Bakken Data plus The EIA versus The EIA

773 thoughts to “Bakken Data plus The EIA versus The EIA”

1. The DPR chart you posted is showing Bakken production to be up by 27 kb/d in January while today’s ND report is showing a reduction of 36 kb/d for January. That is an error of 63 kb/d on the part of the DPR report.

   Makes one wonder what numbers to believe.

   1. I think the NDIC data is more reliable
      The EIA’s final monthly oil production statistics for North Dakota are always very close to the NDIC data. And the DPR data usually differs from other EIA’s numbers

      1. Alex, the EIA gets their data from the NDIC. The EIA gets all their data from other reporting agencies. That is the states, the NDIC in the case of North Dakota, the Texas RRC in the case of Texas or the BSEE in the case of the Gulf of Mexico.

   2. Click the link:
      https://www.dmr.nd.gov/oilgas/stats/statisticsvw.asp

2. So the Bakken January production is down 34,000 BPD while the EIA said earlier this week it would be up by approx. 27,000 BPD. That estimate didn’t quite work out.

   Edit: OVI beat me to the punch.

   1. It’s generally best in the world post 2008 to distrust most data.

   2. Great minds……

3. You all may be interested in my new post on The Frack Lab, showing North Dakota’s production decline—and why:
   https://www.beaconreader.com/mason-inman/bakken-oil-production-is-already-declining

   I show a count of rigs and spuds (new wells drilled) as well as a count of well completions per month. For what it’s worth, my well completion count is coming out significantly different from North Dakota’s official count.

   If you’d like to get a notice when I post a new article on the Frack Lab, sign up here: http://eepurl.com/9Lpiz

   1. Here’s that compilation of rig counts, spuds, and completions, from my post “Bakken oil production is already declining”

      

      1. Hi Mason,

         Thanks. So 142 well completions in January? What were the number of completions in December 2014? Do you assume all (or maybe 95%) are Bakken/Three Forks wells when counting completions for the month?

         1. According to Lynn Helms in the latest Director’s Cut those numbers have changed:

            Over 98% of drilling now targets the Bakken and Three Forks formations.

            1. Hi Ron,

               I saw that, but last month he still said 95% (I think), and I figured the completed wells were drilled earlier so perhaps the 95% number may still apply.

      2. Nice work Mason. Interested as to where, in all the DMR data, your completion figure comes from, as I can’t immediately see that.

         You are right that the DMR 47 “completion” figure is a fiction – that’s because it is simply this month’s total wells (inc. legacy) minus last month’s (i.e. in this case 12181-12134=47). So ‘net wells added’ would be a better name for it. Lynn Helms’s completion backlog is also rather opaque in the way it is compiled.

         It’s also important to recall that January 2013-14 saw monthly drops, probably due to completion work slowing in the cold weather. This one is larger, though it does come from a higher production level.

         Once again, great work.

4. Today’s price $32. It’s still $15 under WTI and doesn’t care about Brent.

   Imagine that.

   Taxes and royalties . . . 25%. Those doods get $24/barrel with which to pay for salaries, proppant, water disposal fees, and, all together now, loan retirement schedules.

   Maybe there’s a line item for prostitutes and government bribes. That would be cool.

   tra la tra la

   1. Most of the companies are still hedged … except Continental

      1. A lot of 3 way collars though that have went through the bottom number, so maybe not as good as one would think.

5. I’m going to the bank to secure a loan to hand out five dollar bills to every laid off oil worker begging for a little help from their friends. I might go broke, but it will be a heartfelt bankruptcy. Might as well be a Good Samaritan.

   The debt doesn’t matter. Dick Cheney said so, deficits, he said, but what does it matter? He has an oil background, so he should know about debt and how to retire it… forget about it.

   Venezuela sells its oil and can’t afford to buy toilet paper. Good grief!

   The Venezuelan gov needs to contact the fed and apply for some of that QE money out there or ask for some old paper money that is going to be burned anyway, ask Russia for some old rubles that need to be burned, ask the Euro banks for some of the old euro paper money and have all that old paper money processed into toilet paper, the 100 euro that was retired, might as well ship all of that old paper currency in the form of toilet paper to Venezuela instead of burning it. Might as well make good use of all that worthless paper. Energy returned on energy invested will be positive. The Fed will be subsidizing toilet paper manufacturers with all that green paper money, more than one way to go green.

   Have some sympathy for Venezuelans, they need it more than anybody. The Peak Oil business can take a backseat for a couple of minutes so humans can address the real life problems in Venezuela. Got to have a heart.

   More debt will be a win win, paper money to toilet paper not just in name only and the oil producers who borrow it all from the happy lenders can argue they need more money to help the down and out Venezuelans.

   And for humanitarian reasons.

   The master resource indeed.

   1. You should submit an article for Fernando Leanme’s ‘How To Shit On Humans’ blog.
      Get yourself someone to ‘interview’.
      I’d read it.
      Fernando? Who would you recommend?
      (I just love the pigeon by the way.)

      1. Interview Bill McKibben and call the article Attack of the Killer Watermelons

         1. And what’s all the hating on watermelons anyway? I can’t get enough of them from June thru September!

            1. I resented it when they stopped selling the dark-seed seeded varieties and started selling only these ‘seedless’ kind, which seem less wholesome, less honest. Part of the ritual of eating watermelons was about spitting out the seeds. You’d go to a country baseball field on a hot, hazy, lazy dog day in early August, sit in the bleachers, maybe with a friend or two, and gorge on the things while spitting out the seeds with gusto.
               I wonder if selective breeding in the past was more democratic. Like the farmers would go around their villages and say, “Hey, look what I managed to grow! Here, have a taste…” and the villagers would all say their piece about it– yay or nay, etc.– and it would get implemented or not. None of this corporate, “You will eat this and like it.” crap.

               1. At least with the seeded ones there’s at least the thought you could buy one and then grow your own from then on, versus guaranteed dependency on agribusiness…

         2. ezrydermike,
            I meant to tell you that, yes, I have known of the Dancing Rabbit ecovillage for quite some time, and there are many more around the world– some established, some developing, some planned and possibly people looking others to form them with.
            Here’re a couple of sites that you might be interested in if you don’t already know of them (They are listed in Wikipedia’s ‘Ecovillage’ entry):
            http://gen.ecovillage.org/
            http://www.ic.org/directory/ecovillages/

            1. Thanks, appreciate it. It is very hard to step out of the matrix and no clear perfect way to do so. I think that people / groups that are trying should be admired not belittled. Healthy scrutiny is appropriate and DR seems to welcome that.

               Mike

               1. http://en.wikipedia.org/wiki/Perfect_is_the_enemy_of_good

               2. Aspiring to ‘perfect’ might be a good way for some people to attain ‘good’. So the two can be friends.

               3. I suppose it’s ultimately in one’s perspective and the context. I guess striving for perfection can be motivational for some, especially in a highly controlled context like high-tech manufacturing.

                  In social and environmental contexts where messy is the rule, I would think the obsession with perfection would more likely lead to paralysis or endless meetings.

                  Of course there’s also the zen approach: Perfection is already here and always was. Wake up!

               4. Hi Mike,
                  My intent previously was to simply express a suspicion that a possibility exists that some outfits with more nefarious purposes could leverage the ecovillage reputation, context and/or methodology, etc..
                  But it was someone else who mentioned something about DR, whereas, I was referring to another ‘ecovillage’ entirely.
                  Naturally, it’s important to keep an (ethical) eye open in general.

                  As an indirect example, I once attended a weekend farmers’ market in a small town, and asked a particular ‘farmer’ about their produce, since it seemed suspicious. Their response was that it was sourced from the same places as your average large-scale corporate grocery store chain. Upon further inquiry, he suddenly clammed up. In short, he largely seemed to be deceptively selling regular large-scale corporate grocery store chain produce at a premium local farmers’ small-scale market price and under that context.

               5. it’s all good.

      2. I interviewed Venezuelan president Maduro in early January when he flew through Moscow on his way to Beijing

         http://21stcenturysocialcritic.blogspot.com.es/2015/01/an-interview-with-venezuelas-president.html

6. The Bakken is coming to TV.

   Smithsonian Channel Set to Premiere Docu-Series ‘Boomtowners’ Chronicling Black Gold Rush n North Dakota and Montana

   The oil boom that has been drawing thousands of workers to the Bakken shale region of North Dakota and Montana is the subject of a new Smithsonian Channel docu-series. BOOMTOWNERS, comprised of six one-hour episodes, will debut Sunday, April 26 at 9:00 p.m. ET/PT. The announcement was made today by David Royle, Executive Vice President of Programming and Production, Smithsonian Channel.

   The series chronicles the daily lives of people who live and work in the Bakken region, the epicenter of the area’s oil boom. Oil was originally discovered in the area in 1951, but the recent development of hydraulic fracturing, or fracking, has rapidly transformed the Bakken into one of the world’s leading oil-producing regions. Since 2010, when the boom began, production has grown to over one million barrels of oil a day, which has led to lower gas prices in the United States.

   But with that Black Gold, the towns surrounding the Bakken may have been changed forever. And while many seek their fortunes amid the boom, others worry about potential environmental damage from fracking. The region struggles mightily to keep up with the infrastructure needs, housing demands, and the massive influx of workers and their families. Schools are beginning to be overrun and can’t keep up with the demand for teachers. Restaurants and grocery stores can’t keep employees as many favor the big checks coming from the oil fields.

   “The Bakken Boom is a modern-day Gold Rush, fueled by the American dream of rags to riches,” said Royle. “It’s like the Wild West all over again, with compelling characters from all walks of life and from all across America seeking their fortunes. And like the Wild West, it’s transforming some lives but leaving others with shattered dreams. It is certainly one of the most important economic developments of our time…but at what cost?”

   BOOMTOWNERS plunges into the lives of people who are experiencing this historic transformation – like Ben and Phoebe Moorhead, the parents of two young boys who left Phoenix, Arizona for steady work in the Bakken. Ben is a truck driver for one of the oil companies, while Phoebe is a court reporter in Sidney, Montana. They’ve always talked about doing more with their lives and see the oil boom as a means to get to where they’d really like to be.

   The series also follows Ray and Deanna Senior, parents of four, who picked up their entire family and moved from Rancho Mirage, California. They are struggling with their new way of life as Ray works non-stop and the kids are combining teenage angst with their unfamiliar surroundings. Judge Greg Mohr of Sidney, Montana experiences the dark side of the boom in a way few, if any, can. Every day his courtroom is packed, so he knows firsthand the pitfalls of a boom town. “No one could sit there and predict what was going to happen,” Judge Mohr says of the early days. “We woke up and here’s an 800-pound gorilla in bed with us called the Bakken.”

   Others followed in BOOMTOWNERS include Sean Banks, a street preacher/oil worker, who spreads his gospel to anyone who will listen and even some who don’t; Dan and Hannah Dooley, who see the Bakken boom as their ticket to entrepreneurial wealth; Tony Miller, an oil supervisor who has put his career before his happiness; Sandi Beagle Angel, a lifelong resident of Sidney, who yearns for the town she grew up in, not the one it has become; and Travis and Justin, young men in their late 20’s who know that it takes hard work to unearth the riches of the Bakken.

   ————————–
   TV Pilots 2015: The Complete Guide

   “Boom”
   Logline: The biggest oil discovery in American history (bigger than Texas and as big as Saudi Arabia) has triggered a geopolitical shift and an economic boom in North Dakota on a scale not seen since the American 1849 Gold Rush. The drama tracks the epic pilgrimage of a young, ambitious couple (Chase Crawford) to the oil fields of the Bakken seeking their fortune and a better life — a classic tale with modern twists. As viewers follow their trials and tribulations in a modern-day “Wild West,” they negotiate a colorful ensemble of roughnecks, grifters, oil barons (Don Johnson), criminals and fellow prospectors against a stark and beautiful backdrop.
   Cast: Chase Crawford, Don Johnson, Delroy Lindo, Scott Michael Foster (Once Upon a Time), Rebecca Rittenhouse, India De Beaufort, Caitlin Carver, Yani Gellman
   Team: W Josh Pate (Moonlight), Rodes Fishburne; EP Tony Krantz; D Josh Pate; co-EP Rodes Fishburne
   Studio: ABC Studios (via ABC Signature)
   Location: Northern Utah

   1. Maybe they should change the title to Bust Towns… I think they waited too long and pretty much missed the boat.

   2. If the Bakken is as big as Saudi Arabia I’m going to North Dakota to open a store to sell xmas tree bolts, nuts, and valve grease. The market will be terrific as they drill 100,000 wells.

   3. From the logline – “The biggest oil discovery in American history”

      I need a terminology confirmation. I’m not an oil guy, but from what I’ve learned the past few years on the various peak oil sites from many of you more-experienced oil people about “discoveries”, “resources”, and “reserves”, isn’t this a major mis-use of the phrase “oil discovery”? Pretty sure the oil currently being extracted from the Bakken, Eagle Ford, Monterey, and other shale-type formations was “discovered” many decades ago, right? The current production upsurge is because of increased applications of advanced extraction technologies only viable at higher oil prices, right? Technologies that tap resource rock instead of reservoir rock? And that is the reason why the analogy stated as fact in the next sentence – “as big as Saudi Arabia” is both wrong and very dangerous – and now will being spread to an even wider audience in a new TV series?

      1. You’re not mistaken, but the show will be based on Hollywood reality, and if Hollywood reality dictates that the show will only sell if its premise is based on more oil existing in North Dakota than Texas or Saudi Arabia, then that’s the premise the show will go all in with. The truth was already gonna be distorted anyway by having northern Utah fill in for western ND.

         Not a done deal yet the show will actually make it to air. ABC just saw a script and liked it enough to film a pilot episode based on it. If they continue to like what they see once the pilot’s been screened, they’ll place an order for more episodes and put it on the ABC schedule sometime this upcoming TV season. If they don’t like the pilot, the show will die, or maybe get sold to another network or distributor.

      2. Hvac, that’s Hollywood. One would hope the adult population knows they’re full of bull dinky. You know, it’s the land where a guy gets shot 345 times, squashed by a steel press, and dipped in molten steel, and has energy left to wave goodbye to the audience, cheat on his wife, and run for governor.

7. Hi Ron.

   In your post today, you twice mentioned something that troubled you :

   “I must also point out that the lower oil prices in March brought a higher oil production prediction for the future. That, to my way of thinking, is the exact opposite of what should have been the case.”

   “Here is the EIA’s outlook for world Liquids production doe the next two years. Here again, lower oil prices brought a higher prediction for world oil production.”

   At first glance, it does seem illogical for the EIA to forecast increasing production when oil prices keep dropping. High oil price should cause high production, and low price should cause low production. After all, that is the way that supply and demand are supposed to work. Past experience tells us this has always been true, therefore it must continue to be true. But this is a mistake. The rules have changed.

   You yourself know why already. After all, you made the fateful call. We are at peak oil.

   We are now living in a different world.

   High oil price = Bad for oil consumers, bad for the economy.
   Low oil price = Bad for oil producers, bad for the economy.

   There is no good way out of this situation. War is the only remedy that has ever worked in the past when net energy begins to decline. But war will not solve the dilemma we face today, it will only make it worse.

   All of the oil producers in the world are now pumping flat out into falling oil prices. No producer can afford not to. And prices can never recover until production overcapacity is sufficiently destroyed and oil inventories begin to fall short of demand. But demand just keeps dropping. And it will continue to. Why?

   The answer is obvious. What all of the evidence tells us is that we are already in collapse.

   Collapse has begun.

   1. At first glance, it does seem illogical for the EIA to forecast increasing production when oil prices keep dropping. High oil price should cause high production, and low price should cause low production. After all, that is the way that supply and demand are supposed to work. Past experience tells us this has always been true, therefore it must continue to be true. But this is a mistake. The rules have changed.

      Futilitist, the rules may have changed but certain fundamentals have not changed. Here are the fundamentals:
      1. If producers get paid more for their product they will produce more.
      2. If producers get paid less for their product they will produce less.

      Now we know the EIA can make huge mistakes. They predicted that the Bakken would be up by 27,300 barrels per day. (The EIA counts conventional wells as well as shale wells in their Bakken stats.) But they, the Bakken area of North Dakota was down 37,000 barrels per day. That’s an error or over 64,000 barrels per day.

      So the answer as to why the EIA had production going higher when prices were falling? They were just flat out wrong! Production in the US and elsewhere will decline right along with oil prices.

      1. Hi Ron.

         “Futilitist, the rules may have changed but certain fundamentals have not changed. Here are the fundamentals:
         1. If producers get paid more for their product they will produce more.
         2. If producers get paid less for their product they will produce less.”

         Those fundamentals used to be reliable predictors. But these fundamentals are now more important:

         High oil price = Bad for oil consumers, bad for the economy.
         Low oil price = Bad for oil producers, bad for the economy.

         There is no good way out of this situation.

         All of the oil producers in the world are now pumping flat out into falling oil prices. No producer can afford not to. And prices can never recover until production overcapacity is sufficiently destroyed and oil inventories begin to fall short of demand. But demand just keeps dropping. And it will continue to. Why?

         The answer is obvious. What all of the evidence tells us is that we are already in collapse.

         Please address this entire hypothesis.

         You also suggest this:

         “Now we know the EIA can make huge mistakes….”

         “So the answer as to why the EIA had production going higher when prices were falling? They were just flat out wrong! Production in the US and elsewhere will decline right along with oil prices.”

         And from the main post:

         “If the EIA was off by 290,000 barrels per day on what happened in the past, what confidence can we have in their predictions for future oil production?”

         I totally disagree that this is the takeaway point. I don’t see why you are even suggesting it. Does it have anything to do with the EIA announcement that production would begin to drop in April? Are you trying to cast doubt on that prediction?

         Besides, we have clearly been having rising production and falling prices for some time now, and that should not be the case if your old rules still applied. The EIA forecast is a no-brainer.

         1. Ron and futalist, As you both well know EIA is a .gov agency and therefore to at least some extent a political animal. In any organization serious analysts are generally honest and credible but when your paycheck depends on posting what the higher ups want to see you think of the wife, kids and house payment. The public would rather see a to the stars forecast than a down the toilet one. There are at least some who are willing to oblige.
            Philip

            1. Philip:

               I have a good friend who worked for the State of Minnisota for over 30 years forcasting labor data for the feds. He is a good and honest person and asserts that he was never pressured to alter data.

               But your comment reminds me that the CIA provided exactly what the Bush II administration wanted to justify a stupid, stupid war. Maybe your assertion is only valid when the stakes are really high or when the politicos are truly awful. In the latter case both were true.

            2. Philip, I do believe the folks at the EIA do try, as best they can, to get their predictions correct. The problem is they just always seem to be way too optimistic. After all, these are not peak oil folks.

               1. So who uses the EIA data in our government wrt policy? DOE? DOD? CIA? Any of the Congressional committees or sub-committees?Do you think there are other databases that are being considered? Should Ernest Moniz be reading this blog?!?!?!

               2. Ron, I do suppose that it is likely as you say, over optimistic. Perhaps after decades of cyclical trends it is assumed that the usual trends will reassert themselves at the usual times.

                  Philip

               3. Hey Ron, you what’s funny? This’ll kill ya! When it comes to predictions about the growth of renewable energy, solar in particular, “they just always seem to be way too” pessimistic!

                  In a response to Political Economist in the comments section of your previous blog entry, I wrote:

                  “Thirdly, the EIA is EXTREMELY conservative with their estimates for renewable energy to the point that I’m convinced that the people at the EIA don’t accept the growth figures for renewables, solar in particular. Case in point, from the first article above:

                  “The U.S. utility-scale segment broke the GW mark in 2011 and has since grown by nearly 1 GW annually. In 2014, 3.9 GW of utility-scale PV projects came on-line, with another 14 GW of projects currently under contract.”

                  and

                  “GTM Research forecasts the U.S. PV market to grow 31 percent in 2015. The utility segment is expected to account for 59 percent of the forecasted 8.1 GW of PV.”

                  Let’s see, 59% of 8.1 GW is 4.78 GW. So according to GTM Research, the utility sector alone is going to install more than twice 2.2 GW. There is no way only 2.2 GW of solar PV is going to be installed in 2015. It may even be possible that more than 2.2 GW gets installed in the first half of 2015. We will see.”

                  Just to back me up, here’s an article from Clean Technica:

                  Just How Off Is EIA’s Renewable Energy Outlook? How About 20+ Years?

                  “EIA data shows renewable energy sources (biomass, geothermal, hydropower, solar, and wind) grew from less than 9% of total US supply in 2004 to nearly 13% in 2013 on the strength of solar photovoltaic and wind energy’s rapid growth.
                  US EIA renewable energy production

                  That expansion rate raised concerns about EIA’s 16% by 2040 projection. “Given the relatively consistent growth trends of the past decade or longer for most renewable energy sources and their rapidly declining costs, it seems improbable that it will require another 27 years to grow from 13% to 16%,” said Ken Bossong, Sun Day executive director. “Thus, EIA’s forecast is not just unduly conservative; almost certainly, it is simply wrong.”

                  Sun Day’s analysis parsed EIA data for renewable energy sources within US net electrical generation from 2003 through 2013, and it paints a vastly different picture. If past trends continue, Sun Day forecasts, renewable energy will reach 13.5% in 2014, 14.4% in 2015, 15.3% in 2016, and 16% no later than 2018. That’s five years, not 27, if you’re counting along at home.”

                  So can anyone here explain this apparent forecasting bias on the part of the EIA in favour of oil and against renewables?

                  Alan from the islands

               4. Alan, this is an argument that is yet to be settled. The EIA was once very optimistic about renewables. I remember an EIA article I read around 2002 or somewhere around that time, and I deeply regret that I did not save that link, where the EIA was predicting that oil would not get to the $40 range because “renewables would kick in at that price and keep prices low”.

                  They got burned on that one. I am not so sure who is correct here. But I intend to have a post on the subject in about a month or so after I research the subject more thoroughly. But right now I am not at all convinced who is right. Is the EIA too pessimistic or are the renewable fans way too optimistic. But I must be honest and say right now I am leaning toward the EIA on this one.

               5. Who would have thought that Ron would think the pessimistic outlook would be more likely?

                  That would be like me thinking that the optimistic position was a possibility, crazy. 🙂

               6. There’s another aspect on ff vs renewables. Ethics. Or so says Pope Francis and wimbi, who has a talk to the local faith groups scheduled.

                  It’s only honest for me to hear comments from the experts on ff’s here assembled before I give my pitch to the faithful. After all, I could be wrong.

                  Here’s the outline:

                  ETHICS OF GLOBAL CLIMATE CHANGE
                  Brief statement on science- Climate change is real, present, dangerous, and largely caused by human activity

                  Brief statement on use of ff + effect of climate change- positive effect on the wealthy few, most negative effect on the least wealthy, least to contribute, and to next generations, having had nothing to do with it.

                  Therefor, highly unethical (obligation to powerless, see below)

                  List of personal actions to reduce individual contribution to climate change-
                  Political
                  awareness of effect of personal lifestyle
                  possible mitigation acts
                  essential- community action.

                  From wikipedia on Ethics
                  “David Hoy concludes that
                  The ethical resistance of the powerless others to our capacity to exert power over them is therefore what imposes unenforceable obligations on us. The obligations are unenforceable precisely because of the other’s lack of power. That actions are at once obligatory and at the same time unenforceable is what put them in the category of the ethical. Obligations that were enforced would, by the virtue of the force behind them, not be freely undertaken and would not be in the realm of the ethical. (2004, p.184)”

               7. Things can be enforced, and ethical, at the same time. In fact, it’s essential that they are enforced.

                  In a competitive environment, it’s necessary to have rules for all to follow.

                  The ethical part comes from society as a whole choosing to do the right thing.

               8. good luck…

                  some inspiration…

                  Katharine Anne Scott Hayhoe is an atmospheric scientist and associate professor of political science at Texas Tech University, where she is director of the Climate Science Center.

                  The first episode of the documentary TV series Years of Living Dangerously features her work and her communication with religious audiences in Texas.

                  http://en.wikipedia.org/wiki/Katharine_Hayhoe

               9. I will be talking to individuals, not governments. My pitch is that THEY have an obligation to do the right thing, meaning reduce their carbon footprint, since doing otherwise would be WRONG.

                  THEY have to decide what’s right or wrong, and act accordingly, regardless of what others choose to do. Since to enforce is not within their power.

                  I am assuming that the argument from ethics is far more persuasive to the average human than any from science.

                  I am curious to hear what oil people say about this. Could they be “spending their lives seeking the best way to do that which should not be done at all”?

               10. Wimbi,

                   I guess what I’m saying is that individual action is good, but not enough. Most people won’t feel able to step outside the mainstream of things, and not enough will happen.

                   Instead, I think that individuals should not only work on their own situation (home, car, etc) but also on their politicians. You know, call, write, talk to them. Give a small contribution, and let them know what you want. And, other organizing kind of stuff.

               11. EIA Oil price projection in 2004.
                   Are these people dimwits or is it willful distortion to serve some government policies? In Mai 2014, the EIA could not even predict what the oil price would be 6 month hence. In any case, oil price prediction that far out is a stupidity.

                   I like most the false accuracy down to the last Cent. The full article is given in:
                   http://www.worldoil.com/August-2007-Systematic-bias-in-EIA-oil-price-forecasts-Concerns-and-consequences.html

                   “..Crude oil prices are determined largely in an international marketplace by the balance between production in OPEC and non-OPEC nations and demand. In the reference case, the average lower 48 crude oil price is projected to be $23.61 per barrel in 2010 and $26.72 per barrel in 2025 (Figure 93). In the high world oil price case, the lower 48 crude oil price increases to $32.80 per barrel in 2010 and $34.90 per barrel in 2025. In the low world oil price case, the lower 48 price generally declines to $16.36 per barrel in 2010, then rises to $16.49 per barrel in 2025…”

         2. Oilcos are trying to make up losses with volume. That’s why output increases despite the fall in price.

            How long will this last without new holes in the ground? Simply a factor of decline rates of existing wells.

            Next question is how this output decline affect prices?

            Conventional wisdom insists that decreased output = higher prices due to supply vs. demand. This is so if customers (bidders) are solvent. As marginal customer becomes insolvent there is less of a bid => falling price. Relative solvency manifests itself as flat- or negative bond yields in national issues. We’re all Greeks, now.

         3. It is said that peak oil is (only?) obvious in retrospect or something like that. Perhaps retrospect is here. Just.

            Coincidentally, I was looking last night at some cognitive experiments where special glasses were placed that allowed subjects to see the world inverted: Left was right and/or up was down and vice-versa.

         4. All of the oil producers in the world are now pumping flat out into falling oil prices.

            Of course they are, but that is not why production will fall when prices drop. Capex slows down and if prices drop low enough capex will dry up entirely. That is what is happening in the Bakken. There is no capex to keep the rigs working, so they put them in the yard. And just why do you doubt that this will be exactly what happens in the rest of the world, or most of it anyway? For god’s sake, that is just how things work, always have and very likely always will.

            Being “already in collapse” is a different issue. That may very well be true but when capex dries up production will fall whether we are already in collapse or not.

            And I give an example of the EIA being miles off in their prediction. And they have almost always been way, way off. I have been following the EIA’s predictions for years and they are very seldom even close with their predictions. They are predicting US and World oil production will keep on increasing right through the end of 2016. And I said:
            “what confidence can we have in their predictions for future oil production?” And you replied:

            I totally disagree that this is the takeaway point. I don’t see why you are even suggesting it.

            Well you can disagree until the fucking cows come home for all I care. There is absolutely no reason that the EIA’s predictions should suddenly get any better than they have been in the past. And there is every reason to believe that because of very low oil prices exploration and drilling new wells will fall off. That means production will fall off as well.

            I thing Futilitist, that you sometimes just disagree for the sake of disagreeing. It is just common sense that production will fall off as prices fall off. In 2008 when prices went through the roof, so did production. Then when the bottom dropped out the bottom dropped out of production also. Then when prices increased again, production increased again. The very idea that this time around prices and production will be inversely proportioned is instead of directly proportioned is just silly.

            But unlike you, I totally see why you are suggesting such a thing. You just want to argue a very silly point into the ground.

            1. Ron,

               I am not disagreeing just to disagree. This is important.

               I agree that the EIA is generally too optimistic. But they just predicted that fracking production would be overtaken by depletion beginning in April. That is not an optimistic prediction. I think they are right. I don’t think we should doubt a realistic prediction because of their past record on overly optimistic predictions.

               But once the oil patch begins to capitulate, what next? How do we get back to ‘normal’?

               “The very idea that this time around prices and production will be inversely proportioned is instead of directly proportioned is just silly.”

               If it is silly, why has that exact thing been happening continuously since June, 2014? That is what the glut is all about. Prices keep falling, while production keeps rising. I just don’t see how we can safely get out of our current situation.

               So my main question is:

               Given that currently:

               High oil price = Bad for oil consumers, bad for the economy.
               Low oil price = Bad for oil producers, bad for the economy.

               And keeping in mind that the economy keeps getting weaker and oil patch destruction will make the economy much worse in a positive feedback, and there is a massive inventory glut that has to be worked out before prices can rise, how EXACTLY do we get from here back to a normal price environment without collapsing from the strain?

               If we can’t do that, we are in collapse.

               I think that is a pretty good question. It seems like an obvious question. Do you have an answer?

               1. So, let me get this straight…
                  Is it that we have a world-wide glut of oil, but it can’t be sold because the depressed economy just can’t buy it at current prices and the prices just can’t go much lower before the profit and/or EROEI break-even threshold is breached downward?
                  Might this be the beginning of the proverbial oil that starts to be ‘left in the ground’? Stranded assets that can’t be sold at a break-even or better price? We’ve already seen graphs of this break-even per country and the price is below most, yes? 75%+? Except KSA and Qatar and whatnot/wherenot?

               2. Hi Caelan.

                  “So, let me get this straight…
                  Is it that we have a world-wide glut of oil, but it can’t be sold because the depressed economy just can’t buy it at current prices and the prices just can’t go much lower before the profit and/or EROEI break-even threshold is breached downward? Might this be the beginning of the proverbial oil that starts to be ‘left in the ground’?”

                  Yes, I think that is about right.

                  This idea began to creep into my head around September or so. It just made theoretical sense. It seemed to me that ever since the oil price began to drop in June, our fate was essentially sealed. We had begun circling the drain. By late November, I was sure I was right, as oil dropped $10 in one day. If oil plunges again soon (and I think it will), it will be a sign that the economy is going into cardiac arrest. Whatever happens next, it sure as hell won’t be BAU.

               3. If it is silly, why has that exact thing been happening continuously since June, 2014?

                  Wow! You don’t follow oil prices and production very closely do you. Oil prices were well above $100 a barrel in June. Oil prices were still above $80 a barrel in November! Projects that were underway in November were not completed until December or later. There is always a lag of several months between falling or rising prices and falling or rising production. A lag time of two months is nothing!

                  And collapse has nothing to do with this.

                  Get real man, you are making a very silly argument. And that is putting it more kindly than I should.

                  

               4. Yes, but what about the state of the economy, Ron?
                  In that regard, the numbers are being, and have been, severely distorted since at least 2008. The books are beyond extra-crispy.

               5. What are you suggesting? You need to be more clear with your suggestions.

               6. Well, see my other comment.
                  I have some concerns, but am also asking you guys what you think.
                  If the economic books are being/have been cooked, we can’t seem to rely on certain information, and its normal logic, we might have previously.

                  I suspect that we may have crossed an economic threshold where price that’s too high hits the economy– that’s already toast (and/but its toastiness is somewhat hidden by ‘creative accounting’)– too hard and price that’s too low goes below break-even for many budgets.

                  IOW, the price has nowhere left to move.

               7. .

               8. ‘Oil price needed to balance national budgets‘

                  

               9. WTIC spot $45.97

               10. WTIC spot $44.89

               11. Ron,

                   I get that there is a lag between a price drop and a production decline. That is not the point. Production will have to fall a whole lot before prices can rise enough to make production rise again.

                   This could be a very long grind, with much more economic destruction in the meantime, which feeds back and puts more downward pressure on price.

                   I am not saying production won’t fall. Just not fast enough to raise the price enough to get us out of the hole. This will lead to collapse. Or if production does fall very fast, there will be vast economic destruction. That is collapse.

                   And all this is happening as we cross the peak oil threshold, and head into depletion and a net energy decline. It seems silly to expect things to be ‘normal’ ever again. Stability can no longer be taken for granted.

                   Given that currently:

                   High oil price = Bad for oil consumers, bad for the economy.
                   Low oil price = Bad for oil producers, bad for the economy.

                   And keeping in mind that the economy keeps getting weaker and oil patch destruction will make the economy much worse in a positive feedback, and there is a massive inventory glut that has to be worked out before prices can rise, how EXACTLY do we get from here back to a ‘normal’ price environment without collapsing from the strain?

               12. Well it seems you have now completely changed your argument to the point that now you seem to have no argument at all. Or if you do I am not sure just what it is. So I will leave it here, with no further comment.

               13. Ron,

                   I think it is clear what I am asking. The question appears in every post I have made to you so far. I even labeled it as “my main question”! How could you possibly miss it?

                   Here is my main question again.

                   Given that currently:

                   High oil price = Bad for oil consumers, bad for the economy.
                   Low oil price = Bad for oil producers, bad for the economy.

                   And keeping in mind that the economy keeps getting weaker and oil patch destruction will make the economy much worse in a positive feedback, and there is a massive inventory glut that has to be worked out before prices can rise, how EXACTLY do we get from here back to a ‘normal’ price environment without collapsing from the strain?

                   It is the same question I started with. I keep copying it and pasting it from my first post! You keep not addressing it. If you don’t want to, okay.

               14. Hi Futilitist,

                   I believe that Ron does not agree with:

                   High oil price = Bad for oil consumers, bad for the economy.
                   Low oil price = Bad for oil producers, bad for the economy.

                   I might be wrong about what Ron thinks as I did not read carefully.

                   High oil prices are good for producers and bad for consumers.

                   Low oil prices are bad for producers and good for consumers.

                   The amount produced will adjust over time so that supply and demand will be equal and prices will adjust to make this so over the medium term (in the short term we can have oil build up in storage tanks.)

                   Note also that high prices may actually be good for the economy in the long run because that is what is needed to transition away from fossil fuels. The building and installation of PV and Wind, light rail, rail, EVs, bike paths, urban and suburban redesign to create walkable neighborhoods all create more economic activity and are good for the economy.

                   The economy is actually doing pretty well worldwide according to the IMF and World Bank.

                   Latest IMF update at link below:

                   http://www.imf.org/external/pubs/ft/weo/2015/update/01/pdf/0115.pdf

                   Growth is expected to be 3.5% in 2015 and 3.7% in 2016 a downward revision from the October 2014 forecast of 0.3% for both 2015 and 2016, World GDP growth in 2013 and 2014 was 3.3%.

               15. Right Dennis, low oil prices are not bad for the economy, they are good for the economy. But of course that discounts the lag time. Eventually low oil prices will be bad for the economy because it will lead to lower oil production, which is bad for the economy.

                   So in a roundabout way Futilitist is right on this one. This is a catch 22, there is no way out of this one.

               16. Hi Ron,

                   So we do not agree, I thought you disagreed with Futilitist, but I did not read carefully enough.

                   So you are arguing that low prices are good for the economy and that they are bad for the economy. I think the first part is true and the second part is false, if we assume prices are determined by the market.

                   If oil prices are low and demand for oil increases while supply of oil decreases, what happens to the oil price? It rises.
                   Now I suppose one could argue that this is bad for the economy, but it is not compared to the alternative of oil scarcity.

                   This is the beauty of the free market when it works properly, a balance is struck between the quantity of oil that is profitable to produce at a given price and the quantity of oil that consumers can afford to buy at a given price.

                   As oil prices move higher as resources become more expensive to produce, other forms of energy are substituted based on relative prices and consumer preferences.

                   Unfortunately most people refuse to believe that peak oil (and other fossil fuels) is a possibility so transitioning away from fossil fuels will be exceedingly difficult and the result is likely to be a depression within 5 years of the peak.

                   The ensuing crisis may result in positive changes over the long run, but there will be plenty of short term (and medium term) pain.

               17. Dennis, I don’t think you read my response correctly. Of course low oil prices are good for the economy. But low oil prices, if they stay low, will eventually cause oil production to drop. Low oil production is bad for the economy. That is all I am saying, nothing more. I just think that is common sense. It is really not that complicated.

                   About that “transitioning away from fossil fuels” that you talk about…. Well I will talk about that later.

               18. Except for the roughly 10% of oil that’s used to generate power, the first step isn’t really about transitioning away from fossil fuels, it’s about transitioning away from oil.

                   That’s not so hard – we have cheaper, safer and cleaner alternatives, right now, for 80% of oil consumption.

               19. Hi Ron,

                   What is not clear is why you would expect prices to remain low if oil supplies drop. If low prices allow enough oil to be produced to satisfy demand for oil, then it will be good for the economy. In a free market if the oil prices are too low to balance supply and demand, so that oil becomes scarce, then prices will rise, this will be good for the economy in the sense that oil shortages would be worse for the economy than higher prices. Nixon proved this during the oil embargo when he tried to control oil prices and it lead to shortages being worse than if the market would have been allowed to operate.

                   Bottom line, in a free market low oil prices are good for the economy, but more importantly the forces of supply and demand will result in the best possible outcome, especially if taxes are properly used to account for externalities.

                   Hi Nick,

                   How does transitioning to EVs only help? If one is concerned with climate change, using coal fired electricity to power our transportation doesn’t help very much. Possibly you mean moving long haul freight to rail (though you never mention this). I assume you are aware that a large portion of fuel use is for Trucks to move goods, EVs do not help much with that, though local deliveries might work with batteries that can be swapped out easily. We have to move away from all fossil fuels, it is not only about oil.
                   Though perhaps your attention is on avoiding economic collapse due to peak oil, coal and natural gas will also peak so all three problems should be discussed.

               20. Dennis,

                   I agree completely about Climate Change, trucks to rail, etc. I was answering Ron, and others, who are concentrating on Peak Oil.

                   I agree: we should be dealing both with PO, and with Climate Change. The policies needed for each are slightly different, but complementary. For instance, EVs help with the implementation of wind and solar, as they provide buffering for intermittency.

               21. “The very idea that this time around prices and production will be inversely proportioned is instead of directly proportioned is just silly.”
                   Not so silly. In Yergin’s book “The Prize” it is documented that the ferocious oil drilling in Texas (Spindletop, for example) depressed the oil price but to make up the losses, more insane drilling activities where thought to be the remedy. One operator said that you could not even sell a barrel for 2 Cents but there was no stopping. It was only after the Rail Road Commission stepped in and put production quotas.
                   It could happen in ND where production increases to make up for decreasing revenues. However, that would be a dangerous game, since unlike operations in conventional plays, the shale oil producers have very little time for such a game before wells become dry.

               22. IOCs started cutting capital costs in order to maintain dividends in late 2013 and early 2014 when oil was $110 per barrel – does that count as a high or low price – depends on your perspective I think. For deep water projects these cuts could take 6 years to have an impact on production through. What they won’t do though is cut back on producing wells – NOCs may be able to do this but there is no way for IOCs to do so.

      2. 1. If producers get paid more for their product they will produce more.

         Don’t work if

         a. The producer ain’t got any oil under his ground.
         b. The producer has no need to produce if he’s not going to export it, saving it for grandkids, denying it to his enemies. Oil underground is stored, just like oil above ground. Don’t need to produce it. Would not matter what the price is.
         c. Won’t touch on consumption destruction via price. Better we think about a and b.

         1. Watcher,

            Are you saying that the ECONOMIC PRINCIPLE that a higher price will bring on more supply is INCORRECT?

            Well, if this is true, then the entire system based on economics is D-E-A-D.

            steve

            1. …So now what? ;D

               1. Collapse. 😉

         2. Hi Watcher.

            Can you address this:

            High oil price = Bad for oil consumers, bad for the economy.
            Low oil price = Bad for oil producers, bad for the economy.

            There is no good way out of this situation.

            All of the oil producers in the world are now pumping flat out into falling oil prices. No producer can afford not to. And prices can never recover until production overcapacity is sufficiently destroyed and oil inventories begin to fall short of demand. But demand just keeps dropping. And it will continue to. Why?

            The answer is obvious. What all of the evidence tells us is that we are already in collapse.

            I would like to hear your (non-cryptic) analysis. Thank you.

            1. If the price increases to $100 per barrel the world economy will do fine. If Ron is right we should see that price within 3 years. If Dennis is right it may take around five years. Once it starts going beyond that somewhat arbitrary boundary we will find out if renewables are ready for prime time to satisfy the needs of four billion people in India and the Far East.

               1. Call me crazy, but I feel as though these prices are EXTREMELY temporary. I see several temporary events that have coincided to bring about these prices:

                  1. Refineries reducing crude input – if less crude goes to a refinery it creates a bottleneck that temporarily increases storage stockpiles. The refinery strike, which has a tentative end as of Thursday, led to a slight reduction in refining capacity. Combine the strike with the seasonal maintenance on select refineries and turnover for summer fuel in others, and you get a marginal, but significant, impact that increases stockpiles.

                  2. North Dakota has a unique tax incentive for drillers: “The ‘large’ trigger, which begins if WTI drops below $55.09 and stays there for five consecutive months, allows operators to not pay any extraction taxes on new wells for the first 24 months of production, whether or not they drilled prior to the incentive triggering”.

                  This latest price decline gives companies an enormous incentive to wait on completions until that 5 month $55.09 trigger is activated. If these prices persist for a few more weeks, then companies will hold off on completions until this “zero tax” trigger is activated. The result would be a large drop in ND production for April and May.

                  3. This is purely speculation, but I hope to think it is educated speculation: The recent radical re-adjustment of currency values is delaying a spike in increased global oil demand. The large swing upward in the dollars value is not only directly making commodities priced in dollars cheaper, but also causes a lull in demand as businesses, governments, and entire economies adjust to a significantly changed global exchange of trade.

                  I feel this has created a true “sum of the parts is bigger” sort of confluence. Very soon refineries will begin taking in more crude, pulling more crude out of storage, and quickly thereafter a further fall in Bakken wells completed will reduce crude moving into storage. The cherry on top will be a leveling off of the dollar, and an increase in global demand once radically changed currency values are adjusted to.

                  My gut is telling me that WTI prices will continue declining and/or moving sideways for a few weeks (depending on knee jerk reactions to the Fed and Greece next week). Once we’re solidly into April I feel that the data will start coming out and WTI will start rising quickly.

                  The caveats are that a deal with Iran, or Greece not meeting bailout requirements would immediately and harshly send oil prices lower. But here’s the thing, the longer prices stay below $55.09, the more likely that Bakken’s “zero tax” incentive is triggered, and the more likely it is that zero wells are completed.

                  If that zero tax incentive is triggered in North Dakota we will see a huge surge in Bakken production, but that data would only happen in late June/early July. There’s a lot of factors at play here, but my best guess is a spike in WTI around April-May, and a decline or cooling off there after.

                  Anyone have any thoughts on this analysis of the current environment?

               2. I have been following oil closely since 1997 and I certainly still have no idea what prices will do. Think of how many billions of dollars that were invested recently by major companies with the idea that the price would stay around $100 WTI. I guess some majors started to pull back a little, but at time it was stated to be due to projects needing a lot more than $100.

                  Oil is boom and bust. Have sold oil from $8 to $140 over about an 18 year span. Have sold corn from $1.75 to $8.00 over a 25 year span, so goes to show you commodities are not for faint of heart.

               3. “…. a deal with Iran, …. not meeting bailout requirements would immediately and harshly send oil prices lower.
                  I disagree. The Israeli are in fear and and will bomb (with US help) the Iranian nuclear power plants that will send the oil price higher. A local war may follow by Iran mining the Strait of Hormuth and the oil price will be $200.

                  In the meantime, before this will come to pass, the US will tighten the sanctions on Iran, restricting oil export. Again this will increase the oil price.

               4. I wouldn’t bet on any long term rise in demand for oil and oil products. Recession is quite probable in the near future.
                  http://www.bloomberg.com/news/videos/2015-02-23/is-another-recession-looming-for-the-u-s-

               5. Allan H.

                  I watched the video. Good stuff, but I won’t go into some boring breakdown analysis because let’s face it – what qualifications do I really have?

                  I am what people would classify as a “doomer”.

                  How many times have we, with all our heart and knowledge, known that renewed recession or even collapse is just about to happen?

                  You’re clearly a sharp guy, as, frankly, everyone here is. I’m not sure how long you’ve followed peak oil scenarios, but for me it all started with lifeaftertheoilcrash.com in 2006.

                  2008 came along and it was clearly, abundantly evident that this was it. Our primary energy source peaked, price rocketed, and collapse was ensuing. The “recovery” was but a blip to me. Demand would quickly outrun declining supply, especially because of lower prices, and a 2nd oil shock would cause the fatal blow.

                  It was not until 2012 that I realized the scenario I was certain of was not unfolding. I wouldn’t even call it certainty because certainty is a mild term for how confident I was. Yet here we are today.

                  The U.S. is not going into recession right now. At the current moment our civilization has the resources necessary to grow, and given global QE and interest rates that growth will happen.

                  Severe changes in exchange rates and commodity prices will cause a short adjusting period as the global economies metabolism adjusts, but do not mistake that for recession. So long as resources are available and interest rates are accommodating we will live like it’s 1999.

                  We are not facing anything like the financial crisis of 2008 at this moment, nor are we facing anything like the Euro crisis, U.S. default and credit rating downgrades, or Arab Spring of 2011.

                  It may not conform to the narrative we tell ourselves, but the next truly severe “event” is at least 1-3 years off.

                  Will we have a market correction in the next few months? History would tell us that would be the norm, not the exception. Will markets get freaked out in the next year? Quite probably. Will we return to a 2008 type near collapse scenario before 2017? I doubt it.

                  Will we by 2019? I’d bet on it. Will we be able to pull a rabbit out of a hat like in 2008? I give it 50/50 because as events unfolded in 2008 I was CERTAIN we were completely screwed either immediately or just after a false rebound.

                  Thing is, it’s been over 6 years, and oil is at $45 while the global economy is clearly not in freefall. In 2008 I would have laughed at anyone who told me “In 2015 oil will be $45 a barrel and the global economy will be growing”. Yet here we are…

               6. That’s refreshing humility.

                  Forecasting is very very hard.

                  The terrible thing: if Mitt Romney had won, he’d be claiming credit for $45 oil…

               7. Good post! I was in much the same camp as you. Likewise, I don’t doubt that we’ll have issues pertaining to energy at some point in the future. However, I’m not as convinced that near-term peak oil will deliver a knock-out blow to society just yet. While I still have an overall pessimistic view of the future I do not subscribe to the Futilitist view that we are entering imminent collapse, I have brought this view in the past and am more skeptical about these kinds of claims now.

                  Anyway, time will reveal all I suppose, although the anticipation can get a bit taxing at times.

            2. You all have it wrong:

               Oil is bad for the environment

               1. And that’s where we live. All of us, rich and poor, good and bad, oil digging sinners and solar saints.

         3. Watcher: “….. Oil underground is stored”. In the Bakken I would not do it because of the dense oil pads and long horizontal wells. Your “stored” oil may flow out into other wells over time.

            1. Ngas,
               The prominent characteristic of these shale plays is their near-zero permeability … aka ‘flow’.
               A big issue of discovery/contention is how much communication/cannibalization between wells occurs as laterals are spaced increasingly closer together. (Some companies are placing wellbores as close as 300’/600′ apart and continuing to evaluate output. The thicker payzone in the Eagle Ford has encouraged the placement of wellbores in a ‘high/low’ configuration where laterals in close horizontal proximity are about 100′ vertically apart.
               The latest iteration in fracturing is keeping the stimulated area much closer to the wellbore, while simultaneously ‘rubilizing’ the formation to a high degree.
               Ongoing work in process, for sure.

8. I have been having a look at the daily Activity report. I noticed that many of the new permits were for wells of approx 2000ft. I assume this is for the top hole only, and a new permit must applied for, to drill the deeper section. Has this always been the case? I can’t say I had noticed it before, but i must admit I don’t follow these daily reports too closely.
   The second thing I noticed, was on wells stating a total depth of approx 20,000ft, it also states 9 5/8. Now is this 9 5/8 is a common casing size, but are they referring to casing size or hole size? I just don’t think they have the rigs to drill 12 1/4 hole and run 9 5/8 casing/liner to these depths.
   I see 4 1/2 liner and tubing is the norm. If the 9 5/8 refers to the hole size, Why such a large hole? 8 1/2 is more than big enough?

   1. Push, you have been away, on the beach at Phuket, I hope. You did not miss much, trust me. The climate change folks attempted a coup, in a moment of weakness I said somebody had the manners of a goat, the oil and gas industry subsidy bullshit came up, yet again, and all anybody can talk about is Bakken this and shale that. I no longer believe there is stinking oil well on the planet other than in North Dakota, buried in 4 feet of snow and ice. You and I might as well hang it up right now because the rest of the worldwide oil industry no longer exists, apparently. They’ll dig up our hardhats someday 200 years from now, buried in sediment, with those little whisk brooms, and put them in a museum. People will wonder what prehistoric critter wore that thing! And who was, and what did, that Halliburton sticker on the side of that hardhat mean to that civilization back then? Was Weatherford a warring tribe against Schlumberger? Why did those people all have steel in the toes of their boots?

      I am confused about your numbers a little, and your source. On the permit question, NO. One permit, top to lateral toe. No wells in the Bakken are even close to 20,000 feet TMD; that would mean they are now permitting 11,000 ft. laterals. Maybe they are; don’t know, don’t care. 9 5/8ths in a 12 1/4 hole meets the typical shale oil surface casing profile. In the EF that is typically 3,300 feet; it could be as little as 2,000 feet in the Bakken. They set intermediate strings up there a lot, I am told. Down here, in the EF, no. 5 1/2, 23 pound all the way, and sometimes you can even shove it down in water base mud, not oil base. You are absolutely correct, they do not have the rigs to stuff 9 5/8ths to 20,000 feet in a horizontal leg; none of those rigs have that kind of hook load capacity. Why would you want to?

      Think of the pump rates you could get down 9 5/8ths. It would be 4.8 on the Richter scale down in San Diego.

      Mike

      1. I’ve seen 21000 MD wells. Though the curve wasn’t landed until 11700 so still not a 10,000 lateral but close.

         1. Yeah, I didn’t understand that statement either. 61% of all North Dakota wells drilled since 2010 are greater than or equal to 20,000 feet TMD.

            There are some examples of going greater than 25,000 feet TMD in order to get under Lake Sakakawea/Missouri River or badlands. A few of these have 15,000 foot laterals.

            As to one of toolpush’s permit questions, the reason you don’t see all measurement information on many of the permits in daily activity reports has to do with the permits being on “tight hole” (confidential) status.

            1. OK, I stand corrected on Bakken MD, my apologies to Bakken hands that are smarter than me. I understand, Push, that 9 5/8ths is often used in multiple string situations offshore; I was just surprised they would be setting that big a casing string to lateral toe? in a shale well. As I said, that is a typical surface casing size and I believe 2,000 feet was about the setting depth. If you drilled Shakalin, Push, you deserve everyone’s immediate and permanent respect, sir. Now THAT is the real deal.

               In Texas, total depths and casing strings are not confidential in a permit. It is possible to keep confidential the geological information gleaned from the well, nothing more, and then only for 2 years. No operator can keep production information confidential. Correct me if I am wrong, but I thought all this production confidentiality stuff in the Bakken was eventually resolved, finally, thru understanding of what “runs” meant. In Texas there would only be one permit filed for any well, top to bottom; perhaps a 2000 ft. permit in ND is just that, a 2000 ft. well. Maybe a water well, which we do in Texas thru the TRC, for oil well purposes.

               I have already mentioned the process of drilling and setting surface casing with a smaller rig ahead of the bigger 1500’s that drill the remained of the well, including the radius and lateral. Its part of the drilling time per well charade. Intermediate strings in the Bakken are what increases well costs; in Texas, one production casing string, surface to toe.

               I guess if it was record, groundbreaking stuff Whiting would not owe 6 billion dollars and would want to be staying, instead of getting out. At current ND oil prices it is requiring over 375,000 BO just to pay an 8 million dollar well out.

               Mike

               1. It’s all one permit in North Dakota too, but information on the permit concerning total depths, casing profiles, and target(s) are among the things withheld during the confidentiality period, which ends six months after the spud date. Any production sales during the confidentiality period of course are not, and cannot be, withheld from public view.

               2. G’day Mike,

                  Yes it is true I drilled on Sakhalin, but just so there is no misunderstanding, I was on a few of the different platforms offshore. All big wells, but I do believe the pride on place goes to the Parker land rig drilling from the beach, and doing 40,000ft MD wells with a 6-7000ft TVD. Massive long extended reach wells to reach offshore fields from the beach. I believe they hold several drilling records for MD and well offset.

      2. Mike,

         We have Bakken production numbers that come out every month, along with the number of wells producing and production per well. That is the only field in the US or the World where we can get such data and so soon. We get the data about 6 weeks after the last day of the month.

         If we had such data on Eagle Ford, the Permian or Niobrara then I would have posts on that data and we would discuss them just as much as we discuss the Bakken.

         But we don’t so we don’t.

         However I am sure you know that but I would just like to inform others of those facts in case they don’t understand why we don’t talk nearly as much about other plays as we do the Bakken.

         1. I understand, Mr. Patterson. I also understand that the Bakken is the poster child for unconventional resource plays throughout the world and it is important to be able to analyze that resource play very carefully. In that regard the information that you provide on the site is vital. I am grateful for that. Its fun for people to play with because thru the internet they can learn all about the Bakken and the shale oil business. It is occasionally frustrating to me all the hubbub about a resource play that represents less that 1% of total world production.

            By the way, I agree with you; the shale oil industry in the United States has had it’s day in the sun. LTO production in this country, short of nuclear war in the ME, and the US government paying for half the well costs of a shale well in the future, will never be higher than it was in 2014.

            Mike

            Mike

            1. Yikes, Mike.

               My grandmother once told me to NEVER say never.

               Just thought I’d mention that LTO production in 2015 is already proceeding at a higher rate than in 2014.

               Never?

      3. G’day Mike,

         No Phuket for me, just off to my little bit bush block I own. Off grid solar, tank water no internet or cell phone and plenty of fire wood. Just one land line and a radio to connect me to the outside world.
         Just for information, several offshore large gas plays do use 9 5/8 liners and tubing. Up in Sakhalin we were producing 350 mmcfpd from each well, and these things were suppose to continue to produce for years at that rate. It was a massive gas field, 70+ tcf. But I couldn’t imagine what the shale plays would be interested in anything lake that.
         I copied some extracts down below, that should explain better what I was referring to.

   2. That is the surface casing size to 2100′ or so. Intermediate runs 6 3/4 to 11700 md and lateral liner 4 1/2.

   3. Push, Regex may weigh in on some of this stuff as he seems pretty well informed.
      The 9 5/8″ is the surface casing going down about 2,000′. The ‘baby’ rigs (cheaper) have normally been used for this drilling/setting/seementig and then they go bye bye, When the decision is made to proceed, the big rigs – I think they’re all about 1,500hp now – come in and drill down to about 10k/11k’ and set 7″ production casing from surface to the start of the horizontal. The 4 1/2″ (normally) tubing/casing is then set the rest of the way (5/10k additional feet). Seems to be a bit of variation on the lateral hardware as differing methods keep being tried.
      I think once a permit is issued, it can last about forever, but if no work has commenced within 12 months of issuance, it can be continuously extended by paying $100/yr or so … not certain.
      If you haven’t read the article on the CT Bottom Hole Tool frac’ing a Permian well in 29 stages (Jan issue aogr.com), you may want to check it out. Whiting’s two wells in the Bakken that went this way have so far produced over 200k boe in first four months … little decline for months 2 thru 4. Record-breaking, game-changing, fascinating stuff.

      1. Thanks everyone for chipping in,

         I should have put up some examples. So here it is.

         https://www.dmr.nd.gov/oilgas/daily/2015/dr030415.pdf
         #30829 – XTO ENERGY INC., TAT STATE FEDERAL 14X-36A, SWSW 36-148N-96W, DUNN CO., 413′
         FSL and 914′ FWL, DEVELOPMENT, BEAR CREEK, ‘Tight Hole’, 2411′ Ground, API #33-025-
         02875
         So this is a permit just for the top hole. So from this do they need another permit for the deeper section? Is this normal to have two permits per well?

         #30843 – WHITING OIL AND GAS CORPORATION, P EARL RENNERFELDT 154-99-2-3-10-15H, LOT2
         3-154N-99W, WILLIAMS CO., 760′ FNL and 2155′ FEL, DEVELOPMENT, STOCKYARD
         CREEK, 20588′, 9-625 inch , 2390′ Ground, API #33-105-03998

         So this well will have surface casing 2390′ and TMD to 20,588ft. So what does the 9.625 inch (9 5/8″). This seems to one permit for the complete well, where as the XTO well seems like only half a hole? smiles.

         1. Tool push. How’s it going? Since you are looking at ND stuff, check out how many Bakken wells in January, 2015 had zero production, were SI or TA status or produced under 100 bbl or finally under 1,000 barrels for the month. Don’t expect anyone to count them, but just scrolling through looks like there’s a bunch.

            We were talking in the last thread about the possibility of wells being left down when there is a downhole failure, and it kinda of looks like that could be the case.

            Also hate to see the big percentage of conventional shut down there. Many conventional operators up there are not also in shale it appears. Bet those guys, who were just up there minding there own business, may share Mike and my “shale bias?” hope they got some good farm out $ LOL

            Also, since all we seem to talk about is US shale, got any news re cuts, etc in the world?

         2. One permit covers an entire well. The reason why there is a difference in the stated information between the two permits you reference is because the first one is a “tight hole,” or confidential, while the other is not. The confidentiality period runs until six months after the spud date, at which time total depth and casing information of the well is released, though not on the daily activity reports.

            The 2411′ and 2390′ on those permits actually have nothing to do with casing. Those are the ground-level elevations, in feet above sea level, of the well pad.

            1. Thanks Reg,

               The 2411′ and 2390′ on those permits actually have nothing to do with casing. Those are the ground-level elevations, in feet above sea level, of the well pad.
               That clears up a lot.
               Any ideas about the 9 5/8 mention?

9. Just some of my preliminary observations from the recent NDIC published reports.
   The things I look for are patterns and changes to these.
   For the period from 2010 and as of now the number of wells awaiting completions/fracking (idle) wells increased from November to December except for 2014.
   From Dec-14 to Jan-15;
   Bakken/Three Forks had a decline in extraction of close to 35 kb/d (may be revised) and 107 producing wells were added.
   McKenzie had a decline in extraction of about 29 kb/d and 7 producing wells were added.

   1. Hi Rune,

      Are confidential wells included in your 107 count? I think we can safely estimate that 90 to 95% of confidential wells are Bakken/Three Forks wells?

      I ask because Mason Inman gets a count of 142 completions for January. He could be wrong of course, I am just attempting to reconcile the difference.

      1. First of all Dennis, to presume someone is wrong is a comment that should not appear in the public domain unless you can back it up. It is about manners and professionalism!
         Dennis, by now you ought to have reached such a level that you are able to find your own way around the available databases.

         Then to your question (you could easily have found this out on your own);

         It depends on how Inman defines completions.
         The NDIC data for Bakken/TF (as of now) shows production from a net addition of 107 producing wells from December 2014 to January 2015. The production data is all production (they may be subject to future revisions).

         Then there is the Directors Cut that says 47 (though prelim) for January 2015.
         https://www.dmr.nd.gov/oilgas/directorscut/directorscut-2015-03-12.pdf
         The number of well completions dropped from 183(final) in December to 47(preliminary) in January.

         Finally there is the monthly well by well list that (as of now and numbers may be revised) that shows that 152 wells had their first production in January 2015. These are all wells and for some time around 95% of the wells have been in Bakken/TF formations. Some of these wells may have been completed in December, but for some reason not started to flow before January.

         Looking at the data there is good reason to believe Inman has his bases well covered.

         1. Hi Rune,

            You are absolutely correct. My apologies to Mason Inman, his estimate is excellent.

            I did not mean to say that he was wrong, I was trying to reconcile two different estimates. I am sorry to have asked you a question, I will refrain from doing so in the future.

            My estimate based on Bakken, Bakken/Three Forks, and Sanish wells is 99 wells from these formations started producing in Jan 2015 in North Dakota.

            There were 52 confidential wells which started producing in North Dakota in Jan 2015. If we assume 95 % of the confidential wells were in the Bakken/Three Forks formation, that would be 49 new wells.

            Total new wells for Jan 2015 by my estimate is 148 new wells in the Bakken/Three Forks formation of North Dakota.

            For December 2014, 210 new wells were added to the Bakken/Three Forks.

            It is surprising that output decreased in Jan 2015 if these estimates are correct, but if 41 wells were shut down for maintenance (148-107=41), perhaps that is
            part of the explanation or maybe there were some operational problems due to weather.

            Note that in Dec 2014 the number of producing wells increased by 210 wells, the same as the number of wells determined from Enno Peter’s spreadsheet for new wells starting production in the Bakken/Three Forks, so this might explain the low output in Jan 2015 compared to Dec 2014.

            1. Dennis,

               ” I am sorry to have asked you a question, I will refrain from doing so in the future.”

               Well, I find that an offensive/insulting comment. Dennis, you really must move beyond this Prima Donna attitude. Rune is a perfect gentleman and deserves better.

               1. “Rune is a perfect gentleman and deserves better.” If so why does he write this in a comment above? “Well you can disagree until the fucking cows come home for all I care”.

                  I never use such words but I don’t mind since in the heat of a debate one says all kinds of things. In this environment I do not find such remarks offensive. We are, after all, not in a kindergarten.

               2. nNgass, those are my words, not Rune’s. And if you hang around this list for very long you will see me use such words many times.

                  I was responding to Futilitist’s statement that he disagreed with my assertion that we can have little faith in the EIA’s predictions. I thought disagreeing with that was more than a little absurd and deserved such a statement.

               3. Hi Ron.

                  I only disagreed with you because the timing of your statement might make people not take the EIA seriously when they forecast that tight oil production will fall behind depletion starting in April. I think this prediction this is almost certainly true.

               4. Hi Futilitist,

                  I think the bad prediction of the DPR in January may make everyone question future predictions as well. Or people may believe that all EIA forecasts tend to be too optimistic, which would imply that LTO output should start to fall before April.

                  The STEO has output falling in Jan and Feb. and then recovering in March and April, the STEO has WTI rising from May 2015, so it is not clear why output would rise in March and April if prices are flat.

                  Basically nobody knows what will happen, I think US C+C will be +/- 100 kb/d of Dec 2014 output (9300 kb/d) through April and if prices start to rise we may see a slow increase in output, but I doubt we will be outside of the 9 to 9.5 MMb/d range through Dec 2015, a lot depends on oil prices which are unpredictable.

               5. Dennis,

                  We are watching the rig count decline right now and that is completely consistent with the EIA forecast.

                  In order to get back to the higher oil prices you need, we must first destroy a lot of productive capacity, as well as work through a gigantic glut. And we must do all this while the economy is in a recession. If you can’t explain a good way out of that catch-22, I don’t see why anyone should take your knee-jerk optimism and “nobody knows what will happen” skepticism very seriously.

               6. Hi Futililtist,

                  I only assume we are in a recession, when we actually are, currently we are not in a recession, we also may not have reached peak oil yet, output may fall and then rise back to current levels as oil prices recover.
                  This is unknown. Just because someone believes we are at peak oil now does not make it so, we stayed on an output plateau from 2005 to 2011 (if we consider +/- 1 Mb/d as a plateau), and it was likely a contributing factor to the recession in 2009. We could potentially enter another plateau from 2014 to 2020, with output declining after that, that is when there might be a depression (my guess would be 2030), I don’t deny a collapse is possible. I disagree on the timing and the certainty that it is happening or will happen soon.

                  Of course anyone who disagrees with you is labelled a denier. I don’t think calling people names strengthens your argument, it weakens it.

               7. Okay. You are certainly entitled to your opinion, even if you cannot justify it.

               8. Hi Doug,

                  You are correct. Sorry to offend you.

                  Sorry Rune.

                  My confusion was your “107 producing wells were added”.

                  I know that you have access to Enno Peter’s data and I thought you were using that, rather than just subtracting Jan 2015 Bakken producing wells from Dec 2014 producing wells.

                  In the past you have brought to my attention the fact that some wells get shut down for maintenance each month, so technically we should say that the number of producing wells increased by 107 wells, in fact in this case about 149 new producing wells were added (using Enno Peter’s data) in January 2015 and I was trying to reconcile the difference between your 107 wells and Mason Inman’s 142 wells.

                  It did not occur to me that you would use the simple ND Monthly Bakken Oil Production Statistics for an estimate of the producing wells that had been added, when previously you had explained that this was not a very good estimate.

                  I also assume that you are as familiar with the databases as I am and would out of common politeness not insinuate that you don’t know what you are doing. My question was to find out how you were handling the confidential wells because I assumed you were using Enno Peter’s data. I assumed incorrectly.

                  My sincere apologies.

               9. Dennis you are really taxing my patience with you;
                  Further upthread I wrote;
                  It depends on how Inman defines completions.
                  The NDIC data for Bakken/TF (as of now) shows production from a net addition of 107 producing wells from December 2014 to January 2015. The production data is all production (they may be subject to future revisions).
                  Then there is the Directors Cut that says 47 (though prelim) for January 2015.
                  https://www.dmr.nd.gov/oilgas/directorscut/directorscut-2015-03-12.pdf
                  The number of well completions dropped from 183(final) in December to 47(preliminary) in January.
                  Finally there is the monthly well by well list that (as of now and numbers may be revised) that shows that 152 wells had their first production in January 2015. These are all wells and for some time around 95% of the wells have been in Bakken/TF formations. Some of these wells may have been completed in December, but for some reason not started to flow before January.
                  Looking at the data there is good reason to believe Inman has his bases well covered.
                  Dennis, I provided 3 sources for number of well completions. I did not single out one specifically.

               10. Hi Rune,

                   My comment was referring to your first comment:

                   http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-503821

                   where you only gave 107 producing wells were added.

                   Just some of my preliminary observations from the recent NDIC published reports.
                   The things I look for are patterns and changes to these.
                   For the period from 2010 and as of now the number of wells awaiting completions/fracking (idle) wells increased from November to December except for 2014.
                   From Dec-14 to Jan-15;
                   Bakken/Three Forks had a decline in extraction of close to 35 kb/d (may be revised) and 107 producing wells were added.
                   McKenzie had a decline in extraction of about 29 kb/d and 7 producing wells were added.

                   In response to this I tried to reconcile your 107 wells with Mason Inman’s 142, it did not occur to me that you would use the ND Bakken oil statistics
                   { https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf }
                   for such an estimate as you have access to better data, you did not say where you got the 107 producing wells data in your original comment.

                   And I am not paid anything and share my data with everyone.

               11. “And I am not paid anything and share my data with everyone.”

                   Why in the world would you say such a thing? It doesn’t even make any sense unless you you were accused of something terrible first, yet I see no evidence of anything like that here. Why, you act as if somebody accused you of being a paid troll and refused to share his data with you, or something. And of course that would be ridiculous! I know things can get a little tense around here sometimes, but I really do think that you should wait for an accusation first, Dennis. Of course, that is just my humble advice. 😉

                   Are you perhaps familiar with the “Q” document? Biblical scholars hypothesize that the gospels of Matthew and Luke were written independently, each using Mark and a second hypothetical document called “Q” as a source. Although widely accepted by scholars, the “Q” document has never been found.

               12. Hi Futilitist,

                   I was referring to the following comment at link below and should have put that comment there:

                   http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504451

                   Where Rune said,

                   Yes, I have projections for number of Bakken well additions for the next few months related to several oil price trajectories, but by now I have also learned not to share those with paid trolls.

                   Possibly Rune was referring to somebody else, it is not clear if he was referring to me or not.

                   I have no idea what the Q document is, I am not really interested in Biblical research.

               13. Oops. My bad. For a second I thought we had a memory hole. Thanks for the link. I had remembered seeing the comment the first time, and got confused when I looked again later and saw your unconnected answer. It is hard to keep track of where stuff is when thread continuity splits so much. Sorry, everybody. Carry on.

                   As far as the “Q” document goes, a long time ago, I did a bunch of research on the non historicity of Jesus. I thought it was pretty cool that scholars could hypothesize a missing historical document from linguistic and editorial clues in known documents. Good detective work.

                   I don’t really care that much about Biblical research these days. I am much more interested in collapse.

10. recent from Michael Klare via Tomdispatch…

    “Many reasons have been provided for the dramatic plunge in the price of oil to about $60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the U.S. and elsewhere); and the increased value of the dollar relative to other currencies. There is, however, one reason that’s not being discussed, and yet it could be the most important of all: the complete collapse of Big Oil’s production-maximizing business model.”

    http://www.tomdispatch.com/blog/175967/

    1. http://www.tomdispatch.com/blog/175967/
       “The oil industry is, of course, hoping that the current price plunge will soon reverse itself and that its now-crumbling maximizing-output model will make a comeback along with $100-per-barrel price levels. But these hopes for the return of “normality” are likely energy pipe dreams. As van der Hoeven suggests, the world has changed in significant ways ….”

       van der Hoeven, the former IEA Executive Director did not elaborate what changed so significantly. It almost sounds as if oil is a thing of the past and the world is using something different. Consensus is that she was a very weak director with no qualifications in the area of energy. But she was a good executive to implement US wishes on oil issues. This is why, for example, most IEA forecasts were so optimistic, to say the least.

    2. I worked for big oil for many years. None of the outfits I worked for. Or observed closely had a production maximizing strategy. Different companies seemed to emphasize different metrics. I think the key was always to increase profits, to deliver a target return on capital employed, to replace reserves, and to increase production. But MAXIMIZE production wasn’t discussed. Nor does it make sense.

11. “In support of the President’s strategy to diversify our nation’s clean energy mix, an elite team of researchers, academics, scientists, engineers, and wind industry experts revisited the findings of the Energy Department’s 2008 20% Wind by 2030 report and built upon its findings to conceptualize a new vision for wind energy through 2050.

    The Wind Vision Report takes America’s current installed wind power capacity across all facets of wind energy (land-based, offshore, and distributed) as its baseline—a capacity that has tripled since the 2008 release of the Energy Department’s 20% Wind Energy by 2030 report—and assesses the potential economic, environmental, and social benefits of a scenario where U.S. wind power supplies 10% of the nation’s electrical demand in 2020, 20% in 2030, and 35% in 2050. The Wind Vision Report builds upon the continued the success of the wind industry to date and quantifies a robust wind energy future.”

    http://energy.gov/eere/wind/wind-vision

    Executive Summary pdf

    http://www.energy.gov/sites/prod/files/wv_executive_summary_overview_and_key_chapter_findings_final.pdf

    1. I hate the way these government bureaucrats use acronyms. If they want an internal document full of three letter words they can use a word replacement to put the damned thing in English before they release it. Otherwise it’s illegible.

12. As output declines don’t be surprised when prices fall or remain flat.

    Despite vicious conflicts in oil producers Iraq, Libya, Ukraine and Syria, oil prices fell last summer. The old rules don’t work any more, what matters is individual customer solvency.

    Less oil will not enrich anyone, less oil will bankrupt even more customers around the world => lower prices. Even as prices fall the ability to meet them falls faster. This ‘energy deflation’ and once it takes hold there is no escape from it. Adding more output drives prices lower due to excess ‘supply’. Cutting output = ‘Conservation by Other Means ™’ which drives prices lower due to reduced ability to consume.

    These last two — cutting output and less ability to consume — interact to amplify each other => a vicious cycle and Ugo Bardi’s ‘Seneca Cliff’ and (continuation of) oil price crash.

    At bottom, every liter of fuel must find an individual customer … who can borrow to pay for it. The energy waste business is a bottom-up affair. Loanable funds since 1980 have flowed from the bottom of industrial economies toward middlemen: drillers, distributors and their lenders. Fast forward to 2015 and the world’s credit system is broken; there are fewer solvent borrowers every day. ‘Broken-ness’ is not helped by those who remain solvent borrowing to buy then simply wasting the fuel they buy.

    The only solution/outcome is stringent conservation … but that is what is going to happen anyway.

    1. At bottom, every liter of fuel must find an individual customer … who can borrow to pay for it.

       Suppose the lender is thin air. Borrow it from nothingness.

       haha stringent conservation.

       I like that. Maybe it can be militarily enforced on enemies.

       1. Conservation always works from the outside in, Watcher!

          Don’t be surprised if ‘military enforcement’ arrives on American doorsteps faster than some might think … then again it looks in places like it already has.

          1. 4% of the world’s population. 24% of the world’s oil consumption.

             haha that’s the American fair share. When the numbers crunch down, and some arbiter is supposed to divvy it up, that will be the demanded starting point for equitable distribution. Plus some more for growth, you know. Population gain and all that.

             Objections will be addressed on the field of battle.

             hahahahah

             1. Where is this big US supply build coming from? It is not increase in ND production. Pretty much flat since 9/14. Texas, imports, lower demand? Combination of those?

             2. Shallow, I would guess the refineries can’t process the light crudes and condensates at current rates.

                As an aside I’m starting to wonder if it wouldn’t be attractive for a large scale trader to squeeze the light ends from an oil stream and ship those elsewhere? This makes a crude which fits the condensate stream profile…

    2. Ukraine produces some oil but much lower than it consumes. I would not call it an oil producer.

    3. What you describe is just one possible scenario, but not the most likely one. The system is just not going to roll over and die. It is going to fight as it has done before. Shale oil was plan B for peak oil and is now failing, so I suppose that we will go to plan C, whatever it is. How many saw the shale oil play coming in 2005-09 to save the day until 2016?

       Oil is produced on debt and is bought on debt. Customers cannot currently buy sufficient oil to increase demand to keep up with production due to debt saturation. Even the Chinese are now reaching debt saturation. There’s lack of collateral everywhere. Producers are about to hit the wall on debt so they will not be able to continue producing at current or increased rates.

       But unlike oil, debt is not a geological problem and is not subject to the laws of physics. Unprecedented or unimaginable solutions to the debt problem are not impossible. If things get bad enough we could see some of those, and if they work, with enough debt capacity and collateral, oil prices can recover with no problem. Of course that would just be can kicking, but that is their specialty after all.

       We are not in collapse and we may not be in collapse for decades. Complex systems can take a long time of deterioration before collapsing. Rome was not built in a day but didn’t fall in a day either.

       1. Hi Javier.

          “What you describe is just one possible scenario, but not the most likely one. The system is just not going to roll over and die. It is going to fight as it has done before. Shale oil was plan B for peak oil and is now failing, so I suppose that we will go to plan C, whatever it is.”

          Collapse is the most likely scenario. We don’t have a plan C.

          Your argument would be better if you could think of a plan C. Suggesting that a non-existent plan C will automatically save us is pretty thin.

          I made a graph of the problem down the page. Try to solve my challenge by offering your own plan C. Good luck.

          “But unlike oil, debt is not a geological problem and is not subject to the laws of physics. Unprecedented or unimaginable solutions to the debt problem are not impossible.”

          Money and debt do not have magical powers to overcome the laws of physics. And we have already tried some unprecedented or unimaginable solutions like a bailout, ZIRP, NIRP, and QE infinity. And those attempts aren’t working very well any more. We have already reached the outer limits of debt.

          “We are not in collapse and we may not be in collapse for decades.”

          How do you know?

          “Complex systems can take a long time of deterioration before collapsing.”

          And they can also collapse quite suddenly and unexpectedly.

          1. “Money and debt do not have magical powers to overcome the laws of physics.”

             That’s the key sentence.
             Low oil price is just a manifestation of too low (for our world economy at current efficiency) worldwide oil extraction EROEI. You can’t change that with money printing, or debt forgiveness.
             Tight oil EROEI was too low from the beginning. But very high EROEI of some other old oil megafields was so high, that the world oil price could be over 100 usd/b. But now, as more and more of oil production is unconventional, and even Saudis have to spend a lot of money (energy) to maintain production, 100 usd/b is too high.
             I think that collapse could accelerate around summer, when US oil production will be clearly down, and yet the price won’t go back up.

             1. This seems really just ‘Peak Oil 101’, only we forget it.

                1. That’s right. That is how denial works. It is a mechanism of human nature we all share.

          2. Collapse is the most likely scenario. We don’t have a plan C.

             Doesn’t matter how solid your argument appears. It doesn’t leave room for what you don’t know, that is a lot more than what you know. I remember very well those very same arguments in TOD before 2010. The graphs showed very clearly then than peak oil had been reached and one could not argue that peak oil had not arrived, except that it had not arrived.

             Collapse is the most likely outcome, but the path to collapse cannot be predicted as it follows by definition a chaotic course. You don’t know how collapse is going to take place and you have zero evidence that collapse is taking place now, unless you have changed the definition of collapse to suit you.

             Money and debt do not have magical powers to overcome the laws of physics.

             There’s quite a lot of oil below the surface. Debt has the power to bring it up, as it has demonstrated with the whole shale play. But debt is an issue of human accounting. There is talk between high level economists of solving the debt saturation problem through a new version of the Chicago plan, called The Chicago Plan Revisited. http://web.stanford.edu/~kumhof/chicago.pdf It is just an example of the many things that you don’t know that affect your conclusions.

             “We are not in collapse and we may not be in collapse for decades.”
             How do you know?

             Not being in collapse is the default situation, you are the one that has to prove that we are in collapse. Good luck with that.
             Despite a peak in conventional oil in 2005, economic deterioration did not start until 2008 and that only in OCDE, most of the developing world has been doing fine and we are already in 2015. I understand that you are in a rush for collapse, but these things may take decades as history of previous collapses attests.

             “Complex systems can take a long time of deterioration before collapsing.”
             And they can also collapse quite suddenly and unexpectedly.

             Collapse is by definition sudden and unexpected. Is the path to collapse that may take many years. The system has to be pushed towards the brink of collapse and there is resistance to that process.

             1. Doesn’t matter how solid your argument appears. It doesn’t leave room for what you don’t know, that is a lot more than what you know.

                That statement is basically correct but what we don’t know is just as likely to be something bad as good. To believe otherwise is to believe: “Not to worry, they will figure out something”.

                1. I agree Ron. My statement is not skewed to a positive outcome it is just a call to be prudent regarding predictions either positive or negative, because it’s tough to make predictions, especially about the future. It is a fact that most predictions turn out to be incorrect, so believing the opposite to most predictions will make you mostly right.

                2. Javier, I don’t think following that rule would not raise your percentage of correct predictions very much if any. Predictions are usually all over the place, from barely too high to way too high and vice versa on the low side. Looking at them all I would have no idea what the opposite side would be.

                   However all is not lost, there are still some rules we can use to improve our average. For instance the stock market often reports “insider trades”. Some people follow this report in the belief that insiders in any company have a pretty good idea of the future fortunes of a company. And indeed they do. But a long term survey of insider trades found that they were almost always correct and almost always way too early. In other words they saw the fortunes of their company turning from months to years before it actually happened.

                   I think we can apply the same principle to peak oil, or the world production of oil in general. We all saw it coming, we just thought it would happen way before it actually did.

                   And I believe we can say the same thing about the coming economic collapse of world economies. We know they are coming but predictions of collapse have been way too early. It was predicted as early as the 1970s. Hasn’t happened yet but every year brings us one year closer.

                   I cannot say the same thing about the ecological collapse however. It started some time ago and is picking up speed all the time. But it is most definitely happening right now.

                3. Yes, I agree with all of the above. It becomes a lot easier to prognosticate if you don’t have a time stamp. I am also of the opinion that collapse is coming our way, just not now. There has to be a lot of pain before. Just ask the greeks, and that’s only the beginning.

                   Regarding ecological damage, as a biologist, it saddens me profoundly. I am finishing an article on world population and carrying capacity, and clearly is going to get a lot worse as we continue growing towards 10 billion people when growth rate is expected to become zero. A global economic collapse would multiply the damage as caring for basic needs would take precedence over environment concerns for billions of people.

                4. I am finishing an article on world population and carrying capacity,

                   I do hope you will share it with us.

                5. If you are interested, send me an e-mail address to mine, and when finished, I will translate it into English and send it to you. I owe you a lot for your articles. Wether you want to share it or not is up to you. No compromise.

                6. Thanks, and of course, with your permission, I will post it on the blog.

                   Thanks

                7. Hi Ron,

                   “And I believe we can say the same thing about the coming economic collapse of world economies. We know they are coming but predictions of collapse have been way too early. It was predicted as early as the 1970s. Hasn’t happened yet but every year brings us one year closer.”

                   Back in the 1970’s it began to become logically obvious that civilization must someday collapse. Many predictions of timing have been offered since then. Many have been proven wrong. But the best (scientific) predictions have generally converged to around the current time (Dennis Meadows, for example).

                   But all of the predictions have really been about trying to time the paradigm shift which just occurred in June, 2014. That is when oil became unaffordable to civilization. So my idea about collapse is not a prediction. It is an observation in the rearview mirror.

                   Remember that from the great oil spike in 2008 onward, civilization has been throwing the kitchen sink at the effort to avert collapse. That is what the bailout, ZIRP, NIRP, and endless QE have all been about. People who suggest that we will begin to act once a crisis begins are just wrong. They fail to notice that a crisis did begin, we did act, and we are now out of ammunition.

                   The problem is one of human nature and our amazing ability to deny things that are unpleasant to us. We like to think we are in control.

                   From the time of the first scientific collapse predictions in the 1970’s, we have been getting nearer and nearer to the inevitable moment. But in our minds, we always imagine that the collapse is still far away. We keep thinking we will have the time and the ability to react. We have neither.

                   I am very much with you on the ecological collapse thing, Ron. It is inevitable. The environment cannot continue to be abused. The ecological collapse of the earth is well underway, and has been for some time. But the collapse of civilization is not the same thing. I am saying that that began in June, 2014.

                   Dennis Meadows would say that our ongoing abuse of the environment is just one facet of a multiphasic collapse of civilization. He would likely agree that the economic/energy facet will fail faster now that we have crossed this important (cost of energy production) boundary. Dennis Meadows has been quoted as saying we are essentially already in collapse.

                   And William Catton would wisely note that, in biological and ecological terms, the inability of our species to maintain our energy supply really is an ecological collapse. Think about it.

                8. Hey, I don’t need to think about it. I agree.

                9. Hi Ron.

                   Since there is no way out of the dilemma, do you agree that, energetically speaking, the collapse of industrial civilization began in June of 2014?

                10. I cannot pick an exact date for economic collapse but the ecological collapse began several decades ago but has picked up speed every year.

                11. Do you think my idea about a collapse date might have some merit?

                    (Please check out the graph I made and take a look through the discussion further down the page. I think I have made a pretty good case so far.)

13. Ron, Do you think current price is low enough for Super Contango. Where some major players are repositioning themselves to store oil in the ground instead of producing. Seems that a few producers and drillers will go bust and have to sale assets. Banks and hedge funds will be all over it. If they leave it in the ground they can force price to wherever they want. Am i missing something in this line of thinking?

    1. Well wells awaiting completion increased by 75. Now were these folks not fracking because they wanted to keep the oil in the ground and wait for higher prices, or were they not fracking because so many fracking crews were laid off because of low oil prices and they just ran out of money to pay them?

       But I don’t think these guys have the power to “force” prices anywhere. These guys are producing peanuts compared to national oil companies. And they don’t have a cartel. Each tiny producer acts as his own agent. So they are not trying to sway the price of oil at all.

       So my guess is they just don’t have the capex to complete the wells. It took, before the crash, about 4 million dollars to drill a well and about 5 million dollars to frack a well. They are just running low on money and are fracking only the best wells they have.

       1. If current operators have run out of money to pay fracking crews and can’t complete the backlog of wells at current price and most of these guys are small fries compared to national oil companies and are loaded with debt. Wouldn’t one assume if prices don’t rise for these current operators, they will end up being sold off for pennies on the dollar to banks, hedge funds and even some of these national oil companies might consider buying them out if the for sell price is right. If they could hold enough of this shale oil in the ground and off the market oil prices would be forced up and since they’d bought it for pennies on the dollar they could hold it till price was where they wanted it. I’m by no mean and oil expert actually pretty novice on the subject. But it seem to me that one way or the other or for one reason or another current production is about to decline pretty steeply. At least in the unconventional shale oil plays. Am i correct in assuming that?

          1. Sawdust, I should choose my words more carefully. The fracking crews were not laid off because the oil companies could not afford their salaries. They were laid off because the oil companies wanted to cut back on other expenses.

             According to Lynn Helms, back a few months ago, it cost about 4 million dollars to drill a well and about 5 million dollars to frack a well. The crews salaries would be a very tiny fraction of that.

             I am not an expert of oil patch finance. There are people who post here who are far more qualified in that respect than I. All I can say is I believe a lot of small oil companies are in a bind and are in no position to keep oil in the ground waiting for higher prices.

       2. Ron,
          I think they were “not fracking because they wanted to keep the oil in the ground and wait for higher prices”. If they wanted to frac, they could find fracking crews.
          And it is unlikely that they just ran out of money to pay them.
          4Q results show they still have some cash on their balance sheets, they also have credit facilities, they are selling shares and bonds, and some of non-core assets.

          1. Alex, I did not mean to imply that the crews were the problem. If it cost 5 million dollars to frack a well then only a very tiny fraction of that will go to workers wages. It’s the 5 million dollars that is the problem, not the crews. And five million dollars would be a lot harder to find than crews or truck drivers.

             And of course most companies are still fracking, just not fracking as much because they don’t have nearly as much money. And they are losing money every day. I would bet big money that a lot of wells that are in “not so sweet spots” are not being fracked because of financial reasons.

       3. Ron,

          I am curious about the validity of this statement, but don’t wish to start WW3 over it. ” They are just running low on money and are fracking only the best wells they have.” I agree on the running low on money, of course, but question if they are only fracking the best wells they have. That is because the present output per well in the Bakken has fallen to 125 bpd. I had expected that number to rise, and rise significantly, because I felt they were now only tapping into the sweetest of all sweet spots. But, 125 bpd doesn’t support my assertion at all. It is possible that the one year time limit is forcing them to complete older less productive wells, rather than bringing on line newer high EUR wells. But, at this point, I really don’t know.

          1. Carl, I don’t know either but looking at barrels per well per day will tell you almost nothing. Producing wells in the Baken increased by 107 and brought the total number up from 8,945 to 9,052. That 125 barrels per day is the average of all 9,052 wells. That decline has far more to do with the legacy decline from the 8,945 legacy wells than it has to do with production from new wells.

             So no, I would not expect the barrels per well per day to increase at all unless there was a huge increase in production. You will notice that in December production increased by 39,000 per day but barrels per well per day only increased by one. So any time production declines but the number of wells increase, it becomes a mathematical impossibility for the barrels per well to increase. The bpd per well per day must decrease if wells increase and production stays flat or decreases.

             I don’t really know what kind of logic the oil companies are using when deciding which wells to frack and which wells not to frack. I was just guessing when I said they want to get the best wells fracked first. But it makes sense. They don’t know whether prices will ever rise or not and they have debts to pay, bonds maturing that must be redeemed and other expenses. They have to generate income so I think it likely that if it is going to cost them 5 million dollars to frack, then they want to get their money back and have a little left over.

    2. Sawdust, I think some of them are trying to go with the current. My analysis shows a well that’s already drilled but hasn’t been fracked will yield a higher pv10 if it’s left as is and fractured/completed later. The attractiveness of such a delay is mostly a function of the oil price profile.

       1. Fernando,
          A while back I went through the 10-K’s of some companies heavily exposed to Bakken.
          In the 10-K they state future financial commitments and several have long term drilling contracts that makes it about just as costly to cancel (cancellation penalty) them as to stay with them and drill until the contracts expire.
          This is the major reason drilling goes on at a high pace and the backlog of unfracked (not completed) wells keeps growing at a brisk pace.

          1. Rune, as I mentioned a couple of times, drilling on purpose to hold the well shut in is a dicey proposition. But if the operator has a commitment, and considers the drilling program suspension is too difficult, then the better option is to hold off and wait to fracture the wells once oil prices have recovered.

             I realize some of these companies are in debt, but I also noticed large companies are drilling the Bakken and Eagle Ford. I suspect a large company would approach the debt ridden outfits and farm into their properties or just purchase them outright. There sure seems to be a lot of added PV10 if the completion is delayed.

             Do you want me to pretty up my spreadsheet and show you how it works?

             1. Fernando,
                Drill now frack later is also a betting game. Those companies with deep pockets will likely monitor the behavior of those on a tight leash (that is drilling now and cannot afford fracking for later).
                Anyone that can get to drilled wells (but not fracked) in good areas on the cheap will likely consolidate during a low price environment. Likely there is a lot of number crunchers looking into details of other companies balance sheets.
                You may well pretty up your spreadsheet.

14. Ron,

    With completions being postponed, how quickly could production go back up if prices bounced up sharply and there was a race to complete the backlog of wells.

    Thanks in advance.

    Mario.

    1. I really have no idea, however I don’t think it will work out like that at all. A lot of companies will go bankrupt. And the companies that stay in will find it much harder and much more far expensive to raise the money.

       Yes, those wells will eventually be fracked but it will not be a mad rush to do so if prices go back up. Also, I don’t expect prices to go back to where they were before the crash, not in 2014 dollars anyway.

       I believe this production slump will be long and drawn out and production will never again reach the highs of late 2014.

    2. The way this seems to work is that management starts running economics with a lower oil price deck. They get really gun shy. I noticed this in the past. But each company has its own ideas. This is a real pain in the neck for some joint venture projects, where some of the partners start voting to delay and others want to press ahead. Back in 1999 I had a pretty grim discussion with an operator’s general manager, he wanted to move ahead with a large investment, I had recommended waiting a couple of years. He was incredibly pissed off when I explained the maneuvers we would use to stop him from sole risking. I bet that’s going on by the bucketful at this time.

15. Robert Rapier on storage…

    http://www.energytrendsinsider.com/2015/03/11/is-the-u-s-running-out-of-crude-oil-storage/

    1. Hi ezridermike,

       Great article, thanks. From the Robert Rapier article(link in ezridermike’s comment above):

       The EIA reports that across the U.S., total crude oil working storage capacity was 521 million barrels as of last September, and as of March 6, approximately 320 million barrels of that volume was being used. (While the Weekly Petroleum Status Report currently lists crude oil inventories at 444 million barrels, the EIA states that about 120 million barrels of this is in pipelines, on ships, or oil that is locally stored and has not entered the supply chain.)

       If Cushing continues to fill, oil producers will start looking at some of those other areas to store their crude. And with 200 million barrels still available, oil producers could continue to add a million barrels a week for nearly 4 years before crude oil storage is actually full.

       So in summary, the narrative being pushed that the U.S. is running out of crude oil storage is false, most likely repeated by those who haven’t bothered to actually check available crude oil storage.

       1. Hi Rune,

          I think I understand your point now that I have read the Robert Rapier article.

          He mistakenly says the build is 1 million barrels per week, but your estimate of 4 million barrels per week is correct. If the other parts of his analysis are correct, it would be about a year to fill up the storage in the US at 4 million barrels per week.

          It is unlikely that this will be a problem because demand will go up as the summer driving season starts and US output will be decreasing if oil prices stay around $50/b.

          1. Hi Rune,

             Another way to look at the data is to look at a year over year change to eliminate the seasonal cycle, over the past 52 weeks storage has increased by about 80 million barrels, which would be about 1.5 million barrels per week.

             The bottom line is that storage is unlikely to be an issue for a year or more.

          2. we had some disruptions out here in Cali recently. approx. 350,000 bpd of refining capacity went offline due the steelworker strike (Tesoro – Martinez) and an FCC dust precipitator explosion (Exxon-Torrance). I hear the strike is over and Torrance is back on line. I assume the other CA refineries picked up the gasoline slack so I don’t know if this is affecting overall demand. However, we did see about a $1 / gal rapid retail price increase in gasoline, so I imagine that might have affected short term consumption. Prices are starting to come down again right in time for spring/summer driving.

       2. ”…the EIA states that about 120 million barrels of this is in pipelines,…”
          Anyone else find it odd that pipeline fill is counted as storage.
          Where I come from pipelines need to be filled to become operational.

          1. Last time I did a pipeline evaluation we considered line fill as working capital, carried it as a stock, and assigned it an income at the end of the pipeline life.

             I can’t discuss details, but that line fill sure is a painful blow in a large system. The heavy oil diluent fill is a pain in the behind.

             1. Last time I did a pipeline evaluation we considered line fill as working capital, carried it as a stock, and assigned it an income at the end of the pipeline life.
                Exactly, that “storage” is not available before the end of the operational life of the pipeline.

16. Looking at hard at from EIA,
    Week ending Mar 06 2015 (week 39): 448.9 Mb CO in storage
    Week ending Sep 29 2014 (week 10): 356.6 Mb CO in storage
    Total storage build over 23 weeks: 92.3 Mb
    That averages around 4 Mb per week in storage build.

    http://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_w.htm

    1. As previously discussed . . . .

       Unfortunately, we don’t have the key inventory number, condensate as a percentage of Crude + Condensate (C+C) inventories.

       Based on the most recent four week running average data (week ending 3/6/15), US refineries (net) imported 44% of the crude + condensate (C+C) processed daily in US refineries, exactly the same percentage as the end of September, 2014, despite a huge build in C+C inventories since September, 2014.

       I suspect that refiners continued to import a lot of crude oil because they have to, in order to meet the demand for the full spectrum of refined petroleum products. Note that based on an EIA projection it took roughly about half of the entire global (oil and gas) rig fleet to show an increase of about 0.5 mbpd in quality US crude oil production (40 and lower API gravity) from 2011 to 2014.

       Even if US producers were able to export unlimited amounts of condensate (over 45 API) and very light crude (about 40 to 45 API gravity), I wonder how much demand there is for it outside of the US, especially in regard to condensate.

       I don’t see why refiners would want very much additional condensate (Pemex said no thanks already), which, I assume, would leave the petrochemical industry and the tar sand operators as the only likely buyers of consequence, and the question is how much more light stuff they need.

       1. Hi Jeffrey and thanks!
          I am not a storage expert, but may storage be split into quality classes like for instance;

          Storage capacity API > 40….y Mb
          Storage capacity 30 < API < 40…z Mb
          Etc.
          I can see several reasons for using storage classes according to an API band.
          So what could be interesting to see is how much storage capacity there is and remains for the various oil quality classes.

          1. Unfortunately, insofar as I know, the data are not available for storage numbers based on API gravity.

             In regard to production, it appears that the only data released on a routine basis for crude oil only (generally defined as 45 and lower API gravity crude) are for Texas and OPEC. The RRC has crude only and condensate numbers for Texas, and we can compare the OPEC crude only numbers and EIA C+C numbers for OPEC to derive crude versus condensate estimates for OPEC.

             In any case, the EIA projected that quality US crude oil production (40 API and lower) as a percentage of US C+C production fell from 75% in 2011 to about 54% in 2014.

          2. Rune, an operator with a light crude load would try to blend it to make a heavier blend ASAP. This tends to reduce vapor losses. I assume large USA based storage tank farms use vapor recovery units. But I’m not sure. Sometimes what I hear is being done in the USA is a bit zany. I’m more used to large overseas operations. The vapor recovery unit gas is a very nice feed for a gas plant, but the overall process flow is cheaper if one avoids too much vapor coming off those tanks. Blending the condensate should reduce the vapors in most instances.

             1. Fernando, thanks.
                You point to some practical reasons for blending crudes in storage.
                My point is whatever way oil storage is organized there will be some practices involved that determines how much you can have of different API qualities.
                It is not much help if all storage space is filled with say only 40 API oil, whereas a blend in the lower range is what the refineries are tuned for to take as feed.
                So when a total number for storage is cited and a number for remaining space I would imagine that the remaining space is not based on say 40 API only, but some range. In other words if a lot of light oil is headed for storage this may require an increase of other qualities to remain within the API band the refineries operates/feeds with.

                1. That’s right. I’ve worked with operations using a batch common carrier, and we do try to keep the crudes separated. Also some large farms have separate feed pipelines from different sectors, which carry different crudes. Sometimes the owners don’t want to blend. But in many cases they have an oil quality bank approach and everybody gets blended. It depends. You should have seen the Russians’s faces when we explained the quality bank needs for Transneft. The Soviets ran a backwards system, they rewarded on a mass basis. This placed more value on the heavier crudes. Typical communist irrationality.

    2. Hi Rune,

       Over those 23 weeks that only amounts to a 0.57 Mb/d rate of inventory build. If US output falls by 1 Mb/d the inventories get drawn down pretty quickly and a fall in output of 570 Mb/d would stop the inventory build. The oil glut is not quite as large as many think, in fact the excess oil will be reduced pretty quickly in the summer, especially if US output falls a few hundred kb/d. Chart with Commercial crude stock build in kb/d each week from Jan 2013 to March 2015.

       

       1. ”Over those 23 weeks that only amounts to a 0.57 Mb/d rate of inventory build.”
          How does that “only” compare to other years?
          ”The oil glut is not quite as large as many think, in fact…”
          Your support for that claim about the oil glut!

          Then add the demand from those playing the forward curve, likely stock building in other OECD and China.
          The development in demand remains still unknown.
          No doubt the supply/demand dynamics are important, and everyone is entitled an opinion about to how this will play out.

          1. Hi Rune,

             My point is simply that 92 Million barrels sounds like a lot of oil. The United States refineries use 15 Million barrels per day, so how long would it take to use up that excess oil if oil imports were reduced by 1 million barrels per day or US output falls by 1 million barrels per day? US net imports of crude oil are about 6 million barrels per day.

             I am assuming that you believe there is excess supply of oil, I agree. I do not think the excess is of concern, demand will increase when the weather improves (most crude is for transportation and more driving is done in better weather) and supply is likely to fall if oil prices remain low. Perhaps you disagree.

             It seems that you believe there will be a near term financial crisis, I don’t think the timing of future financial crises can be predicted any better than oil price movements. If there is no financial crisis in the short term (before 2016), I think Kopits analysis will be correct.

             1. Hi Dennis,
                I do not think I have used the term financial crisis and I have never predicted the timing for any such. I have pointed to the level of total global debts and the growth in such, credit expansion. This will at some point slow/reverse.
                When that happens it will also affect commodities prices also oil. A lot of oil has been bought during the credit expansion era or to put it in a different and simplistic way “oil has been bought on credit”.
                Demand is what one can pay for and credit works as money!

                How can you now proclaim anyone’s analysis to be correct before the fact?

                1. Hi Rune,

                   You are correct, I don’t know what the future will be. Steve Kopits analysis makes more sense to me than the EIA, IEA, and OPEC analysis of supply and demand. I should have just said I agree with Steve Kopits, rather than that he is correct.

17. Re; the debate above about low prices causing a fall in production (ie the classic supply/price argument).

    I think there may indeed be short term circumstances where it is possible that reduced price can indeed lead (at least for a short time) to increased supply. I posit something along the ‘last man standing’ model.

    In a very simple model:

    Company A and company B both produce 100barrels per day, and have grown used to getting $100/barrel, giving them income of $10,000 a day. This is just as well, because they have out going expenses of $7500/day (principle amongst which is debt repayment, this being a shale oil story).

    Oops, oil just fell to $50. Pumping 100 barrels a day, the income for both companies falls to $5000 a day. What to do? You can go bust, or if you can you pump more. Company A has the ability to pump 150 barrels a day for at least 3 months, while B can go 200 barrels a day for at least the same time. A’s income is now $7500/day (just enough to keep afloat) whereas B can still make $10,000 a day. In contrast if either had cut production into the price fall then they would have been quickly underwater.

    I submit, one possibility is (and it is ONLY a possibility, don’t be jumping down on me Ron), is that for at least for as long as they can (and while they have the capability to), it would make sense for companies to INCREASE production into the falling price (to keep their head above water), particularly if they believe the low price will not last long. They would be forced to by the need to keep the cash flow going to fund the debt which has been so important to so much of this recent drilling.

    1. Thanks Andy.

       You are describing the current situation perfectly. The question is how much longer will this obtain before prices can begin rising again. Considering the size of the glut and currently falling demand, this could take a while. Every producer is trying real hard not to be the one to go bust. The longer this takes, the greater the chance they will all fail en masse.

       Under these ever worsening conditions, equity markets are very likely to crash, adding yet another positive feedback.

       All I want to know is:
       Given all this, how EXACTLY do we get back to ‘normal’?

       It seems to me that ‘normal’ is quickly becoming a distant and receding horizon.

       We keep waiting for the situation to fix itself, but I fear it never will, or even can.

       “The invisible hand never picks up the check”
       ~Kim Stanley Robinson

       1. Hi Futilitist,

          Demand for oil always falls during the winter and rises when the weather improves, this is not new. I would prefer it if all the new car sales were EVs, but reality is that car sales have been robust, especially vehicles with poor fuel economy. When the weather improves and people start driving their new F150s demand for oil will increase. The glut of oil will be burned up as US output begins to fall (or at least level off), by September 2015 at the latest we will see oil prices rise above $70/b. If I am wrong and prices remain in the $40-50/b range, then US output falls faster and demand will be higher, eventually oil prices will rise, because the glut will be gone.
          The LTO producers will not be able to keep production at current levels at current prices past May 2015 as output falls, prices will rise.

          1. ”Demand for oil always falls during the winter and rises when the weather improves, this is not new.”
             Always????
             Have a look at EIAs data for total petroleum supplied.
             http://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htm
             There is clearly a trend towards higher total petroleum consumption during the winter (aka the heating season) on the northern hemisphere.

             1. Hi Rune,

                Most crude consumption is for transportation. I was thinking in terms of the United States.

                http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTPUPUS1&f=M

                Chart below with monthly US Finished petroleum products supplied from the EIA

                

             2. There was not as much of a decrease this winter, but typically Jan and Feb in the US are low months for petroleum demand, most heating is natural gas, propane, or heat pumps today in the United States. The sharp fall in oil prices may have increased demand somewhat, so “always” is not correct, the point is that there is a seasonal pattern that works differently than many people think, not much oil is used for heating these days.

    2. What if the oil company went to the bank with a spreadsheet. The oil that they have is enough to pay out the bank in 4 years if it averages $80 bbl WTI. But, if they pump out 50% of it in the next 2 years at $50 bbl there will not be enough to pay back the bank. The bank effectively has a lien on the oil. What does the bank do?
       My guess; since they have an effective lien on the oil, they want the oil company to delay all the $50 WTI barrel oil they can to a future period.
       I think that a $3 million frac in the Bakken to get $20/bbl to the bank is not what the bank would do – especially if they have to finance the $3 million.

       1. There is one problem with that scenario. If I am not badly mistaken most of the oil patch borrowed money does not come from the bank, it comes from the sale of junk bonds. And you cannot negotiate with bond holders.

          And about that $50 oil. From the latest Director’s Cut:
          Feb Sweet Crude Price = $34.11/barrel
          Today Sweet Crude Price = $32.00/barrel

          1. Ron,

             What happens to the bondholders when the oil companies default?

             Getting rid of all those oil producers will cause grave economic damage which will put further downward pressure on oil prices in a vicious circle. It seems to me that it is just possible oil prices will never be able to rise again.

             This may be one of the new ways that economics works (winding down) from here on out, post peak oil. I know it seems like a quantum leap, but give it some thought. If you can’t reason a logical way out of our conundrum, you have to at least accept the possibility it may be true.

             This might just be what collapse looks like.

             1. When there is a default, the bondholders don’t get paid. Or in a bankruptcy settlement they may get something but not the full amount. The bondholders are pretty high in the pecking order of who gets paid first. The common stock holders are the last in line. They usually get nothing. And in a lot of cases the bond holders get nothing. That’s why they call them “junk” bonds and why they must pay such a high interest rate. Higher risk demand a higher reward.

                1. Ron,

                   The economic damage spreads from the oil patch to the wider economy in many ways. And the amount of economic damage necessary to get rid of enough producers to significantly raise the oil price would basically exceed the total resilience of the economy.

                   That is the basic thesis.

                   We are irretrievably caught in the gravity well of collapse, circling the drain. We are just waiting for shit to start breaking.

                2. The damage to the unrecovered piñata economy has been largely obscured and distorted since at least 2008 through rosy propaganda and creative accounting. It may be that $147 is what broke it open.

                   And the unrecovered piñata economy at least since then has been subsequently smashed by relatively high oil prices– the effects again largely obscured and distorted by rosy propaganda and creative accounting.

                   We may have reached a point, or nearby, where the economy, as a whole, cannot afford to buy oil at a price that the oil industry, as a whole, cannot afford to sell it at. (Any price that the industry can afford to sell it at further damages the economy, taking the price it can afford down with it.)

                   In other words, some sort of fundamental price or cost, independent of any creative accounting, may have been or is close to being transcended.

                3. Yes Caelan,

                   That is it exactly.

                   High oil price = 🙁 for consumers, 🙁 the for economy.
                   Low oil price = 🙁 for producers, 🙁 the for economy.

                   Not a 🙂 to be found anywhere.

                   —Futilitist 🙁

                4. High price = good for producers, bad for consumers.

                   Low price = bad for producers, good for consumers.

                   The question of whether it is bad or not for the economy depends on who you’re talking to. High prices are good for certain states (ND, Texas) and bad for mostly everyone else.At the international level, high prices good for net exporters and bad for net importers and vice versa for low prices.

                   In any case, the US economy has done quite well, even with high energy prices.

                   You aren’t exactly making clear why it is low prices are bad for the economy. You say we are trapped, but what does that mean? The US is one of the most highly diversified economies in the world. Housing maintenance, construction, and finance account for a MUCH larger portion of GDP than LTO extraction. If the industry falls, some will suffer, but it won’t be nearly as bad as 2008.

                   Collapse is coming, but not anytime soon. Define collapse, while you’re at it. My understanding of it is thus: the point at which the demand necessary to run a modern industrial economy is unable to be met by supply, whether because of 1) geological factors 2) financial factors or 3) energy factors

                   1: Over half of the Earth’s oil used up
                   2: inability of society to finance oil extraction
                   3: net energy gain from oil approaches break even or negative

                   3 will happen way before 1. And 2 will happen before 3. Basically, as the theory goes, more and more capital is required to get at more expensive oil. thus, less and less of the economy is free to do other things. I think we are still a good ways away.

                   The only hope to avoid collapse is to either manage it (degrowth, rationing, population reduction), reduce demand for oil, or continue to increase supply. You can probably guess which one of those is the least likely.

                5. Hi Anonymous.

                   “Collapse is coming, but not anytime soon…”

                   A completely unjustified self-reassurance belief statement.

                   “1: Over half of the Earth’s oil used up
                   2: inability of society to finance oil extraction
                   3: net energy gain from oil approaches break even or negative

                   3 will happen way before 1. And 2 will happen before 3…”

                   And we are currently having a collapse induced by your #2, yet you don’t seem to want to accept it. What would you expect collapse to look like?

                   “…I think we are still a good ways away.”

                   Another self-reassurance belief statement with no support offered.

                   You are caught in a (soft) collapse denial loop. You accept that collapse is inevitable, but you are basically constructing a time machine in which the approaching collapse is always approaching, yet never reaching us. That just might still give us time to react in your mind only.

                   “The only hope to avoid collapse is to either manage it (degrowth, rationing, population reduction), reduce demand for oil, or continue to increase supply.”

                   You finish with a hope declaration from your time machine, circa 1972.

                   We have long ago wasted any chance we might have had to avert collapse. At least that is what Dennis Meadows thinks.

                   (And now moderation, Ron? Seriously? There is nothing wrong with this comment. Or any other I have made here. This is the paper you wanted me to write on why we are already in collapse. What is the problem?)

                6. It also so seem that alternative sources of energy are much more costly than the current price or even the $100-$120 oil. If the economy can’t handle higher oil prices then it surely can’t handle the cost of alternative sources either. You’ll end up with a huge part of the population just being priced out of oil consumption and energy consumption in general. I’m imagining a world or more of a US that most households don’t own a car and don’t have electricity in their homes. Energy consumption will be left only for the affluent folks. We could see a situation where prices never rebound an only rich people can afford oil even at $40-$50

                7. EVs are the cheapest cars on the road even without tax credits. With tax credits, they’re insanely cheap. Let’s see. The average car costs about 58 cents per mile to drive.

                   IRS Average New Car Cost per mile: 57.5 cents per mile.

                   The Leaf, without tax credit, is the cheapest car you can find to own and operate:

                   Total Cash Price $25,327

                   5 Year True Cost to Own: 28,079

                   Cost per mile: 37.4 cents per mile.

                   A typical small car like the Honda Civic Sedan is more expensive:

                   Total Cash Price $21,644

                   5 Year True Cost to Own: 36,154

                   Cost per mile: 48.2 cents per mile.

                   And a Chevy Volt, a car without any compromise because it can run on gas, is less expensive than the average car even without the tax credit:

                   Total Cash Price $31,500

                   5 Year True Cost to Own: 40,129

                   Cost per mile: 53.5 cents per mile.

                   http://www.edmunds.com/tco.html 1/27/15

                   If we subtract just the Federal credit of $7,500 (and several states have credits as well), that subtracts 10 cents per mile. The Leaf costs less than half of the average car, and the Volt is substantially less expensive than the Civic.

                   And, you very rarely go to the gas station, and it’s much more fun to drive!

                8. Shillicious…

                   “…and it’s much more fun to drive!” Nick G

                   Especially when you get to barely drive it in to the service outlet to get a new $3000 battery every couple of years. $2500 if you opt for the refubished one.

                   Cashcowlicious

                   But, hey, with a refurb, you can put that $500 on a new battery in 2 more years!

                   “Act now and we’ll give you a $150 discount on your next battery purchase!” ^u^

                   “A fool and his money are good for business.” ~ unknown

                9. Hi Caelan,

                   That depends upon how much you drive.
                   Let’s say its 15,000 miles per year. Currently the Nissan Leaf battery warranty is 8 years/100,000 miles and 5 years/60,000 miles for capacity loss (under 70% of capacity). So at 15k per year you are covered for 4 years for capacity loss (mostly a problem in very warm states like the southwest US) or 6.6 years.

                   Lots of people seem to get their batteries swapped out for free before 60k, then at 120k you have to pay, probably $3000 is about right. EVs are not perfect, but if there are no other problems, $3000 over 8 years is not terrible, but I wonder if such costs are included in 5 year cost to own.

                10. Dennis,

                    No, I don’t think battery replacement is included in the first 5 year TCO. On the other hand, even if we include battery costs the Leaf would continue to be much cheaper: as cars depreciate, operating costs (fuel, repairs & maintenance) begin to dominate the cost equation and EV operating costs are much lower than ICE’s even with battery costs.

                11. Lotsa talk around here about economic collapse. Best to invest in hard assets.

                    Best hard assets- will always be worth it, PV panels and EV’s, preferably those sold early by range/battery worry-warts at absurdly low price relative to remaining real value.

                    The guts of an EV can be put into any other chassis, like the locomotive of a road train hauling half the neighborhood into and out of town every day.

                    And the charging electricity can come from many sources, lots of them any mechanic can make, like a wood powered generator a-la WWII.

                    And for people with no electricity, any electricity at all is real valuable.

                12. “…. the economy, as a whole, cannot afford to buy oil at a price that the oil industry, as a whole, cannot afford to sell it at.”
                    There are always countries who can afford it. Why? Because, unlike the US squandering oil disproportionally, other countries use it wisely since their living standard is not that high, and thus more expensive oil has not that great impact on the budget.

                13. Fair points, and always good to have them, but of course I am talking about the economy as a whole, as opposed to individual countries.

                    $100 may be the new $150. ‘u^

                14. Hi Caelan,

                    If you think of it in terms of allocating scarce resources, as price becomes higher more of the resource will be used on a relative basis by the places that use it more efficiently.

                    When this happens the economy as a whole (the world) uses the resources in the most efficient way.

                    A big problem with this argument is that many oil exporters subsidize oil use within their countries and this results in very inefficient use of oil, but the intial argument applies to countries that are net importers. If we ever get to the point where there is no international oil trade, then the oil price will be determined by supply and demand within those countries that still have some oil.

                    At that point there will be a problem as Jeffrey Brown has shown. Hard to predict what will happen, but it will be bad in the short term.

                15. Dennis,

                    It’s worth keeping in mind that many of the countries that control domestic fuel prices have to provide explicit subsidies to do so. This includes oil exporters like Iran and Mexico, which have to import refined products. It also includes many importers, like India.

                    If oil prices rise sharply, those subsidies become very expensive, and there will be great pressure to drop them. That’s happening in India, for instance, which has already decontrolled gasoline prices.

                16. USA economy has been “bubble” based for the last 15 years. 1st the internet bubble (financially speaking) then the housing bubble, now the LTO bubble. It does seem plausible that this bubble bursting will be more catastrophic than the previous 2.

                17. Ron – I am fully aware that oil is not $50. I chose that figure because my maths ability (or math as you blokes will have it) favours nice round numbers. As I said it is just a potential illustration. So do I take it you see no merit in my highly simplified model whatsoever?

                18. It seems logical to me. Basically they are all playing Russian roulette with each other, hoping the other folks stop producing 1st & oil prices rebound enough to continue BAU for another day for the remaining players…

                19. Ron. Sam Taylor posted an article from the American Bankruptcy Institute Journal at my request, that I think is the best explanation of the credit situation involving US shale. The format is terrible, but if you can get past that, it is worthwhile to read. It is in the thread following Dennis Coyne’s recent guest post, near the bottom, and Watcher commented on it.

                    In summary, bondholders are junior to bank revolving lines of credit. The banks have security interests in the leases, equipment, oil runs, etc. The shale co. borrows on the credit line to drill. Once that gets maxed out, they were floating bonds to pay off the “revolver” and then drawing on it again to continue to drill. Now that the bond market has closed, the companies are issuing more shares of common stock to raise cash. Surprising to me, the share issuances appear to be working.

                    However, the article points out that the revolvers have loan covenants that are mostly in breach now. Further, redeterminations of the size of the revolvers for many occur in April, and the banks will likely be violating lending policy if they do not reduce the size of the revolvers substantially. Also, it is interesting to note the revolvers usually involve many banks, with a lead bank who secures the debt and administers it. So the shale guys will have to convince a consortium of banks, not just one, to violate lending rules.

                    It would appear the banks, if they follow their guidelines, would pretty much halt drilling and completion work. Keep in mind the banks have a fiduciary duty to their shareholders that would be breached if they willy nilly advance funds in violation of lending practices.

                    My guess is a company goes BK, the bank forecloses, or sells the debt to a hedge fund. The hedge fund forecloses and takes over the company assets. The bond holders and equity holds don’t get jack.

                    Buying stock in these companies is very risky right now. There could be something to the notion big banks and hedge funds are hammering WTI down to break these guys in hopes of picking up the reserves on the cheap, but that seems a little far fetched. Who knows?

                    Ron, you may know this stuff already, but think it should interesting to some here.

                20. Thanks for the link Shallow. I find the format very easy to read. Just mouse over the page, the + sign pops up and you click on it. It is then large enough to read easily and you can turn the page and read it. That is in Google, I don’t know about other browsers. Here is the link again:

                    The Energy Crisis: Too Much of a Good Thing (Debt That Is)

          2. And about that $50 oil. That is why I put “WTI” (West Texas Intermediate) in the comment. WTI you can readily see every day and I know that the Bakken postings are going to be roughly $15 bbl less than that. So with $50 WTI, a Bakken operator will have $20 at most for the bank (as noted in my last sentence), or $20 for whom ever.

    3. Andy, that assumes an operator has that surplus capacity available. But most of them don’t have it. I don’t recall running into a field or well that wasn’t being run flat out (while following sound reservoir management practices).

       Most operators focus on cutting costs. The typical reaction is to start revising budgets, dropping drilling AND workover rigs, canceling contracts if possible, calling contractors in to have a talk about the need to lower prices…and overseas we go ask for tax cuts.

18. Statoil operates illegal well.

    Have to pay the dividend somehow, might as well steal oil and hope nobody will ever know.

    Unless you get caught, then you can pay a fine, be named a good corporate citizen and not a thief. Don’t say a word, if you don’t get caught, it’ll be ok, if you are caught, keep it real quiet.

    Anybody else caught stealing oil would spend some time in the Crowbar Hotel.

    1. That wasn’t intentional on Statoil’s part. They are incredibly honest.

19. With the latest NDIC data, I updated some of my charts.

    Brief description per chart (see below):
    1) This shows the daily oil production in the whole of North Dakota, in time. The contribution of wells from each year is shown in different colors. E.g., in Jan 2015, the contribution from 2013 and earlier wells was about 0.6 million barrels of oil per day (bopd), so about half of current output, while it has dropped from a maximum output of almost 1 million bopd at the end of 2013.
    2) This shows the average cumulative output of wells in North Dakota since 2008, for each year. The average output per well in 2014 is slightly higher than earlier wells. That is mainly due to better performance of wells drilled in the Middle Bakken formation. The performance of Three Forks wells has not changed in the past 4 years, and is about 15% less than Middle Bakken wells.
    3) This shows the % of wells that stopped producing (no output in the recent 4 months) over the well life cycle, over all wells in North Dakota since 2008. I found it surprising to see that after 6 years of production the average well already stopped producing in 15% of the cases. Seeing that the trend is growing, I am very doubtful whether claims that wells can produce 40-50 year on average are true.
    4) The last chart shows the number of new wells from the Three Forks/Middle Bakken/Other formations in North Dakota. It looks to me that the growth in new Middle Bakken wells, which are the best performing, has peaked.

    I further noticed that the water/oil ratio in the whole of North Dakota is just over 1:1.

    Apologies to Mike that this is again about North Dakota:-) It would be great if other authorities were as open in sharing detailed production data.

    

    1. Thank you for your post Enno Peters. Are you able to separate the shut in wells into vertical v horizontal? I notice many vertical wells have been shut in, but it appears Middle Bakken/TF horizontals are being SI also.

       1. I can’t distinguish vertical from horizontal wells in the data, but maybe somebody else could point out to me how to do so.

          1. I think a way to make an educated guess would be by producing formation. Middle Bakken and Three Forks are almost all hz. Madison, Lodgepole, etc are almost all verticals.

             1. Another way to distinguish is that many of the companies put an H in the well number.

                Also, there are a limited number of companies that have drilled and operate the shale wells.

                Anyway, it would be a tedious process. I don’t have the time to do it. Probably don’t have time to read or post here, but I’m using it to cope, especially today as I see the freaking travesty of an oil price continue to fall. And happened on Friday so we are stuck with sub 40 for three days. On the other hand it will probably go lower next week.

                We have never shut wells in, outside just a few marginal ones here and there, both in 1998-1999 and again in 2008-2009. We have done it for the third time, but again, very few.

                If we go below $35, that puts us cash below $30. That puts us in a tough spot, not that we’re not in one now. This is getting to look as bad as 1998-early 1999

                If there is a bright side for US producer, I think every time since US 1970 peak, when oil has halved, it has rebounded at least three fold quickly, except 1986. Is this 1986 all over again? Same GCC market share deal. Who knows.

    2. Enno, never mind me; I stay mad at the shale business anyway, wherever it is, and today I am $2.00 a barrel madder at it. The Bakken is the benchmark for worldwide unconventional resource plays and it is very important to analyze it thoroughly. I appreciate your work in that regard. If OWR is down to 50% in the Bakken that is an alarming number to me and one that will matter down the road in a big way.

       As to information about the Eagle Ford, well, you know how Texans can be.

       Mike

20. Water Crises in California & Sao Paulo, Brazil

    What happens when millions of people try to migrate from water short areas to other areas, because of water shortages? Note the highlighted section in the Sao Paulo article about people’s responses to catastrophes versus resource shortages.

    São Paulo – anatomy of a failing megacity: residents struggle as water taps run dry

    http://www.theguardian.com/cities/2015/feb/25/sao-paulo-brazil-failing-megacity-water-crisis-rationing

    In São Paulo, drinking water is used to flush toilets, bathe and, until very recently, to wash cars and even hose down city pavements, as porters use jets of crystalline water to shift those last specks of grime. In Brazil, a land of immense natural riches and home to around 12% of the world’s fresh water, the very idea of a water shortage is hard for people to conceive of. Yet despite the state government’s prevarication over possible imminent rationing – consisting of two days of water followed by four days without – in reality, millions are now getting just a few hours of water per day, with many struggling with none at all for days on end.

    The São Paulo water crisis, or “hydric collapse” as many are calling it, has left this city of 20 million teetering on the brink. Though domestic use accounts for only a fraction of the water consumed in the state of São Paulo – where extensive agriculture and industry places intense pressure on available resources – for paulistanos, as the city’s residents are called, learning to use water wisely is suddenly the most pressing need of all.

    The sudden nature of the crisis has left people struggling to cope with the reality of the taps running dry. The state governor Geraldo Alckmin has insisted repeatedly that the water will continue to flow as usual, and no state of emergency has yet been declared, though some experts believe such a declaration well overdue. In the meantime, residents of São Paulo are making their own arrangements: storing water at home, and in some cases drilling homemade wells. In part a result of badly stored water, instances of dengue fever spread by mosquitoes almost tripled in January, compared with the previous year. . . .

    According to a crisis report published on 9 February by the pressure group Aliança Pela Água (Water Alliance), whereas catastrophic situations like flooding often fosters solidarity, a lack of resources tends to do the opposite, leading to chaos and even violence. In Itu, a city 100km from São Paulo a desperate water shortage in late 2014 led to fighting in queues, theft of water, and the looting of emergency water trucks, which are now accompanied by armed civil guards. These events left many paulistanos wondering how the hardship might play out in their own pressurised and densely populated city.

    California has about one year of water left. Will you ration now?

    http://touch.latimes.com/#section/-1/article/p2p-83043355/

    Given the historic low temperatures and snowfalls that pummeled the eastern U.S. this winter, it might be easy to overlook how devastating California’s winter was as well. As our “wet” season draws to a close, it is clear that the paltry rain and snowfall have done almost nothing to alleviate epic drought conditions. January was the driest in California since record-keeping began in 1895. Groundwater and snowpack levels are at all-time lows. We’re not just up a creek without a paddle in California, we’re losing the creek too. . . .

    As difficult as it may be to face, the simple fact is that California is running out of water — and the problem started before our current drought. NASA data reveal that total water storage in California has been in steady decline since at least 2002, when satellite-based monitoring began, although groundwater depletion has been going on since the early 20th century.

    Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain.

    1. California has still plenty of water for PEOPLE, but not for CROPS. 80% of California’s water goes to agriculture, at least in the past. Now north state farmers (who have superior water rights over those south of Sacramento) are cutting deals with So Cal. metropolitan water districts to sell their allocations. They can make more money selling water than selling their crops.

       http://www.redding.com/news/as-drought-worsens-la-water-agency-offers-cash-to-sacramento-valley-farmers

       Yeah, we actually have huge rice farms in the north state, mostly between Redding and Sacramento. Can you believe it?

       1. and cotton

       2. Australia has gone through water shortages many times. When analyzed, most water is wasted and used inefficiently. The logical way around it as with the oil supply is price it correctly. The farmers will scream as they have been receiving under priced water for years and built their business plans on it.
          The most common irrigation practice in Oz was flood irrigation. Cheap easy but uses a lot of water. Black ploy pipe is the answer. Low tech, but has been around since the 70’s. Micro sprays, or drip and a bit of money. The government can buy back the ultra cheap water rights. The farmer invests the money into efficient water practices.
          As for the cities, once again raise the price on water usage. Encourage water collection. Use the stored water for toilet and laundry. Easy job, I did this myself and currently use the system. Also sewage water can be reused for not drinking uses. It can be treated and be able to be made potable, but it causes so many social issues, it probably not worth it.
          As for growing rice in the desert. Sure let them do it, but they must pay for the water. Some how I don’t think it will take too long to work out it is better to grow something else, or some one will come come out with a GM crop of rice that is suited to Saudi Arabia. Wishful thinking i believe? lol

    2. The Southwestern Water Wars

       http://www.nytimes.com/2015/03/13/opinion/the-southwestern-water-wars.html?action=click&contentCollection=Opinion&module=MostEmailed&version=Full&region=Marginalia&src=me&pgtype=article

       Across Texas and the Southwest, the scene is repeated in the face of a triple threat: booming population, looming drought and the worsening effects of climate change.

       And it is a story that has played out before. It was in the Southwest that complex human cultures in the United States first arose. Around A.D. 800, the people called the “Ancient Ones” — the Mimbres, Mogollon, Chaco and other Native American cultures — flourished in what was then a green, if not lush, region. They channeled water into fields and built cities on the mesas and into the cliffs, fashioning societies, rituals and art.

       Then around 1200 they all disappeared. Or so the legend goes. In reality, these cultures were slowly and painfully extinguished. The rivers dried. The fields died. The cities were unsustainable as drought stretched from years to decades, becoming what scientists today call a megadrought. . . . .

       By the time the Spanish arrived in the 16th century, so had, finally, the rain. The American, German and Polish settlers who came to Texas in the 19th century found a rich landscape, flush with water. “I must say as to what I have seen of Texas,” wrote Davy Crockett, “it is the garden spot of the world.” And so it remained, punctuated by only two long droughts.

       1. It’s a funny world where charging consumers (especially farmers) a very very low price for water is considered rationing.

          Rice farms in the desert…

       2. It’s a Cadillac Desert

       3. Just one thing to note since I went though the article, increased CO2, even if it does come from human sources, does not cause droughts. Droughts are caused by a low incidence of atmospheric water vapor, which is caused by low evaporation rates upwind from the drought areas. Increased heat, such as the climate change theory supposes we now have, also does not cause droughts. Heat causes accelerated evaporation, which creates cooling and passes moisture downwind until it is either absorbed into biomass or absorbed into the ground and lost to the chain of evaporation and precipitation. Drought areas lie at the far end of a broken chain, caused by insufficient water vapor at the source, such as we see in California with the effect of cold sea water yielding little vapor. Another factor is atmospheric density, where we see major vapor plumes falling right back into their source waters because there is no other sustainable vapor source to maintain the heat and pressure required for the Aquarian conveyor to transport water. Aside from funneling wads of taxpayer cash to the leftists in academia, the major shortcoming of the unproven anthropogenic climate change theory is energy and transportation of that energy, oddly enough.

          1. Drought areas lie at the far end of a broken chain, caused by insufficient water vapor at the source, such as we see in California with the effect of cold sea water yielding little vapor. Another factor is atmospheric density, where we see major vapor plumes falling right back into their source waters because there is no other sustainable vapor source to maintain the heat and pressure required for the Aquarian conveyor to transport water

             Um not really! There is no lack of water vapor rising from the ocean, it’s just being diverted to the north by a high pressure ridge.

             http://www.weatherwest.com/archives/tag/ridiculously-resilient-ridge

             There is a common cause of the extreme warmth, record-setting precipitation variability, and exceptionally low Sierra Nevada snowpack: the Ridiculously Resilient Ridge, Redux. This persistent feature near the West Coast has set up a little further east this year than in preceding winters, allowing the subtropical jet to make occasional incursions along its western flank. As this persistent ridge has wobbled around, conditions have remained very warm during both wet and dry spells. In addition, the Western ridge is forcing Pacific storm systems to take make a sharp poleward turn 1000-2000 miles west of California, advecting copious warm/moist subtropical air toward much higher latitudes in Alaska and British Columbia. Because the ridge is slightly further east this winter, California has been able to benefit very occasionally from this constant northward stream of moisture–meaning that what precipitation has occurred has been of the warm and wet variety.

          2. Less light, lower evaporation rates. Global dimming plays a big part in the evaporation of water across the globe.

          3. Tom – please take your “unproven” and “scam for leftists” nonsense off to the climate boards.

             FYI – the link between lessening Arctic ice cover and West Coast drought was noted in 2004.

             http://news.ucsc.edu/2004/04/476.html

             http://thinkprogress.org/climate/2014/01/31/3223791/climate-change-california-drought/

21. It seems to me that the resource doesn’t really give a damn about our financial arrangements. As Mike was implying upthread, the real question is the conventional stuff. The shale play is a side-show. It is just that the conventional resource seemed to have been balanced on this plateau where everyone was going flat out and pretty much matching up with demand, and then along comes this unconventional source that incrementally pushes things into surplus. The question is, if this unconventional source is sidelined for a time (and it will only be for a time until rising prices and consolidation puts it back in the game) because of its well documented (here in particular) problems does anyone think it will have a snowball’s chance of once again being able mask over-all decline in the conventional resource? The next time they try to crank this beast up, will be as productive as the last time, and won’t the hole that it is being asked to fill be bigger?

    1. As I have been observing, it took roughly half of the global (oil and gas) rig fleet to show an increase in quality US crude oil production (40 API gravity and lower) of about 0.5 mbpd from 2011 to 2014 (based on an EIA projection).

       Of course, the problem that refiners have with 40+ API gravity oil is the massive decline in distillate yield, which is especially true for condensate (generally defined as over 45 API gravity).

       1. Such a serious item. Retooling the truck fleet to use gasoline is another of those things that would have been done long ago if physics cooperated.

22. The IEA is out with their latest Oil Market Report. If you are not a subscriber you can only read the highlights.

    Oil Market Report

    Global supply rose by 1.3 mb/d year-on-year to an estimated 94 mb/d in February, led by a 1.4 mb/d gain in non-OPEC. Declines in the US rig count have yet to dent North American output growth. Final December and preliminary 1Q15 data show higher-than-expected US crude supply, raising the 2015 North American outlook.

    I think the EIA are not the only ones that are overly optimistic. The IEA seems to have caught that bug as well.

23. The data shows the Bakken still moving along on a normal production upswing. The major difference being the pulling of rigs and slow-down in finishing the drilled wells. Should see the data swing down over the next few months unless a resurgence of money gets those wells finished quickly. Mid-summer will tell the story for LTO plays, if the price has not risen significantly by then the production should fall well outside the normal variance.
    By mining and synthesizing fertilizer, using fossil fuel driven machinery and converting much of the planet to a giant farm/ranch we have managed to feed most people. That is at it’s limits now.
    Through the inefficient and inappropriate use of oil, the world is reaching limits of oil production. Time to transfer to more reliable sources of energy, ones that can be depended upon for millennia or eons, not a century and change and do not do vast harm to the ecosystem in the process.

    1. The data shows the Bakken still moving along on a normal production upswing.

       What data is that? The January data shows a huge production hit. That offset the huge gain last month, leaving the total four month North Dakota production gain at a tad over 4,000 bpd or about 1,000 bpd per month increase. That is a far cry from the 25,000 barrel per day per month increase they had been averaging.

       The data has already swung down.

       1. Hi Ron,

          Last month the data was somewhat higher than expected, this month somewhat lower, the data is noisy. If we average the data over three months (trailing 3 month average), we see output is levelling off as we would expect with such low prices, output may bounce up again next month, time will tell.

          

          1. Dennis, you talk as if nothing out of the ordinary were happening in the Bakken. Something definitely is happening, the rig count is dropping like a rock. And fracking crews seem to be dropping even faster as wells awaiting completion increased by 75 last month.

             Something is happening in the Bakken. It is no longer business as usual. It is extremely unlikely that we will get any significant increase in February.

             1. Hi Ron,

                My crystal ball broke so I an unable to predict month to month changes in output. My model suggests that output will be about 1150 kb/d from the ND Bakken next month, although it was a little high for Jan 2015 (by 28 kb/d), you have noticed that in the past the data has been very noisy, have you not? Do you think the current situation would reduce this volatility? I do not, it will continue to bounce around in ways that I cannot predict, my guess is that next months output will be between 1130 and 1160 kb/d in the ND Bakken, the model assumes 142 new wells will be added to the ND Bakken/Three Forks next month and output will be 1157 kb/d, it is doubtful it will be correct 1145 kb/d would be my best guess.

                1. Ron,

                   Some of the dis-incentive going on in the Bakken has to do with taxes bending the normal course of business. By holding off on completing wells some companies are gaining various tax advantages. I do not, however, have any accurate details about this.

       2. Ron, look at the previous drops of Dec 12 and Nov 13, they are approximately equivalent to the latest drop. Right after both of those production continued it’s positive climb. One should not jump to conclusions based on one point that is not outside the range of normal variance. Once further points continue in that downward direction and outside the range of variance, then one might conclude the data is showing a downward trend.
          The average of the last five points is still slightly positive. Taking that back further in time just gets the production line more positive. I agree that the appearance of a leveling has occurred in the last four months, but similar things have happened in the past. I would like to see an actual drop of three months that is below the range of previous data before concluding an actual trend.
          I am not saying you are wrong in your conclusion, because we know economics is currently curtailing drilling/finishing and the high decline rate of wells (geology) will become a major factor. What I am saying is that the data alone does not yet support the conclusion of a falling oil production region, merely a deviation within historical range parameters.

          1. I agree that the appearance of a leveling has occurred in the last four months, but similar things have happened in the past. I would like to see an actual drop of three months that is below the range of previous data before concluding an actual trend.

             No, no, no, similar things have not happened in the past. Fluctuations in production data, yes, but never at the same time as drilling rigs were dropping by 43 percent. For three weeks, from the week ending September 19th through week ending October 10th, there were 197 rigs working the Bakken. As of yesterday there were 112 rigs working. That is a drop of 43 percent.

             There is just something about this scenario that I find difficult to understand. Not just with your assessment Allan, but with almost everyone in the media as well. They all just assume that LTO production has, and will, just keep right on increasing in the face of collapsing rig counts. In October rigs drilling for oil stood at 1609. Today they stand at 866, a drop of over 46 percent.

             But you and just a whole lot of other folks believe that LTO production has just kept right on increasing as if nothing happened. That is just not the case. The trend in drilling rigs has been trending down, very steeply, for 5 months. To pretend that this is having no effect on production is just not realistic.

             1. You are taking the production data I was talking about, then adding other information such as rig numbers and coming to a conclusion. I was only talking about the production data (the real amount of oil coming from the ground), not the number of rigs pulled or that might stay out of service, not the economics or any other data.
                I do not disagree with your overall conclusion, just pointing out that the production data does not support that conclusion yet due to the normal variance of the region.

                1. Allan, you still don’t understand:

                   I was only talking about the production data (the real amount of oil coming from the ground), … just pointing out that the production data does not support that conclusion.

                   My entire argument, in fact the very subject of this post is those numbers do not represent the real amount of oil coming out of the ground. That is not real production data. Those numbers are just a wild ass guess and could be as much as 100,000 or 200,000 barrels per day off.

                   Your whole argument is based on the belief that those are real measured production numbers. Nothing could be further from the truth.

                2. That is very interesting. So the North Dakota DMR is correcting data by as much as 10 to 20 percent? I will look into that.
                   Not sure how you know the degree of precision of their numbers but the amount of variance of their reported data is as large as the changes seen lately.

    2. FWIIW and why I believe Ron is right on Bakken for the next few months

       Going forward the pace of well manufacturing in Bakken is primarily a question about funding (= oil price).
       For February the average wellhead price in Bakken was around $30/bbl which would net back the operators an estimated $30 * 0.725 (taxes and royalties at a total of 27.5%) – $5 (OPEX, low estimate) – $3 (financial costs) + $2 (netted back for nat gas) would net back around $16/Bbl at the wellhead.
       (I suspect OPEX to be higher if G&A dividend payouts are included; this estimate is thus now believed to be slightly “optimistic”.)

       Some companies are well hedged and some to a lesser extent and there are tax effects from hedges so to keep it with a round number say on average the companies netted back $20/bbl.

       Monthly production of around 35 Mb, this translates into a net cash flow of around $700M/month.
       Around 110 rigs were drilling assuming an average of $3.5 – 4.0M/well totals somewhere in the neighborhood of $400M/month for drilling.

       That leaves around $300M/month of cash flow from operations for fracking (assuming operational cash flow unabridged is directed towards well manufacturing).
       At $4.5 – $5.0M/well for fracking allows for 60-65 wells/month to be completed and ready to flow.
       More fracking requires dipping into cash or more debt.
       To maintain present levels of LTO extraction requires an estimated 135 (+/-) 10 wells/month.

       If production continues to decline and prices remain at present levels, this sets up some interesting dynamics whereby operational net cash flows declines.

       So what is the odds LTO extraction in Bakken will continue to increase through February and March?

       1. Hi Rune,

          My estimate for the number of new wells to keep output relatively flat is 120 new wells per month.

          Based on your analysis 60 new wells per month are a more likely level at current prices (roughly $45/b WTI). The 120 new wells per month is likely too optimistic, but it is possible that 60 new wells per month is on the pessimistic side (at least in my view). So I created a scenario with real oil prices rising from $45/b by 6.47% per year until 2034 (about $148/b in 2034 in 2015$) and the number of new wells added decreasing from about 149 wells/month in Jan 2015 to 90 wells/month in July 2015 (10 fewer wells each month from March to July) and then remaining at that level of 90 new wells per month until Jan 2017. Output falls to about 1024 kb/d in Jan 2017, about a 10% drop in output over 2 years.

          

24. Hi All,

    I took a quick look at Enno Peters data from the NDIC (Thank you Enno).

    If we assume all confidential wells are Bakken/Three Forks wells, then there were 213 completions in Dec 2014 and 151 well completions in Jan 2015 in the North Dakota Bakken/Three Forks formation. If we assume the number of wells completed each month gradually decreases from 151 to 120 new wells per month between Jan and May and that New well EUR begins to decrease in June 2015 and the rate of decrease in new well EUR gradually increases over 12 months reaching a maximum annual rate of decrease of 9% per year in June 2016, then we get the scenario below through Jan 2017. Relatively flat output through Jan 2017.

    

    1. Dennis, what oil price (WTI) is your presented scenario based upon?

       1. Hi Rune,

          I use Brent Crude Prices rather than WTI as I assume $12/b shipping costs to the east coast and the refinery gate price there is closer to Brent than WTI.

          So Brent crude prices are assumed to be $50/b (in Feb 2015$) until August 2015, then oil prices gradually rise to $56/b by Jan 2017, a longer term scenario is shown below with ERR=9.2 Gb, I doubt the oil price rise in this scenario is realistic, it was used to allow profitable wells. If prices cannot rise above some real price level in the future, say $130/b in 2028, then new wells added would need to fall and output would be less.
          It is impossible to predict future prices, so anything beyond 2020 is a little speculative 🙂

          

          1. ”I use Brent Crude Prices rather than WTI as I assume $12/b shipping costs to the east coast and the refinery gate price there is closer to Brent than WTI.”

             So all the Bakken LTO ends up in the east coast!

             Further it appears your scenario assumes companies will continue to use more debt with a “low” oil price.

             1. Rune,

                Not all of the Bakken oil goes to the East Coast. The cluster of large refineries in NW Washington State gets some by rail.

                (We also siphon some of the Alberta production from the pipeline carrying it to the Vancouver BC area. Don’t tell our Canadian cousins, OK?)

                1. The Oil Oregon Trail

                2. Thanks Ronald. I hadn’t mentioned this because it isn’t too current, but I doubt I did much better hunting for updates.

                3. Synapsid, Thanks!

                   My point was just trying to confirm if Dennis used Brent pricing for all LTO extracted from Bakken.
                   I am aware the LTO ends up in various destinations, the east coast, the Gulf coast and likely the central area.

                   Read with some care what Dennis describes about his assumptions for his presented scenario;
                   ”I doubt the oil price rise in this scenario is realistic, it was used to allow profitable wells.”

                4. Hi Rune,

                   I was mostly referring to the high prices after 2025. Up to that point it looks pretty similar to the EIA’s reference scenario.

                   When you did some of your original work on the Bakken you used $12/b for transportation costs which matches transport costs to the East coast, my analysis simply follows that example, if we are using $12/b transport cost, Brent is the better measure of refinery gate price.

                   Note that we could use WTI at $45 and the analysis would change very little.

                5. For the scenario to work through Jan 2017, with a refinery gate price of $45 per barrel now, prices would need to increase at 6.5% per year to $148/b in 2034 in order for the NPV of present wells to be equal to the well cost, assumed at $8 million per well (some of the oil guys, maybe MBP or Mike suggested that well costs can decrease during a bust).

                   If Rune is correct that only 65 wells will be drilled due to financial constraints the output will certainly decline.

                   If drilling stopped, then all cash flow could be used for fracking and more wells could be fracked using cash flow, this is unlikely to happen, but so far the companies in the ND Bakken have still been completing 149 wells in the most recent month.

                6. Dennis could you please first read what I wrote before commenting?
                   I wrote further up;
                   That leaves around $300M/month of cash flow from operations for fracking (assuming operational cash flow unabridged is directed towards well manufacturing).
                   At $4.5 – $5.0M/well for fracking allows for 60-65 wells/month to be completed and ready to flow.
                   More fracking requires dipping into cash or more debt.
                   I did not say anything that 60 added producing wells/month was some absolute limit, just indicating that more than 60-65 wells/month (now) would require some external funding as 110 wells/month (or thereabout are simultaneously being drilled).

                   There is another element which I did not cover in my comment and that has to do with profitability (returns) on wells put into production while prices remains low.

                   Dennnis you wrote;
                   If drilling stopped, then all cash flow could be used for fracking and more wells could be fracked using cash flow, this is unlikely to happen, but so far the companies in the ND Bakken have still been completing 149 wells in the most recent month.

                   There is no reason now to believe that all drilling in Bakken will stop. Several companies have commitments both to drilling and fracking. The penalty clauses for getting out of those contracts makes it more likely the companies will honor them until they expire.

                   Then there is the thing about fracking a well in a low price environment and apparently companies returns (profitability) is not any worry for some.

                7. Hi Rune,

                   Sorry,

                   I thought the implication was that 60 to 65 wells would be considered more likely because securing more debt might be difficult.

                   It may be that these companies are not worried about profits because so far they have continued to complete 150 new wells or more per month, if it drops below 120 per month output will decline.

                   When output declines oil prices will rise, eventually.

                   Your analysis is excellent, thanks.

                   Do you have a guess as to the number of new wells from Feb 2015 to Dec 2015, that seems reasonable based on your research?

                8. Dennis, I did not say anything about financial sources for funding more wells.
                   Available cash is one likely source. More debt another.

                   Any company not concerned about profitability will at some point cease to be a company.

                   The oil price is mostly related to the supply/demand balance. IMO demand is the big unknown going forward.

                   Yes, I have projections for number of Bakken well additions for the next few months related to several oil price trajectories, but by now I have also learned not to share those with paid trolls.

                9. Hi Synapsid,

                   Do you have a rough idea how much ND Bakken crude comes to Washington?

                10. Hi Dennis.

                    What I found is that about 19 tanker trains of Bakken crude per week entered the state in 2014. They’re unit trains, usually 100 cars, could be as high as 102, I believe. Roughly 7600 tanker cars a month, anyway.

                    BNSF says a tanker car can hold 680 to 720 barrels of crude. Bakken crude is light so maybe the 680? The arithmetic gives a range of 5 168 000 bbl/mo to 5 472 000 bbl/mo for Bakken crude entering Washington. I have no idea how likely these figures are to be correct. Bakken production is up around 1.1 or 1.2 MMbbl/day isn’t it? so around 30 MMbbl/mo. That would have a sixth to a fifth of Bakken production coming our way. That seems high, but:

                    Not all the trains go to the refinery cluster up near the Canadian border: some go to refineries in California but I don’t know the relative numbers.

                11. Synapsid,
                    I serendipitously drove near several oil refineries near San Francisco last week and was a little surprised to see what appeared to be numerous unit trains on the sidetracks. In addition, regularly travelling down a major interstate – 880 – that parallels train tracks, there are now unit trains sitting there as well.
                    All of ’em already covered in graffiti.

                12. Hi Synapsid,

                    Thanks. That is more than I realized. I assumed the amounts going west were less because I thought the transport costs were higher to the west coast than the East coast, perhaps the East coast refineries are getting all they can take.

                    It would seem that the Midwest and east coast refineries could use all the crude produced in the Bakken. Midwest refineries can get their crude from Cushing so WTI is clearly the correct price there, but transport costs would be much lower.

                    Any idea what the transport cost to Washington is? Is there actually 186 kb/d of inputs to the refineries there or does a lot of this oil go south to California?

                    Looking at some of the EIA data on refiner acquisition cost (data is only through Dec 2014)

                    The midwest refineries seem to take a lot of cheap imports from Canada (these are $12/b less than the East coast price) so not much oil may go to these refineries from the Bakken. The Gulf coast has a lot of oil coming from the Eagle Ford and Permian and not much Bakken oil may be going there. The East coast refineries only have about 1000 kb/d of crude inputs so the marginal barrel from the Bakken most likely goes to the West coast. So my Bakken model should be updated to reflect this.

                    On second thought, the article at the link below suggests only 700 kb/d ships by rail and in theory the east coast refineries may be able to take all this crude.

                    http://www.ogfj.com/articles/2015/02/bakken-crude-transport-options-after-the-crash.html

                    Another good article (old though) is

                    http://www.ogfj.com/articles/2013/10/bakken-crude-netbacks-favor-east-and-west-coasts.html

                    In that piece rail to the west coast costs $14/b and to the east coast $17/b. I do not know if costs have changed since that article (Oct 2013).

                    In other places I have seen estimates of 10 to 15 dollars per barrel for transport costs by rail.

                    The West coast bench mark is the ANS(Alaska North Slope) oil price which was about $49/b in Jan and $54/b in Feb.

                    http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx

                13. Hi Dennis.

                    I don’t know what the current transport cost to the West Coast is; it’s shorter from the Bakken to Washington than it is to Philadelphia but the Rockies are in the way. BNSF has that in hand, though, I believe.

                    I haven’t found information on how much of the Bakken that enters the state at Spokane heads on down to California. The five refineries have a combined capacity in barrels per stream day of 657 500 (fifth largest capacity in the US, as I like to remind Rockman) most of which would reside in the four northern refineries (Tacoma is a small one; produces jet fuel for McChord AFB, and asphalt for roads), and at least three of them take Bakken crude. Shell’s refinery at Anacortes had not been taking it but that may have changed–Washington refineries seem to avoid talking about whether or not they rail in that flammable Bakken stuff.

                    The Bakken and the Alberta crudes have been backing out the North Slope stuff but some still comes in. I don’t have the latest information handy.

             2. Hi Rune,

                Just as you did in your original Bakken models I simplify by using one transport cost which is the $12/b to the east coast by rail. This does not mean all ND Bakken Oil goes to the east coast, just as it most likely did not when you first did your Bakken model.

                1. I used transport costs as published by EIA at that time who listed a span of $12-15/bbl for transport.
                   But my question was if you, Dennis, assumed Brent prices for all LTO?

                2. Hi Rune,

                   Yes, in the original model, it was roughly the Brent price ($50/b at the start) I was thinking that the marginal barrel (in terms of profitability) was the oil going to the East coast, because I thought most of the Bakken LTO was going east, this is a mistake on my part.

                   The ANS price has fallen below WTI of late, so the marginal barrel is definitely west coast.

                   The scenario with 90 new wells per month assumes a refinery gate price of $45/b until Aug 2015 with prices rising by 6.47% per year for 19 years (to $148/b in 2015$) in Aug 2034 and then with no further price increase.

                   Other assumptions are:

                   Royalties and taxes 26.5% of wellhead revenue
                   OPEX plus other costs $8/b
                   transport cost $12/b
                   real discount rate 7% (assumes 3% inflation)
                   well cost $8 million
                   all costs are real costs in 2015$

25. I agree with Futilitist. We are reaching what I (following Turchin and Nefedov) call the contraction phase of the economic cycle of oil. This economic cycle had a growth phase from 1859 to around 2005, a stagflation phase from 2005 to 2014, and we are headed for the contraction phase. The current low price of oil signals a paradigm shift. Peak oil is a low price problem, not a high price problem as many people thought. US oil production peaked 1965-1970. Oil prices where a local minimum during those years. US production reached a secondary peak in 1985. Soviet oil production peaked in 1986, oil prices started decreasing in 1985 and remained low throughout the 80’s. The feedback mechanisms that increased oil production till 2005 are going into reverse. Lower production will cause spikes in prices which will cause oil consumers to reduce consumption which will in turn drive prices below production costs. During the growth phase, aggressive production was rewarded. During the contraction phase, the successful strategy will be to wait for the aggressive players to go bankrupt and buy up their assets cheaply. The motor of economic growth that was oil is no more. I think it time for us to reevaluate our goals. Take advantage of low oil prices to invest in living without oil. Welcome to the 21st century.

    1. “During the contraction phase, the successful strategy will be to wait for the aggressive players to go bankrupt and buy up their assets cheaply.” This is the strategy in those countries with oil production, capitalism, noy having state-controlled companies such as in Saudi Arabia. Your scheme may/will happen in the Bakken, for example. But most countries in the world, China, Europe, India, etc., have no oil and hence there is not such a play as you outlined. These countries need oil to run their economies and thus will buy oil at elevated prices.

    2. Others are seeing a different oil cycle scenario.

       According to this graph from an article in zerohedge, we are entering an exploitation phase with little capital investment (capital stock ages) and depressed prices that could last a few years.

       

       1. Hi Javier.

          The data shown in your graph is fully consistent with, and could be fully explained by, my graph below, but the conclusions drawn and outcome forecast are quite different. Those repeating economic cycles of yours are just part of a much larger phenomenon that does not repeat. Please take some time and try to answer the challenge I posed.

       2. Javier, there’s a slight difference the financial types aren’t visualizing: the new oil fields tend to have much faster decline rates than the ones we developed in the late 70s and early 80s.

          I also see a much more aggressive approach by engineers to design very high rate wells. Thirty years ago we also lacked reliable equipment for large bore equipment. For example, a quality high pressure Xmas tree and safety valves for wells completed with 5 1/2 inch tubing were very hard to find.

          I think the net result is that we just won’t see today’s production capacity exceed demand for such a long period of time.

          1. And the fashion these days is for 6 5/8″ tubing, well head and safety valves for oil and 9 5/8″ for gas. Up front money is the go, apparently, decline rate seems to be secondary.

          2. I understand that Fernando, but that graph has no oil production in it, and therefore cannot be proved wrong by diminishing production or quick decay of wells. It is just an observed cycle. One can guess that the cycle will continue or doubt it, there is no way to tell really in advance. As a general rule I usually bet on the continuation of cycles since the odds are better.

             1. Javier, I see the production, the excess capacity, the data in that graph, the type of field being developed, the cost environment, and many other factors. It helps to have lived through it, to have a good memory, and to understand the underlying dynamics. This isn’t available to the guys writing those articles.

                1. I always like to learn, and certainly I can learn a lot from you, Fernando.

                   In which curve do you see the production and the excess capacity, in the price curve, in the age of capital stock curve or in the interaction between both?

                   What I see in that graph is that rising prices bring about renewal of capital stock and vice versa. The price curve we know quite well that shows not only supply/demand ratio, but also geostrategic events.

                   Going forward, since we don’t know what the supply/demand ratio is going to be, we don’t know what the price is going to be, and we can suppose that as always capital stock investment will depend on price, I certainly don’t see why it is not possible for the next cycle to fit the pattern; i.e. low oil price and low capital stock investment.

                2. Javier, you need to go look at the delta between production and capacity overhang and the way the capacity drops. Lets see…I assume you understand that fields in the 1980s had a much higher reserves to production capacity ratio? This causes a much lower production capacity decline.

             2. Javier,

                “As a general rule I usually bet on the continuation of cycles since the odds are better.”

                In this case you would lose the bet. The odds you are calculating are for a world that no longer exists.

       3. Thanks for posting.
          The period the chart covers was one of (more or less) continuous growth in oil supplies/production (and rapid credit expansion and growth in total global debt).
          I am not convinced that will be the situation going forward.
          I believe Ron is very close to his prediction of “peak oil barrel”.

          1. That chart is an observation, not a prediction. I completely agree with Ron on a peak oil in 2014-15 and in fact I said the same myself in my blog some time ago.

             A lot of things are going to change at the other side of peak oil and therefore predictions are not worth much, but Martin Armstrong dates his economic cycles all the way to ancient Greece and through events that looked like the end of the World, like the Black Plague that culled 1/3 of the population.

             That capex investment is going to be depressed for a few years does not look like a wild bet, and that is basically what that graph is saying. Moderated oil prices in a reduced capex expenditure environment does not look as a crazy thing either.

       4. Thank you for this graph. I think the graph is consistent with my long term cycle when combined with Futilists graph below (my interpretation is a bit different from his). First two definitions:

          1) An oil glut is a price point for oil below a significant proportion of oil production. An oil glut causes decreased capex among oil producers.

          2) An oil shock is a price point for oil which causes consumption to decrease.

          During the expansion phase of the oil cycle, the price point of an oil glut was cheap for oil consumers. This price point increased the market and hence demand for oil. The increased demand caused the price of oil to rise. Also, during the expansion phase an oil shock price point was high for oil producers and stimulated increased production. During the expansion phase, both oil consuming capital and production increase cyclically.

          During the stagflation period (Futilists graph), oil production is roughly constant. The high points in the graph represent oil shock prices beyond which consumption will decrease. The low points in the graph represent oil glut prices below which oil production will decrease. When the two lines intersect, we have an oil glut at the same time as an oil shock. My interpretation is that oil production and consumption will fall until we reach a production level at which the oil shock price is above the oil glut price point. Then we start over again. The paradigm change is thus that in the contraction phase of the oil economic cycle, oil shock prices will repeatedly hit oil glut prices, and production will fall as will oil consuming capital.

          1. Hi Schinzy.

             I think the difference in our interpretation is really just a semantic one. It involves how to describe our very similar, yet slightly different explanations of the price behavior of oil. I really think we are saying essentially the same thing.

             We seem to disagree a bit on what this exactly means for the future. I think your potential forecast of a new cycle being established is possible, but not very likely. Total collapse would seem to be the more likely result of our situation.

             And once again, have you read the Korowicz paper?

             http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/

             When you factor in non-linear system dynamics and financial/supply chain cross-contamination, it does not seem very likely we will survive the first drop.

             1. Hi Futilist,

                I agree that we are essentially saying the same thing with different words. I have not yet read the Korowicz paper. I will put it on my always growing to do list.

                I think that the financial system will not survive the contraction phase of oil production. It was designed for constant economic growth. It is already becoming strained under stagflation, once we start seriously contracting I think it will break.

                I also think that food production will begin contracting soon after oil production begins to contract, so I do not believe these projections of increasing population for the next few decades. These projections are as flawed as the IEA and EIA’s oil production projections.

                I do think there are many things to do to prepare which could lessen the pain, the most important of which is a cultural change. Those interested in more specifics can email me (I just added an email address to my webpage).

                1. Hi Schinzy.

                   I agree with you about the population projections. The UN demographers are *WAY* wrong. Die-off will be very rapid. It will easily swamp population momentum.

                   Please do check out the Korowicz paper when you get a chance. It takes a systems dynamics and risk management approach. Financial system/supply chain cross contagion seems a certainty. This will result in a stunningly rapid collapse. I don’t see how it could be otherwise.

    3. Hi Schinzy.

       Thank you for your post. Have you read the Korowicz paper?

       Your explanation of the economic life cycle of oil is really great. Most people here don’t understand the situation we are actually in. Though I am not familiar with their work, I assume that Turchin and Nefedov make a strong physical and theoretical argument. My argument is based on a simple observation of the price behavior of oil. The fact that my idea dovetails so well with this other work is a sign of consilience.

       Below is a graph of the price of Brent oil. I contend that this graph spans three separate and distinct economic paradigms, each with different rules. Prior to the big oil spike in 2008, we lived in a world of economic growth. This was then followed by a period of economic stagnation. Then, in June of 2014, we crossed into a world where economic growth is no longer possible.

       The orange line represents the falling ability of consumers to afford oil. The blue line represents the rising cost of production. The red oval indicates the point of convergence of the two trends. There is now no good price for oil. This represents a paradigm shift to a world of ever shrinking economy. It can be thought of as the onset of collapse.

       This is pretty bad news for the alternatives crowd. 🙁 And for the climate change folks as well. 🙁

       Ever since the blue and orange lines crossed, the normal economic rules no longer apply. Low oil prices now encourage more supply, which leads to lower oil prices. This is a real Catch-22. It would seem that there is just no logical way to fix this dilemma.

       The challenge for folks here is to try to explain either how we can maintain a functioning civilization under these bizarre conditions, or how we can get back to normal conditions, real fast (i.e. before we collapse). The clock is ticking. Good luck.

       

       1. “It would seem that there is just no logical way to fix this dilemma.” ~ Futilitist

          There might be ‘one’ way that is logical but not ethical, and that is to create chaos, which may destroy demand for oil by trashing economies physically and economically, and killing, etc., people who would otherwise consume this precious squandered resource.
          How does a governpimp or governpimps create chaos? Well, just take a look around…
          Ukraine; ISIS; Iran; Syria; Iraq; war-sabre-rattling; staged beheadings, complete with, bizarrely, official orange US prisoner clothing; sanctions; threats, such as to send over refugees from one locale to overwhelm another; drafting discriminatory laws; NATO buildup; lethal false flags; clues behind comments, like “Fuck the EU”; bombing Gaza the umpteenth time; creating fear, uncertainty doubt and suspicion; driving wedges between people; and so on…

          Destabilize as much of the world as possible and whoever is still ‘intact’ gets the oil. Sick, sure, but so are people in power/authority.

          Unsure about China or India, but who knows, maybe they will be somehow increasingly in the news shortly. Maybe fly more drones over Pakistan and create a ‘situation’ for China that makes it look like Japan did it.

          I haven’t read it, but some pages from the playbooks that ‘The Shock Doctine’ writes of might be apt.

          …Now, if you’ll excuse me, I suddenly feel like taking a long soapy shower…

          1. Hi Caelan.

             War. Huh. Good God. What is it good for? Absolutely nothing. Say it again.

             War will not fix anything. It will only make matters worse.

             But I should stop being so pessimistic. I guess we should give war a chance. 😉

             1. War? Did we say war? Let’s call it a hair cut. Culling hair… An airline here, a drone there, a coup, some ebola, a bombing… snipsnip.

                1. Those are not solutions to collapse. They are symptoms of collapse.

                2. Oh of course.

       2. Seriously Futilitits? A symmetrical triangle is your model that explains everything? I guess you are discovering technical analysis all by yourself.
          See for example http://www.investopedia.com/university/charts/charts5.asp for a primer on triangles.

          What that graph shows is just a price conflict between buyers and sellers or in this case supply and demand. Before the triangle is completed it breaks either to the upside or to the downside usually with a strong price movement of similar amplitude to the base of the triangle, although false break-ups and reversals are not uncommon. In this case it shows that supply dominated and hence price collapsed. That was actually a “good” outcome of this price simmetrical triangle. Had it broken to the upside, price is predicted by the figure to have gone up above $150 due to demand domination and we would be right now in a recession induced by an oil price shock.

          Once the triangle breaks, the figure ends and has no longer any predictive value. Future price will be determined by supply/demand relationship as usual, and nothing in that graph says anything about collapse.

          1. Hi Javier.

             It’s Futilitist.

             I am sorry you don’t like my graph. It is just a visual aid to help people intellectually understand a simple idea that is very hard to accept emotionally.

             The lines on the graph are not technical analysis. The blue line represents the rising cost of oil production. The orange line represents the declining purchasing power of oil consumers.

             When the two lines crossed (in June, 2014), the rising price of oil exceeded the ability of customers to pay for it, and the price crashed. If oil had spiked (further) instead of crashing, the economy would have been destroyed, and we likely would have been forced straight into a rapid collapse. But we essentially did have an oil spike, if you correctly think of the wedge as a running oil spike that has been continuously truncated by lack of oil affordability. The fact that oil went down instead of up means that the economy has begun shrinking toward a point where the accelerating collapse will begin to be felt subjectively by everybody. That should start to happen in April, when the EIA predicts that depletion will begin to overtake production.

             The chart doesn’t need any further predictive value, since the cost of production has forever exceeded the ability of consumers to afford oil. This means the world economy will shrink from here on out until a crisis soon forces us into rapid, uncontrolled collapse.

             This is a very simple concept that is very difficult to explain to people because they have never experienced the conditions we now find ourselves in. The tendency is to apply the old rules. But that is a mistake. This is not just another economic cycle that will simply fix itself with it’s own invisible hand. This is a paradigm shift that cannot be reversed. It can only end in collapse.

             1) How can the rising cost of production ever reverse itself?

             2) How can consumers ever recover their purchasing power once the economy begins to shrink?

             If you cannot come up with answers to the questions above, you must begin to accept the fact that we are in currently in collapse.

             1. Sorry for the typo. It is a difficult word for me. My only precedent is “resistance is futile” by the Borg. Are you proposing resisting assimilation or surrendering into the Borg Collective?

                The blue line represents the rising cost of oil production. The orange line represents the declining purchasing power of oil consumers.

                No they are not. You are projecting into the graphic. You are just tracing lines in a graph and making up a story. Cost of oil production has been rising for many decades. It used to be a 1 cent/barrel. Show me that blue line in the past and demonstrate that it correlates statistically with raising costs, or numerically demonstrate why suddenly a graph that was representing a different thing has come to represent what you say.

                Graphs are representations of numerical data or mathematical functions. Can you demonstrate that world consumers purchasing power of oil has been declining at a similar rate to the steepness of that orange line? Do you have data that correlates both in a similar manner?

                When the two lines crossed (in June, 2014), the rising price of oil exceeded the ability of customers to pay for it, and the price crashed.

                Nice story, but there are other explanations. I have read at least a dozen, most with as little support as yours.

                If you cannot come up with answers to the questions above, you must begin to accept the fact that we are in currently in collapse.

                We seem to be using different dictionaries.
                Fact: A fact is something that has really occurred or is actually the case. The usual test for a statement of fact is verifiability, that is, whether it can be demonstrated to correspond to experience.
                Collapse: (of an institution or undertaking) fail suddenly and completely.

                We are not in collapse since we have not failed suddenly and completely. Most people lifes in the world are unaffected. You cannot demonstrate that we are in collapse. Ergo the only fact is that we are not currently in collapse. Collapse is still a possibility and still in the future.

                1. Javier,

                   I am afraid you are just wrong. And your objections are just silly. Of course the blue line reflects the rising cost of production. And the orange line does reflect the declining purchasing power of consumers. What else could possibly cause the price behavior of oil? Give me a break! You just can’t answer the two bolded questions I asked. It sounds like a case of collapse denial to me.

                   Energetically speaking, the collapse of civilization began in June of 2014. It will accelerate rapidly. We will subjectively feel the collapse when things begin to fall apart. It will be too late for us to talk about collapse at that point because the internet will go down.

                   Collapse is a process. It has a beginning, a middle, and an end. Collapse doesn’t just suddenly “happen”, it is more like we just suddenly become aware of it. At that point we will be in the middle of a process that must have had a beginning. It is like you are intentionally trying not to look. That is denial.

                   Try not to get so hung up on the definition of collapse. Your definition is simply not of any use. Please accept my useful definition of collapse while evaluating the two bolded questions from my post that you failed to answer:

                   1) How can the rising cost of production ever reverse itself?

                   2) How can consumers ever recover their purchasing power once the economy begins to shrink?

                2. Of course the blue line reflects the rising cost of production. And the orange line does reflect the declining purchasing power of consumers. What else could possibly cause the price behavior of oil?

                   Great argument. Just because you cannot think of anything else, then it must be what you think it is. That is nonsense. The price of oil is a complex issue with multiple factors contributing to it. You just trace a line in a price graph and say:
                   “we are all doomed”
                   Give me a break. You are hilarious. Find hard data that proves your point or stop assigning fantasy meanings to coloured lines. It is just not serious.

                   In fact available data disproves your hypothesis. The relationship between oil price and cost of oil production has always been tenuous. They have moved in opposite directions many times in the past.

                   Energetically speaking, the collapse of civilization began in June of 2014. It will accelerate rapidly. We will subjectively feel the collapse when things begin to fall apart. It will be too late for us to talk about collapse at that point because the internet will go down.
                   Collapse is a process. It has a beginning, a middle, and an end. Collapse doesn’t just suddenly “happen”, it is more like we just suddenly become aware of it. At that point we will be in the middle of a process that must have had a beginning.

                   Nice narrative without connection with reality. Collapse is collapse, like when someone has a stroke and collapses to the floor. You cannot sequester a word and torture it until it means what you want it to mean.

                   It is like you are intentionally trying not to look. That is denial.

                   Yes. We all know by now that anybody that doesn’t have the same opinion as you is in denial and if he dares to speak then he becomes a denier. Must be fantastic to feel so right. One day I have to try it.

                   1) How can the rising cost of production ever reverse itself?

                   I don’t know if it is possible in the future, but I know that it has been true in the past. You speak like cost of production has never gone down.

                   2) How can consumers ever recover their purchasing power once the economy begins to shrink?

                   I don’t know if it is possible in the future, but I know that it has been true in the past. You speak like recessions have never taken place.

                   Don’t try to classify me that easily. I work hard to keep myself solidly grounded on evidence. I often take both sides of an argument to see which one is more solid, like turning a chess board, and I try my best to not go much farther than the data allows.

                   It is clear to me that due to peak oil very bad things are coming our way and that collapse is right now the most likely outcome. I am myself preparing for the worst and praying for the best. But the available evidence does not support your position. We are not in collapse and we don’t know when our civilization will collapse. We do know that collapse is the most probable outcome because it does have a serious issue with resources and because that is the end of most civilizations.

                3. Javier,

                   “Must be fantastic to feel so right. One day I have to try it.”

                   In order to do that, you will have to believe something that is actually true.

                   “Great argument. Just because you cannot think of anything else, then it must be what you think it is. That is nonsense. The price of oil is a complex issue with multiple factors contributing to it. You just trace a line in a price graph and say:
                   “we are all doomed””

                   I guess I just got lucky. I have a tendency to look for answers where others say they can’t be found. This answer has been staring everyone in the face for quite a long time, yet I seem to be the first to point it out. I wonder why?

                   “Give me a break. You are hilarious. Find hard data that proves your point or stop assigning fantasy meanings to coloured lines. It is just not serious.”

                   All the hard data I need is in the graph. And I don’t appreciate the implication that what I am doing is not serious. I could say the same about you. Collapse is complex. But that doesn’t mean it can’t be understood. You just don’t want to know.

                   “In fact available data disproves your hypothesis. The relationship between oil price and cost of oil production has always been tenuous. They have moved in opposite directions many times in the past.”

                   But recently they have behaved in exactly the way I suggest. That is what matters. Once the relationship between oil price and cost of oil production begins acting the way it is now, collapse is the only possibility. How could it be otherwise?

                   “I don’t know if it is possible in the future, but I know that it has been true in the past. You speak like cost of production has never gone down.

                   I don’t know if it is possible in the future, but I know that it has been true in the past. You speak like recessions have never taken place.”

                   I also noted that the rules seem to have changed, yet you refuse to examine that possibility. If you keep insisting that what you have learned in the past is sufficient, you will never learn anything new.

                   Answering my two questions is critical. Your answer is not an answer at all.

                   “Nice narrative without connection with reality. Collapse is collapse, like when someone has a stroke and collapses to the floor. You cannot sequester a word and torture it until it means what you want it to mean.”

                   I gave you a good explanation for my definition of collapse. Your answer does not address the points I brought up at all. You just re-insist that I can’t look at collapse the way I do. You are wrong. My definition agrees with Dennis Meadow’s definition. He also believes we are already in collapse.

                   “We are not in collapse and we don’t know when our civilization will collapse. We do know that collapse is the most probable outcome because it does have a serious issue with resources and because that is the end of most civilizations.”

                   We know a lot more than you are allowing yourself to know. That seems to be a pattern with you.

          2. ” That was actually a “good” outcome of this price simmetrical triangle. Had it broken to the upside, price is predicted by the figure to have gone up above $150 due to demand domination and we would be right now in a recession induced by an oil price shock.”

             That was a bad outcome. High oil price is good. High oil price after year 2005 gave us 10 more years of BAU. If not that 10 years of high oil price, we would be 10 years after peak oil.

             1. Hi Kam.

                That is correct.

                And now that we have crossed the boundary in June, 2014, we are essentially in collapse, energetically speaking. It will accelerate rapidly. We will subjectively feel the collapse when things begin to fall apart. It will be too late for us to talk about collapse at that point because the internet will go down.

             2. I stand by my opinion. Had the price shoot over $150 we would be right now in recession, and in recession oil prices get depressed so you wouldn’t have those high prices anyway, but you would have all the economic problems that a recession brings about, destroying oil demand.

                Right now we still have a good pathway available if we avoid a recession and low oil prices allow economic recovery and increased oil demand, bringing a reasonable increase in oil price to keep production afloat. Had the price shoot up this good pathway would be impossible to us.

                1. Javier,

                   “Right now we still have a good pathway available if we avoid a recession…”

                   I don’t see how we can avoid a recession. That is my point. When the oil patch goes bust, we will certainly be in a recession. 9 out of 10 jobs created since the last recession are oil related. Factory orders have declined for the last three months to recession levels, so we may already be entering a recession.

                   1) If we can’t avoid a recession, would we still have a good pathway?

                   2) If we don’t have a good pathway, where does the one we are on lead? (hint: collapse)

       3. Turchin and Nefedov observed repeated what they called secular cycles, but I would prefer to call economic cycles, in history. They empirically characterized the growth phase, the stagflation phase, and the contraction phase. Typically the contraction phase ended in civil wars and a sharp decline in population. Their characterization of the stagflation phase is a good description of the economy from 2005 to 2014.

          I have too much to say for a blog post. I posted the outline of a theoretical justification for their findings here. I plan to make an update in April. I will say the following: when oil prices are high, oil loses market share. Oil can lose market share via substitution to another energy source, to the negawatthour (for example insulation or fewer trips), but it can also lose market share to low wages and unemployment.
          For example a price rise in oil might cause airlines to raise ticket prices resulting in a loss of 10% of their customers. The airlines then fire 10% of their staff and reduce wages to maintain profits ultimately creating more unemployed people and thus a smaller market for their services which leads to lower oil prices and reduced capex for oil production. The feedback cycle for growth has gone into reverse.

          Luckily some smart people started thinking about solutions for civilization in the 1970’s.

          1. “The feedback cycle for growth has gone into reverse.”
             ~Schinzy

             That is a brilliant way to describe the paradigm shift we are now experiencing. The rules have changed forever.

          2. Occam’s Razor?

             1. Yep. The simplest explanation is generally the best.

                People here seem to love to overcomplicate things. Overcomplicating things is simply a mechanism of denial.

                1. Simple explanations are not always correct. The world is complicated. Just because an assertion is made, does not mean that it is correct. Now one can deny that the world is complex,
                   and claim that only simple explanations can possibly be correct.
                   It proves nothing.

                2. Dennis,

                   You did not successfully complete the Futilitist Collapse Challenge. That is the only way to prove I am wrong. So, instead, you lamely try to cast doubt with this sophomoric argument about how the world is too complex to describe with simple theories.

                   The proof for my theory is that it fits the past, perfectly describes the present, and forecasts a future that must be (unless you can figure out how to overcome the dilemma we currently are in).

                   Your forecasts, on the other hand, are just optimistic fantasies, with fancy charts and graphs. You like making things complicated and mysterious because it allows you to carry on with your wishful thinking, no matter what.

                   It is not correct to reject an idea automatically because it seems too simple to you. I happen to like simple and elegant theories that actually explain the world. Of course, just because something is simple and counterintuitive does make it wrong or right. But simple explanations very often are correct.

                   

    4. Okay folks,

       Here is another simple graph I made to help explain the concept, and also to make the challenge more clear.

       In this graph, the black line represents the rising cost of oil production, and the green line represents the falling affordability of oil for consumers. In a reasonably functioning economy, the green line will be above the black line, and oil will trade in between the two lines. In june of 2014, the black line crossed the green line and the price of oil crashed.

       The green line is now no longer on top of the black line, as it is supposed to be. We have entered a new economic paradigm, in which consumers can no longer afford oil high priced oil, and producers cannot make a profit on low priced oil. Catch-22.

       The challenge (game?) is to come up with some sort of realistic scenario whereby the green line resumes it’s former healthy position above the black line, and oil once again trades in between them. I don’t think it can be done. If a workable solution cannot be arrived at, I submit that there is no possible way to avoid collapse. C’mon, take the Futilitist challenge. Try to save the world, and prove me wrong at the same time. I dare you.

       

       1. Well, perhaps the black line is not a hard and fast “minimum of profitability below which we immediately go bankrupt” but more of a “we’ll take this amount of profit and no less because we can at this point in time”. Likewise, the green line could be less of a “maximum price beyond which we’ll starve and die now” and more of a “maximum price at this point in time beyond which we’ll carpool a bit more, cook at home more vs going to the steakhouse, etc…”

          That’s my attempt. Just so you know, I normally look at this blog once a day and don’t always make super fast replies. That’s how my brain works best…

          1. Thanks for playing the game, not clever.

             I would say that you made a good attempt, but you did not solve the problem.

             Your answer puts us into a world world with an ever shrinking oil supply, and an ever shrinking economy. With a still growing population of over 7 billion. Not cool. Your proposed solution might hypothetically get us past an immediate total collapse, but it would very quickly lead to a total collapse anyway. Catch-22.

             1. Well the low oil (gas) price is currently giving the consumer a respite & some extra spending money. Given most people’s apparent lack of concern about peak oil and its ramifications, they’ll probably spend most of that extra money in such a way that oil demand will increase and the energy efficiency of the economy will decrease. At the same time, the dropping oil rig data does hint strongly at a potential reduction or plateauing of oil production for now or coming soon. More demand, less or at least not growing supply could jack the oil price back up as quickly as it declined, then QE-infinity leads to ramped up oil exploration & if it’s there we all muddle along for another few years as the catch-22 vice closes back in.

                I’m certainly not arguing for a long-term solution here, but I was among those doomers surprised that we muddled out of collapse in 2008. Maybe the powers that be are way way smarter than I imagine, but in reality I think it was just a convenient coincidence that all the QE cheap money pumping happened to enable (or at least amplify) the LTO boom financed by cheap credit availability, which pushed out the time to peak oil by a few more years. Could that happen again, or in a different way this time around? I have to say it’s possible because I’ve now seen such a thing happen that I did not think possible in 2008.

                Possible, but less probable than last time.

                I don’t know enough about finance and macroeconomics to comment intelligently on what happens when after oil production starts to decline for real. If it is fast collapse I imagine I will die in the early-to-middle stages and hopefully quickly when it comes. If I’m not dead I’ll continue to muddle along and play with my own solar energy and permaculture projects and spread the word if others are interested…

       2. Okay,

          I’ve been doing some research. I was looking at my price graph and I started wondering if maybe QE was the reason for the price of oil rising and hitting the green line (affordability) in my graph above. Many people have suggested that QE raised affordability and allowed the price of oil to rise.

          At first I was pretty frustrated that all I could seem to find were graphs that showed the timing of QE over the stock market. It figures. The first graph, below, is one of those. In our money obsessed culture, all people want to do is figure out the mysterious timing of the FED relative to the markets, since they mostly just want to make money, and they think the FED acts in the interest of propping up the markets. The FED does, of course, care a lot about the markets and would prefer them to go up. But when one looks for a discernible pattern for QE timing, there is none to be found.

          That is because the FED has another important mandate that no one talks about. And that mandate is to insure a high enough price for oil to maintain the economy! The FED basically needed oil prices to be above the black line (cost of production) in my graph above!

          Check out the second graph, below. Now a clear pattern emerges. QE 1 starts in 2009 at the bottom of the oil price crash. The price rises. Then QE 1 ends and prices begin to fall somewhat. QE 2 begins and prices rise quickly. The FED was dialing it in. Oil begins to fall again as soon as rumors of QE 2 ending circulate. So the FED quickly unleashes operation twist. When the price begins to soften again, operation twist morphs into QE3. This sends prices upward again, but not as dramatically as previous FED actions. FED intervention began to lose effectiveness from it’s first introduction onwards. We are collectively getting poorer and poorer. By the time QE3 ends, the oil price crashes uncontrollably.

          So the FED’s main concern is the price of oil! It is the most important driver of the economy, and always has been. It is what really drives the FED. Dollars are really petrodollars after all. Wow! 🙂

          

          1. Here is a little trip down two memory lanes at once. Lane one is back 3 years to the onset of Operation Twist. Lane two is back to 1961. Did you know that the name for the original Operation Twist came from Cubby Checker’s song?

             Fed’s ‘Operation Twist,’ Explained In 4 Easy Steps

             http://www.npr.org/blogs/money/2011/09/21/140643696/operation-twist-explained-in-4-easy-steps

             The Fed has at its disposal one key tool: interest rates. So when Fed officials are worried about unemployment, they try to drive down interest rates, in an effort to encourage people and businesses to borrow and spend.

             And to top it all off, Operation Twist is better at stimulating employment (and the housing market) than QE. The FED used QE to drive up the price of oil. But they needed Operation Twist to more directly create jobs to raise the green (affordability) line. Look back at my graphs. Before Operation Twist went into effect, oil affordability was declining fast. Ironically, Operation Twist really temporarily untwisted the two lines on my graph by raising the green (affordability) line! Further QE then drove oil prices up, unfortunately a little too far. 🙂

             Let’s twist again!

             

             1. Oil breaks below $44.00

                WTIC spot $43.89

                $43.50 or so will test the bottom of the price crash so far.

                1. Oil breaks the bottom.

                   WTIC $43.34

26. Looks like Whiting threw in the towel.

    If the price of oil goes to a point where it is bad for producers and bad for consumers, that price will be zero and no oil will be available, can’t be found, even if you drill for it, if there isn’t any, it’ll be bad, no ifs ands or buts.

    1. Hi Ronald,

       The price of oil will not be zero before 2100. Even I am not that optimistic.

       1. Hi Dennis.

          “The price of oil will not be zero before 2100.”

          Don’t be too sure.

          I posted a graph above for you to look at. Please take the challenge I describe in the post. The future of all of your alternative stuff depends upon you coming up with a logical answer (hint: there isn’t one). Go for it.

    2. Dennis, by 2100 stores will selling oil in those little transparent lucite barrels the company gives us when we start up a big field or when we reach a cumulative recovery landmark. They will be souvenirs, keepsakes they’ll use to explain to school children what that black gold was like.

       1. Here’s an example

          

       2. Hi Fernando,

          You are joking I assume. You seriously think there will be no oil output in 2100?

          If that is the case, there will not be many souvenir stores selling trinkets from the past,
          or do you expect we will be riding around in EV hover cars?

          If oil is still being produced, which is unlikely if collapse cannot be averted, it will be expensive, rather than cheap in 2100. Maybe we will have moved beyond oil by that time and demand will be so low, oil will be $1/b or less, I am not that optimistic. I am also not so pessimistic that I expect the World will be in total ruins so that it is no longer possible to extract oil. I think we will be somewhere between those extremes possibly emerging from a long difficult transition away from fossil fuel use.

          1. Hi Dennis.

             Here is an improved version of the challenge contained in my graph post:

             1) How can the rising cost of production ever reverse itself?

             2) How can consumers ever recover their purchasing power once the economy begins to shrink?

             Please answer these two questions. Thanks.

             If you can’t come up with a good answer for at least one of those questions, you must admit we are in collapse.

             Not to mention what all of this does to your dreams for alternative energy. You need high oil prices which are never going to happen again. From now on, you need to factor this into all of your rosy alternative energy scenarios.

             1. Hi Futilitist,

                The cost of production will continue to rise. Oil prices will also rise over the medium to long term.

                Consumers will respond by substituting public transportation, rail travel, biking, walking, and more efficient personal transport (hybrids, plug-in hybrids, and EVs). Businesses will move more of their long haul transport to rail and will build more rail. All of the changes, building rail, public transport, investment in wind and solar, building out an HVDC grid will require economic activity. This is likely to replace most of the jobs lost in auto manufacturing and other industries affected by lower oil use.

                You cannot assume collapse, there is very little evidence for a worldwide economic slowdown.

                There is no reason to assume the economy will shrink, oil can be used more efficiently (Europe uses about half of what the US does on a per capita basis).

                Your assumption that the economy is shrinking or will shrink is an unproven assertion.

                1. Hi Dennis.

                   “The cost of production will continue to rise. Oil prices will also rise over the medium to long term.”

                   We will not have a medium to long term if we don’t find a way to get through the short term first. That is what my questions are about.

                   “Consumers will respond by substituting public transportation, rail travel, biking, walking, and more efficient personal transport (hybrids, plug-in hybrids, and EVs). Businesses will move more of their long haul transport to rail and will build more rail. All of the changes, building rail, public transport, investment in wind and solar, building out an HVDC grid will require economic activity. This is likely to replace most of the jobs lost in auto manufacturing and other industries affected by lower oil use.”

                   So, the invisible hand will take care of things. Awesome. Also, these are medium to long term ‘solutions’. We have a short term problem to solve, which you again ignore.

                   “You cannot assume collapse, there is very little evidence for a worldwide economic slowdown.”

                   You cannot ignore the possibility of collapse. That just brushes aside a lot of science concerning collapse. We are right on track for a near term collapse according to Dennis Meadows. William Catton’s ecological perspective also points to a near term collapse.

                   We are crossing over into irreversible oil depletion. Net energy will decline dramatically. The economy has not fully recovered from the last recession. 9 out of 10 jobs created have been oil related. Interest rates are already basically zero, so monetary policy is constrained. All forms of debt have ballooned to ridiculously unsustainable levels. Economic growth in China has slowed substantially, Europe is not doing well, and Japan is a disaster, etc.

                   I could go on and on and on and on and on and on and on and on and on and on and on and on and on with evidence that we are in a very tight spot in the short term. Collapse is not “very unlikely”. A fair look at all the evidence for near term collapse would show just the opposite. Near term collapse is almost a certainty at this point. You are just in denial.

                   “There is no reason to assume the economy will shrink, oil can be used more efficiently (Europe uses about half of what the US does on a per capita basis).

                   Your assumption that the economy is shrinking or will shrink is an unproven assertion.”

                   1) Using oil more efficiently means a shrinking economy.

                   2) The growth of the world economy has been slowing since the great recession ‘ended’. So, that is an ongoing trend that only has to continue for me to be right.

                   The challenge I posed to you was to somehow get us through the short term by proposing how that might realistically happen. You did not succeed. You cannot, in good faith, continue to make useless medium and long term projections if you can’t figure out how to solve the near term problems first. Get real.

          2. Dennis, we can’t honestly predict oil production 10 years from now, let alone 85 years away.

             1. Absolutely correct. I just don’t think $1/b is very realistic. Only a true believer in either unlimited growth or imminent collapse, someone at the fringes of the doomer/cornucopian divide, would argue for such a price.

                It would require either nearly zero demand for oil due to either a collapse or a very easy and quick transition to no fossil fuels, or magical technological progress in oil extraction and discovery so that oil supplies were nearly unlimited.

                Neither of these scenarios is very likely.

                1. Hi Dennis.

                   “It would require either nearly zero demand for oil due to either a collapse or a very easy and quick transition to no fossil fuels, or magical technological progress in oil extraction and discovery so that oil supplies were nearly unlimited.

                   Neither of these scenarios is very likely.”

                   Here is how you have constructed your two unlikely scenarios for the future in your mind:

                   1) No fossil fuels due to collapse, or easy and quick transition to no fossil fuels.

                   2) Unlimited fossil fuels due to magical technological progress in oil production.

                   The problem is, these are really three separate scenarios, not two. You combined two scenarios into your first scenario. Why did you do that? Here is a proper list of your three scenarios:

                   1) Collapse.

                   2) Easy and quick transition to no fossil fuels.

                   3) Unlimited fossil fuels due to magical technological progress in oil production.

                   Would you still maintain that all three are similarly very unlikely?

                   Certainly numbers 2 and 3 are basically impossible and thus very very very very very very very very very very very very very very unlikely. (Although, ironically, most of your rosy projections are actually based on accomplishing number 2!!!)

                   Number 1, however, seems a little different, to say the least. Collapse is much much much much much much much much much much much much much more possible than the other two choices.

                   I think it is deceptive and self-deceptive to improperly put collapse in the same list as the other two, and then pronounce that these scenarios are both very unlikely. It hardly seems accidental.

                   I bolded a few words in your quote above to highlight the unusual sentence construction. Basically you are saying: “It would require either something or something, or something.” Clearly not two things, but really three. This kind of deceptive linguistic construction is not easy to do accidentally. So, in the tradition of constructing logical scenarios, that only leaves two possibilities:

                   1) You are just the most energetic, hopeful, and delusively optimistic person that has ever lived.

                   2) You are a professional collapse denier who is paid to construct scenarios like this.

                   I don’t know which one is more likely, but both are not good.

          3. No oil output in 2100 unless marginal cost is less than marginal revenue.

             1. Hi Ken,

                Yes that is basic microeconomics. Why would marginal revenue be less than marginal cost over the long run. Do we expect there will be no demand for oil? Maybe for tractors to grow food, or to ship goods from the rail head to the local market?

                For there to be no oil output one has to be either an extreme optimist or pessimist, I am neither. I expect there will be some oil output and the marginal barrel will be expensive to produce and will only be produced if prices are high, so $100 to $400/b makes more sense to me than $5 to $20/b.

          4. Just kidding. But I do think it’s going to be way down. Say around 20 to 25 mmbopd?

             1. Hi Fernando,

                Thanks. Just so I understand you correctly, you expect that by that time either, the world economy will have collapsed so that there is very little demand for oil (this is the predominant view on this blog) or we have somehow found a way to transition to CTL, GTL, biofuels or some other alternative to liquid fuel so that supplies are plentiful (relative to demand), or you are still joking. In 2015$ I would expect between $100 and $400 per barrel in 2100, but I think a price of zero dollars per barrel is not very likely and less than $25/b very unlikely.

                Allan H is of course correct, we don’t know what prices will be in 10 years (though my guess would be $100/b to $200/b) and 85 years in the future is ridiculous.

                My main point was that somebody suggested a price of zero in 2100, generally a price of zero implies very plentiful supplies (like rocks in New England soil). I do not think crude oil will be plentiful in 2100.

                1. Assuming that some form of technological/industrial civilization still exists in the future, by 2050 the effects of global warming/climate change will have become so apparent that only the most retarded denialist will still be fighting for fossil fuel burning. Civilizations may not collapse, but the use of fossil fuels will collapse rapidly.

                2. Allan, here’s the official iPCC projection. Their expert panel indicates they expect about 0.5 degrees C temperature increase by 2050. The temperature increase could be lower if we do see peak oil within the next five years. The 0.5 degrees C temperature increase is probably beneficial. This means the world will be close to the temperature optimum by 2050.

                   

                3. Fernando, the IPCC is at least six years behind the science. This is an accelerating situation, which means that six years is a very long time. They also ignore feedbacks which have become the major contributor to heating.
                   Anyone looking at temperature, especially just air temperature is 40 years behind the problem and missing the biggest portion of heating. The scientists working the forefront of global warming are looking at the heat engine and the feedbacks. The IPCC is a dinosaur at this point (opinion of an IPCC board member).
                   Saying that another 0.5 C of warming is beneficial is like the frog feeling that the pot water is just getting a little too warm, meanwhile the heat engine (the stove flame) is turning up higher Guess what the frog says later. Croak.

                   This is not a linear situation by any means.

    3. Hi Walter.

       “If the price of oil goes to a point where it is bad for producers and bad for consumers, that price will be zero and no oil will be available, can’t be found, even if you drill for it, if there isn’t any, it’ll be bad, no ifs ands or buts.”

       The price of oil has already become bad for producers and bad for consumers. We are in the process of reducing the price of oil to zero, as we speak. It won’t be much longer before it gets there.

       1. I assume you are familiar with the ETP model?
          http://www.thehillsgroup.org/depletion2_022.htm

          1. Hi Cam.

             Thanks for the link. People here should take a look at it. Especially Javier.

             The price of petroleum is controlled by two factors:

             1) The cost of production.
             2) The $ amount that the end consumer (the NEGs) can afford to pay for it.

             What the end consumer pays must be sufficient to cover the cost of production. All production cost must be borne by the end consumer, who includes the end buyer, and the societal cost required to produce petroleum, and its products.

             So, according to this, I am correct about the underlying drivers of the price of oil, just as I illustrated in my graph.

             Consilience. 🙂

27. Re bankruptcy and bonds.

    Basic principal is if any debt defaults it all defaults. So if debt profile is small % revolving credit and big % HY and a covenant is busted on a tiny $2 million line of credit at a tiny Williston bank who demands payment in full by close of business, and the company can’t pay, then they are in default and they are in default of the $1.2 billion bonds due in 3 years, too. Default is comprehensive. They have to immediately negotiate extensions with all debt holders when they stiff any one of them — which ain’t gonna be easy when their paper is in the HYG or JNK ETFs/index.

    1. If an investor wants to buy stock ticker ABZ and XYC, at a price P and number of shares S for a total investment of I, i.e. a publicly traded company, the investor has to use something to buy the traded equity, usually money is what is accepted, but it could possibly be something else, oil, wheat, cattle, some means, although, money will probably be the first choice to settle the transaction.

       If ABZ goes teats up, you will cry over spilled milk, lose the investment and record a loss.

       If XYC has revenue of r and then next thing you know, it is r/2, then it is another sad tale of woe. You have to record another loss.

       Then if you buy OLI, Oil Inc., at 100 per share and it falls to 50 per share, you can be sure as the sun rising in the west that you will be recording losses right and left. All that money, there it was, gone. It’s ‘only money’ until it’s gone, then it’s ‘where’s the money?’. You’ll be crying in your beer.

       Electricity is the biggest winner in all of this oil mania. It is the commodity of choice. Rates are regulated by public service commissions. The publicly traded utilities selling electricity have stable stock prices with a dividend payout, not losses. Coal companies aren’t too worried.

       Maybe oil producers qualify as a utility and then be regulated by public service commissions; be guaranteed income via rates to protect against volatile prices and the disastrous results the oil industry is facing at the moment.

       It won’t stop decline and depletion, it would be a big help to have sundries of oil bidness treated more like a utility instead of a gasping dinosaur about to breathe its last.

       Sure would help the finance side of things.

       1. The publicly traded utilities selling electricity have stable stock prices with a dividend payout, not losses.

          Utility stock prices move with prevailing interest rates and there are precedents for bankruptcy.

28. http://headlines.ransquawk.com/headlines/ford-f-presdient-says-sales-of-f-series-are-increasing-at-a-greater-pace-than-forecast-13-03-2015

    1. Isn’t a lot of that demand being created by whats consider subprime auto loans. I think about 35% of auto loans are consider subprime. A lot of loans have been made to a lot of people who really can’t afford the payment. It will be interesting to see if sale continue at or above current pace.

       1. And those sub-prime buyers won’t even be able to afford the gas for their F-series, much less their payments, when domestic oil production collapses and oil prices rebound. And the big truck market will collapse, so re-sale value will fall, banks carrying the defaulted loan paper will take a hit on the repo, etc.

          1. Maybe domestic production of oil will fall and so will price.

             1. And the sky will fall as well 🙂

                1. Hi Dennis.

                   I don’t get your comment about what Watcher said.

                   “Maybe domestic production of oil will fall and so will price.”
                   ~Watcher

                   “And the sky will fall as well. 🙂 “
                   ~Dennis Coyne

                   Are you saying that the sky falling has as much chance of happening? Or are you saying that the sky would have to fall to cause oil production to fall? Or are you saying that thinking that domestic production and oil price will both fall is as silly as thinking the sky will fall? Are you suggesting that thinking that domestic production and oil price will both fall is just a product of pessimistic thinking?

                   If so, in all cases, you are wrong. If not, what the hell are you saying?

                   It is very likely that domestic production will drop along with the price of oil for quite some time. The price of oil will only rise significantly after a whole lot of productive capacity is destroyed and much of the oil glut is worked off. A lot can happen in the meantime. Equity markets are already jittery. If they crash soon (and they likely will), it will not help things very much. And a crashing stock market is not another amazing coincidence that has to happen for a collapse to occur. It should be expected, since we are already in collapse.

                2. Hi Futilitist,

                   A drop in oil output will eventually lead to an increase in the oil price, unless the sky falls.

                3. Dennis, the sky is already falling. Wake up!

                4. Futilitist you are not consistent with what you say. A few comments above you said:

                   ” We are in the process of reducing the price of oil to zero, as we speak. It won’t be much longer before it gets there.” Does that mean in a few months or perhaps a year?

                   And now this: “The price of oil will only rise significantly after a whole lot of productive capacity is destroyed and much of the oil glut is worked off. ” What is going on? I was so hopeful that I can fill up the car for nothing and now I am disappointed. You suddenly became as realistic as everyone. Physics has finally caught up with you. What a pity because I enjoyed your surrealistic views.

                5. Why in the world would you say those two statements were inconsistent? Those are statements in response to two different people. The first statement is meant as a bit of a joke, but I guess you have no sense of humor. The second statement is a bit more serious. It is meant to suggest how difficult it would be to get oil prices to ever rise again to a level that can cover the cost of production.

                   I am sorry you don’t understand anything I have said. 🙁

       2. Yes, but maybe the sub-prime purchases are one of the many ways to make it look like the economy is doing swell. (I wonder how many EV’s are being purchased that way.)

    2. Bigger sales of large cars is bearish for oil price, because it reduces our efficiency of oil consumption. IOW more oil is wasted, instead of making consumers richer.

       1. Your logic escapes me. Bigger sales of larger cars means more gasoline is needed. Very bullish for oil. Reduced efficiency of oil means more oil is needed. Very bullish for oil. Consumers getting richer or poorer does not mean oil is bullish or bearish. But when oil is bullish and prices are rising, consumers usually get poorer because they must pay more to drive.

          But perhaps everything works the opposite way it should now.

          People are saying that production is increasing while oil rigs are declining. Does logic work in reverse now? Have I stepped into a mirror world where everything works exactly the opposite of the way it should?

          1. Ron,

             “People are saying that production is increasing while oil rigs are declining. Does logic work in reverse now? Have I stepped into a mirror world where everything works exactly the opposite of the way it should?”

             I know it seems weird, but I think we all have. It just takes some time to get used to it.

          2. Why in the first place consumers have money for oil? Because they burn fossil fules in a productive way.
             More oil wasted in unproductive areas = poorer consumers = less bid for oil. Larger cars means more wasted oil. Driving bigger cars is like burning spilled gasoline in a parking lot. It gives you nothing, but extracting oil for that gasoline, and refining it takes energy from the society.
             So you have less money to buy stuff, and everytime you buy something, you bid for oil, because to produce anything, you need oil. 😀

          3. Hi Ron,

             In Jan about 150 new wells were completed in the Bakken/Three Forks (assuming 95% of confidential wells were Bakken/Three Forks wells). Also there were 75 wells added to the wells waiting for completion services, so that is roughly 225 wells (75+150) which were drilled since December.

             From the recent Director’s cut there were about 160 rigs running in January, and 133 rigs in February. So 1.4 wells per rig were drilled in Jan, and if this remains the case in February we would have another 187 wells drilled in Feb.
             In fact the rig count could fall to 86 and 120 wells per month could still be drilled. Financially if oil prices stay at $45 to $50 per barrel, the drilling may slow down, but rig efficiency seems to have risen of late.

             1. Dennis, wells completed and brought on line is the important thing as far as monthly increase or decrease is concerned. Wells drilled is important only as far as the inventory of “wells awaiting completion” is concerned.

                Also I think it is best just to look at North Dakota instead of separating them out into Bakken/Three Forks – Conventional. Oil is oil, it really doesn’t matter where it comes from. The EIA mixes them together in their Drilling Productivity Report, so I might as well also.

                Yes of course the number of fracked wells could go up for some time before they worked through the wells awaiting completion. But it looks like the fracking is slowing down even faster than the rig count. So I just look at wells completed and try to take my cue from that. And from that February looks like a very bad month for the Bakken. It is just an estimate but from my data I think there will be about 120 wells completed in February in all North Dakota.

29. Art Berman has an article on increased consumption, which is supportive of Steven Kopits’ January, 2015 article:

    http://www.artberman.com/world-oil-demand-surges-a-data-point-for-price-recovery/

    World oil demand increased by 1.1 million barrels per day in February.

    This is a potentially important data point that suggests a crude oil price recovery sooner than later. It is also important because it further supports the view that a production surplus and not weak demand is the main cause for the recent oil-price fall.

    The latest data from EIA shows that February world liquids production was flat with January but consumption increased 1.1 million barrels per day. This reduces the relative production surplus (production minus consumption) from 1.68 million barrels per day in January to 0.56 million barrels in February.

    As I noted the other day, global vehicle sales are projected to hit 89 million in 2015, versus 83 million in 2013. A record high number of new vehicle sales in 2014 and 2015 is one of the key differences between now and the 2008/2009 price decline.

    Steven Kopits’ (January, 2015) outlook for global supply less demand:

    Supply Minus Demand, Explained
    http://www.prienga.com/blog/2015/1/20/supply-minus-demand-explained

    And a link to my comment on the 2008/2009 price decline versus the 2014/2015 price decline:

    http://peakoilbarrel.com/oil-shock-model-dispersive-discovery-simplified/comment-page-1/#comment-503728

    1. Steven Kopits’ outlook (Prienga curve):

       

       1. Hi Jeffrey,

          Does Kopits give an oil price prediction? Based on the chart I would think he would expect an oil price increase in 2015.

          Edit, never mind.

          I read Kopits article and I would highly recommend it. He does not give a specific price prediction, but he expects oil prices to rise by the summer of 2015 (call it September at the latest) and if it does not happen by then, then his model is incorrect (in his view). The scenario is based on the oil market behaving as it did in the price crash of 1986, he warns that it is possible that things may not play out the same way this time and that his forecast is very different from EIA, IEA and OPEC forecasts.

          Kopits also worries that lack of action by OPEC to raise prices may result in another oil shock in late 2015 or early 2016. By that I believe he thinks oil prices may rise to $120/b some time in 2016 and trigger another recession (though I am reading between the lines here.)

          1. A couple of weeks ago, I noted that several major oil companies, e.g., ExxonMobil, started cutting upstream capex, prior to the oil price decline, which would seem to contribute to supply declines sooner rather than later. Once again, Steven Kopits was ahead of the curve on this issue, with his articles on capex compression.

             And a reminder that Dennis may have called the 2014/2015 Brent oil price decline low point, in the vicinity of $48.

             We shall see what happens from here, but from the 2008/2009 oil price decline low (at $40 in December, 2008) to the first subsequent month in which Brent averaged $100 or more again (February, 2011), the annual rate of increase in monthly Brent crude oil prices was 43%/year.

             1. Hi Jeffrey,

                To clarify, that oil price was the Brent Price near the middle of January and not the WTI price, (WTI was about $44/b on Jan 29), and surprisingly Brent was nearly that low at $45/b on Jan 13.

                To be honest I am not sure which it was Brent or WTI, but I thought it was less than $48/b.

                The smart money bets the opposite of any price predictions I make, I do not invest in oil futures, way too risky in my view. For every 10 oil price predictions I make, 11 are wrong 🙂

                1. There is oil everywhere you go, from holes in the ground all the way to every filling station worldwide.

                   A good prediction would be to conclude that it will stay that way for some time into the future.

                   Here’s why:

                   On the shelves in stores like Walmart, some in hardware stores, at automotive parts stores, you will see oil, doesn’t matter where you are, any old town up and down the coast with a store that sells goods will probably have oil for sale too. No matter where you go, there you are and oil is there too.

                   A lot of the oil is in gallon and quart containers, you won’t see barrels unless you’re at the dealership’s mechanic’s shop, you might see a barrel of 10w30 with a push pump with a gooseneck spout for dispensing. Oil is on the shelves ready for sale, everywhere.

                   I see oil spots on the pavement and ground where oil has leaked from engines, sometimes there is gasoline floating on top of water at a parking lot. Oil everywhere you look.

                   There is gasoline in every car and truck, diesel in some tanks. A lot!

                   300 million cars with 20 gallons of gas in each one is six billion gallons of fuel. All with five quarts of oil in the pans, another 300 million gallons of oil, 7 000 000 barrels.

                   6 000 000 000/42=142 857 142 barrels of oil in the form of gasoline or diesel in 300 million vehicles with twenty gallons of fuel in each one.

                   Two million tractors with 300 gallons of diesel in each one during springs work is going to be 14,285,714 barrels. A consumption rate of five gallons per hour, you’ll need more fuel for those tractors before it’s over.

                   That’s 163 million barrels of oil product in tanks in cars, trucks, tractors, etc., all ready to use.

                   It’ll last a week, maybe two.

                   If there’s 90 thousand airline flights each day with each plane filled with 23 thousand gallons of jet fuel in each tank, you’ll need another 2070 million gallons of jet fuel. Another 49 million barrels of oil for jet fuel required. More oil is better.

                   212 million barrels of fuel in tanks ready to use. In less than three days, it’ll all be replaced with more.

                   Plus whatever is standing on store shelves all the way to China and back again, it’ll all be sold and used.

                   It is a very difficult job to convince anybody that the oil is going to one day be gone when the quantities add up to a total that astounds every Rip Van Winkle out there.

                   So much oil, that the price might drop some more. A prediction that might be right on the money.

                   When will it dawn on mankind that all of those windmills out there are similar to parking lots in big cities taking up too much space to make them anything but another nuisance created out of sheer desperation?

                2. When will it dawn on mankind that all of those windmills out there are similar to parking lots in big cities taking up too much space to make them anything but another nuisance created out of sheer desperation?

                   Hey Ronald Walter Don Quixote, why don’t you go tilt at some oil derricks and leave them windmills alone fer cryin out loud (GRIN!)

    2. Mr. Brown, you asked me a question the other day. I had to check with my crude oil buyers to make sure of my information; 48 plus API in S. Texas is a little north of 32 dollars at the WH right now.

       Mike

       1. Thanks,

          I’m surprised it’s that high. Do you know what the wellhead price is for 38 API crude in the same area?

          1. http://www.fhr.com/refining/bulletins.aspx?AspxAutoDetectCookieSupport=1

             If you don’t have this link, you should; I find it helpful occasionally. I think the WTI to LLS premiums are now gone in the EF and most of those guys are lucky just to get NYMEX WTI. Deducts to that are getting more common.

             Mike

             1. Hi Mike,

                Great link, thanks.

                So pretty much any Eagle Ford “crude” is 50 API or less and gets discounted today at about $5/b to WTI, the condensate is about $15/b less today than the WTI. What about cost to transport C+C from the Eagle Ford to refineries, does 3 to 4 dollars per barrel sound about right?

                1. No, Dennis. Postings like the ones in the link are simply a basis for the crude oil purchase contract. It is very complicated how oil is bought and sold and cannot be covered with a broad brush. It depends on volumes, gravity, sourness, location, the length of the commitment between producer and buyer and how hedges all enter into it. No producer sells directly to an end user, it sells to a crude oil buyer, who then trucks the oil to a pipeline tap, or a barge, or even rail cars; everyone has their grubby hands in the process and makes money from it. The majority of the time when oil is loaded onto a crude oil purchasers truck on a location, the sale is consummated and when that truck crosses the cattleguard; adios. Producers don’t pay oil “truckers” the way Watcher insists.

                   The EF shale boys use to get a WTI to LLS (Louisiana Light Sweet) premium. That’s dwindled down to very little, I think. I’ll look the next check I get. If you have to have a number to tinker with I would use WTI with no deducts.

                   Mike

                2. Hi Mike,

                   Thanks. There is a somewhat lower price for Condensate, I thought, but I guess I just don’t understand or am using the terminology incorrectly. By discount, I mean they get less money for a barrel of Eagle Ford crude than for WTI, for example I thought you said condensate fetches $15/b less than WTI (the barrel is discounted by $15/b).

                   Let’s say the refinery gate price for your crude is the WTI.
                   How much do you sell your oil for? If it was $5/b less than WTI, I would say the transport cost is $5/b. I am trying to estimate roughly the transport cost for the average Eagle Ford barrel, does $5/b sound in the ball park?

                3. Dennis, there are dozens upon dozens of different postings across the country for different crude oils and dozen and dozens of different crude oil buyers have different postings for the same kinds of crude. There are dozens of different WTI postings, actually. NYMEX WTI is kind of a go-to benchmark. I did not “discount” condensate to WTI, I just told Jeff what it fetches in the EF trend, on average, under some unknown pricing scheme, see below. You want an exact number, there is not one. I don’t think there is in the Bakken either but everybody in the prediction business has to make one up or they can’t make all them pretty graphs. CLR will get a different price than Hess who gets a different price than EOG. Not all choo-choo trains haul for the same price.

                   I know what refinery ‘gate’ (aackkkk!) is but it is irrelevant, as I tried to say. Producers sell to crude oil buyers who sell to pipelines who sell to refineries.

                   The EF trend is 270 miles long; different folks get different prices for different reasons. Many are still getting P+ of some kind (posting plus a bonus), less transportation deducts. Its complicated, I can’t give you the answer you need. What a producer might be paid on under a contract with say, Three Amigos Crude Oil, Inc. would be calculated on a Plains Permian WTI, less 2.00 differential to Calumet LLS, plus Argus P +, minus 2.00 trucking, plus 50 cents VB, plus BBQ ribs at Bubbas every month, no beans.

                   Sorry; that’s all I got.

                   Mike

                4. Heck Mike, I thought we all paid truck drivers to haul our oil to a pipeline or train, and then paid the pipeline or train to get it to the refinery. LOL!!

                   I think you’ve only tried to explain this about 49 times. It gets frustrating. I do wish we got ribs every month though, good idea, LOL!!

                5. Hi Mike,

                   I realize that there are many different prices and many steps between oil at the wellhead and oil reaching the refinery. It doesn’t really matter to the analysis if you deliver the oil personally to the refinery in a truck or there are one million different people between you and the refinery. What matters is the price you are paid for your “average” barrel of crude and the price the refinery pays to whoever makes final delivery to the refinery. Yes the Eagle Ford is 250 miles long and there are a bunch of different transport costs depending upon how close the well is to a pipeline, but there is an average cost, I will just guess what it is, I was going to use your transport cost (WTI minus $/b you receive) because I thought you were near the Eagle Ford. I know very well that reality is not that simple, just trying to do an Eagle Ford analysis (which you asked for) and looking for a little information.

    3. Note that the EIA world liquids production forecast chart in Art’s article shows production increasing by about 2.7 million bbl/day between March and August. I wonder how accurate that will turn out to be?

30. Permian Basin (TX) Conventional Production 1940-2014

    Pre-2005 will be very accurate, it gets harder to get a solid number on pure conventional production after that. Max in 1974 of 1.797 mmbopd and currently around 463 mbopd. This is just the Texas share of production, NM produces about 100-150 mbopd of conventional production from the Permian.

    1. Hi MBP,

       Is the 463 kb/d conventional only? What is total Permian output for 2014? (Actual output will be somewhat higher than current RRC data because it usually takes 12 to 18 months for all the output to get into the database, though this is improving I hear.)

    2. Ah I forgot to post the graph!

       

       1. Around 3 to 4 % percent decline per year?

          1. Fluctuates between 3-5% for the most part.

             1. Hi ManBearPig,

                The RRC has Permian C+C output at about 1.2 MMb/d in 2014, so using your chart and that data, it seems Permian LTO is about 800 kb/d.

31. Hey Watcher.
    Read this article today:
    Gwynne Dyer: How long will the oil stay cheap?
    http://www.straight.com/news/410431/gwynne-dyer-how-long-will-oil-stay-cheap

    The relevant paragraphs:

    “The real wild card here is the U.S. government, which wants the “energy independence” that only more domestic oil production through fracking can provide. Will it let the American fracking industry go under, or will it give it the loan guarantees and direct subsidies that would let it wait the Saudis out?

    Stupid question. Of course it will do what is necessary to save the fracking industry. Ideology goes out the window in a case like this: you can get bipartisan support in Washington for protecting a key American industry from “unfair” foreign competition. That will certainly be enough to keep the frackers in the game for another two or three years.”

    Someone in the mainstream media (albeit a contrarian voice) agrees with you.

    -Lloyd

    1. I don’t need agreement. I am nobody and am going to stay that way.

       The politics of bailout are dicey. All the EV wackos and climate change wackos would explode onto the front pages about where is MY bailout??? And there may be enough Democrat votes in the Senate to sustain a filibuster of such legislation.

       Pretty sure the Russian central bank will be supporting Rosneft drilling for as long as they need to, so the whole subsidy thing can become competitive.

       In general, it would be a lot easier on the calendar for the Fed to act to “protect the financial system from an energy default shock” than to get subsidies passed by Congress.

       1. Watcher, the Fed does not lobby Congress. The General Motors bailout was passed by Congress at the urging of President Bush. The US government lost 11.2 billion dollars on the deal. That will not happen with the oil companies.

          Just ask yourself, which oil companies would be bailed out? Many oil companies who are losing money in the shale industry are making money in other parts of the US and the World. These companies could take over the collapsed companies if they have any potential. If they have no potential then no bailout would help.

          An oil company bailout is something that you will never come out of Washington.

          1. Why did you think that said the Fed will lobby Congress? Though Bernanke and Paulsen did do precisely that back in the moment.

             Ya no way the Fed bails out Continental. That would be tacky. The Fed would instead backstop the HY paper. “Protect the financial system from a default shock”. If the HY lenders are backstopped, they can be more easily persuaded to roll over the loans as the covenants crack.

             Oooh, and another thought (isn’t editing great)

             this would mean it can all operate at a loss. Just like those evil Russian oil pumpers supported by their central bank. And chisels yet another chunk (notice politically correct there) in the armor of ECONOMICS to expose the bullshit within.

             1. Watcher – “And chisels yet another chunk (notice politically correct there) in the armor of ECONOMICS to expose the bullshit within.”
                So that I (and maybe others) can know what you are talking about, when in the history of the world has “economics” been better? Less volatile, like in the days of the caveman when there was no economics? Pre-industrial revolution? Back in the biblical days when Jesus said it would be hard for a rich man to get to heaven? Back when anyone of means had slaves like the Romans? Back when the general approach to making a country wealthy was to take from another country? Back when everyone lived in systems like the caste system currently in India, where you were like born a peasant and remained so; or were born a Duke, or Count, or well you get the point.

                Please describe the lesser bullshit back whenever, and compare it to what you now, presumably, identify as greater bullshit. Maybe you can convince me.

                1. I take it you’re looking for a time of superior transparency.

                   That’s a good question.

                   How about the early to mid 1800s when the BoE was explicitly lender of last resort and essentially no other significant role. They first acted as such (lender of last resort) in 1860something during a panic when member banks could not cover the bank runs because no one would lend to them. They didn’t have the money to cover the withdrawls. The BoE stepped in and performed that function — in response to clear need to prevent the bank run from rippling to other banks. It worked, too, and more important it was transparent.

                   As opposed to buying govt bonds when there is no apparent absence of other buyers. The govts across the world are not faced with no one else willing to lend to them. There’s no evidence of recession. No evidence of pretty much anything other than everyone else is doing it.

    2. Lloyd and Watcher, I just ain’t buying that. And I mean I ain’t buying one bit of it. Who, in Washington, today is making noises about a bailout of oil companies engaged in fracking? I haven’t heard one peep out on anyone.

       High oil prices made the fracking of tight source rock profitable. Low oil prices made it unprofitable. No one in government would dare to suggest that we bail out oil companies because the price of oil has dropped so low as to make the production of very expensive oil unprofitable.

       The whole idea is just silly, absurdly silly. It just ain’t gonna happen.

       1. How about if shale evisceration drives GDP negative?

          1. That can’t possibly happen. GDP has always been a positive number and there is no chance it will go negative even if the entire shale industry collapses completely.

             No country in the world has a negative GDP.

             1. It was negative 1 year ago precisely.

                And btw there is the crowd favorite, the always popular unknown amount of credit default swaps on the energy debt. That would be cool.

                1. Watcher – that is negative “growth,” not negative GDP as you stated.

                2. Growth could be negative. GDP cannot.

                3. True. But net domestic product could–in theory.

             2. I assume that you guys are talking about rates of change in GDP versus magnitude.

                1. Ya, though wouldn’t it be cool to have negative GDP happen somewhere? I’ll bet there are such places.

                2. Kind of like antimatter I guess.

                3. I think if you lose a war your govt spending decreases to minus numbers since it funds the enemy garrison (though economists would refuse to allow that definition and say spending is spending, even if you involuntarily spend it to fund the mechanism of self enslavement), and that probably can offset all the other variables in the GDP eqn. Like 1942 France, e.g. That would be negative GDP.

                   Edit is cool

                   So wait. Greece receives tranches and has to send something like 97% back out to service Troika debt vehicles, and that is spending so hmmm why isn’t their GDP reported higher since this is explicit government spending. I’ll bet something special was done to the definition.

                4. Does GDP really matter? I think about 70% of US GDP is consumer spending. GDP doesn’t= wealth nor is it a measure of how well off we are. As long as credit is freely given out and people use it to buy stuff GDP numbers will be good. On the other hand if we save money and pay down debts instead. Well that’s not too good for the GDP numbers but we would all be better off owing less debt.

             3. Ron,

                With all due respect, that is the silliest thing you have ever said.

                Steve

                1. Steve, GDP cannot possibly be negative because there is no such thing as negative production. If production goes to zero, that’s as low as it can go. You cannot produce less than nothing. You can never have a negative product.

                   Of course Watcher was talking about growth not GDP. That is growth of the GDP. But that is not what he said. I thought it was a silly mistake and I was just pointing that out. But after awhile he got it.

                   But you didn’t…..

          2. If they are worried they can allow oil and gas exports from the USA.

32. Any word on news updates to the US Strategic Oil Reserve in lieu of these prices? One would think that this would be an ideal time to add to the reserve, but I don’t know what it’s total capacity for crude is? There have been recent announcements concerning ANWR and even off-shore drilling in the Atlantic, but seemingly no mention of the reserve…

    1. 727 million barrels capacity. 3 wks ago 95% full.

       The coolest part of the SPR is it’s not 100% recoverable oil. That is friggin hilarious. You buy it, pump it into storage, and you can’t get all of it out.

       Oh, and more of it is sour than sweet.

       Another cool tidbit, this total is 30some days of US consumption. But it’s actually 160 days because there’s an extraction rate max of 4.4 mbpd. hahahaha People would be starving even before it goes empty.

33. Oh look, $44.85. Isn’t that juicy?

    hahahahhaahahhahahahahahahahahahahaha
    Followed by:
    US DOE proposes buying up to 5M barrels of oil for strategic reserve

    Reaction price . . . $44.99 hahaha

34. Even with US drillers cutting back and demand going up the oil price has been weak for ten days now. Many point to stories about storage getting full up but I think the bigger story is Iran. If you read through the tea leaves it seems like the parties are getting close to having a deal by the March 31 deadline. It also seems as though the oil sanctions will be lifted bringing another 800,000 barrels of oil into the market.

    From the Guardian:

    Major world powers have quietly begun talks on a UN security council resolution to lift UN sanctions on Iran if a nuclear agreement is struck, a step that could make it harder for the US Congress to undo a deal, officials said.

    The talks between Britain, China, France, Russia and the United States – the five permanent members of the Security Council – plus Germany and Iran, are taking place ahead of difficult negotiations that resume next week over constricting Tehran’s nuclear ability.

    The US secretary of state, John Kerry, told Congress on Wednesday that an Iran nuclear deal would not be legally binding, meaning future presidents could decide not to implement it. That point was emphasized in an open letter by 47 Republican senators sent on Monday to Iran’s leaders asserting any deal could be discarded once President Barack Obama leaves office in January 2017.

    But a security council resolution on a nuclear deal with Iran could be legally binding, say western diplomatic officials, complicating and possibly undercutting future attempts by Republicans in Washington to unravel an agreement.
    

    1. Saw an attorney on TV yesterday who said that the US Supreme Court has previously ruled that US law takes precedence over international law. So, even if the UN, including the United States ambassador, votes to remove sanctions on Iran, Congress could reject it (but, would probably need enough votes to override a veto). In which case the US might be the only country left with sanctions, which would still have some impact. I do not know if he is right or not.

       Also, I do not know, but Ron probably does – Does Iran have 800,000 bbl/day of idle capacity that could hit the market immediately if sanctions are lifted?

       1. Iran was producing about 1 million barrels per day more than they are today when the sanctions were passed by congress in 2010. However they were in decline then. They were producing about 900,000 barrels more than today when sanctions went into effect in 2011. It is possible that they could produce about 800,000 barrels per day more if sanctions were lifted but it would take them several months to get to that level.

       2. It all depends on how many Likhud Senators remain loyal to the party leadership. I believe Likhud only has 47 solid votes in the Senate. The others are asking for more money before they change their allegiance to a foreign power’s leading elite.

          Once the deal is made the EU will start acting according to the deal. I think the USA senate is going to be facing quite a few uplifted middle fingers if they want to wreck a deal.

    2. The US congress past the sanctions in 2010 and only they can lift it and not Obama alone. This, the oil traders forget or do not know. So the oil price should not be “threatened” by Iran producing more soon after the nuclear deal is signed. In any event, the Republicans will never lift the sanctions. But the traders and banks will take advantage of this deal/disturbance and perhaps have already short the oil, no matter what outcome.

       1. The iranian oil can ship to other nations if Obama makes a deal. Other nations wishing to buy iranian crude dont hace to wait for the Likhud loyalists in the US Senate to change their stance. Netanyahu has a lot of power over US foreign policy, but not all us politicians are controlled by the israel lobby.

35. Watcher’s zerohedge link must not be working today.

36. The Baker Hughes Rig Count is out. US oil rigs down 56, gas rigs down 11. Canadian rigs down 80. The Permian took the biggest hit, down 22, Texas down 37.

    

37. Sorry to be the odd man out here, as usual, but I’m not in the prediction business like the rest of you. I only keep my eyes on what the weekly EIA oil production results ACTUALLY are. That is also known as reality, although from time to time mistakes are made. But, according to the EIA, for the week ending on March 6th, the total US oil produced was 9,366,000 bpd, which is up +42,000 bpd from the week before, which was 9,324,000 bpd. The four week moving average, a more reliable figure, was 9,314,000 bpd, up +35,000 bpd from the week before at 9,279,000.

    I think a better use of everyone’s time and effort here would be trying to figure out where all this oil is coming from and why. But, you are all still discussing PO, drilling rig declines, shale oil decline rates etc, while US oil production is steadily going up, which incidently is why the price of oil is still being held down. Wouldn’t a reality check be in order? You have all been saying for years, that PO would be heralded by ever higher and higher oil prices, as the world’s oil fields get drained dry, one by one. Sorry, but just the opposite is happening. Amounts of oil are still building up, in the US anyway, that might just warrant using the term glut some day. Does an oil glut now mean Peak Oil, or have all words simply become meaningless?

    1. It came from “drill baby drill”. IIRC, the consensus at TOD back in the day, was that “drill baby drill” wouldn’t make any difference. Guess they were wrong.

       What’s going on really looks more like “Peak Oil Demand”.

    2. All words have become meaningless. All that reported oil is C+C as I recall, and the second C is not good.

    3. Hi Carl,

       The weekly numbers are very rough estimates that never get revised, the better estimates are the monthly estimates which do get revised as the EIA gets better data over time. You are correct that oil output continues to go up in the US, and perhaps this will continue forever. Nobody knows what future oil output will be, if you look at past EIA forecasts, they are wrong more often than they are correct. If prices remain below $50/b until September 2015, output in the US will be lower in September 2015 than in January 2015. If oil prices rebound to $80/b then output may continue to increase.

       1. Dennis,

          ” You are correct that oil output continues to go up in the US,”

          I’m glad you agree. I don’t wish to quibble over how much, or how little this increase is, or when, or why it might stop any month now. But, the fact remains, it is still increasing right now, according to the available information out there, and increasing does not mean terminal decline, unless of course….words have now become meaningless.

          1. I don’t know about the others, but I use the pronosticatin’ I see here to help me invest. I’m buying oil and service company stocks (very carefully, mind you). But I need more help from the geniuses who are running the oil divestment campaign.

       2. Mr. Coyne said: “You are correct that oil output continues to go up in the US, and perhaps this will continue forever.”
          What is your time estimate when output will hit one Trillion barrel per day? We all must be more careful what words we use. This blog is read by many people in different countries and now there is a Mr. Coyne who believes that oil production will grow forever. They will say that this man has never heard of depletion.

          1. Hi nNgass,

             I should have put in a 🙂

             No that was intentionally facetious, I do not expect that US output will increase forever, possibly until 2016, maybe reaching 9.6 Mb/d with a rapid decline by 2019 or sooner.

    4. Wouldn’t a reality check be in order?

       Actually, back in reality, and outside the borders of Fantasy Island, an increase in production means an increase in the rate of depletion in remaining recoverable reserves.

       1. Remaining recoverable reserves is, as always, a moving target. At a lower oil price the remaining recoverable reserves become even less. That’s what eventually causes the oil price to rise. Not to worry. The laws of supply and demand and the sliding price mechanism are still doing quite okay.

          1. Let’s assume I have $100,000 in my checking account.

             So, if I withdrew $10,000 out of my account last year and $20,000 this year, wouldn’t the rate of depletion of the remaining balance have accelerated, from 10% last year to 22% this year?

             But wait, I made a mistake. I actually have $200,000 in the account. So, last year I withdrew 5% and this year I withdrew 10.5% of the remaining balance.

             But wait, isn’t that an accelerating depletion rate, at least outside the borders of Fantasy Island?

             1. Jeffrey,

                I don’t quite know what point you are trying to make here, but your first sentence starts with the words, “Let’s assume”. As I have correctly pointed out in previous posts, what is continually throwing this entire group off course is the ASSUMPTION, that an unknown value “X” is, in fact, known.

                Sorry, but no one knows what the OOIP on planet earth actually is. On top of that, no one knows what % of the OOIP is in fact recoverable, or at what price, or what new, unknown technology might eventually be used to recover it, or when any of this will take place, if ever. Then there is the whole idea of an unknowable future to deal with also.

                But, you are correct that the rate of depletion of any given “X” increases relative to “X”, but not necessarily in relation to “Y” (That which has already been depleted from “X”).

                All you are really saying is the only thing which gets bigger, the more you take away from it, is a hole. The bigger the doughnut, the bigger the doughnut hole. So what?

                How do you know when we will be finished eating the doughnut, (from the inside out) IF YOU DON’T EVEN KNOW HOW BIG THE DOUGHNUT IS?????

                Can you see the trap your mind is caught in?

                1. Carl Martin. Check out my post re whiting PV10 and then explain why Equity is valuing shales still at $100,000 per flowing BOE.

    5. Yo Carl, how’s your CLR holdings doing?

       1. Mine are still doing great! Even though they have fallen considerably, along with all my other energy investments. I bought into CLR many years ago, when the stock was cheap. Therefore, I’m still way ahead. But, I generally don’t sell, when a stock is down. That’s when I buy. I’m buying in all the time now, but mostly in shale gas stocks, Marcellus and Utica based only. I believe the oil price will stay down for quite some time. There are likely to be many disappointed investing dudes out there soon.

          1. That’s exciting. I guess you are guaranteed not to be one of them.

             1. Nothing in life is guaranteed, but everyone here seems to believe that some kind of PO disaster is guaranteed, anyway. That’s why I know I’m talking with people who live in a fantasy world of their own making.

                But, because I expect the oil price to remain low for quite some time, I won’t be dissappointed, if I am right. If I am wrong, then I become rich rather quickly, so that won’t dissappoint me either. So, I am in a win-win situation of my own free choice.

                1. Carl, I think you are putting the cart before the horse here. You say that believing in collapse is living in a fantasy world.

                   Ecologically the world is going to hell in a hand basket. The human carrying capacity is being driven lower every day. I could list about a hundred examples but that would take up too much space and you have already heard of them anyway.

                   To believe that this kind of destruction of our natural resources can continue forever without collapse is to truly be living in a fantasy world.

                2. AKA as Fantasy Island.

                3. Ron,

                   I am familiar with all the various collapse scenarios. That said, I just don’t personally see everything as being that bad. My concern is simply that ongoing population increases in all the wrong places, combined with the raising of living standards worldwide is a pretty dangerous cocktail. It will put tremendous pressure on all resources, but I only see food, water, and land as being real sources of trouble. It’s not actually the lack of these items, but rather their unequal distribution, that will ignite the cocktail. Keep in mind that resource investing is my specialty. So, I keep a close eye on any natural resource, that is under serious pressure.

          2. If oil stays low till CLR debt matures wont that be a problem? They are valued pretty high per flowing BOE, well north of $100K and their oil is fetching between $30-$40 per barrel depending on whether in OK or ND.

             Wonder how they would buy WLL?

             1. SS,
                CLR, as well as just about all other shale companies will likely encounter increasing difficulties with debt maturities, if the oil price continues to be so low. But, corporations have many tricks up their sleeve to hold off any serious trouble. Most major debt maturities are far in the future,(three or more years away), and they often just roll them over anyway. They have a debt maturity chart on their investor presentations, but I frankly don’t pay much attention to such matters.

                I think the idea that they would buy WLL is preposterous. They have said, that petroleum exploration is in their blood, not takeovers, but it is possible that they might buy some kind of much smaller and cheaper “bolt on” type acquisition at some point.

                I don’t think they have ever bought another oil company.

          3. Carl Martin,

             Be careful with shale companies. CLR had just a double bottom breakdown on the point and figure chart yesterday. It looks like it -together with other peers – could go much, much lower. The reason is the US economic strategy to be commodity producer and have a strong currency at the same time, which cannot work. There is no such thing as a strong dollar and a strong oil price – except oil would be in extreme high demand, which is not the case at the moment. This strategy works for high tech as the high tech industry can outsource its cost base to Asia and just import the profits, which is clearly not the case for oil, which has always its cost base in the US.

             As the ego runs high for showing abundant energy production at low prices despite high costs, somebody has to pay for the difference and it becomes increasingly clear that shareholders and bondholders are holding the bag. Corporate America and policy makers are ready to run shale companies against the wall as anyway many foreigners hold equities and bonds and US banks are not affected that much.

             There is also a political component on this as a low oil price helps the industry and consumers in the North and damages the political position of the red states. If there is a recession in the red states in the next year, this will be a political advantage for democrats in the next presidential election.

             1. Heinrich,

                I very much agree with you. I am only buying into shale oil/gas companies whose charts are signaling, that they are perhaps bottoming out right now. CLR is definitely not one of them. I expect the price of oil to go down to $39 and change, before there is much upside to anything.

                Obama plays a large part in all this, but I don’t wish to speculate too much about him. It is a very unusual and highly explosive world situation, and all the world’s stockmarkets are reacting negatively, which is also completely understandable.

                1. Carl Martin,

                   Thank you for your comments. As the rig count comes down now, it will take in my view around one year until production will drop. However, next year it will drop precipotously. Then it is in my view time to step in and make investments. The situation is especially interesting for natural gas producers as the legacy decline for natgas stands at 20bcf per day which is one third of US production. So, in my view natgas could go up five to tenfold next year and will lead the next inflation cycle as it did many times.

                2. Heinrich,

                   If the markets are “rational” LOL, they will likely rise about six months BEFORE oil production is expected to drop. But, I don’t agree with your legacy decline argument for NG. Regardless of how high it is, production is expected to exceed it with no problem at all. That said, NG demand is expected to be rising sharply over the next five years. But, so is supply. Apparently 2015 is the right time to invest in Marcellus/Utica focused gas companies. That is what I am doing right now, but it might still be too early. I am relatively new to NG investing.

    6. Sorry to be the odd man out here, as usual, but I’m not in the prediction business like the rest of you. I only keep my eyes on what the weekly EIA oil production results ACTUALLY are.

       Carl, while it is true that those are ACTUAL numbers they likely bear no resemblance to what US oil production ACTUALLY was. Those numbers are nothing more than a wild ass guess by the EIA. The EIA made a similar wild ass guess Bakken January production would be up 27,000 barrels per day. It was actually down 37,000 barrels per day. And that prediction was made in March, over 5 weeks after the last day of January.

       The EIA actually has no idea what daily US oil production was this past week. My guess is every bit as good as theirs.

       1. Ron,

          If you don’t trust the weekly numbers, you can always just wait for the monthly numbers, which are of course more accurate. But, these numbers are not predictions, like the ones you are quoting. Those numbers are more like general guidance numbers.

          But, I gotta go. The library is closing. But, I’ll get back to you on this. The others will just have to wait with….. bated breath? Or, is it baited breath?

       2. Ron,

          I fear that we might be talking right by each other on this one. I actually don’t rely much on what the EIA says, simply because they are a government agency. I also encounter much difficulties accessing their websites, and I think a lot of their information is just as much misinformation. There seems to be an almost total lack of coherence, at times.

          But, I usually Google, EIA weekly US field production of crude oil to get the information I use. This has nothing to do with predictions, but they might change/update the data once in awhile.

          The monthly predictions you are accessing seem more like general guidance to me. They seem to just be extrapolating historical data into the future, which is well known to be highly unreliable.

          I would like to stand by my assertion, that the numbers I am quoting are in fact correct, but I am of course willing to change my mind, if anyone can give me good reason to do so.

          1. Carl, you say in statement (1):
             I actually don’t rely much on what the EIA says, simply because they are a government agency.

             And here are the numbers you are talking about, quoting you again, bold mine:
             I only keep my eyes on what the weekly EIA oil production results ACTUALLY are. That is also known as reality, although from time to time mistakes are made. But, according to the EIA, for the week ending on March 6th, the total US oil produced was 9,366,000 bpd, which is up +42,000 bpd from the week before, which was 9,324,000 bpd.

             Then in the post I am replying to you say in statement (2):
             I would like to stand by my assertion, that the numbers I am quoting are in fact correct, but I am of course willing to change my mind, if anyone can give me good reason to do so.

             Statement 1 and statement 2 are contradictory. You are quoting the EIA’s wild ass guess. And you are willing to stand by those numbers??? Or is it that you don’t rely on them at all.

             Carl, those EIA weekly numbers are totally worthless. If you check them historically you will find that they are seldom even close to what the actual production turns out to be. That’s all I am saying, nothing more. I don’t see how that could be a point of contention with anyone. Those numbers are not reality, they are not within a country mile of reality.

             The EIA gets their data from the states, usually about 6 weeks after the ending of the month. No reporting agency reports production on a weekly basis and never last weeks production. The EIA simply estimates everything. And their estimate is so far ahead, in time, of the actual data that is is very seldom even close. How on earth do you think their wild ass guess could even approach the ACTUAL data. (I put actual in caps because you did, emphasizing that it was the ACTUAL data when in reality it is totally FICTITIOUS data.)

             1. Mr. Patterson, the Marcellus data from Pennsylvania is gotten twice a year as the PA DEP (regulating body) requires production data from the E&P boys every six months.
                This, apparently, is the source for the EIA’s reports.

             2. Ron,

                You may well be correct in all this, but the monthly predictions that you follow have always been up for each month, even though we all know, that sometimes the production goes down. The weekly production numbers (not predictions) that I follow often go down, as well as up. That is why I believe they are accurate. However, I do wonder how they can get them so quickly, and still be accurate.

                If you look at the data for December 2014, you will see that the last two weeks production went down, and that the whole month was only up 3,000 bpd. That’s almost nothing. Then compare that data to your December monthly prediction. I think you have simply put too much faith in the EIA’s predictions. I don’t! In fact, I almost shit in my pants the first time I saw their monthly predictions, because they didn’t make any sense to me then, and they still don’t. But, I still look at them once in awhile.

    7. Interesting point Carl. As an experimentalist, it is an argument I have frequently with many of my friends who are theorists. The real world is often maddeningly obstinate when it comes to accurately following models. This is obviously because we have a difficult time anticipating all of the relevant inputs until after the fact. Often they are obvious in retrospect, but of course the power of models should be in their ability to make predictions about future behavior.

       Now in retrospect I don’t think that it is all that surprising that sustained high prices would have resulted in bringing marginal supplies to market and given the feeding frenzy and and gold rush mentality, lack of regulation etc around that sort of activity the result of dumping this new supply onto a market that was essentially balanced between supply and demand would result in a glut and a price drop. This may seem counter-intuitive but if you think it through it really isn’t all that difficult to comprehend. Now if you wish, you can read this price drop and glut as a signal that “happy days are here again” and act accordingly. To each his own. But to me it looks like a pretty self-consistent perturbation to a rather logical over-all concept. The nice thing about this particular puzzle is I don’t imagine we are going to have to wait very long to see which way it breaks. Ironically, either way it would seem that the oil stocks will end up being good investments!

       1. SW,

          I’m not sure what you mean by “happy days are here again”, but I assume you might think, that I’m saying there is no need to worry about PO, for now. Well I am, but I was also saying the same thing, when oil was at +$100. I don’t agree with your timing, however, as I see this as a very even slug match between two or more opposing forces, neither of which will yield to the other so easily. Perhaps it’s time to re-introduce M-A-D (Mutual Assured Destruction) into our daily parlance.

          I have to be a little careful about too much investment talk, as Ron has made it clear, that this site is not intended to be for investment purposes. But, oil investments will only be good, if the oil price recovers quickly and resolutely, which I just plain don’t see in the cards anytime soon. It’s a shake out, and the pain won’t cease until all the weaker hands are shaken out. Then prices maybe can rise again, and perhaps, big time, but it is a very difficult situation to decipher.

          But, I would like to point out an oddity at this site. I think anyone who truly believes in PO, should be putting there money to work in what they believe in, not just sitting on it. If you don’t like to go either long, or short, with oil companies, you can always go long, or short, with the oil price itself. Then it’s more like gambling than investing.

          1. Carl, you are assuming that most of us are active investors in the stock or futures market. I seriously doubt that. But even if we were it would make no sense to jump into the market. I think we are right in the long term but the short term will bring many surprises. There is just no way we can predict what is going to happen in the short term. If we all invested, betting on peak oil, and even if we are at peak oil right now, the market could, and likely will, swing in the opposite direction. And we could all look in the rear view mirror and see that we were all correct. But that damn swing in the opposite direction wiped us all out, we would all be flat broke.

             1. Hi Ron.

                I agree.

                I think it is better to theorize without trying to monetize. That way you get much better theories with far less risk.

          2. Carl, I’m not much of an investor, but when I spoke of oil stocks I should have been more specific. I meant the majors. I think they will be busy gobbling up the weaklings during this period leaving them in a very strong position when things eventually tighten up.

             1. Ron,

                Yeah. Going flat broke is the best experiencve one can have, although I will admit from my own experience, that it can be a rather expensive lesson. My point is, that everyone here is talking as if they have NEVER had any real investing experience. Once one has lost badly, one learns to always look at BOTH the potential upside and the potential downside. No one here is ever considering the possibility, that you might just have the whole PO argument wrong. That suggests, that no one is looking at the potential downside, and that signals denial.

                SW,

                The companies that get bought are the ones to invest in, as the stock price usually jumps about 25% on the news. The buyer’s stock usually falls about 5%, unless the market likes the deal. Then the money gained from the transaction is simply re-invested in the next likely company to be bought. So, these days, the “smart” money is buying all the smaller beaten down stocks, that have good, but not excellant land positions, and are way too deeply in debt. We buy low when fear dominates, and sell high, when greed dominates. It’s all about psychology, not money. Hope that helps.

    8. Hi Carl.

       “You have all been saying for years, that PO would be heralded by ever higher and higher oil prices, as the world’s oil fields get drained dry, one by one. Sorry, but just the opposite is happening.”

       The very simple answer to your question is that peak oil theory got it wrong. Not about the fact that oil would eventually peak and decline. That part was right. The part they got wrong was what the price environment would look when oil reached it’s ultimate peak. They logically thought that we would just pump full out into a shortage. It seemed to make sense. I used to think that, too.

       But now, in hindsight, I understand why that was wrong. Past peak, some common sense economic rules just flip. Since the great oil spike of 2008, economic growth has been greatly hampered. This ushered in some pretty weird economics, not exactly normal rules. At first it seemed kind of shocking to some, but we have slowly gotten accustomed to the new ‘normal’. Now we have reached the point where the cost of oil production exceeds the ability of consumers to pay for oil. This has caused the rules to change once again. One important economic rule that changed is that an oil price lower than the cost of production will simply self correct. Now, a lower oil price causes higher production which causes lower oil prices. This is a death spiral. Our economy doesn’t function normally in death spiral mode. It really shouldn’t surprise anyone. But still, it does. I think we might just run out of time to understand the new rules before the game ends.

       1. TOO MUCH DEBT!
          Economic growth was leveraged with debt until debt saturation was reached.

          ” I think we might just run out of time to understand the new rules before the game ends.
          What if the game is the plan?

          1. “TOO MUCH DEBT!”

             Absolutely.

             “What if the game is the plan?”

             When is the game ever not the plan?

          2. Rune,

             I’m curious about your perspective on debt. Have you read much mmt economics? It made me rethink some of my recent worries about debt. Government debt, at least.

             1. Sam,

                Debt is a subject that I have spent considerable time on researching, reading, discussing (primarily in more private settings to evolve understanding and further insights) and writing about.
                I think Steve Keen and Michael Hudson (their books are recommended reading) gets very much right about it.

                What I found was that there is a strong correlation between GDP and debt growth. I think growth in debt also allowed for increased demand for oil and also allowed for some tolerance for some time for a high oil price.

                The key is to understand demand. Demand is what one can pay for. Debt allows for growth in aggregate demand.

                I never climbed on board the train with people claiming that 2008 with its high in the oil price (and peak oil whenever that is) was permanent. I expected oil prices to settle at a lower level than the $100 or so it did in recent years.

                It was not before after reading a report from the Bank for International Settlements (BIS in Basel, Switzerland, BIS is often referred to as the central bank of the central banks) last summer that my support (documentation) that debt growth of emerging economies post 2008 together with monetary policies [“money printing”] of western central banks allowed for continued strong demand also for oil and thus support for a high oil price. This gave me and others the cover/documentation we had been looking for. Our understandings on price formation had for some time included understandings from the effects of total global debts, what we did not have was data/documentation on the magnitude of debt growth in emerging economies.

                After BIS, several others have recently (Geneva, 16th report and a recent McKinsey report (Feb 2015?) pointed to the challenges of the global economy to move away from debt as the engine for economic growth.

                Apparently and in some circles, this gets attention, but the way to reduce debts is likely through austerity…which is not popular….so more likely kicking the can until we are out of road and see what then happens may be the plan.

                This may create a paradox, we may pass peak oil, but the effects of total global debts may cause demand to decline faster than supplies, thus suppressing the oil price (unless there is a major geopolitical event or some club gets together and agrees to reduce supplies to give support for a higher price). Peak oil may be masked due to the effects from total global debt loads.

                A higher oil price and growth in demand/consumption likely requires growth in debt. How much room is there left around on the balance sheets for more debt? What if interest rates come up? What about a stronger dollar?

                There are a multitude of variables and their interaction in this equation that needs to be understood.

                When it comes to public (government) debt this has the same properties with regard to demand as all debt, it adds to aggregate demand and gives support for a high price. Just think how it would affect demand if US ran a balanced budget, no deficit.

                US has the benefit of both holding the world’s major reserve currency, but also a sovereign currency. The US could (in theory) print all the dollars it needed to pay off its debts. Doing so would undermine the trust of the currency and also its role as reserve currency.

                Debt is a virtual and social/political construct (yes, there are creditors, but as has been shown creditors may also be left with taking a haircut if that is required).

                To me it appears that we should have taken some harsher medicine earlier (higher interest rates, which would have slowed debt growth or even paid some debts down). Higher interest rates make it harder to service the total amount of global debt.
                A harsher medicine earlier would likely had reduced demand also for oil and thus the oil price.

                Reducing debts (debts may be reduced through defaults) and higher interest rates likely leads to deflation. Deflation is what the central banks try to avoid or rather defer for as long as possible while hoping their policies will bring back organic growth (with organic growth I mean growth without the use of more debt).

                If organic growth does not return (which I doubt due to lack of “cheap” energy) we are in a harder situation than if we had reduced the use of debt at an earlier point in time. There may be political solutions to this.
                It is likely a human thing to defer unpleasant decisions, but waiting too long just makes it worse.

                This for a start.

                1. Hi Rune.

                   Great post.

                   “This may create a paradox, we may pass peak oil, but the effects of total global debts may cause demand to decline faster than supplies, thus suppressing the oil price…”

                   That’s right, because the FED drove the price of oil up with QE and twist. But they had to keep the price of oil safely above the cost of production. Now that it has fallen below, I don’t think anyone or anything can stop this positive feedback from unwinding the oil industry and all of civilization, at the same time.

                   http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504187

                   http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504528

                   http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504784

                   http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504791

                   I would love to get your opinion of my theory. Thanks.

       2. Futilitist says: “Now, a lower oil price causes higher production which causes lower oil prices. This is a death spiral.”
          Where do you get this from? Despite the drop in oil price there islittle increase in world production. Why? Because of depletion. Look at the North Sea production, for example, or the old Ghawar where the water cut is steadily increasing. You probably look narrowly at the weekly EIA reports on ND and other shale plays. How much influence has this on world production? Little. And it will soon come to an end.

          1. You are right on that one Ngass, Futilitist simply got that one backwards. Right now low oil prices are causing shale oil production to drop like a rock. Folks in North Dakota have gotten that message though a few people are still under the illusion that shale oil production is still increasing.

             1. Hi Ron.

                I did not get anything backwards.

                “Now, a lower oil price causes higher production which causes lower oil prices. This is a death spiral.”
                ~Futilitist

                Yes, tight oil production is finally starting to decline. But only after lower prices caused higher production! And guess what else is starting to decline again. The oil price. This is a death spiral.

                It seems like I got it exactly right. 🙂

                1. Price is the arbitrator between supply and demand.
                   High prices cause more production. (When possible)
                   Low prices cause less production.
                   High production causes prices to drop.
                   Low production cause prices to rise.
                   High demand causes prices to rise.
                   Low demand causes prices to rise.
                   That is the law of supply and demand.

                   The idea that low prices causes increased production is about the dumbest thing I have ever heard.

                2. Um Ron,

                   When the oil price dropped below the cost of oil production, as occurred in June of 2014 (and ever since), oil producers have had to produce as much oil as they can just to stay in business (and to maintain market share)! This keeps further depressing the price of oil, as is happening today!

                   All of the above is factually true. I really don’t see how you can disagree with any of it.

                   I think this is a positive feedback cycle that has been in effect since June of 2014. The price of oil can no longer rise enough to meet the ever rising cost of production. Thus, the entire world oil industry (and industrial civilization itself) is winding down in a positive feedback death spiral. This must end in collapse. Soon.

                   Many people here agree 100% with me about my theory. Why doesn’t it make sense to you?

                   Please take the Futilitist Collapse Challenge on this page at:

                   http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504528

                   Please take the time to read through all of my comments on this page carefully before taking the challenge. Good luck with it. I really do hope I am wrong. But I am not. Sorry.

                3. Futilitist, I don’t have time for that shit, or anything else proposed by someone who believes low prices causes an increase in production.

                   When I read such a silly claim I must disregard anything else they say. Let me repeat:

                   The idea that low prices causes increased production is about the dumbest thing I have ever heard. Producing more would only drive prices down, further increasing producers losses.

                   An oversupply always drives prices down. An under supply always drives prices higher. That is so simple a third grader could understand it.

                4. Wow. Okay.

       3. Futulist,

          I just can’t get by this sentence of yours.

          “Now we have reached the point where the cost of oil production exceeds the ability of consumers to pay for oil. ”

          I’m going to assume you meant then, ($100 oil) and not actually now $50 oil, but this present “crisis” is not (lack of) demand driven, it is entirely (over) supply driven. The reason it is over supply driven is because of what is called “The Shale Oil REVOLUTION”, which is the 800 lb elephant in the room, that no one here wants to acknowledge, because doing so completely undermines all PO theories.

          The reason the price has been so low for so long is that no one is blinking yet, because (apparently) no one really has to blink if oil prices are still above $40. In other words the true costs of production seem to be considerably lower, than what was imagined here. Rune mentions debt lower down, and the debt problems are real enough, but not overly threatening as yet ….. But, just wait awhile longer.

          We will soon see who is swimming with a bathing suit and who isn’t. LOL!!!

          1. CORRECTION: Rune mentions debt higher up. But, I’m not going to bite on it.

             1. SS,

                I am sorry, but I don’t understand your question, because I don’t know what borrowing base determinations refers to.

                But, oil corporations have a great number of financial options in their hands, as they can always use their oil reserves as collateral. When push comes to shove, then they simply put themselves (their oil assets) up for sale. Someone then buys them, and the oil ends up getting produced someday in the future by someone else, when the economics are more favorable. So, nothing is ever lost, except for paper (electronic) money, which is often in the form of debt, anyway.

             2. Rune,

                If you have the time, here is an excellant video about debt.

                https://youtu.be/jqvKjsIxT_8

38. Carl – we’ve been drilling and completing more wells up than in prior periods until recently, and therefore production has been increasing – albeit it at slowing rates. That will change in the next 60-90 days. Nothing unexpected is happening at all. We can spend all the time in the world trying to figure it out, but its just not that darn complicated. Actually, its about as simple as it gets.

    1. Listener,

       I think, I can agree with you on that. When the oil hedges run out starting on April Fools day (LOL) then oil production will likely start crashing down, but sometimes there is a lag time before it can be accurately seen. Then on July 1st, it happens again. After that, there just ain’t many oil hedges still out there, but it only gets worse going forward, not better. However, the Bakken may slump for the next two months, or so, then recover with the ND Spring. Don’t bet on it, though.

       1. Carl Martin. What do you think will happen with US shale company borrowing base determinations this year?

          1. SS, My reply got posted higher up on the thread for some unknown reason.

39. Being lazy here, but in wondering about demand…

    IIRC about 4 mbopd in the US is being refined and exported as products primarily to Latin America, South America and Europe. Is this still happening at this rate? Have international product markets declined? Is US refining capacity still around 90%?

    1. 3.8 mbpd up 380K bpd in 2014. from EIA

       As detailed in This Week in Petroleum, the combination of record-high U.S. refinery runs (which averaged 16.1 million bbl/d in 2014) and increased global demand for petroleum products allowed U.S. petroleum product exports to increase for the 13th consecutive year. These exports are mostly sent to nearby markets in Central America and South America, followed by exports to other countries in North America (Canada and Mexico).

    2. An extra tidbit: venezuelan refineries are running half cocked. Right now two of them are shut down. I read they are importing products from the USA. Last week Maduro flew to Trinidad to beg for gasoline and food and toilet paper.

       1. Fernando, you should send them some baloney.

40. Just looking at those rig count numbers – clearly the attention is all on the US shale plays. But take a look at Canada – rigs down 26% in just one week (I assume some of that may be seasonal), but the year on year figure (which would allow for seasonality) is down a massive 57%!! New drilling in Canada seems to be imploding. I rather think the Canadian economy is heading for recession (Canadian unemployment figures jumped overnight I see from 6.6 to 6.8%).

    1. Andy,

       A steep recession is also in the cards for the US economy. Inventory/sales ratios for wholesales and business inventories are already deep into recessionary territory. Some manufacturing surveys are as well. Employment is very likely to follow soon as employment is very often a lagging indicator. However plunging US retail sales are already indicating that consumers are holding back because of job fears.

       1. All of this is happening because we are already in collapse. Positive feedbacks are starting to kick in as collapse accelerates.

          1. Futilitist, The FED meeting is next Tuesday to discuss a possible interest rate increase because the US economy is so strong. Do you have the power to be heard? I agree with you what you say on the collapse but, as people say, it is futile to go against the FED.

             1. nNgass,

                …it is futile to go against the FED

                Maybe that has been true in the past, but the FED is NOT GOD.

                It is futile to go against collapse.

41. Cool website http://www.iter.org/ It would continue BAU for a very long time.

42. Right now WTI is $45.01 and Brent is $54.53. Oil futures have been dropping all day on the IEA’s report that shale oil continues it robust increase in the face of falling rig counts. And the IEA is basing their report on what the EIA Short Term Energy Outlook predicted.

    It is likely that commodity traders who are going short based on the new report are going to get whipsawed when the real data finally comes in. They are going to lose a bundle. Well, that is my opinion anyway.

    I believe you can look for prices to increase quite a bit, starting on or before this time next month.

    The EIA’s optimistic estimates are based on the storage numbers. The logic is that if storage is climbing then production must be increasing also. I cannot understand why the storage numbers are increasing but I would bet that demand is not what they think it is.

    1. I got an email noting that the US just showed an all time record high month for vehicle miles travelled (VMT) in December, 2014, while US and global vehicle sales are projected to hit all time highs this year (following a record last year for global vehicle sales).

       1. Happy days are back again! 😉

          1. Just in time for collapse.

             1. Happy collapse? 😉

                1. Sure, why not? Might as well make the best of it. 🙂

                2. Yup, I am waiting for single malt prices to move the same direction as oil prices. 🙂

                3. “I am waiting for single malt prices to move the same direction as oil prices.” Never knew Norwegians were that smart. Maybe I should cut my wife a little slack though perhaps it’s just Norwegian men who can think straight? 😉

                4. Having just run down most of my savings account while visiting pubs in Oslo I wholeheartedly agree.

                5. Indeed happy collapse. The faster and sooner we get over it, the better for the planet we are about trampling to death. It will take thousands and thousands of years for the flora and fauna to recover. There will be oil again but that will take millions of years.

       2. More important, the quarterly price of oil 31 March will determine collateral valuation for all the loan rollovers.

          1. Think some hedge funds and large US banks will make sure the low is hit that day?

       3. Jeffrey J. Brown,

          This is the past, yet the future is very clouded for the US economy. Car sales for February have been plunging and inventory/sales ratios are in recessionary territory. There is no need to celebrate too early.

          1. Some year over year comparisons:

             AutoNation’s 8% sales gain beats market for Feb.

             http://www.autonews.com/article/20150304/RETAIL01/150309917/autonations-8-sales-gain-beats-market-for-feb

             AutoNation Inc., the nation’s largest dealership group, said its new-vehicle retail sales jumped 8 percent in February compared to a year earlier, reaching 23,780 new units.

             The sales climb, which beat the 5.3 percent gain in the overall U.S. market, made last month its best February since 2004, the company said in an email.

             1. Jeffrey,

                According to the US Census http://www.census.gov/retail/marts/www/marts_current.pdf Auto sales actually declined from January 2015 to February 2015 by over 2 bn from 90,9 bn to 88,6 bn. Last year auto sales climbed from 81,5 bn to 84 bn in the same period January 2014 to February 2015. So there has been a year over year growth of 5% growth in February 2015. However this growth rate declined dramatically from the year over year growth rate of 10% in January 2015. This is an excellent example how it is possible to cheerlead with bad econmic data.

                1. Auto sales actually declined from January 2015 to February 2015

                   I’ll have to double check my math, but I’m pretty sure that the number of days in February fell by about 10%, versus the number of days in January.

                   In any case, overall US vehicle sales were up by 5.3% in February, 2015, versus February, 2014.

                2. Hi Jeffrey,

                   Excellent point. People often forget that February sales are often less than January due to almost 10% fewer days, best to compare Feb to Feb and also not to get too concerned over one month of data.

                3. Jeffrey,

                   They were up 10% from Jan 2014 to Jan 2015. The growth rate fell from 10 % yoy in January 2015 to 5 % yoy in February 2015, which is a monstrous decline. If this trend continues, the yoy growth rate will be – 15% by June 2015.

                4. I wonder if this is similar to those who deny climate-change, and as ‘proof’, offer clipped (blindered) samples of the stats.

                   From the link:
                   “The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy.”

                   America: You’ve got three more years to drive normally…

                5. Gotcha. You are characterizing a slow down in the year over year increase in US vehicle sales, albeit with a 5.3%/year over year increase in US vehicle sales (2/14 to 2/15), during a period of very bad weather in the US, as “Car sales for February have been plunging.”

                   Incidentally, the 2/14 to 2/15 percentage increase in US vehicle sales (5.3%) was quite similar to the average annual increase from 2013 to 2014 (5.8%).

                   http://www.autoalliance.org/auto-marketplace/sales-data

       4. US Vehicle Miles Travelled are still down, with a recent small uptick. Yes people have been catching up with replacing their cars after the delay during the recession but the are still driving them less:
          http://www.advisorperspectives.com/dshort/updates/DOT-Miles-Traveled.php

          “In the big picture, there are profound behavioral issues apart from gasoline prices that are influencing miles traveled. These would include the demographics of an aging population in which older people drive less, continuing high unemployment, the ever-growing ability to work remote in the era of the Internet and the use of ever-growing communication technologies as a partial substitute for face-to-face interaction.

          See the recent study by the Frontier Group, A New Direction: Our Changing Relationship with Driving and the Implications for America’s Future (PDF format).

          The Driving Boom — a six decade-long period of steady increases in per-capita driving in the United States — is over.

          Americans drive fewer total miles today than we did nine years ago, and fewer per person than we did at the end of Bill Clinton’s first term. The unique combination of conditions that fueled the Driving Boom — from cheap gas prices to the rapid expansion of the workforce during the Baby Boom generation — no longer exists. Meanwhile, a new generation — the Millennials — sees a new American Dream that is less dependent on driving.
          See also my report on Driving Declines in America’s Cities, which highlights research in a recent report by U.S. PIRG Education Fund.

          See also the latest U.S. PIRG report on “Millennials in Motion: Changing Travel Habits of Young Americans”, which I discuss here.”

          And here’s your Light Vehicle Sales. Clearly the current boom is catch-up and not structural. It will revert soon:
          http://www.advisorperspectives.com/dshort/commentaries/Vehicle-Sales-Per-Capita.php

          Oil demand growth looks like it has entered a new phase globally. China’s demand which drove the growth that led $100 oil is flattening. India does not look like it will grow out of poverty on the same oil hungry model. Some but not huge oil demand growth from there. EU flat to falling, North America will not sustain a return to strong oil demand growth.

          I see supply and demand doing a complicated dance for the rest of this decade where it won’t always be clear who’s leading. Supply from unconventional sources is about to weaken, but demand is fragile too; so will there be a big price reaction?

       5. Gross US VMT:

          

       6. US VMT per capita

          

       7. US vehicle sales per capita:

          

          1. Vehicle sales per capita is one metric but the problem is that it is not constant. That is the population is increasing. A metric should be constant if one wants to compare historical numbers.

             Total sales figures are better in this case because it shows production and thus the health of companies.

             

          2. Both metrics have value. The per capita one shows the gradual decrease in the centrality of the private car in the US economy. The gross one is of more interest, as you say, for understanding the health of the manufacturers. Note it is also pretty clear that the recent rise in both charts is bolstered by ‘catch-up’ due to the previous big fall. In other words is likely about to flatten and revert to mean. Or if other factors weigh in, head off down the roller coaster again?
             There is no evidence in these charts for a brave new world of endless happy motoring. This uptick may well be a dead cat bounce for Detroit.

             1. Patrick, You might be interested: Are superfast trains speeding down the tracks? From: Today’s BBC World News.

                http://www.bbc.com/news/business-31608679

                1. Thanks Doug, but I’ve got more faith in current technology however, streetcars, metro systems, suburban rail, and faster intercity rail. All running on electricity.
                   These technologies can do the heavy lifting for most populations [except highly dispersed one] once we shift the capex budget away from the auto-sprawl industry’s capture.
                   The killer app is to retro fit suburbia with proper rapid transit and make the stations centres of the community again, especially with whole networks of protected cycleways radiating out from them. Leave the highways for freight, and those willing to pay the true cost to use them.
                   http://www.peopleforbikes.org/blog/entry/outer-london-is-about-to-embrace-the-secret-weapon-of-the-suburbs-the-bicyc

                2. Hi Patrick, Mostly I agree with you but have found (find) high speed rail a blessing on a number of occasions. Japan has done an especially good job and there are some routes in Europe which allow you to zip past attractive countryside totally avoiding busy airports (which I hate). Cheers.

    2. Storage numbers are rising because of ongoing oil imports in the face of rising LTO at home in the US.

       1. As noted up the thread, despite the build in C+C inventories, US refineries still had to recently net import 44% of their C+C input. I suspect they are still net importing close to half of the C+C input because they had to, in order to deliver the full spectrum of refined petroleum products, and I suspect that most of the build in C+C inventories consists of condensate, not actual crude.

       2. I really don’t believe LTO is still increasing at all. All this is based on the EIA’s Drilling Productivity Report. That report was off by a country mile with their Bakken Report. I would bet they are off with all other basins as well. Perhaps not off by as much as they were off in the Bakken but by quite a bit anyway.

    3. Ron,

       “Right now WTI is $45.01 and Brent is $54.53. Oil futures have been dropping all day on the IEA’s report that shale oil continues it robust increase in the face of falling rig counts. And the IEA is basing their report on what the EIA Short Term Energy Outlook predicted.

       It is likely that commodity traders who are going short based on the new report are going to get whipsawed when the real data finally comes in. They are going to lose a bundle. Well, that is my opinion anyway.

       I believe you can look for prices to increase quite a bit, starting on or before this time next month.”

       Maybe. I tend to doubt it, though. I think oil is set to drop some more. We will have to wait and see. At least we don’t have to wait too long.

       “The EIA’s optimistic estimates are based on the storage numbers. The logic is that if storage is climbing then production must be increasing also. I cannot understand why the storage numbers are increasing but I would bet that demand is not what they think it is.”

       Maybe the EIA has the right idea on the demand side, too. Perhaps that explains their logic in saying that if storage is climbing then production must be increasing, since the only possible explanation is that demand is falling. This would appear to be the Occam’s razor explanation for the seeming discrepancy.

43. In a month or so two million or so farmers will be filling tractors and trucks with diesel fuel, 1000 gallon fuel purchases will be two billion plus gallons of diesel fuel pumped into tractor and truck tanks for Spring’s work.

    There will be a demand of 50 million barrels of diesel soon enough. That’s 100 million barrels of oil.

    In sixty days, the glut will be smaller.

44. Good news?

    bbc.com/news/science-environment-31872460

    1. This news will lead to a continued debate whether fossil fuel use has stabilized due to (1) concerns about CO2-caused climate change or (2) the reality of a finite supply of fossil fuel. Or even partly the realization of (3) the insanity of coal burning choking the citizenry to death.

       I pick all 3.

       1. I pick (4) the growth of alternatives, and increased efficiency.

          1. Efficiency increased every year before as well.

    2. I believe that that claim is based on erroneous calculations using Fudged China consumption data. I am still looking into this but something is wrong as all FF consumption was up during that period.

45. ”Whiting Petroleum Corp., the North Dakota oil explorer, has attracted interest from Exxon Mobil Corp. and Continental Resources Inc. as it explores a sale of the entire company, people with knowledge of the situation said.”
    http://www.bloomberg.com/news/articles/2015-03-13/shale-producer-whiting-draws-exxon-others-as-suitors

    1. Comes at the same time as this news.

       Statoil may eye EOG Resources for huge purchase

       [Excerpt from article]
       EOG Chairman and CEO Bill Thomas and EOG President and COO Gary Thomas are both into their 60s, and “they’re not getting any younger,” said Andrew Coleman, Raymond James & Associates Inc. managing director of E&P energy research in Houston.

       “The management team is at an age where retirement would seem to be a pretty good option,” Coleman said of the possibility. “That said, once you’re in the corner office, you kind of like the view.”

       Coleman said he sees the potential deal as “unlikely” with EOG being less willing to sell….

       However, Statoil does have a war chest and much to potentially gain in North American acquisitions, said Pavel Molchanov, senior vice president and energy analyst with Raymond James.

       “Statoil has the vast majority of its assets in … a very mature operating area (the North Sea) that has been in decline for over a decade,” Molchanov said. “Statoil is having to grow in areas that are outside of its domestic market. Obviously, North America has been one of those growth areas.”

       In 2011, Statoil made its first big M&A foray into U.S. shale by buying Austin-based Brigham Exploration to acquire a footprint in the Bakken Shale.
       [End of excerpt]

    2. Is CLR strong enough to do that? I thought PV10 at CLR was less than long term debt at present strip?

    3. Might be more of a case of someone trying to manipulate stock prices. Probably more so with the EOG-Statoil rumors since that one just kind of sprung up out of left field.

       1. EOG is, by almost any metric, an extremely efficient, tightly run company in both the operational as well as its financial spheres.
          I could not imagine what level of premium would be acceptable to both its management and stockholders.
          Statoil has been in the Bakken and, I believe, the Marcellus with a sterling operational track record, although not on a huge scale. It would make a lot of sense for them to try to acquire other companies.

          Contrary to what has been posted on this site regarding Whiting’s assets and market value, they (management) have projected over 14,000 wells as being viable in their Colorado and North Dakota acreage.
          If deep-pocketed Statoil and Exxon duke it out for possession of Whiting, we all may observe what these companies feel is the true market value of the biggest producer in the Bakken.

          1. UPDATE on WLL takeover rumors….. Rumors are just that, but lately the talk has been that WLL only wants to sell parts of itself, like it’s Permian assets. But, their deep pocketed investors don’t like their present/ever present, debt problem, and are pressuring them to do something about it. Personally, I think it’s all a ploy, just to attract new small time investors, just to push the stock price up, but also maybe just to test the market, and see what possibilities might exist.

             But, buying KOG at the market top was not a good move, and has just given them a bad case of indigestion ever since. I don’t think XOM wants more exposure to a oil field that they perhap don’t understand very well. They got their shale indigestion from buying XTO. It is Statoil, STO, that is the most likely candidate. That is to say, if they have recovered from their shale indigestion from taking out Brigham.

             Shale takeovers at almost any price seems to give the buyer lots of indigestion problems. I can’t see EOG ever getting taken out. The price would likely be far too high, but their stock price has been languishing for months now, so who knows for sure?

          2. So you’ll be taking out 2nd and 3rd mortgages on your house to fund the margin and lever up some stock positions?

             1. Watcher,

                Nope, but I do often make extensive use of margin. Obviously, you don’t understand how margin works in investing. One merely sets up a margin account and then one can borrow up to two times the amount invested at all times. So, in theory, if the market always went up, one would never have to even pay back the money owed. Pretty cool, huh?

                But, the downside is when one gets a margin call, which happens when the markets go down too much, then one HAS to sell, and at a loss, to cover the margin call.

                But, now as my income is about twice what my expenses are, (I only live on about $8,000/year) I can re-invest about $700 each month, which I do, in beaten down shale oil and gas stocks. My house, which resembles a barn, is all paid for, and I would like to keep it that way. I do not own a car, and have no debt other than margin debt. Just like oil corporations, I only borrow money, to make even more money. Morgan Stanley is always willing to lend me the money, because banks make money by lending it. Get it? This whole planet runs on debt, as that is how wealth is created. https://youtu.be/KkXI-MNSb8Q

    4. Watcher, hisself, assured me that Exxon would not want Whiting … so, couldn’t happen … right?

       1. “Saudi prince: $100-a-barrel oil ‘never’ again – USA Today, Jan 11, 2015” ~ Google search output

          1. … never say never …

             1. But you just said it twice.

                1. Too much coffee?

                   Seriously, though, the never $100 again thing is intriguing… And just today, I caught something that suggested something like ‘no driving in 3 years’.

                   …So tadpoles taste like sole? How does that happen? One would think they’d taste like chicken.

                2. It turns out that sole actually tastes like tadpoles, not the other way around. But no one knew.

                3. Even chicken doesn’t taste like chicken anymore …

                4. Even chicken doesn’t taste like chicken anymore …

                   Well what the heck did you expect!

                   Free range chickens, as the name implies, get to run around and forage for wild berries, seeds, worms, larvae, insects, spiders etc, etc…

                   The ones most of us get to eat have been crowded together in horrible unsanitary conditions and fed mostly antibiotic and pesticide laced GM Monsanto corn and then their pathetic little carcasses are often ground up and processed into nuggets that contain who knows what along with some chicken derivatives which are then fried in corn oil… Thank you KFC and Mickey D, YUM!

                   And there are still people out there who insist on preserving BAU! Good grief Charlie Brown!

                   Bon Apetite!

                5. You said a mouthful, Fred.

                6. I think I just lost my appetite. 🙁

          2. April, 2004:

             http://www.independent.co.uk/news/business/news/opec-studying-plan-to-boost-oil-price-band-by-a-third-6170657.html

             Mr Yusgiantoro, who is also Indonesia’s oil minister, added that Opec “thinks oil at $32 to $34 a barrel is considered safe. Some members have asked for a new price band to take into account dollar depreciation and world inflation.”

             However, the Saudi oil minister, Ali al-Naimi, immediately moved to play down the likelihood of such a move. Saudi Arabia, the most powerful country in Opec as it is the world’s biggest oil producer, made clear that it would oppose the idea. Some commentators detected pressure on the Saudis from the US to keep oil price inflation down.

             Mr Al-Naimi said: “Saudi Arabia continues to be committed to OPEC’s $22-28 price band. There are signs that worldwide inventories have begun to build but no one really knows for sure. I do not believe there is a fissure [within Opec]. There is dialogue. Opec in general is committed to the band,” he said.

             Actually, circa 2002 to 2005, Saudi Arabia did everything they could to try to keep oil prices down.

             In response to annual Brent crude oil prices doubling from $25 in 2002 to $55 in 2005, Saudi net exports increased from 7.1 mbpd in 2002 to 9.1 mbpd in 2005 (total petroleum liquids + other liquids, EIA).

             As annual Brent crude oil prices doubled again, from $55 in 2005 to the $110 range for 2011 to 2013 inclusive, Saudi net exports have been below their 2005 rate for eight (and almost certainly nine) straight years (averaging 8.7 mbpd for 2011 to 2013).

             It’s possible that the Saudis chose to reduce their net exports, but a more likely scenario, IMO, is that Saudi net exports, and Global Net Exports of oil (GNE), peaked in 2005.

       2. Just reading yesterdays news. Per CNBC site, Whiting stock dropped because management is not happy with initial interest and now the strategy has changed to selling assets. One possibility, as reported, was the sale of their CO2 flood, North Ward Estes, which contains 17% of the company’s PV10. Per the story, analysts estimate this property could sell for up to $300 million.

          So if 17% of the companies PV10 could be sold for $300 million, and the company has $5.8 billion of debt, does that mean at the present time there is no value? It would seem that would value the company’s reserves on a proportionate basis at less than 3 billion dollars.

          Surely the people here who are smarter than me about such things can explain what I am missing.

          And do not try to give me the undeveloped acreage argument. We are using the PV10 from the end of 2014, which as we know had a ton of Bakken PUD. Given that Whiting has high OPEX and high G & A, I bet PV10 for the company calculated on the strip today is less than 1/4 of its 2014 SEC reserve report. CLR would be a little more than a third and their OPEX and G & A is about 1/2 of WLL.

          The only way Whiting has any value is based upon the belief that oil will at least double by year end. The problem with my argument, of course, is that nothing in shale has or is valued by Wall Street in a way that makes sense to me.

          1. Ignore data. Let time pass. If the price stays low, it all falls apart without intervention.

             There’s no complexity here. The companies’ issuance was all rated to be junk by the credit agencies. At $100/barrel. It all didn’t magically become better at $33/barrel.

          2. SS,

             Sorry, but you are a bit out of my league. I honestly don’t pay much attention to all the financial information, that you do. I mostly just go by their land position. The thing to remember, though, is their potential worth,…..if oil should go back to $100. These days, almost every investor out there is willing to bet the whole farm on oil prices snapping right back, and very quickly. That’s why I expect a lot of disappointment coming down the pipeline.

             But, I believe you have a good point about the value of their debt vs the value of the whole company. I initiated a small position in WLL in mid January, then just sold about half of it on Thursday for a +50% gain. It looked like I was smart on Friday, when it was suddenly down 11%, but then at the end of the day it surged up to end the day up 4%. Looks like some new news must have just hit the wires, but all the other shale stocks weren’t moving with WLL, so I don’t really know what is going on.

             1. Nothing human has traded anything for the last 4 yrs or so that wasn’t focused on front running central bank behavior they thought they had deduced.

                When the carnage starts in about 3 weeks, assuming the price closes March where it is now in the mid-low 40s, then end of quarter balance sheet (aka collateral) revaluation takes place at that price and the loans stop. Give it a bit more time past that and . . . maybe you can front run the central bank.

             2. Carl Martin. Don’t take this the wrong way, because it appears you are an active equity investor and pay attention to things much more than most. However, I think you proved the point I have been making in the your post. No one is noticing that shale reserves have been way over valued, and the drop in oil price has greatly exacerbated this.

                My rule of thumb is 70% of PDP PV10. PUD is tougher to value, but should be ascribed less, given it is more risky. However, since shale appears fairly predictable, for purposes of my example, I’ll
                say it should be the same.

                CLR PV10 in 10K 2014 was $22 billion. That is all categories. However, that was assuming WTI of $95. In the fine print, if we assume current strip, we find that number drops to $9 billion.. 70% of that is a little over $6 billion, or just a little higher than long term debt. Yet market is valuing CLR reserves at $22 billion.

                Given CLR is considered one of strongest shale co, I think you see my point.

                In the old days, pre shale, rare to see company pay more than PDP, PDNP, PUD PV10.

                IMO, only a tremendous price run up will bail investors out who hold these long term. However, almost every time oil price has halved, it has at least tripled within a year or two. A triple would take us to $135, a number which seems pretty darn high right now.

                1. This all leads into the broader fear. Savers have been forced into buying stocks due to massive financial repression.

                   In the old days, pre great recession, retired people primarily owned CDs, treasuries, municipal bonds and maybe some high quality corporate paper.

                   Now all are forced into equities and junk debt just to get some return. I worry the whole market is vastly inflated, and the shale overvaluation is the prover.

46. New book on natural resources. http://books.google.com/books?hl=en&lr=lang_en&id=CUvfBgAAQBAJ&oi=fnd&pg=PA41&dq=peak+oil&ots=JIizptX1KX&sig=pOA_RaO_WJepDZ4h_Zjry_bGa_g#v=onepage&q=peak%20oil&f=false

47. The difference with the Permian Basin is that the region has only started to apply horizontal completions in a big way over the past 12 months. Each new horizontal well is bringing on between 800 and 1,500 BOEPD, compared with vertical wells, which cranked up to about 170 to 250 BOEPD over 3-4 months once completed.
    The horizontal wells might be costing US$5-$7 million each compared with US$2.1 million for a vertical well with say 7 fracc stages.
    The Permian will take time to plateau. I suspect that US oil production will begin to fall in June and that by The third quarter ’15 it will be declining by about 160,000 bbls per day per month, to be 1.6 mmbbls per day less, at around 7.9 mmbbls per day by June 2016, compared with peak production expected at ~9.5 mmbbls per day

    1. I suspect that US oil production will begin to fall in June…

       Finally, someone more optimistic than the EIA. The US oil rig count has dropped 46 percent since October, from 1,608 to 866. Yet you expect production to continue to increase until June. The EIA puts that date in April.

       … peak production expected at ~9.5 mmbbls per day.

       I don’t think we will be anywhere near 9.5 million barrels per day in June. The EIA, in its Weekly Petroleum Status Report, estimates US production currently at 9.366 million barrels per day. I don’t think we are anywhere near that figure today but even if we were we will not increase 134 thousand barrels per day by June.

       1. Ron. I’m sure this has been posted, but wouldn’t US refiners be buying as much crude as they can now and storing it given the low price, especially as demand should increase as we head into summer? Are we sure there is a world wide glut, or do we just have a very large build by US refiners who are taking advantage of an opportunity?

          1. SS, that is a very good theory and perhaps it’s right. I strongly suspect that there is something wrong with the current theory that shale oil production is still going like gangbusters. I simply don’t believe it.

             All this optimism about current shale oil production is based on two things. One is the EIA’s latest Drilling Productivity Report. They showed LTO production growing through March, not reaching the “no gain” status until April. We now know they were dead wrong about the Bakken and I suspect they are wrong about all the other plays as well.

             The second and most important reason is that inventories are at an all time high and, as of last week, were still growing. Jeffrey thinks that much of the inventory is condensate and is piling up because the refineries cannot use it all. And you believe refineries have been stockpiling crude because the price is too low. I think both you and Jeffrey are correct.

             Net Petroleum Imports usually hit their lowest point January through March but up until last week they were importing heavily. That is the downturn expected January through March was just not happening… until this past week.

             

48. More cutbacks in Alberta:
    About 1,000 laid off by Husky oil sands contractor, union says

    The layoff is among the largest yet seen from companies operating in Alberta’s oil sands, as oil prices that have dropped more than half since June squeeze profits and force operators to slash capital spending and new projects.

49. Re: My new favorite chart, the EIA’s projection for US C+C Production, in terms of API gravity (posted below)

    The EIA shows, rounding off to two significant figures, that global C+C production was 74 mbpd in 2005, 75 mbpd in 2011, 76 mbpd in 2012 and 2013, and I would assume we are looking at about 77 mbpd in 2014 (annual average).

    US C+C production increased from 5.6 mbpd in 2011 to 8.6 mbpd in 2014. The EIA’s projection shows that US 40+ API C+C production increased from about 1.5 mbpd in 2011 to about 4.0 mbpd in 2014. If we subtract out the EIA’s estimates for US 40+ API C+C production, Global C+C production, rounding off to two figures, would have been about 75 mbpd in 2011 and about 73 mbpd in 2014 (excluding US C+C production in excess of 40 API gravity). Note that this would include all crude + condensate production in all other countries, and it includes US crude production with an API value of 40 or less.

    Also, I have been saying that when we get the price of oil, we get the price of 45 or lower API gravity crude. That’s really not true, we actually get the price of 40 API or lower gravity crude (Brent and WTI).

    

    1. Global Crude Oils:

       

       1. Was reading a story about Iraqi government frantically trying to renegotiate with IOCs who are developing their southern fields.

          Apparently the contracts just provided for a fixed fee, and now that oil has crashed, the fees paid to the IOCs are almost as much or in some cases more than the oil revenues being generated from the projects.

          Does anyone know how these contracts work?

          1. My recall is Iraq agreed to pay about $5/barrel after initial costs of the IOCs were covered. At the time this was thought to be a poor deal for the IOCs, but Iraq had the oil and the IOCs needed to pay their dividends.

             1. The way the story read was that Iraq was asking the IOCs to cut CAPEX. Somehow that would help. Would that not lead to lower Iraqi production shortly? I’ll try to read up tonight, time limited right now.

                1. Duh. It just hit me. At $100 Iraq drilling out of cash flow plus plenty to spare. At current price, nothing to spare, maybe even negative cash flow, just like shales have always been. So need to slow down CAPEX, at least get cash flow from current production. But wont be able to grow much, maybe not at all. Need to see numbers.

                   Ron, might want to look into this. Could be more important to world wide peak than shale story, in other words low price requiring slow down in middle east!

                2. Interesting, so your theory is “initial costs” keep rising with drilling and consume reduced revenue from even wells already producing. The old wells have to fund drilling of the new wells and there’s nothing left over for Iraq.

                   So they (Iraq) wants drilling to stop so they can collect what flows from already existing wells.

                   Credible.

                3. Funny thing is, article also says Iraq discussing floating a bond. The ultimate HY oil paper?

                4. Have been reading more about Iraq. Wish we had better insight as to what is going on there regarding oil and gas.

                   We cuss and discuss US shale, but it appears Iraq should not be ignored. If they can ever get things calmed down, it appears production could be grown to 9.6 million barrels per day. On the other hand, failure to grow production is also a big deal.

                   They did approve issuance of $12 billion of treasury bonds to pay IOCs money that is due from last year. Best I can tell the interest rate at issuance will be 6%.

                5. …it appears production could be grown to 9.6 million barrels per day.

                   That joke has been around circulating around the net for about six years.

                6. Ok. Was not aware it wasn’t possible assuming complete peace, which would appear to be a pipe dream.

          2. Shallow, it’s a service contract. These usually keep the state oil company as the license holder. The contractor company delivers a production service for a fixed fee. Some contracts set separate “old oil” and “new oil” price schedules. The contractor can use its cash to invest and is rewarded with a fixed fee, which is a function of the CAPEX invested and the oil recovered from the contract area. I’ve seen contracts which provide por a price increase once the contract area has reached a set cumulative recovery.

             In some cases a large oil company can take what appears to be a very marginal contract, but is hoping to recover oil very fast to get that cumulative recovery award.

             Some companies have taken huge blood baths in such contracts (I’m aware of one with an $800 million write off). Others do very well. We usually only hear from the ones which do well.

             1. Fernando: So am I correct that IOCs want to keep drilling at a fast pace because they receive payment for
                CAPEX plus a fixed amount per barrel, so they make more, the more barrels are sold. On the other hand, the oil price is too low for Iraq, so after paying the CAPEX plus the per barrel fee, there is little to nothing left?

                Couple more interesting notes in story include that Iraq is trying to obtain rig rate, etc concessions, just like all other producers. Also, even though they want a CAPEX cut they are demanding increased production. Finally, it appears they are in arrears to IOCs to the tune of $18 billion, and are giving the IOCs oil for payment in some instances because they are out of cash.

                IEA expects Iraq to have significant production growth in next ten years. That is not looking good.

                1. Shallow: I don’t have the details, but I saw a service contractor in a different country entitled to charge about 10 % higher than the international price. The contractor had invested too much, was carrying this investment as a refundable amount on a per barrel basis, this led to a very high charge to the license holder.

                   The country didn’t benefit much from this arrangement if we only consider the contractor payments, but that contract did put a lot of people to work, and there was significant income tax charged to the individual subcontractors who worked in that project.

                   The service contracts are a nationalist throwback used by countries with government’s hemmed in by dogma or by naive politicians. The production sharing agreement is the best legal and tax structure. And that requires clauses limiting outside overheads and excessive charges by internal company departments.

    2. Even the people here in the Peak Oil community are not grasping this. Particularly coupled with the distillate yield thing. And the unicorn folks that wave a hand and say most of the consumption is personal gasoline are not assimilating the reality that gasoline doesn’t feed people, diesel does. It doesn’t matter what most of the consumption is when the decreasing production is focused on how things get moved around — things, not people.

    3. Slight correction:

       US C+C production increased from 5.6 mbpd in 2011 to 8.6 mbpd in 2014. The EIA’s projection shows that US 40+ API C+C production increased from about 1.5 mbpd in 2011 to about 4.0 mbpd in 2014. If we subtract out the EIA’s estimates for US 40+ API C+C production, Global C+C production, rounding off to two figures, would have been about 74 mbpd in 2011 and about 73 mbpd in 2014 (excluding US C+C production in excess of 40 API gravity). Note that this would include all crude + condensate production in all other countries, and it includes US crude production with an API value of 40 or less.

50. US Shale oil production data ( http://www.eia.gov/petroleum/drilling/ ) shows monthly the projected new oil production compared to the decline in production from old wells. Notice that in five of seven there is no longer an increase in production

    Monthly projected production decline as a percentage of new production.

       
     Field                                                                                                    
     +++++                Jan 2015   Feb 2015   Mar 2015              
    
    Bakkan                  76.7%         86%              111%                                     
    Eagle Ford             84.2%         89%              107.6%                                   
    Haynesville           100%          100%            100%                                     
    Marcellus               75%            75%             100%                                     
    
    Niobrara                 82%            92.6%          114.7%                                  
    Permian                  62%            69.7%           76.7%                                   
    Utica                       66%            33%              40%
    

    1. Also interesting to note that Bakken production will be 1.3 million barrels per day in March and April. Assume that includes MT Bakken. Does that mean they think March and April will be higher than January still? How much does MT Bakken produce per day?

       1. MT Bakken only produces about 50 kb/d, total MT C+C was 86 kb/d in Dec 2014.

          http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm

          Last time I checked MT Bakken output was about 50% of MT C+C, but that was a year ago and may have changed, it certainly is less than 86 kb/d, and may have grown to 60 kb/d since I last checked the data (MT data access is not as easy ad ND).

          I think Bakken output will only decrease by 25 kb/d if they continue to complete at least 120 wells per month. This number of wells could be completed without any more drilling for the next 6 months, it depends if the oil companies think it is worth while to frack existing wells that are waiting on completion services, or if they have the financing to do so.

          1. I think Bakken output will only decrease by 25 kb/d if they continue to complete at least 120 wells per month.

             By when? All predictions should accompanied by a date, otherwise they are meaningless.

             1. Hi Ron,

                By about July 2015, if the new wells per month go (first number is Jan 2015) 149, 141, 133, 125, 120, 120, 120 (last number is July 2015) or at least roughly follow that trendline. If the number of new wells falls to 90 new wells per month by July 2015 (10 fewer wells per month from Mar to July) and stays at 90 new wells per month, then output falls to 1024 kb/d by Jan 2017.

                1. At 90 new wells per month for a year and a half and they will still be producing over one million barrels per day? Incredible! I am at a loss for words.

          2. The Bakken in Montana was producing about 53,000 bpd in October of last year. Montana production data generally seems to be less and less complete at ages less than 5-6 months, so I wouldn’t feel comfortable giving a more recent production rate.

             All currently producing Bakken wells in Montana are in Richland, Roosevelt, and Sheridan Counties. The only way I’ve found to obtain the data is by going to Montana’s oil & gas production database, choosing Production->Grouped Production Data->Monthly Production by County, searching for the county I’m interested in, pulling up the monthly report, exporting to Excel, and filtering by formation within Excel. The process is time-consuming, but at least relatively doable, unlike, say, getting good production data from Saskatchewan’s share of the Bakken/Three Forks.

       2. SS, the predictions made by the EIA’s Drilling Productivity Report are basically meaningless. To make that point was the whole point of my post. That is the “The EIA versus The EIA” part of the post. Different groups in the EIA cannot even agree among themselves what production will look like from January forward.

          The EIA crew that produces the Drilling Productivity Report says LTO production was be up about 120,000 barrels per day in January. The EIA crew that produces the Short Term Energy Outlook says Total Liquids production was down about 60,000 barrels per day in January. Now this is not apples and oranges. LTO has been responsible for about 95% of the Total Liquids growth during the past 5 years. So if LTO was up 120,000 bpd in January then Total Liquids would have also been up that much or more. And the production for the Bakken is in and the Drilling Productivity report missed by a country mile. Production, in North Dakota, was down by 37,000 bpd. They had total Bakken up 27,000 bpd in January. That is an error of about 64,000 barrels per day. (Total North Dakota, Bakken + Convential, is very close to total Montana Bakken + ND Bakken.)

          Bottom line, the predictions made in the EIA’s Drilling Productivity Report is not worth a bucket of warm spit.

          1. Hi Ron,

             I agree that the EIA’s DPR is not very good. The problem is that they assume the number of rigs will give then the number of wells completed and this is usually not correct. Also there is variability from month to month with the quality of the completed wells, so models will not reflect reality with perfection.

             Another possibility is that a bunch of wells were shut down for maintenance for half the month, but still show up as producing wells because the produced oil for a few days.

             If the maintenance was needed anyway, might as well do it while prices are low.

             For whatever reason, my model also overestimated output by 25 kb/d, about a 2.5% error.

             1. Hi all,

                I was looking more closely at Enno Peter’s data collected from the NDIC.

                In Jan 2015, 24 of the wells that started producing in Dec 2014 had zero output, using my estimated well profile for recent wells (starting production in 2014) this amounts to approximately 10 kb/d lower output than my model (which assumes that once a well starts producing, it continues to do so), in addition approximately 42 wells total in the Bakken/Three Forks were not producing in Jan 2014, that had been producing in Dec 2014. So besides the 24 wells which started producing in Dec 2014 there were 42-24=18 wells with zero output in Jan 2015 which had started producing on other months besides Dec 2014, for simplicity I will assume these wells have average daily output of 125 b/d, so this would amount to only 2 kb/d. When we add these two estimates together we get 12 kb/d of lower production than my Bakken model predicts. The model was 25 kb/d too high, so this only accounts for half of the error, which remains at 13 kb/d (about 1.2%).

                1. Dennis, you are making it way more complicated than it actually is. According to the Enno Peters data 213 new wells went on in December and 152 new wells went on line in January. That is all you need to know.

                   Month        New Wells  Production Change
                   Dec.           213           +39,000 bpd
                   Jan.           152           -37,000 bpd
                   

                   There were about 120 new wells added in February.

          2. I tend to agree. That is why I posted about the march and April EIA Bakken forecasts. I just didn’t know how much MT Bakken added.

51. Hi,

    Now I have also updated my graphs. Here is the production profile. I decided to only include data points with all the data included. The old graphs could be misinterpreted. But this would mean there would only be 2 month of data for 2014. So I used the first 6 month of 2014 instead.

    Something interesting to note is that, for 2008, from month 60 the number of producing wells decrease from about 400 to 370 in month 65 back to 390 wells month 69. At the same time average production increased from 50 to 55. I calculated that the wells that were put back on production must be producing 100-300 barrels per day for the average production to go up that much. So, to me, it looks like they are refracking those old wells. Of course it could make sense to refrack old well with improved fracking technology. But it also means that they choosed to spend the money there instead of fracking new wells.

    

52. Here is the one month after first production graph. Here I decided to have first production month instead of measured month on the x-axis. I think that makes it easier to understand. Also I included water cut for the basin (purple). It is actually of more interest than per well average (blue) as that gives wells with lower production higher weight. But both are included for those who are interested.

    

    1. And here is the Mountrail graph. Oil production continue to be bellow average for the period shown and water cut continue to be higher than average.

       There were discussions that the companies may move to the sweet spots when the oil price fell. From these two graphs we can see that there is no increase in average production so far.

       

    2. Finally I have a graph showing production for wells that are 9 month old. The good thing is that there are no confidential wells and the wells have had time to stabilize. The bad thing is of course that they are 9 month old. It shows data all the way back to 2008.

       I think it´s interesting that oil production has stayed almost flat at the same time as gas production has increased and water cut has increased alot. I wonder if it could be that they are artifically trying to keep production up? Or maybe improved technology happens to even out poorer wells?

       

       1. FreddyW, thanks for sharing your excellent work.

          (This comment is about all your charts.)
          What I would watch is the development in the gas to oil ratio (if this starts to trend upwards I would begin using time to try to understand why).
          This also goes for the water cut (water to oil ratio).

          If I may dare to propose something, it would be to include the oil price (WTI) on your left scale (this may be accomplished by for instance multiplying the monthly WTI with a factor of 3 (or a factor that makes the best fit).
          (As you prove, it is possible to have multiple dimensions in a flat land world.)

          Again thanks!

          1. Thank you! That was a good idea. I have attached the first one here. It also includes number of well as that could be interesting. Unfortunately, the graphs start to get hard to read with that many curves. Note that the first graph does not contain confidential wells. Also a few wells may be missing as I have filtered out wells with duplicate file number unless oil production is the same.

             

             1. Freddy, I too like your work; thanks. Rune, correct me if I am wrong but it already appears in Freddy’s charts GOR is going up, as is WOR. Enno’s data implies 50% WOR, as well. Rune and I discussed this GOR increase some months ago and I will allow him to speculate on its implication toward depletion, if he so wishes.

                One thing, Freddy, if I may: in 2008 the Bakken was in it’s adolescence and there would not have been, in my opinion, attempts at refrac’ing that early in the play. The changes in well counts and subsequent production spurts were more likely relevant to changes in artificial lift methods.

                “Re-fracing” has always been a tool of the shale oil industry’s self promotion practices. In the Eagle Ford I do not believe re-frac’ing has been, with minor exceptions, very successful. I can’t say how effective it has been in the Bakken. If shale wells need a kick in the butt only 4 years out, I’d take that to mean bad news and folks should take another look at all those imaginary type curves for EUR.

                I can say that frac’ing is a 4-5 million dollar expenditure and re-frac’ing is going to cost every bit of that, and more, the 2nd time around. More sand and water and way more horse power requirements. At current oil prices the additional recovery of oil from re-frac’ing an old well bore needs to be upwards of 180-200,000 more barrels just to pay back costs. I never bought into the re-frac’ing idea, even at 90 dollar oil. Given the shear number of wells, and the spacing between laterals, now being drilled in sweet spots, neither do shale operators.

                Mike

                1. Thanks! It´s good to be able to get input from people in the oil business too ( which I am not). Just to be sure we are talking about the same data. I referred to 60-69 month of the 2008, which is about 5 years later, or during 2013. But if it´s not refracing then I have another theory. I remember that I read somewhere that when you frac a new well, wells close by can also get fraced and produce more oil or there is simply communication between them. So it could be an effect of down spacing. Looking at a few examples in my data I can see that it seems to be correct. Production is stopped in close by wells for at least 20 days. When they are put back in production they produce more oil and water.

                2. Mike,
                   As the charts shows the data appears to be wobbling along some trend line.

                   The reason why I proposed to also include the oil price (hopefully the charts do not become overcrowded) was to see if there were noticeable trend changes with the price.
                   If so it may have been interesting to understand why and what.

                   If the gas oil ratio came noticeably up with oil production down as prices are low over some time (several months) I would be tempted to dive deeper into the data to try to understand why.

          2. Here is the second one. One thing that I noticed is that back in late 2008, beginning of 2009 when the oil price fell, the average well production also fell. So it looks like they waited with starting production from the best wells back then until the price recovered. Thats the opposite to what people expected to happen now.

             

             1. The latest data point I presume is April 14.
                If I read the chart right, it shows data for the 9th month after first production and with time water cut is in an upward trend and so is gas to oil ratio.

                1. Yes correct.

          3. Regarding gas to oil ratio. We can see that it has increased in graphs as the gas production curve was bellow oil production curve 2008 and is now above it. However it is still low, because to get barrels of oil equivalent you divide it by about 6.

          4. Worth noting is that the number of wells put on production each month has not decreased up until 12/2014. So thats why total Bakken production has continued to increase.

53. Hello All, I don’t know if anyone has posted this link but it appears Alan Greenspan has become an energy expert. Interesting in an opaque sort of way but then what would one expect?

    http://www.zerohedge.com/news/2015-03-14/bubble-blower-energy-expert-alan-greenspan-warns-oil-hasnt-bottomed-yet

    1. Read it. Disappointing. He’s parroting things. Has no information not read in articles that quote company PR flacks.

54. sunnnv, helpful comment, thanks.
    I’m still sifting through it and would like get back to you about it, either here or as a carryover to another thread.
    With regard to your point about electricity, it would seem that it requires another level or more of complexity, but even so, I like the challenge of simplicity and local resilience, etc., which can nevertheless sometimes be less challenging, once implemented, than more inherently-complex, less local or resilient solutions.

    “In spite of these significant improvements, hydropower installations today are actually less efficient than those from earlier centuries. The culprit is electricity. Not long after the introduction of the water turbine, another change occurred: Instead of using water-powered prime movers to run machinery directly (as had been the case for centuries), water turbines were (and still are) used to generate electricity. This modern approach has introduced an energy deficit that has nullified any progress behind hydropower design efficiency.” ~ Kris De Decker

    From the link:
    “The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy.”

    America: You’ve got three more years to drive normally…

55. From the link:
    “The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy.”

    America: You’ve got three more years to drive normally…

    sunnnv, helpful comment, thanks.
    I’m still sifting through it and would like get back to you about it, either here or as a carryover to another thread.
    With regard to your point about electricity, it would seem that it requires another level or more of complexity, but even so, I like the challenge of simplicity and local resilience, etc., which can nevertheless sometimes be less challenging, once implemented, than more inherently-complex, less local or resilient solutions.

    “In spite of these significant improvements, hydropower installations today are actually less efficient than those from earlier centuries. The culprit is electricity. Not long after the introduction of the water turbine, another change occurred: Instead of using water-powered prime movers to run machinery directly (as had been the case for centuries), water turbines were (and still are) used to generate electricity. This modern approach has introduced an energy deficit that has nullified any progress behind hydropower design efficiency.” ~ Kris De Decker

    Ron, apparently, my IP has been blacklisted apparently. If you are responsible and can email me as to why, it would be appreciated. Thanks!

56. From the link:
    “The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy.”

    America: You’ve got three more years to drive normally…

    sunnnv, helpful comment, thanks.
    I’m still sifting through it and would like get back to you about it, either here or as a carryover to another thread.
    With regard to your point about electricity, it would seem that it requires another level or more of complexity, but even so, I like the challenge of simplicity and local resilience, etc., which can nevertheless sometimes be less challenging, once implemented, than more inherently-complex, less local or resilient solutions.

    “In spite of these significant improvements, hydropower installations today are actually less efficient than those from earlier centuries. The culprit is electricity. Not long after the introduction of the water turbine, another change occurred: Instead of using water-powered prime movers to run machinery directly (as had been the case for centuries), water turbines were (and still are) used to generate electricity. This modern approach has introduced an energy deficit that has nullified any progress behind hydropower design efficiency.” ~ Kris De Decker

    Ron, apparently, my IP has been blacklisted apparently. If you are responsible and can email me as to why, it would be appreciated. Thanks!

57. “The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy.” ~ From the link (see link about the MCP curve within this thread)

    “America: You’ve got three more years to drive normally” ~ Resilience dot org (just Google for the link ^u^ )

    sunnnv, with regard to your helpful comment in the previous thread, thanks.
    I’m still sifting through it and would like get back to you about it, either here or as a carryover to another thread.
    With regard to your point about electricity, it would seem that it requires another level or more of complexity, but even so, I like the challenge of simplicity and local resilience, etc., which can nevertheless sometimes be less challenging, once implemented, than more inherently-complex, less local or resilient solutions.

    “In spite of these significant improvements, hydropower installations today are actually less efficient than those from earlier centuries. The culprit is electricity. Not long after the introduction of the water turbine, another change occurred: Instead of using water-powered prime movers to run machinery directly (as had been the case for centuries), water turbines were (and still are) used to generate electricity. This modern approach has introduced an energy deficit that has nullified any progress behind hydropower design efficiency.” ~ Kris De Decker, Resilience dot org

    Ron, apparently, my IP has been blacklisted (as spam?) so I’ve removed all links from this post. If you are responsible and can email me as to why, it would be appreciated. Thanks!

    1. Caelan, I have no idea why your posts were marked as spam. I found them in the spam file and marked them as “Not Spam” so perhaps this will fix it. But there were no other posts there other than real spam. So apparently you are the only one who has had any problems.

       But if it happens again I will have to see if there is anything else I can do.

       1. My comments also stopped appearing. It happened once before and I switched email addresses. When it happened the second time, I didn’t have a third email address to use and just stopped posting.

       2. Ron. this also happened to me. I think it has something to do with the Resilience links

          1. I’ve never posted anything to Resilience, but I have twice found myself abruptly unable to post here.

             Tonight I decided to see if I was still blocked and I wasn’t.

             I know I’m not a particularly controversial person here, so there shouldn’t be any intentional reason to block me. But I didn’t know how to notify Ron to tell him I could no longer post.

             1. The only people I ever block are those posters who rant that global warming is a communist plot cooked up by scientists who are paid by the communist… or other such nonsense.

                I blocked one nuisance poster, a guy called Nony about a year ago. Otherwise that’s it.

                And I don’t delete posts. I have on very rare occasions but not in many months now.

                It is the spam filter that appears to sometimes screw up. I have no idea why. My email is DarwinianOne@gmail.com and anyone should post me if they are having problems.

          2. Oh, are you suggesting that certain links in comments here trigger landing a person into the spam folder?

             I suppose that could apply to me. I do occasionally post a link to a relevant article. Maybe some of those are perceived by the spam filter as spam posts.

             1. yes, links from the Resilience web site seem to trigger the filter. maybe other sites as well

       3. Thanks, Ron, we’re good.

58. California has about one year of water left. Will you ration now?

    By Jay Famiglietti. Op-Ed, L.A. Times, March 12, 2015

    As difficult as it may be to face, the simple fact is that California is running out of water — and the problem started before our current drought. NASA data reveal that total water storage in California has been in steady decline since at least 2002, when satellite-based monitoring began, although groundwater depletion has been going on since the early 20th century.

    Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain.

    Jay Famiglietti is the senior water scientist at the NASA Jet Propulsion Laboratory/Caltech and a professor of Earth system science at UC Irvine.

    1. The California column + two other articles:

       http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-503953

       I was struck by Davy Crockett’s description of Texas in the first half of the 19th Century:

       “I must say as to what I have seen of Texas,” wrote Davy Crockett, “it is the garden spot of the world.”

       1. Thanks Jeff,

          I missed your post up thread.

          1. As noted up the thread, one wonders what happens when millions of people start migrating because of a lack of water. Parts of Texas were literally uninhabitable, because of a lack of water, during the Fifties drought (when the population and population density were much lower than today).

             On The Oil Drum, I frequently mentioned a book by the late great Elmer Kelton, “The Time It Never Rained.” Mr. Kelton described West Texas as being in a state of permanent drought, broken occasionally by rainfall. It could be argued that this is true of most of the country west of the I-35 Interstate, with some exceptions.

             https://www.youtube.com/watch?v=Tqaek4w9c5k

             “Many a boy would become a man before the land was green again.”

             1. Jeff,

                Yeah, it sure looks like large scale drought induced migration is around the corner for a few places… California, U.S. Southwest, Sao Paulo to name a few.

                I don’t have a link but recall reading a month back that a Sao Paulo water utility executive remarked that people would have to “flee”.

             2. Texas Avg. Precipitation:

                

             3. Texas Groundwater Use (the kicker):

                

       2. Water, industry, drought and energy. Be sure to note the impact on copper production.

          Chile’s Water Shortage Threatens Wines and Mines

          by Matthew Craze, Bloomberg, March 9, 2015

          Chile is facing an eight-year dry spell that has left fruit withered, miners grappling for enough water to run plants and the forestry industry facing some of the worst wildfires in the last century.

          —Like California, drought has cut Chile’s hydroelectric production in recent years, helping send power prices to the highest in Latin America. Climate change threatens to expand deserts and reduce the Andean snowmelt on which parts of the country depend heavily for drinking water and irrigation.
          —
          The drought is so bad it has started to affect Chile’s mining industry, which is more accustomed to operating in the arid northern parts of the country. Chile is the world’s largest copper producer, providing a third of the globe’s output of the metal used in power cables and electrical wire.
          —
          Anglo built a desalination plant near its Mantoverde copper mine in central-northern Chile. BHP Billiton Ltd. and Rio Tinto Plc are building a $3.4 billion plant to feed water to the Escondida copper mine, the world’s largest.

          Desalination will cost Chile’s mining industry more than $13 billion if the technology is required by the government,

59. “…The perception of glut lowers prices, and this will hit the energy industry very hard due to its rapidly increasing cost base, and therefore its dependency on high prices. As prices fall and the business case disappears, much of the expensive supply will dry up, including most, if not all, of the unconventional fossil fuels currently touted as the solution.

    Prices are likely to fall faster than the cost of production, leaving profit margins fatally squeezed. While money remains the limiting factor, few may worry about the energy future, but the demand collapse will lead to a supply collapse in the future due to lack of investment for a long time, the concurrent decay of existing infrastructure no one can afford to maintain, transport disruption due to a lack of letters of credit, and the impact of intentional damage inflicted by angry people. Financial crisis takes the pressure off temporarily, but at the cost of aggravating the energy shortfall, and the impact of that shortfall, in the longer term.

    Producing energy from ‘low energy profit ratio’ energy sources requires a financial system capable of providing copious amounts of affordable capital, and is dependent on the availability of cheap conventional fossil fuels in order to supply the up-front energy necessary for what are highly energy intensive processes. In energy terms, low energy profit ratio energy sources are nothing more than an extension of the current high energy profit ratio conventional fossil fuel era, which is what sustains the current level of socioeconomic complexity. The financial system is one of its most complex manifestations, and therefore one of its most vulnerable.

    Once the financial system has the accident that is clearly coming, we will be looking at a substantial fall in societal complexity, but that fall in complexity will eliminate the possibility of engaging in such highly complex activities as fracking, horizontal drilling, exploiting the deep offshore or producing solar photovoltaic panels and inverters. ‘Low energy profit ratio’ energy sources cannot by themselves maintain a level of socioeconomic complexity necessary to produce them, hence they will never be a meaningful energy source.” ~ Nicole Foss

    ‘Reach For The Dead‘, from ‘Tomorrow’s Harvest’

    God bless our home…

    1. Nicole, before you make such sweeping generalities on subjects you have little knowledge of, I suggest you get together a good crew of people who do have such knowledge, and have proven it by accomplishment, and give them the charge to construct a process that gives comfortable lives with nothing but what we have here and now, and does not rob our grandkids of their biosphere.

       I believe you would be greatly surprised at the wealth of possibilities they would present in a short time.

       1. That may be precisely what she is doing, wimbi, since last I heard, she had joined an ecovillage. Her background may have something to do with nuclear safety (ironic, if so perhaps), so maybe she has some idea of what she is talking about. My personal sense is that she seems to and it lines up with some of the topics and other quotes/links of this article’s commentary as well.
          Anyway, how or what might you call or describe your basic premise/approach/ideology/whatever? In that regard, I would still like to see some pics or whatnot from you so as, for example, to help explain, inspire and teach, etc..

          Pic below is of autumnberry. It’s fairly tasty/healthy and, unsure it’s native to here, but grows a fair bit in the small town where I used to live. It is part of my foray into learning about wild edibles and medicinals.

          By the way, nature is technology. We are meat machines. Nature has been around far longer than we, it has created us, and we humans keep trying to ‘reinvent the wheel’, where nature has already done so, and has done a better job. What is appropriate technology? Is it a paper wasp’s nest, a McMansion? An EV? A nuclear power plant? An electric hand-blender for my autumnberries below?

          1. wild autumnberries, autumberry puree, and some of the puree added to apple juice.

             

             1. Nice picture!
                My approach is pretty simple
                I believe the IPCC that we have to get off carbon fuels right quick
                I have spent my engineering career doing thermal machines that nobody thought possible. One has been orbiting the sun for past 15 yrs and nary a iota of performance decay- lots of moving parts in it. There are about half a dozen on the space lab.
                So I know something about energy-generating machines, and it’s easy for me to see all sorts of ways to use solar/wind/biomass to give us the NECESSARY energy for a good life.
                BAU is totally insane, mostly pure waste.
                So, I take the $ my son got for me by muscling me out of the business and selling it to the heavyweights who couldn’t compete with our product, and am using it to get my town as far as possible along the zero carbon route as possible, all things given.
                My motto- JUST DO IT. Always worked in the whizbang business. I came with the thing itself, running, when the other guys brought $ proposals for how to do it.

          2. Those autumn berries look like buffalo berries to me. Buffalo berries make great jam.

             The natives in Montana would herd buffalo, stampede them in the direction of a cliff and the buffalo, unbeknownst to them, would meet an untimely demise.

             The natives then had their work cut out for them, buffalo hides to process into teepees and buffalo ribeye was on the menu for dinner in the evening.

             Soon enough I’ll be out harvesting wild asparagus by the pound at my secret asparagus gathering places.

             Plenty of gasoline available to get me there.

             I’ll stop picking on wind turbines, I carefully chose my farm location, under the flyways of geese, whooping cranes, sandhill cranes and ducks with a few hawks and eagles in the mix. Thousands upon thousands of geese each spring and fall flying up above. They don’t like wind turbines much, so I’ll let them do the talking from here on out.

             Some Dan Hicks music for today:

             https://www.youtube.com/watch?v=ROcyo5dPFXU

             .

       2. Mrs Foss is, I believe, mostly teaching permaculture these days. So she’s very much doing that already.

    2. Thanks for posting this Caelan. I think Nicole hits the nail squarely on the head here.

       ‘Low energy profit ratio’ energy sources cannot by themselves maintain a level of socioeconomic complexity necessary to produce them, hence they will never be a meaningful energy source.”

       That’s it in a nutshell. That says it all. End of story, over and out.

       I have been following Nicole for years on The Automatic Earth though I have been too busy lately to read her stuff. I must try to catch up. She knows what she is talking about.

       1. Why does the IEA say US may run out of storage when EIA has a chart which shows we are at 60%?

          60% may be inaccurate, give EIA counts pipeline storage, but this misinformation smacks of government attempt at price manipulation.

          If governments are attempting to manipulate price, look for a violent spike higher, when the jig is up.

          I’m not a conspiracy guy, but that comment hit me, especially given its repeating the Citibank Goldman meme while ignoring the facts.

          1. It’s pretty hard to undo an embedded theory like supply and demand. If alleged 1-2 mbpd oversupply exists (for 9 months now, that’s 540 million barrels) and storage hasn’t increased that much, then there must be more storage . . . somewhere . . . somehow.

             1. Watcher, I really don’t think it works like that.

                The price dropped because the supply was above demand. And now because the price is low supply is dropping and demand is rising. That’s just how it works. Always has and always will.

                But supply is more elastic than demand, that is why you see rigs being stacked at a near record rate. But it’s all supply and demand in action.

                And not to worry, that “theory” will never be undone. That’s because it’s not a theory, it is a fact. If it wasn’t a fact, those rigs would still be in the field.

                1. Whaaa. The rigs are not in the field because the price is low.

                   This doesn’t have to have anything to do with supply and demand, per the point.

                2. Really? Are you joking? It has everything to do with supply and demand. Now I know why you think the law of supply and demand is just a theory and not a law at all. You simply don’t understand it at all, that’s why.

                   Price is the important thing here Watcher. The supply is greater than demand which drives the price lower. The price goes so low that the drillers are losing money with every well the drill. So they put their rigs in the yard and go home. This lowers supply, and brings supply back in line with demand.

                   Really Watcher, it’s that simple. I am really shocked that you cannot understand so simple a concept.

       2. You’re welcome, Ron, good that you concur and thank you for a great forum…

          Fossil fuels will get things started, but it is unsure how far they will penetrate, especially given the discussion hereon with regard to the knock-on effects of a weakened global economy on, but also, by, oil price and production.

          Also, and this is probably quite important, if we look at the issue from the perspective of nation-state governments’ interest in economic power; solar and wind, etc., would appear rather antithetical. IOW, ‘You first.’. That’s why climate change conferences seem to have gone practically nowhere.

          Incidentally, since breaking open your spam folder, many of my previous attempts to post have come tumbling out, splattering the thread with a few quasi-duplicates that you might see fit to delete. The edit function is nice but a double-edged sword. ‘u^

    3. ‘Low energy profit ratio’ energy sources cannot by themselves maintain a level of socioeconomic complexity necessary to produce them, hence they will never be a meaningful energy source.”

       Ok, reading between the lines there ‘Solar, Wind and Hydro, can’t and won’t ever be meaningful sources of energy! Why?! Because they will never be able to support BAU!

       Ok! Guess I had better go secure my cave now before it is too late… As for anyone thinking they can build any devices that might be used to do work using Low energy profit energy sources, fuggedaboutit!! You can’t do it, no way Jose! If you don’t have the current incarnation of BAU that’s it. We’re all FUCKED!

       I think I have at least some clue about the fact that BAU is no longer sustainable and it will falter at some point in the not too distant future but to unequivocally claim that wind and solar are useless sources of energy without even trying to use them to build a different kind of simpler less consumptive industrial society, is IMHO just plain stupid!

       1. I think we tend to overlook the fact that manufacturing technology is a science in itself. I would argue that the focus of research in pholovoltaics in the future should begin to focus on streamlining manufacturing technology, using earth abundant elements, paying strict attention to thermal budgets etc so that it becomes possible for the technology to become self sustaining at least at the back end. Mining will always be an issue. Here we are talking about primarily Cu, and Ni and Zn and Al. if such efforts are successful. Si lies pretty near the surface in huge quantities.

       2. She is not saying that they are useless, just that they will never ramp up to a level that will allow people to dismiss peak oil.

          1. No worries! Peak oil will dismiss a lot of people!
             Cheers!

       3. BAU doesn’t have to falter at all.

          Kill off competitors. Maintain BAU for a very long time. Make sure the history books say that the dead competitors were evil and started the war.

          It’s the obvious solution and the overwhelmingly most likely one.

          1. You are being cynical and silly.

             1. Thank you. It’s a precious gift.

                It’s also true.

             2. Hi Ron and Watcher.
                I’m pretty sure your disagreement is basically semantic. I roll this around in my head occasionally, and end up in darker places than Watcher does.

                Unlike, say, Dennis, who thinks we can solve our problems by reducing the fertility rate, a long term process for which we don’t have the time, I am firmly in the “reduce the lifespan” camp…not because I want to die sooner, but because if you eliminate one option ( lower fertility rate), you’re left with the other.

                Once the general population understands that there are limited resources, they will fight over them. And once they realize that if there are fewer people, there are more resources for those still alive, they will embrace the paradigm. Tribe against tribe.

                It might not be war or genocide as we understand it, but I am sure that once it becomes obvious that there will be winners and losers, and that the losers will not be poor, but dead, there will be a concerted effort to be amongst the not dead. The most convenient way to manage that is to kill the “others”. In this scenario, it doesn’t matter how you define the “others”, as long as there are enough of them.

                Ron, I’m pretty sure you expect a collapse and die-off at some point;
                Watcher is just suggesting that people will try to influence the nature of the die-off for their own benefit.

                -Lloyd

       4. Ok, reading between the lines there ‘Solar, Wind and Hydro, can’t and won’t ever be meaningful sources of energy! Why?! Because they will never be able to support BAU!

          I’ve never understood this argument. It’s circular thinking. “BAU will end because nothing can support BAU.”

          And my reaction is, “So?”

          There are a lot of problems with BAU and therefore replacing it with something else might be preferable.

          Saying that BAU is coming to an end isn’t a bad thing. Definitely from an environmental point of view, we want BAU to end.

          1. Well it’s a little more than that. In fact it’s a lot more than that. These “renewables” (alone) will never be able to support civilization as we know it. In other words when fossil fuels start to decline, there will be a limit as to how much and how fast these things can be brought on line, and at what cost?

             What Nicole, and others, are talking about is that these things will not prevent collapse when fossil fuels start to decline in earnest… And they will.

             1. What Nicole, and others, are talking about is that these things will not prevent collapse when fossil fuels start to decline in earnest… And they will.

                I think we get back to the definition of collapse.

                The end of BAU is not collapse.

                The end of most forms of life as we know it on Earth definitely is collapse.

                So somewhere between the end of BAU and the end of life on Earth will be some level of sustainability. Is that level a “collapse”? It depends on what one’s definition of collapse might be.

       5. You first. ‘u^

60. CAN THE WORLD GET RICHER FOR EVER?

    http://www.bbc.com/news/business-31868506

    “Growth is seen as a panacea for a great many ills. It creates jobs, erodes debts and raises living standards. For politicians, it also generates votes. It is almost universally seen as a Good Thing.”

    “We live on a finite planet, but growth is exponential. So an annual increase in gross domestic product (GDP) of 3% might not sound like much – but it means an economy will double in size every 23 years.”

    1. Before anyone jumps to say inflation things, note that GDP growth is generally quoted “real” aka inflation adjusted.

       But the inflation the GDP doods quote is not the same inflation quoted for “CPI”. It’s an implicit price deflator that they compute themselves.

       Regardless, 3% is after inflation so you can’t say that 3% inflation would make it flat.

       Of course in a world of global QE there are other ways currency can change its . . . level (not value) that aren’t measured by inflation.

       1. Although it should be mentioned that the economists have some room of manipulation in how to calculate the inflation rate and therefore the “real” GDP growth rate.

          For example, just by changing the base year and some methodology, India recently raised its growth rate from about 5% to more than 7%

          This has implications for energy study too. In the Indian case, just through the above statistical exercise, its “energy efficiency” surged by 2%. I suspect that some of the recent energy efficiency surge in China has to do with this as well.

          So when people celebrate the “decoupling” between economic growth and energy consumption, they need to be aware of how economic growth is meausred

          1. Not bad, dood.

             I’ve also seen such energy efficiency stuff quoted in $$$ worth of oil or kilowatt hours, rather than barrels, joules or wattage. This opens the door to even more silliness.

61. I’m curious to what other people think about the FED’s ambitions to raise their benchmark lending rate and how would such a rate hike effect oil. I think if the FED actually does raise their benchmark lending rate. At first the reaction from the bond market will be higher yields. Followed by the entire yield curve collapsing into negative territory. As money rotates out of stocks and HY bonds and foreign assets into US treasury bonds. If the entire yield curve goes negative the FED will have a hard time doing more QE. FED will lose all credibility if it buys trillions of dollars of negative yielding treasury bonds. Remember hyperinflation is a total loss of faith in a currency. It’s not caused by too much money being in a system. FED would also have to eat the loss on those bonds as they mature. While the FED would become technically insolvent it would never record such a loss on it’s balance sheets. Yields eventually would become so negative the FED would be the only buyer which i my opinion would lead to a total loss of FED credibility. I’m thinking higher interest rates are a big negative for oil. But i also think bonds are in a massive bubble which will eventually come to an end and when it does come to an end it wont be good for oil either. I was just wondering what other peoples thoughts were.

    1. My thoughts are that is arm flailing gobbledygook.

       The Fed likely will do a 0.25% increase at the short maturity end of the bond maturity array aka yield curve. This doesn’t have to do anything at all to the 7, 10 or 30 yr instruments.

       It also will have no significant impact on pretty much anything at all. It is being done to support a boom narrative. The next 0.25% might be years away after that one, but because the “lift off” theme has gotten so loud, a choice not to do it would be far too widely seen as “the Fed never really thought the economy was doing well” . . . and so it has to happen.

       It will be fuel for the “clearly on the path to a return to normalcy” doods, who seem not to have realized that after 7 years they are celebrating just barely getting on such a path, with recession . . . in a 7 year context . . . now overdue.

       Editing . . . now that would be cool.

       So we get shale smash and outright recession from it. The chart watchers can leap to their feet and swagger forth to the camera to announce that “it’s all cyclical!!! Proven!!!”. We were due for a recession. You can see it in our historical charts!!! Pay us for our opinions from now on, pls.

       1. FED’S repo market highly depends on short term interest rates. Most of the liquidity that goes into the stock market and HY bond market is generated in the repo market. The FED through it’s repo market loans treasury bonds to banks and some hedge funds. These banks and hedge funds use these treasury bonds as collateral to borrow short term in the repo market(from the FED). They invest this low yielding money in higher yielding stock and HY bonds (shale oil and gas). When short term interest rates rise the liquidity available to the stock market and HY bond market dries up. Causing exit of stock market and HY bonds and entree into long end of yield curve where positive return still exist causing long end of curve to collapse toward negative territory.

          1. A lot of the money that’s been going into shale oil and gas isn’t loans from a bank in the form of a note. It from banks and hedge funds investing in HY bonds. With money they have borrowed very cheaply from the Fed. Since the underlying collateral for all this liquidity are the bonds that the Fed owns any rate hike destories the underlying collateral used by banks and hedge funds forcing them into selling their positions.

             1. Sawdust, banks do borrow from the Fed but hedge funds don’t. In fact hedge funds do not borrow at all. A hedge fund is rather like a mutual fund except they take much higher risks. A hedge fund can buy or sell futures but a mutual fund cannot.

                People put their money in a hedge fund in hopes of getting a better return than they would from a mutual fund. They often do but they also often lose a lot of money.

                What is a hedge fund

                Also, a hedge fund has nothing to do with “hedging”, which is what some oil companies do. A lot of people think companies hedge through a hedge fund. This is totally incorrect. The two have nothing to do with each other.

                1. Ron, I politely disagree. Hedge funds do borrow. They leverage collateral which is borrowing. And a few of them do have access to the Fed’s lending facility to do this. It’s a win win situation for the Fed and the hedge fund. A few are allowed to leverage collateral at just above Fed’s current benchmark rate in order to invest with. In return when fed needs to prop up the market at critical moments it can call on them to buy the market. I understand you don’t believe in the so called “Plunge Protection Team” and i’m not going to try to convince you otherwise. The point i was trying to make is that higher interest rates will probably be a drag on the shale oil business and maybe global oil business and i was curious to those who know much more about oil business than i do. If you or anybody else might shed some insight on how it might effect the oil business in ways that just wouldn’t occur to someone like me who is interested in learning about oil but who’s knowledge is limited mainly to blogs such as yours and the posted comments. By the way your blog is one of the best out there when it comes to information content.

                2. Yeah, I stand corrected on that one.

                3. Well, long end yields have a good shot at decline. Unless the Fed decides it doesn’t like this and takes whatever action.

                   Orrr if other CB don’t like money flowing to US Ts and impose capital controls. Very possible. Then US T yields won’t fall, even with Germany sub 1%.

    2. FWIIW,
       One of the things I believe will be affected by a rate hike is dollar denominated debt that has doubled since 2007 to about $9T.
       A rate hike may also strengthen the dollar, thus making it costlier in local currencies to service dollar denominated debt.
       This may affect demand also for oil and thus its price.
       Article link below worth the read (apologies if posted earlier).
       http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11465481/Global-finance-faces-9-trillion-stress-test-as-dollar-soars.html

       1. Dollar carry trade that began when Fed cut it’s benchmark interest rate from 5.25% all the way to 0.25% is definitely starting to unwind. Which will definitely cause oil demand destruction outside the US. Foreign central banks are cutting interest rate like crazy in effort to combat the dollar liquidity thats leaving. Which is counter intuitive cause it only pushes the dollar higher against their local currencies causing further capital flight. But it’s the only tool foreign CB have to combat deflation.

62. CALL ME A SKEPTIC

    When I look inside the data my seismic crew collects, I realize I am looking at combinations of earth physics, mathematics, geology, and presentation. From this data I then work to make an interpretation of what the geology is, the age of the rock, the paleo-environment of its deposition, and the economics of drilling a well into it to test that “theory” or interpretation. Another geologist/ geophysicist can look at that same data and make a completely different interpretation. History has shown that there inherent “pitfalls” built into earth physics that can make a bold interpreter into a complete ass when the objective turns out to be the “pitfall”. You had better have a good background knowledge of the area you are working, be aware of geologic history, use all the tools, ( by the way, most oil and gas fields are leaking to the surface before they are found, which makes soil sampling an exploration tool). Sooner or later even when using all the tools available you still become the ass.

    I have been skeptical from the first about the economics of squeezing money from source rocks, the shale revolution. I am amazed what zero interest rates, and endless pressure pumping horsepower can do to a tight rock, but there is still the “pitfall” of not being economic.

    I am not a climate expert, wasn’t asked to vote about AGW, but question how much geologic historical data were used in the models, comparison to similar or warmer periods in the past etc. Only recently have I heard anything discussed climate wise related to ocean heating effects of accelerating or slowing mid oceanic ridges where new crust is being added. I have never heard a discussion of what kind of rock type is being subducted and at what rate releasing what type of gasses. Sunspot data and its history surely must be an added factor. There is no doubt that CO2 levels are increasing, but making your model from greenhouse gasses alone seems to be setting up for many “pitfalls”.

    1. Sooner or later even when using all the tools available you still become the ass.

       I resemble that remark.

       1. Might ought to trademark that as Doodlebugger’s law!

    2. Or as they are wont to tell you on day-one of geophysics/geology 101: Interpretations are almost always non-unique.

       1. How then could a science like climate interpretation not also be just as hard to pin down, yet I am told I am so wrong to question the 97%?

          1. There’s questioning and then there’s disingenuous questioning where the questions have little to do with an interest in the answers.

          2. Mother Nature has kicked my ass so many times over the past 51 years I have lost count. I therefore don’t even keep count anymore. I have drilled dry holes that left me babbling to myself for weeks at a time and left the hair scratched plumb off the top of my head. I embrace Doodlebugger’s Law wholeheartedly.

             No truth is absolute and nothing in life is above questioning. It is “disingenuous” not to.

             Mike

             1. Mike,

                It is extra disingenuous (and desperate) to mirror valid accusations of disingenuousness to prove that we just can’t know stuff. And the argument that “we just can’t trust what we seem to know” is stupid and tiresome. Try to come up with something better, please.

                And it figures that you would immediately embrace the pseudoscientific Doodlebooger’s “Law”.

                1. Futilitist, please stop insulting posters on this blog. I think it is possible to carry on an intelligent conversation without doing that. Please speak to them with the respect any man deserves.

                2. Speaking of respect, what happened to my posts? They appear to be gone. That’s not very respectful of my free speech rights. Please explain to me why I am being censored on this forum.

                3. Because if you don’t want discussion of the disputed climate change theory on this forum, THEN PLACE A DISCLAIMER STATING NO CLIMATE CHANGE DISCUSSION.

                4. I think Ron is ok with climate change discussion as long as it is not disingenuous. ‘u^

                5. Well I’d like to know one way or the other so that the Heritage Hot Sheet can reflect this forum’s view on discussing climate change. What’s disingenuous is subject to individual opinion.

                6. http://www.heritage.org/press-media/hot-sheets

                   We watch the news as closely as you do, and each day we provide the press with a list of Heritage experts who know the subject matter cold.

                   Founded in 1973, The Heritage Foundation is a research and educational institution—a think tank—whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.

                   Cal,

                   I am so sorry that Ron saw fit to remove your hilarious comment concerning CO2.

                   But you need to go away. Seriously. You do not belong here. This is supposed to be a place for smart people to talk about important things. Things that, quite apparently, you could never understand because you are clouded by an extreme ideology. Good bye.

          3. Doodlebugger (I like the name, does it have to do with gasoline powered railroad cars?)
             The physics of global warming is simple. I did infrared spectroscopy as part of my living, carbon dioxide and water show up really well in the scans. That means that they absorb infrared radiation. Methane does as well. Heat is trapped much of it is re-radiated back into the surface and atmosphere.

             The science of climate change is based on a thirty year time scale, so it takes a while to differentiate weather from climate. However, when both oceans and air are heating up and the mass of ice on the planet is steadily going down for decades, we don’t need an act of God or Congress to tell us the direction of things. The downside is the delay in heating, we are now experiencing the effects of changes that happened decades ago. So stay tuned, more to come.

             And this is not just an inconvenience or academic exercise. People are losing access to water right now and others are getting extreme floods. Things are changing now. Shifting monsoons will push agriculture to the limits.
             It wasn’t long ago that trees that had stood for up to 300 years were crashing down all around my area by the thousands. Change is in the air.

             1. Frankly I think the climate change stuff should stay off the comments section here since it just invites controversy and isn’t relevant to the posts. But I will say, if the “global warming” crowd really wants to be taken seriously, then they really need to be altering their lifestyles to reflect the belief. That would out of necessity include staying off computers and the internet since there’s no way of using either without also using fossil fuels or being complicit in the use of fossil fuels. In the end, when the politicians and celebrity activists shouting the loudest about “global warming” have some of the largest carbon footprints of anyone on earth…well, it makes it real hard to take any of the science seriously.

                1. Dude, it is not hard to take the science seriously. Stop saying that.

                   And don’t overgeneralize. Real serious climate science discussion is always welcome here. Anti-science bullshit is not.

                2. Again, climate change discussion here just seems to invite controversy, but “real serious climate science” and “anti-science bullshit” is all in the eye of the beholder, right? I mean, if you’re not a climate scientist (and you have given me no evidence for me to believe you are) and I am not a climate scientist (I am not) then the only way we will be able to discern between real science and bullshit science is by using our political ideologies to frame our perspective. I happen to be a staunch conservative who believes in the power of limited government intrusion into the free market and allowing capitalism to create economic growth and prosperity. What I see from the other side (the left) is that some extreme elements within it wish to use environmentalism, including belief in an unproven theory, to usurp our current economic model and replace it with their own, untested, one. This is just such a completely frightening thought to me and other conservatives. To be honest, I fail to understand how our country has even gotten this close to being taken over by these elements, but here we are, and here I am trying to fight them off, even though I don’t have youth on my side. The faces of my 14 sweet, beautiful grandchildren give me courage and inspiration each day though.

                3. “Merchants of Doubt takes audiences on a satirically comedic, yet illuminating ride into the heart of conjuring American spin… have the… aim of spreading maximum confusion about well-studied public threats ranging from toxic chemicals to pharmaceuticals to climate change.” ~ Rottentomatoes.com

                   “The jury’s back in on the PR hacks who sow confusion and manufacture ambiguity in the public debate over climate change: they’re guilty of crimes against not only science and their fellow citizens but humanity itself. ~ Chicago Reader

                4. Ah there we go, another apparent drive-by in the middle of the North American night (get ’em over their morning coffees) with the out-of-nowhere nickname of ‘Jerry O’ with fallacious argumentation galore.

                   Anthropogenic Global Warming/Climate Change exists. That debate was already won.

                   The discussion I imagine those who lost don’t want us to now have is what to do about it, since what to do about it means, in part, some ethical considerations/implementations, presumably to some neo-feudal lordships’ losses.

                   Of course some of those with no moral compass will try to take the chaos-creating, potential population-reducing, war shortcuts.

                   …While they try to snuff out the appropriate climate change, etc. conversations.

                5. I have no idea what you’re trying to insinuate or such because I have been reading this blog for months and have commented once and a while. Except since you seem to be prying into my life, I’ll confess the interest I have here is that one of my grandchildren has been working in the Bakken since late 2012 and my own father was born (a long time ago) on a farm near Flasher, North Dakota. I only found this blog by doing a search for Bakken production results since I was, and continue to be, amazed with how much of an economic miracle the whole thing is and how almost overnight it came to benefit so many thousands of people, like my own grandson, so fast. Far as I’m concerned, it’s proof positive of how the American Free Enterprise system is simply unlike anything else in the world as far as creating wealth and prosperity. The climate change stuff is way down the list as a secondary concern of mine, but I have already been forced to explain my views regarding that. One more thing the O is for Olsen, my father was the son of your typical Scandinavian family who moved into the the n. plains in the late 1800’s.

                6. Like this?

                   A quote:
                   “…pushing the officially sanctioned leftist global warming bunk, which MUST be countered with the TRUTH of what’s really trying to be sold to the American people by these corrupt government grant aided climate scientists in bed with the ‘Axis of Evil’ that is the globalists at the UN…”

                7. Yea? And then I tried to take Boomer II’s advice to heart (I guess Boomer II isn’t an “out-of-nowhere” nickname?) and tried not to argue climate change here while I was reading. Anyway I’m putting the laptop down and going to try to get some sleep now. I’m already up most nights with sleep apnea and even though I really would like to take my country back to our more conservative and freedom-pursuing days I don’t want to also be kept up all night doing it when I can already get my fill of arguing about politics all day long anyway. Good night and God bless.

                8. I wrote ‘apparent‘ in one of my previous comments-in-question, which, in retrospect seems kind of charitable.

                   I’ll put this under your pillow, maybe you’ll sleep better with it:

                   “Many people’s thinking is permeated by state perspectives. One manifestation of this is the unstated identification of states or governments with the people in a country which is embodied in the words ‘we’ or ‘us.’ ‘We must negotiate sound disarmament treaties.’ ‘We must renounce first use of nuclear weapons.’ Those who make such statements implicitly identify with the state or government in question. It is important to avoid this identification, and to carefully distinguish states from people…” ~ Brian Martin, ‘Uprooting War’

             2. Allan H: Doodlebugger is term that country folk gave to seismic guys early in its history. It may have come from the practice of digging holes then blowing them up with dynamite kind of imitating the actions of the native insect and its holes. We’ll just have to disagree on climate in that I need no more wars in my life.

    3. FYI low earth orbit spacecraft have a shorter time in orbit based on sunspot totals. Not in function. In orbit. So sunspots do have unexpected effects.

       An energetic sun puffs up the atmosphere, increasing molecular density of air per cubic meter at higher altitudes, and erodes spacecraft velocity, then altitude. Then functionality.

       1. “An energetic sun puffs up the atmosphere…” ~ Watcher

          Wonderful! ^u^

    4. Welcome Doodlebugger (aka “A SKEPTIC”)

       “When I look inside the data my seismic crew collects, I realize I am looking at combinations of earth physics, mathematics, geology, and presentation. From this data I then work to make an interpretation of what the geology is, the age of the rock, the paleo-environment of its deposition, and the economics of drilling a well into it to test that “theory” or interpretation. Another geologist/ geophysicist can look at that same data and make a completely different interpretation. History has shown that there inherent “pitfalls” built into earth physics that can make a bold interpreter into a complete ass when the objective turns out to be the “pitfall”. You had better have a good background knowledge of the area you are working, be aware of geologic history, use all the tools, ( by the way, most oil and gas fields are leaking to the surface before they are found, which makes soil sampling an exploration tool). Sooner or later even when using all the tools available you still become the ass.”

       Gosh, you seem like a very knowledgeable guy. You would seem to share a lot in common with the regulars here. I guess we should welcome your arrival into the discussion.

       Call me a skeptic, too.

       I couldn’t help noticing the great care with which you constructed your opening paragraph. First, make everyone comfortable with you. Seem friendly, reasonable, and even knowledgeable. Then transition smoothly from geology and oil field economics to testing a “theory” or interpretation, with “theory” in quotations. You then note that geologists/geophysicists (not exactly the same) can look at the same data and come to different conclusions, introducing ‘reasonable’ doubt generally. You then slide into a discussion of “pitfalls” built into earth physics that can make “a bold interpreter into a complete ass”, and nobody wants to be a complete ass (so I guess we had better not jump to wild conclusions).

       Your first paragraph is a good set up for something you must be pretty skeptical darned about, but you haven’t said what it is yet, which seems kinda suspicious to me.

       All in all though, it is a very well constructed bullshit argument. Impressive. How long did it take you to write it?

       “I have been skeptical from the first about the economics of squeezing money from source rocks, the shale revolution. I am amazed what zero interest rates, and endless pressure pumping horsepower can do to a tight rock, but there is still the “pitfall” of not being economic.”

       Great segue paragraph. It gracefully carries the essence of your bullshit argument to what I assume will finally be your actual topic.

       “I am not a climate expert, wasn’t asked to vote about AGW…”

       Who the fuck asked you? Did you see anyone here even talking about this shit?

       I knew it! Another dumbass climate change denier. We had just experienced a refreshing couple of days without this crap. That may have been a record. Now Mr. Doodlebugger A. Skeptic has to come along and mess things up. Perfect.

       This is a peak oil website, not a climate change website. We were having a great discussion about the upcoming collapse and other peak oil related stuff. There are plenty of other sites on the web to discuss climate change bullshit. So either talk about peak oil related things or go away. Thank you.

       1. Futilitist,

          I think you pretty well nailed it (him). Good job!

          1. delete

          2. Thanks Doug.

             These guys are a real pain in the ass for sure, but they are amazingly transparent at the same time. 🙂

          3. And I’d bet Cal Eisenberg below is the same dude and hopefully Ron will erase him before someone counters his BS. Ron??????????

             1. I don’t think he is the same dude. He is not as ‘sophisticated’ as Mr. Doodles. Way more spastic in his post. If it is the same guy, Mr. Doodles is a linguistic jeen yass. I think Cal is just a friend.

                So, good news: Probably not a sock puppeteering troll.
                Bad news: Possibly a coordinated attack.

                Edit—

                Oops, third possibility: Mr. Doodles IS a troll who cuts and pastes the canned arguments of other idiot deniers.

                It’s like a fucking hall of mirrors here sometimes.

       2. Futilist : I’m sort of skeptical that we will be best friends but I thank you for responding. I also do believe a lot of what the smart people on this site say and am very hesitant to step into a fray. I would be disingeneous to be here and not state who I am. I apologize to you for messing up the couple of good days and after introduction am looking foreward to learning more from all involved.

          1. Doodlebugger,

             It’s Futilitist. (FU-TIL-I-TIST)

             We’ll see how it goes.

             1. Ok: Sorry for the misspelling.

    5. Yeah, um, it’s one thing trying to interpret a poorly resolved fault in a geologically complex area and then processed by the cheapest contractor you could find. However, given the quality and corroboration of most climate data, it’s the interpreting equivalent of a beautiful unbroken anticline which was shot on flat seas, lovingly deghosted and hasn’t a hint of multiple. So basically its like one of my datasets.

       Also if you do the reading, most models attribute early century warming to the sun and late century to humans. Recent solar activity is miles off what would be needed.

       1. Well said Sam. I was to lazy to say (basically) the same thing. Besides, I’m not sure your explanation will get the reception it deserves. 😉

       2. I would love to have that kind of data but midcontinent, surface sourced, shallow basement, rough topography sometimes gets a little dicey even using dual processors. I’ve learned my lesson and will try not to comment further on climate.

          1. Hey Doodlebugger,

             Please take the Futilitist Collapse Challenge, up the page.

             http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504528

             1. Futilitist: Man I cannot prove you wrong, but hope and pray you are. I lived through 1985, the sub $10.00 oil, and borrowing to get the business through the month. I am pretty simple really. I look at the price I am getting for my oil and gas and know how much I have to find that year to keep the wolf away from the door. It is looking to be harder and harder near term, but nobody said it would be easy did they?

                1. Further, I am not hedged do not have a diversified portfolio in that I am crazy enough to have bottom fed for cheap competitor oil stocks, and have a family and many employees that depend on me. So there it is–pretty much all on the line.

             2. After looking at your graph for a bit I do make some observations. After the dust settles from this downturn the cost of production (black line) is going to come down quite a bit. Frac companies and drillers will drop prices. I’ve heard as much as 30% already in some cases. Money will not be thrown around like catered meals to the drilling rigs, (I ate balogna), and land men will have more realistic limits, ($25,000/ acre bonuses will be a thing of the past). Production will balance and the price will start back from the abyss. The cross will be made and the market will head toward its next overcorrection.

                1. Hi Doodlebugger.

                   Thanks for your thoughtful comments. We will just have to wait and see how this all shakes out. I hope I am wrong, too.

63. Australia open. Tokyo pre opening now open.

    WTI scaring the $43s. $44.08.

    1. Not scaring anymore, actually in ’em. $43.85.

       1. Interesting enough the dollar index had an opening gap to the top side for the second week in a row it has potential for a correction from here to the downside. Oil could possibly be making a double bottom here? Or will it breakdown and the dollar continue to soar higher?

       2. My prediction is that WTI will breach $40 this week.

          Prediction number two is that Williston Light Sweet posted will be below $25 3/31/15

          Not sure what the end game is here. Just all part of it I suppose.

    2. Gee wiz, what a surprise! Oil is falling hard. I wonder why?

64. At 21 and 19, My husband and I moved to Dickinson ND (the second biggest oil town in North Dakota- besides Williston) 3 1/2 years ago with a car worth only 3k, a trunk full of clothes, and 2k in our pockets. It was not easy for the first couple months but we worked our way up and I now make $40,000 a year working 8-5 mon-fri (while paying for my online college degree out of pocket) and my husband makes about $150,000 per year working in the oilfields and he only has his GED. We came from California where we were making minimum wage working dead end jobs… if you are smart and a hard worker you will do very well in ND!!! We have half of a 2013 Dodge Challenger paid off and half of a 2010 ford f150 paid off… they will both be paid in full by the end of this year. We also just paid cash for my husband’s 2004 Dodge Ram to drive to and from the oil rigs. We rent a house and if you have good credit and you are a good person you will find housing fairly easily. There are so many AMAZING opportunities in this state and if you are financially responsible, you can save up ALOT of money very quickly! 🙂

    1. Mother Nature has kicked my ass so many times over the past 51 years I have lost count. I therefore don’t even keep count anymore. I have drilled dry holes that left me babbling to myself for weeks with the hair scratched plumb off the top of my head. I embrace Doodlebugger’s Law.

       No truth is absolute and nothing in life is above questioning. It is “disingenuous” not to.

       M.

       1. Mike. Those of us who live in commodity based areas have came to accept that we will get our ass handed to us from time to time.

          That is about as close to an absolute truth as there is in these parts.

          1. Also, I’m getting superstitious. Since I started posting here, oil has dropped from around $80 WTI to soon to be under $40 WTI.

             Until now, I haven’t liked the price crash, but could live with it. We were in the black barely the first two months of 2015.

             However, I am now convinced the price will drop to at least $33 WTI, which will cause us a lot of pain if it lasts for awhile.

             Therefore, because of that and because I’m posting too much here anyway, I am going try to stop posting for awhile.

             We have survived two other crashes and Dad has survived another, so we will probably make it, but it appears to be headed from a hemroid to a serious situation.

             I thank Ron and many of the posters here. This is a great site! I’ll probably be back at some point. Hope I’ve not annoyed you all with my simpleton calculations, etc.

             1. Good luck to you and yours, shallow sand. You will be sorely missed around here.

                I fear we will all be forced to log off pretty soon.

             2. shallow sand,

                Whatever way the wind blows, the very best to you and your clan.

                Be cool man, Doug

             3. Shallow be well and hopefully you will be back.
                ..and do not let that superstition get to you…you know the correlation and causation stuff 😉

             4. Good Luck Shallow,

                I am with you all the way. We all know the price will bounce back, it is just a matter of time.

                1. Excerpt from, and link to, one of my (slightly edited) comments on the prior post is shown below.

                   So far at least, if January, 2015 turns out to be the monthly low price for Brent for the current oil price decline, monthly Brent prices have rebounded faster than the 2008/2009 decline, and as noted, depletion marches on.

                   http://peakoilbarrel.com/oil-shock-model-dispersive-discovery-simplified/comment-page-1/#comment-503728

                   Re: 2008/2009 Oil Price Decline Vs. 2014/2015 Oil Price Decline

                   In 2008, the last month in 2008 with an average Brent price of $100 or more was 8/08, when Brent averaged $113. The monthly low price point was $40 in 12/08. The first subsequent month with an average price of $100 or more was 2/11, when Brent averaged $104.

                   From December, 2008 to February, 2011, the annual rate of increase in monthly Brent crude oil prices was 43%/year.

                   Some Monthly Brent Prices, from 12/08:
                   12/08: $40

                   1/09: $43

                   2/09: $43

                   3/09: $47

                   4/09: $50

                   In 2014, the last month in 2014 with an average Brent price of $100 or more was 8/14, when Brent averaged $102. The (so far) subsequent monthly low price was $48 in 1/15.

                   Some Monthly Brent Prices, from 1/15:
                   1/15: $48
                   
2/15: $58
                   
3/15: (Average for first half of March, high 50’s so far) . . . .

                   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 (rounding off to nearest 100 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.

                2. And Art Berman has an article on increased consumption, which is supportive of Steven Kopits’ (January, 2015) article on supply less demand:

                   http://www.artberman.com/world-oil-demand-surges-a-data-point-for-price-recovery/

                   World oil demand increased by 1.1 million barrels per day in February

                   This is a potentially important data point that suggests a crude oil price recovery sooner than later. It is also important because it further supports the view that a production surplus and not weak demand is the main cause for the recent oil-price fall.

                   The latest data from EIA shows that February world liquids production was flat with January but consumption increased 1.1 million barrels per day. This reduces the relative production surplus (production minus consumption) from 1.68 million barrels per day in January to 0.56 million barrels in February.

                   Steven Kopits’ (January, 2015) outlook for global supply less demand:

                   Supply Minus Demand, Explained
                   http://www.prienga.com/blog/2015/1/20/supply-minus-demand-explained

                3. It would be really interesting to see the world balance for the different types of crude. I have the suspicion the excess production is lighter. What we need is a graph of gasoline prices in Rotterdam and Brent to see if there’s an increasing spread in the international market. The U.S. market is so choked with transportation bottlenecks the price signals are bound to be less clear?

                4. Hi Fernando.

                   “It would be really interesting to see the world balance for the different types of crude. I have the suspicion the excess production is lighter.”

                   Why would you suspect that? I would think it would be the opposite. Please explain.

                   I definitely agree that Brent crude is the benchmark to look at for a general analysis. It better represents the world market for oil.

                5. In my opinion, the following chart tells the tale. Global C+C was at 103% of 2005 production in 2013, and at about 104% in 2014. Global Gas and NGL were at about 123% in 2013.

                   

                6. Econbrowser has a new post on US supply, which links to POB. I posted a couple of comments.

                   http://www.econbrowser.com

                7. This morning’s EIA report

                   To get some insight in the weekly EIA report, I check to see how refinery inputs and the weekly change in inventory balance.

                   The calcs are shown below for last two Wednesday’s. The adjustment is used to account for all of the errors in all of the other numbers to make the barrels per day numbers balance with the weekly inventory change. Note the adjustment can be either positive or negative.

                   From what I can figure out, I think it is assumed the weekly inventory numbers are accurate. I am not sure if this is a reasonable assumption. Are the tank levels measured electronically or by dip stick. I think that the net imports are correct.

                   Comparing last week’s numbers to this week, there is a 703 kb/d increase in imports. Why and Who. Is it the refiners who are storing oil now because it is so inexpensive. Could it be Saudi Arabia stuffing crude into their storage tanks in the US. Nice way to pressure WTI. Then their is another big increase in US production, even though they now know that they are out by a mile on their Bakken numbers.

                   Note that their adjustment factor for this week has gone up by 111 kb/d. This just means that they are more uncertain of their numbers. So the EIA has to add this adjustment so that all of the numbers make the daily balance of b/d X 7 equal the weekly change in inventory. Maybe some of you can add some insight to this.

                   I am beginning to think that maybe the inventory numbers may be wrong. Who would go and check them?

                                                          March 6      March 13
                   Production.          Line 1.   9,366          9419.      +53
                   Net Imports.        Line 4.    6,315          7018.      703
                   Adjustment.       Line 13.      263             374.      11
                   Total.                         15,944        16,811
                   Refinery input Line 14.        15,300        15,436
                   Inventory Diff  (b/d)             644           1,375
                   Inv Difference x 7 =            4,508          9,625
                   

                   The inventory increase for the last two weeks of 4.5 M and 9.6 M matches the numbers in the last line.

             5. Best wishes to you, ss. This too shall pass. Thanks for the input and look forward to more postings in the future.

                Via con dios.

                Gerard

             6. All the best, shallow sand. I look forward to your return here someday and will miss your posts in the meantime.

    2. Good to hear you and your husband are doing well! On the ground reports from the Bakken are always appreciated here.

       1. Thank you so much! 🙂 Anyone who works in a skilled trade and is a good worker, is making 100k per year up here as well with no slowdown in sight! Personally I found this blog while searching for when the Tyler activity south of our place in dickinson ND is going to pick since it would be closer to ‘home’ for my husband if he could be working in Stark county or close by. I think alot of the people here are making way too big a deal out of the lower prices. yes a few of the rigs that were in our area are no longer there and the roads have some fewer trucks but if you are on the production ends of things like my husband you still have hella good work. And his company has told him there will be 20-30 years more work at a minimum no matter what happens with the oil price and most people here are expecting the price to go back up big this summer which will get a gusher of oil coming out. My husband’s company has it’s own studies saying to expect 2 million barrels a day from this state in 2019 and staying at that level until around 2030. So that would be tens of thousands of brand new wells needed (many people are saying over 100,000), keeping many thousands of people busy around here for sure. So long story short don’t believe all the negative people saying you should go home now because there are still plenty of jobs around you can get in the Bakken and be making six figures in no time. But if you are lucky enough to be making six figures where you’re at now, I wouldn’t blame you for staying there! lol I can guarantee you if my husband or myself was making 100k+ in California we would still be there as well. The winters in this state are miserable, free time activities are pretty much limited to drinking or doing drugs, and we hate being 1,500 miles away from our families. But when we were in California, our combined income was less than I alone am making now so moving here was our only option besides having 3-4 children to mooch off government assistance like all our friends wanted to do, which we REFUSE to do. We hope to gain the experience and schooling necessary to move back home and still making six figures within the next 5-10 years.

          1. “Anyone who… is a good worker…” ~ dn_girl

             Hell ya… And no mooching! Right?

             “…if you are smart and a hard worker you will do very well in ND!!!” ~ dn_girl

             I hear you! And damn that mooching… its just… so moochy, you know?

             “We came from California where we were making minimum wage working dead end jobs… At 21… My husband… makes about $150,000 per year… And his company has told him there will be 20-30 years more work… My husband’s company has it’s own studies saying to expect 2 million barrels a day from this state in 2019 and staying at that level until around 2030.” ~ dn_girl

             Wow, dn_girl, that’s impressive! And 20-30 years is longer than your husband has been alive! Imagine where he’ll be in another 20!
             And I guess we can all go to ND and get a company too?!
             Oh I am all excited now! ^u^
             So, what kind of company does your husband have and how did he get it… I mean, you know… Where do I apply?! ^u^

             “…mooch off government assistance like all our friends wanted to do…” ~ dn_girl

             Hell ya… if there’s going to be any mooching, let it be us guys with the companies, damn it!

             smooches,
             ~ Company Cae

             “lol” ~ dn_girl

             lol

             (Psst, how are the drugs?)

             1. The phrasing “my husband’s company” might not mean he owns it. It can mean he works for it as an employee, and probably does.

                As for mooching, the point she is making is that friends of hers were having children for the sole purpose of collecting more government money (payout is child count dependent). That’s not a political thing.

                And that is a couple who are about to be smashed, absent Fed intervention. Though they’ll leave with more cash in their pockets than what they had on arrival.

                1. “…the point she is making is that friends of hers were having children…” ~ Watcher

                   “…so moving here was our only option besides having 3-4 children to mooch off government assistance like all our friends wanted to do…” ~ dn_girl

                2. “One time a thing occured to me
                   what’s real, and what’s for sale?
                   blew a kiss and tried to take it home…” ~ ‘Vaseline’, by Stone Temple Pilots

                   Smooches,
                   ~ Cae

             2. Its amazing, people get abused sitting around the house doing nothing and miss-using the system. When someone gets off their arse, makes some sacrifices and makes a go of life, for some reason they get abused or made fun of as well.
                In one way I am fortunate I live in an area that nobody has any idea of what I do. I mix with professional people and and I know i have earnt up to double their pay scale. I keep a low profile and do not say too much. I left the respected professional job I started my working career in, because I recognized the opportunities available in the oil field.
                So sit back in your comfortable little environments and throw as much mud as you like, and let the people willing to get out there and do things , do their thing, so you can have the oil supplies you require, and the people willing to get off their arses can bank the profits.
                The oilfield has it up and downs, but over all it provides a living and experiences that few other industries can match.

             3. In my opinion this a very rude and condescending response and reflects very poorly on the author.

                1. Why thank you.

    3. dn girl, I salute you and your husband for displaying the strength of character to up and move to a different environment, work hard, and continue to strive for a better life.
       Hope your husband stays safe and keeps the hard hat on even when it’s a pain in the ass … Red Wings too.
       Thanks for sharing and best wishes.

       Gerard

    4. That’s all fine. You’re smart to take the work where and when you can find it. But lean hard and heavy on the saving part and don’t believe everything you’re being told. Believe in your nest-egg.

65. Time to think harder about our world. Even though worldwide drought has eased slightly this year, it still continues to be widespread. Worldwide drought risk map sourced from NOAA.

    The global drought risk weekly composite is derived from the Normalized Difference Vegetation Index datasets developed by NOAA and the National Weather Service from measurements of the AVHRR sensor onboard the POES satellite. Of note is that the drought imagery is based solely on analysis of vegetation health and stress, not the soil moisture conditions. The dataset relies on removing areas that are determined to be covered in snow, by using the same data that is displayed in the Real-Time Snow & Ice Cover. However, sometimes there are small differences in areas where snow is melting quickly or forming. This is because the drought data is generated weekly, where the snow and ice data is generated daily. This index serves as a very reliable proxy measurement for drought the world wide. Yellow areas indicate areas under moderate drought conditions; red indicates the areas experiencing extreme drought conditions.

    

    1. Are you saying this could be bad for future oil production? I don’t see the relevance to the blog.

       1. Who asked you?

       2. Yep, if the climate gets really bad then we might have to wind back fossil fuel production, this would obviously be bad for future oil production.

       3. Bad or good is a moral judgment. Long term droughts cause famine, high food prices, wars, even collapse. That would impinge upon the ability to produce fossil fuels in that region, it also might decrease demand. As was mentioned, government mandated carbon restrictions may be implemented due to links between fossil fuel use and climate. Some people think that is good, others think that is bad. Your call on that one. What is happening is increased cost, stress and chaos on a global scale. See magnified views below.

       4. Fracking and enhanced oil recovery use a lot of water.

          1. Tar sands too!

             1. Hey aws..

                What do you think of my collapse theory?

                http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504187

                http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504528

                http://peakoilbarrel.com/eia-confusion/comment-page-1/#comment-504784

                etc.

    2. Here’s the worldwide drought monitor page.

       http://sac.csic.es/spei/map/maps.html

       I don’t see a significant trend towards more drought, but it does have to be monitored. As long as plants continue to thrive in the higher CO2 and the growing season is extended the climate trend will be positive.

       1. Maybe you need a closer view. Here is the Drought Risk Map of South America. Much of what you are seeing is supposed to be rain forest, notice it looks like it was used for shot-gun practice. Red is severe drought. Orange is drought. Yellow is moderate drought. Green is good.

          

       2. Here is Africa and Madagascar. Again, look in the areas that are supposed to be rain forests or jungles.

          

66. Adding to what has been discussed, let me just say briefly that I too have been banned from some internet boards for what are, in my opinion, completely uncontroversial and inoffensive posts. It’s just the nature of the game, I wouldn’t take it personally because on the internet it’s easy to post and it’s easy to ban. In fact, the managers of boards have every right to both moderate and ban to keep the peace. But when it happens to us, suddenly the shock comes because we thought we were in agreement with most everyone else, like we are some sort of internet tribe, but then..wham, out of nowhere the moderation and ban comes because you said something that somebody else didn’t like. Usually, but not always, something to do with race/religion/politics, what is perceived to be a personal attack or insult. And of course this is the way it works in the world as well but in life away from the internet usually it has to be pretty bad (for example to be laid off at work, disowned by your family, etc.) and then people move on. In fact, what is history and war but this same phenomenon applied to millions of people?

    And in fact, I think this is going to get worse in the real world. Best to relocate to some place where the general atmosphere and beliefs of the people are somewhat in line with yours. I don’t like saying that, but it’s true. We are tribal. If you are away from your tribe, you are at risk.

    As for collapse I think it’s started. May take awhile, but basically this is it. Unless you are going to make the opposite argument that we can have serial asset bubbles, credit boom/busts until the end of time and it will make us all rich and live forever. The game actually does have to end at some point. Will this continue for another 10 years? No, I don’t think it will.

    It really has been a pleasure to learn from some very intelligent people who took these issues head on at the oil drum and other places and they and Ron and have done an invaluable service even if we don’t always agree about everything.

67. Hi Guys,

    One more set of graphs. This time on how interest rates effect the price of oil, equities, and the dollar.

    The first graph shows BRENT crude, the Dow, and the dollar, along with 5 year US treasury yields. Note the change in the direction of interest rates in mid 2006, just after the peak of light sweet crude in late 2005. Also note the recent rise in the dollar, in the opposite direction of oil.

    The second graph shows BRENT crude, the Dow, and the dollar, all relative to 5 year US treasury yields. Notice especially how the price of oil is effected. When seen relative to interest rates, the big spike in 2008 actually appears lower than the later spike in 2012, which occurred as interest rates bottomed out and the FED was left pushing on a string!

    

68. Can anyone tell me, given the high decline rates, the sweetest spots being sucked up first, why the EIA predicts such a gradual decline for shale oil production?

    Is it really all just”well technology”?

    1. The EIA has received a lot of criticism for modeling tight oil production like it is conventional. Whenever the numbers are rerun with actual decline rates, there is no plateau as seen in the EIA reports. It’s also a base case that does not have dynamic price predictions.

       The EIA has also been doing the same with deepwater GOM production, where their longstanding estimate of 2 million bpd just doesn’t work with observed decline to-date, and almost certainly won’t happen.

       Governments have good career technical expertise, but they are also bureaucratic and so will be very conservative on new material.

69. Mr. Patterson:

    You blog and the data that you publish here is an important venue for those concerned about the role hydrocarbons will play in our future, and the future of our children. You have a few regular posters whose research and commentary about the subject of peak oil contribute greatly to the message of concern that you wish to portray; Mr. Brown and Mr. Likvern, for instance, and a few others. I think you would be pleasantly surprised to know there are a number of people in my industry who read your blog regularly. Brilliant people with experience, who think beyond graphs and charts, and who know the difficulty of finding and extracting hydrocarbons first hand.

    …but who do not wish to participate in the blog itself because of all the bullshit, and the nastiness, the insults and name calling. It has reached epic proportions the past 3-4 months, mostly with the advent of climate change rhetoric and this Futiltist fella, who TRULY does not have the manners of a goat.

    We had a proud young woman post yesterday about her and her husband’s hard work and their optimism about their future in the oilfields of North Dakota. It is a powerful message that we should have all embraced. Instead we have yet another climate change “warrior,” Caelan, who chose to demean her because she used the word “mooching.” Clearly a sensitive word around some, mooching. It’s cowardly to insult a woman simply because of an opinion she wished to express. She probably won’t be back and I don’t blame her.

    To the climate change gang, questioning their agenda is disingenuous, not questioning the science itself. You guys are so keen on “collapse,” whatever the hell that means, I don’t understand why you don’t just check out, now, and avoid the misery you are certain is coming down the road. Personally I don’t think you can feel productive unless you make everyone as miserable, and hopeless, as you are. So, you stay glued to the computer every day picking fights with people who don’t agree with you. What a stinking waste of life.

    Me, I have had enough. Thank you, Mr. Patterson. What you do is a lot of hard work and I appreciate it. Good luck, sir.

    Mike

    1. Amen in spades, Mr. Roughneck … amen in spades.

       You and I well know if we were to encounter such behavior in a bar, it would be ‘lights out’ (your phrase) for someone. But this cyber environment enables those with ‘beer muscles’ (shallow sands’ phrase from another site) to safely, cowardly, spew invective and insults that they would never dare do eye to eye.
       The gumption displayed by our new ND contributor will hopefully enable her to ignore the grossly inappropriate response to her post.

       Gerard

       1. Oh no, Gerard, see, I’m willing to die for what I believe in.

    2. I did always appreciate your input as someone who has more experience in the patch then I have been alive. I’ll do my best to hold the fort down with the few other roughnecks left.

       Best of luck brother.

    3. Wait, weren’t you the one who was supposed to leave long before Futilitist arrived on the scene?

       “We’re living at a dangerous moment because… ’empire’, is in its last gasp, and empire, when it’s in its last gasp will do anything to sustain itself… The US does not want to see the indigenous view of water, or natural gas, or oil, or resources in the ground to prevail… I was in a meeting of U’wa people who are fighting oil development in Colombia… and [the way] they talk about oil… [is] completely alien to the western development and corporate development model– it just can’t be understood even. So as a result, corporations, and US and prevailing western powers, don’t think anything negative at all about going in and overpowering that if they can get away with it…

       …you’d very rarely hear a non-indiginous person use the phrase like ‘Mother Earth’… or that buys that idea… or that calls animals and trees brothers and sisters, but that’s completely routine [to the indiginous]… that’s what we need, of course, are some of those values for the present time…”
       ~ Jerry Mander, ‘Alternatives to Economic Globalization: A Better World Is Possible’

       So it really doesn’t matter whether your ‘proud young woman’ was real or a North Dakota Shale cardboard cutout spamvertisement, because your industry— and your sob stories about it, incidentally, that my heart doesn’t bleed for– is part of what’s threatening her future and our world, and is a large part of the reason why there are sites like these.

       These kids need to get off this runaway train-wreck-in-progress, not on it. And I can help with that in different ways, and am doing so.

    4. Mike : I really hope you are not leaving. You bring a reality from the patch that is so needed on this site. I love to hear your perspective as well as some of the fellow oilfield guys. I do appreciate Mr. Patterson’s site and his hard work maintaining it also.

    5. Hey Mike.

       I see plenty of very bad manners all over the site. You are being overly selective to single me out, especially when discussing a comment made by Caelan MacIntyre, not me. I very much resent your cheap attempt to scapegoat me. Shame on you.

       Old farmer mac tried the same dirty trick when he announced he was leaving and blamed me for it. Everyone here is free to come and go as they please. It has nothing to do with me. Grow up.

       People here are passionate about what they believe. If you can’t take the heat, get out of the kitchen. Bye.

       1. Your name is not in Mike’s post. He mentioned somebody named Futiltist.

70. Hi all: Texas oil January 2015 data are out:after correction prod down approx 150/200 kb/day . I will post my usual graphs as soon as Ron posts the Texas data

    P.S. The data in January are much more stable than those in December

Comments are closed.