says:

    Mike/Fernando,

    I was trying to think through what would be required to plug a Bakken style shale well, and realized that cementing a long horizontal section could be a problem. The concept of putting 10 x 1000ft or 20 x 500 ft “balanced plugs in a horizontal section, certainly has issues if the full diameter of the pipe is to be full.
    Traditionally you would run to TD open ended, pump and displace cement, POOH to above plug, circulate, and repeat. But in a horizontal there is going to major contamination as the mud will want to run along the top of the hole as the pipe is removed through the wet cement.
    Is there plug system or anything else to get around these issues, or is the concept to just pump excess cement, so the contaminated area is restricted to the length that is cleaned out by circulation?
    I don’t suppose there are any requirements to squeeze in to the perfs?
    Coil seems the way to go. Actually continuous pumping cement while POOH with coil, sounds the most logical and efficient, to me.

    • Mike says:

      Thus far, in Texas, the lateral is not requiring plugs. Depending on the amount of production casing or liner that can be recovered most of the plugs are OH and the radius from 90 back to 0 gets stuffed with cement. In Texas EF wells get drilled thru the 2nd largest groundwater aquifer in the State, so vertical sections way below, and way above, the aquifer get lots of balanced plugs, all of which have to meet density and yield requirements with TRRC personal doing the testing. Where surface or intermediate strings are not cut and pulled, numerous plugs are set in casing and many require squeezing to high squeeze pressure standards. All plugs must be tagged before setting the next one up hole and if they are not where there suppose to be you must saddle back up and reset. Yes sir, the majority of all that is done with CT.

      • toolpush says:

        Thanks Mike,

        It surprises me that the perfs are allowed to be left unplugged, but it would certainly make the job easier not having to worry about that long lateral.

  35. Ronald Walter says:

    Electric Ox

    A modern grain elevator has a 660 volt electricity feed to power the motors up at the top of the grain house. The electric motors are connected to a drive to move the belts with the grain cups to move the grain from the pit into the legs to lift the grain to the top of the elevator to the distributor to fill the bins. 330,000 bushels of capacity translates to a lot of electricity. You’ll need a power plant. A coal-fired power plant will have the brawn needed to deliver the electricity.

    When it goes 24/7 during harvest, you’ll thank the power company for having enough brains to use coal to generate the electricity. Facts and they don’t budge.

    Using natural gas to fire a power plant is a complete waste of natural gas.

    Humans are truly stupid at that point.

    • Watcher says:

      They quote

      Lead Acid Batteries

      20-25 horsepower, that’s lawn tractor territory

      6 hr drive time, overnight recharge
      //////////////////////////////////////////////

      22 hp is 16390 watts. 6 hrs –> 98340 watt hours 98.4 KWh

      Lead Acid energy density 41 watt-hrs/kg

      98340 / 41 = 2400 kg 5280 pounds. For a lawn tractor. Typical JD 550 lbs.

      Something amiss here.

      • Nick G says:

        They’re not going to run at peak power for the 6 hour running time.

        • Watcher says:

          Then that says if they are actually doing work, and the weight of the tractor was normal, they would get 1/12th (not 1/10th cuz that’s just battery weight) of 6 hrs., and then recharge overnight.

          Good luck mowing any significant land in 30 mins. Just more of the usual electric scam.

          1 hp = 745 watts. Nothing else matters.

          • Caelan MacIntyre says:

            A ‘battery’ (tank) of gasoline is on a whole other energy-level than a regular battery.
            To charge the latter to get it closer to the former will take quite awhile longer, maybe closer to the time and energy inputs (and their times) it takes to make ethanol.

    • Nick G says:

      Who should we ask about windpower for farming?

      How about Iowa?

      Iowa wind power reached 27% market share in 2014, and they’re on track to reach 34% in the next year or so, after they finish building another 1.2GW of wind capacity. Their most recent wind farms cost about $1.73 per watt to build – Iowa tends to achieve a 40% capacity factor, which suggests a pre-tax-credit cost of less than 4 cents per kWh, and a net cost (after Federal subsidies) of about 2 cents. That helps explain average retail prices of about 7 cents – 60% of the US average.

      Iowa’s power imports peaked in 1997, at -13.3%, then declined to zero in 2008 and now Iowa exports about 10% of their generation. They and their neighboring states are planning to expand exports of low cost wind power.

      http://www.eia.gov/electricity/state/Iowa/

  36. Han Neumann says:

    From peakoil.com

    “German automaker Audi says it has developed a process for making diesel fuel out of nothing but water and carbon dioxide, laying the groundwork for a green, carbon-neutral fuel.

    Audi calls the diesel produced by the new process “e-diesel” and is trumpeting it as a “fuel of the future.” Audi developed the process in conjunction with Dresden-based energy technology company Sunfire.”

  37. Ron Short says:

    “Renewables are growing rapidly in both the developed and the developing world, with China leading the way. China saw more than $83 billion in investments in renewables, 39 percent over 2013. The U.S. came in second worldwide, with about $38 billion in investments, up 7 percent in 2014. Japan ranked third with nearly $36 billion.
    Investments in renewables totaled $131.3 billion in developing nations, up 36 percent over 2013. Six developing countries are leading the way in solar and wind: Indonesia, Chile, Mexico, Kenya, South Africa and Turkey.”

    http://www.climatecentral.org/news/paradigm-shift-in-renewable-energy-investments-18830

    • Caelan MacIntyre says:

      I am reminded of those images of natives exposed for the first time to TV’s.

      TV’s in mud huts.

      TV commercials and shows about the western lifestyle…

      ‘Lifestyles of The Rich and Famous’…

      Solar panels on mud huts.

      I imagine that there were articles in the past that spoke of the rapid growth of TV’s too…

      Or the Missionaries, or USAID…

      “Certain issues have brought criticism to missionary activity. This has included concerns that missionaries have a perceived lack of respect for other cultures. Potential destruction of social structure among the converts has also been a concern. The Akha people of South East Asia are an example of those who believe that missionaries are only converting others for personal gain. The Akha people have complained the missionaries are more worried about building a church than building a clinic in a village that is very unhealthy. Many traditional values of the Akha have been lost as a result of these conversions…” ~ Wikipedia

      “The ejection of USAID from Russia was a long-awaited and welcome development. Moscow has repeatedly warned its US partners via an array of channels of communication that the tendency of USAID to interfere with Russia’s domestic affairs was unacceptable and, particularly, that the radicalism of its pet NGOs in the Caucasus would not be tolerated. When, on October 1, the decision made by the Russian leadership takes effect, the Moscow-based USAID staff which has been stubbornly ignoring the signals will have to pack and relocate to other countries facing allegations of authoritarian rule…In Latin America, USAID has long earned a reputation of an organization whose offices are, in fact, intelligence centers scheming to undermine legitimate governments in a number of the continent’s countries. The truth that USAID hosts CIA and US Defense Intelligence Agency operatives is not deeply hidden, as those seem to have played a role in every Latin American coup, providing financial, technical, and ideological support to respective oppositions. USAID also typically seeks engagement with the local armed forces and law-enforcement agencies, recruiting within them agents ready to lend a hand to the opposition when the opportunity arises…” ~ Global Research

      There goes the neighborhood…

      • MarbleZeppelin says:

        Yes, the typical historical interaction of Europeans and their offspring with other cultures has changed dramatically. Typically indigenous natives were introduced to sophisticated military weapons and tactics, their country taken over, enslavement or genocide and their resources extracted for empire building. That’s if European diseases formed from filthy living conditions with animals didn’t do a good enough job.
        Now they give them electricity and television, clean water supplies and loans of money, rocket stoves and small generators for lighting. How lame and feminine. They should completely refuse such approaches and ask for the old ways again.
        Oh, that’s right, they do that to themselves now. I guess they learned from the Soviet purges. Amazing how the world is so advanced now.

        • Caelan MacIntyre says:

          Far too often when living in harmony with nature is advocated– (Is there really any other way?!)– there’re the classic crass toss-offs of ‘going back to living in caves’ or the slightly-improved ‘joining a hippy commune’.

  38. The Wet One says:

    Here’s some interesting information:

    http://physics.ucsd.edu/do-the-math/2015/04/programmed-to-ignore/#more-1516

    This little ditty here explains a great many things.

    Winning the informational struggle is not going well. It appears that there is a significant bias in receptivity to various messages.

    In short, until calamity befalls us, most of our species literally cannot hear the message.

    This probably also answers the old question:
    Are humans smarter than yeast?

    It appears that humans cannot be smarter than yeast with respect to certain problems, because humans don’t have the mental makeup to address those problems. Here is evidence that it can’t be done and an explanation as to why.

    Fascinating.

    Have a great day!

    🙂

    • Thanks for this link Wet One, I am going to digest this paper and I will have more to say about it later.

    • MarbleZeppelin says:

      I really like a lot of Tom Murphy’s work. However, he seems to have trapped his conclusions here by taking two narrow selections and trying to determine a general result. Like trying to determine the energy in the whole electromagnetic spectrum by taking results from two optical bandpass filters. Of course the result will appear low.
      Hopefully, he will look back on this in the future and say ” What was I thinking?”.

    • Fred Magyar says:

      Here is evidence that it can’t be done and an explanation as to why.

      I’m not so sure I would go so far as to say that. Instead I think it might give us some insight into why most people are not swayed by logic and facts. Not exactly news to most of us here. That still leaves open the vast opportunities for manipulation of human emotions. We have that down to a science, no pun intended.

      Erica Chenoweth, Ph.D, Associate Professor at the Josef Korbel School of International Studies at the University of Denver, is a political scientist who studies non violent conflict. She tells us that based on empirical studies, movements that had 3.5% or more of the total population engaged in promoting a social issue were 100% effective in making change. That included being twice as effective as violent struggle in effecting regime change such as toppling a dictatorship.

      Which leads me to believe that Tom Murphy might not fully realize that it could be possible for the INTJs who compromise a mere 2 t0 4 % of the total population to effect change. There might be some hope yet!

      That having been said, a logical rational operator who recognized that we are on a train heading for brick wall might not wish to tell the passengers on the train to stop partying and listen instead to a dissertation about the physics and mathematics of acceleration and mass. They might instead work on fashioning messages to a relatively small group of the passengers who in turn could find ways of playing on the emotions of the others thereby making them want to do the necessary changes, regardless of their obliviousness of the facts.

      • Boomer II says:

        I think there are enough people in the US to appreciate the concept of sustainability. What appears to be broken is the political process. We seem to have a number of politicians promoting an agenda supported by a relatively small, but very wealthy, individuals.

        Surveys indicate that a high percentage of people are totally disgusted with Congress. However, they continue to support their local politicians.

        The bigger problem in the US is the cultural war. While a lot of people support conservation, national parks, clean air, and so on, they are easily divided into us and them camps. So if the them camp supports something, you get kneejerk opposition.

        The cause of the moment seems to change fairly regularly, but after awhile it loses momentum and people latch on to something else. Gay marriage and marijuana are causes that are fading away. Gun control is always a hot button issue, but it hasn’t been in the news much late. The new cultural issue seems to be GW (I won’t spell it out because it seems to attract a certain type of random poster here). Politicians are now going so far as to censor the term and to cut funding for any research related to it. But the economics of oil and the problems with drought will continue on no matter whether or not people can discuss heat in the atmosphere. That’s what they have to deal with. Some changes are happening that they can’t control.

        • Boomer II says:

          I also think that the latest moves to censor any discussions of GW and to cut funding is going to bite politicians very soon. Any anti-science bias in DC is going to lose whatever support there might have been in Silicon Valley. And Silicon Valley does have the money and the potential to influence politicians.

          The Kochs, while still throwing their money around, have become something of a joke because of the quality of the politicians they want to be elected.

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