EIA’s Annual Energy Outlook and the Seneca Cliff

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The scenario above shows an Oil Shock Model with a URR of 3600 Gb and EIA data from 1970 to 2015 and the Annual Energy Outlook (AEO) 2016 early release reference projection from 2016 to 2040. The oil shock model was originally developed by Webhubbletelescope and presented at his blog Mobjectivist and in a free book The Oil Conundrum.

The World extraction rate from producing reserves must rise to 15% in 2040 to accomplish this for this “high” URR scenario. This high scenario is 100 Gb lower than my earlier high scenario because I reduced my estimate of extra heavy oil URR (API gravity<10) to 500 Gb. The annual decline rate rises to 5% from 2043 to 2047 creating a “Seneca cliff”, the decline rate is reduced to 2% by 2060.

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The scenario presented above uses BP’s Energy Outlook 2035, published in Feb 2016. This outlook does not extend to 2040, maximum output is 88 Mb/d in 2035 at the end of the scenario. This scenario is still optimistic, but is more reasonable than the EIA AEO 2016. Extraction rates rise to 10.6% and the annual decline rate rises to 2.5% in 2042 and is reduced to under 2% by 2053.

A problem with the BP Outlook is the expectation that US light tight oil (LTO) output will rise to 7.5 Mb/d from 2030 to 2035, the BP forecast for US LTO from 2013, 2014, 2015, and 2016 is shown below.

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A more realistic forecast would be a peak of 6 Mb/d in 2022 with output declining to 3 Mb/d by 2035. The scenario below shows roughly what World output might be with this more realistic, but still optimistic scenario. There is a plateau in output at 85 Mb/d from 2025 to 2030 with annual decline rate peaking at 2.1% in 2044 and then falling under 2% per year from 2048 to 2070.

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A discussion with Ron Patterson about reserve growth led me to the United States Geological Survey (USGS) website where I found a study of reserve growth outside the US published in December 2015.

The USGS estimates World non-continuous resources outside the US of 3300 Gb (this includes oil already produced.) Non-continuous resources excludes extra heavy oil (Orinico belt and Canadian oil sands) and LTO resources. The US URR is about 285 Gb when LTO is included and about 255 Gb without LTO. The total World non-continuous URR is about 3560 Gb based on the USGS estimate of 3300 Gb plus my US estimate of 255 Gb rounded to 3 significant digits.

I believe the USGS has overestimated OPEC 2P reserves by 200 Gb and that world LTO URR will be about 80 Gb, thus World C+C less extra heavy oil (XH) URR will be about 3400 Gb. Leaving my XH estimate at 500 Gb, World C+C URR might be as high as 3900 Gb, if the recent USGS estimate of reserve growth and undiscovered resources is correct.

The scenario below uses the AEO 2016 projection with the (very optimistic) World C+C URR of 3900 Gb, the Seneca Cliff is avoided, if we define a Seneca Cliff as an annual decline rate of more than a 4%/year average rate of decline for 4 years or more. Generally a Seneca cliff is not precisely defined in this way, but just indicates a prolonged “steep” decline. I do not consider this scenario remotely realistic, but was interested in the decline rate after the peak and this scenario has an extremely high peak output rate.

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The scenario below uses the optimistic URR of 3900 Gb, but the more reasonable BP Energy Outlook published in 2016, annual decline rates are 1% or less from 2035 to 2050 and rise to 2% from 2058 to 2068, the peak decline rate is 2.1% in 2070 and decline rates fall to about 1.7% by 2085 and remain around that level long term if extraction rates remain at the 2070 level of 9.6% over the long term.
The scenario below remains too optimistic due to the unrealistic US tight oil forecast as well as the very high URR.

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A final scenario with a plateau in output at 85 Mb/d from 2025 to 2050 is presented below with the very high URR of 3900 Gb. Annual decline rates are 1% or less until 2050 and 1.5% or less from 2051 to 2070.

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This scenario seems plausible if the URR estimate is correct, but the USGS may be mistaken in assuming that US reserve growth is a good analog for the rest of the world. For that reason the plateau scenario with a C+C URR of 3600 Gb (fourth chart of the post) is the most reasonable scenario presented in this post.

An even more reasonable scenario would use the USGS F95 estimate for reserve growth and undiscovered resources outside the US, this reduces the URR by 200 Gb to 3400 Gb, fairly close to my Medium scenario. That scenario is below, but it needs some future revision of the extra heavy oil scenario which is too optimistic based on recent cutbacks in investment and the situation in Venezuela.

This affects all scenarios in this post, which all have included a scenario for extra heavy oil that is too optimistic. That will be revised in June when the Canadian Association of Petroleum Producers releases their forecast.

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330 Responses to EIA’s Annual Energy Outlook and the Seneca Cliff

  1. Adam Ash says:

    Great work thanks Dennis! I would really like to see your best shot, as all your charts have caveats which you could correct.

    When I read this, and attempt to mix the Oil Shock work with the Debt is a Key Part of the Situation work of Gailtheactuary my head hurts, but I do glean from these two threads that our predicament will not follow the Oil Shock trajectory, rather it will be deflected by the rather counter-intuitive effects of increasing production costs (as we burn the cheap oil first), affordability of supplied resources and the availability of affordable funding to bridge the time gaps between upfront investment and payment for production.

    Interesting times…

    • JN2 says:

      Adam, re debt. US federal interest payments in 2015 were approx 12% of income ($0.4T / $3.3T). Is this a problem?

      • NJH says:

        Its not government debt that is the issue but ALL debt. (public, household, private, municipal, government, corporate, etc. are ALL claims on future energy/resources-everything but financial debt which in almost all cases is offsetting)

        • Wake says:

          I myself do not understand debt in a Macro sense, and I don’t think a person in a thousand does. I see no reason to think Gail does.

          The world produces or extracts a certain amount of food, energy, and resources every year, and then allocates that around though various manufacturing service and govt activities.

          Debt affects who had claims on these streams at various places and can affect whether flows are impeded or Unimpeded, but has no particular meaning aside from that

          Rapid changes in the meaning of money debt and governments are dangerous and destabilizing as they can interrupt productivity

  2. Paulo says:

    regarding statement: “but the USGS may be mistaken in assuming that US reserve growth is a good analog for the rest of the world.”

    Is oil distribution different than every other resource as it applies to the US? I don’t think so. That is a very big assumption and does not take into account misrepresented reserves by more secretive countriues, as well as political unrest and other disruptions that may occur going forward. Furthermore, as the Majors seem to be dropping in profitability will they be able to continuing producing at today’s rates, or will they wind down and/or diversify with respect to their shareholders, their first responsibility? I also question as to whether or not this extreme debt-fueled LTO production will ever be able to ramp up again as we have recently seen? It looks as if gullible investors are lining up with every increase in price, but the real onslaught of bankruptcies are just beginning, imho.

    This is a pretty big bust, and as mentioned by a few insiders in the last post, (Doug Leighton and a few others), will the experienced and knowledgeable ‘hands’ be available to ramp up production in such big numbers, ever again? Will there be financing? Will they be forced to produce by Govt decree/intervention? How about by a 2 for 1 tax incentive like Canada has done in the past?

    Every one of these graphed scenarios but one show the ‘Peak’ 15-20 years out. Ron P, who I respect very highly, has said in the past he believes that 2015-16 will/might/just may be the peak, which we will know only in hindsight. Has anything really changed beyond dodgy economics and a slowing economy? I suppose if the economy continues slowing the peak might ultimately be delayed, but then if this is the case BAU is finished, anyway.

    Not to doom and gloom a new reality, mostly because I am optimistic by nature, nevertheless, an acknowledged Plateau or decline will shake society to its very core as we move forward. I think it will be like those cheap B level movies about the looming asteroid casting a shadow on Earth, with hordes of people frantically looking for any means to escape the ramifications.

    I sent an oil post to my best friend last week. Actually, it was the article I shared with this forum in the last post about Ft Mac. His response was, “wasn’t Jeff Rubin the guy who once predicted Peak Oil”? I wrote back with several other articles attached and said, “This is Peak right now, it is beginning….the effects are simply not acknowledged, etc etc etc”. The conundrum, as I see it, is that every time this industry goes bust, for whatever reason(s), the entrenched say, “See, there’s no Peak, what a bunch of bullshit. If there was a Peak the prices would be climbing”!

    Dennis, I would really appreciate reading a strong prediction from you, and others from this forum. I appreciate that you kind of did this with the caveat, (very polite I might add) that said, “a more realistic decline scenario might be”… (or words to that effect), but it’s driving me nuts. I kind of see why TOD shut down, now. Their reasons were that there were simply not enough solid articles about PO to keep a good discussion flowing. I reluctantly switched to PO.com for daily background reading and the quality of discussion and ideas have been reduced on that site to playground levels of name calling with lots of swearing and personal attacks tossed in. The contibutors on this forum are the only game in town these days. I thank you all in advance for sharing you opinions and knowledge.

    What’s really going on?

    regards

    • Denis does good work, but its very difficult to pin down numbers when nobody releases detailed data. The ones who have the better data bases are IHS and the oil companies which purchase it from IHS. But nobody is about to release something that’s probably worth several hundred million $.

      For example, what is the usgs estimate for reserv increases at El Furrial in Venezuela? That reservoir has been badly mismanaged over the last 10 years. The mismanagement reduces booked reserves, and also makes impossible the introduction of a large tertiary process project such as CO2 injection.

      The same applies to dozens of fields. Several Venezuelan heavy oil fields with more than 10 billion barrels of oil in place are headed towards less than half of the pdvsa booked reserves. And given the current practices and political regime, the reservoirs will be left gutted, which makes impossible introducing meaningful changes in the future. The Maduro regime has turned into a full blown dictatorship as of this week, it will change for the worse, so it looks like the ongoing reserve destruction will continue for at least a decade.

      • Dennis Coyne says:

        Hi Fernando,

        Thanks.

        I did the following optimistic scenario for Orinoco belt oil output. It assumes democracy is established in Venezuela by 2025 and that Orinoco belt output grows by about 8% per year from 2030 to 2040. Could you give us a much more informed guess?

        • Kevin, the faja is said to have been producing over 1 mmbopd in 2015. I saw a PowerPoint slide presentation which showed roughly that volume, and a pdvsa claim that production had been 1.3 mmbopd in February 2013. Given the sheer amount of bs we get from the regime I’d say the 1 mmbopd may be closer?

          As regards the country changing its stripes I simply don’t see it. Cuba seems to be controlling things in Venezuela, and Obama and the EU appear to be working to sustain the Castro dictatorship in power.

          Given the way the world turns I’d expect your curve to be reasonable, but right now who knows what can happen? I don’t hear much that’s any good. The commies took over Venezuela, are utterly destroying it, and nobody seems to give a hoot.

          • Dennis Coyne says:

            Thanks Fernando,

            Your estimates would be better than mine. So I think you are suggesting that I may be underestimating Faja (Orinoco) output by a bit over the near term. Note that my “optimistic” estimate assumes that engineers that are as capable as you were at your peak (which may be now, but I am thinking you may not be up to date) are in charge of the Faja by 2027 and put an aggressive rampup in place. I am hopeful that a more representative democracy will emerge (along the lines of Western European republics) by 2025.

            Clearly the future of Venezuela is difficult to predict, I would think the people of Venezuela will be fed up with Maduro relatively quickly, and hopefully the Cubans have less control in Venezuela than you perceive.

            I know little about what is happening in Venezuela.

      • Oldfarmermac says:

        HI Fernando,

        Do you expect the Maduro regime to last more than another year or two at the longest?

    • Dennis Coyne says:

      Hi Paulo,

      I expect the World C+C URR to be between 3300 Gb and 3600 Gb, if the extra heavy oil (XH) URR is 500 Gb. This means C+C less extra heavy(C+C-XH) oil would be between 2800 Gb and 3100 Gb, Jean Laherrere estimates World C+C-XH at 2700 Gb.

      If we also deduct World LTO URR, which I estimate at about 60 Gb (30 Gb of which is US LTO), the non-continuous C+C URR would be 2740 Gb to 3040 Gb. The USGS estimates non continuous C+C URR outside the US at 3300 Gb, when we add the US URR of 255 Gb, the USGS World estimate is 3560 Gb. The USGS estimate is 460 to 760 Gb higher than my estimate, while Jean Laherrere’s estimate is 600 Gb to 900 Gb lower than my estimate.

      The point is that there is a wide range of World URR estimates, the actual future value will depend on technology development, demand for oil, and the future path of World Oil prices. All of these are slightly difficult to predict. 🙂

      I have adjusted my extra heavy oil scenario to account for both reduced Canadian oil sands investment and the political turmoil in Venezuela and that is included in the scenarios presented below.

      Six scenarios are presented, the lowest (3000 Gb URR) and highest (3900 Gb URR) scenarios are far less likely to occur in my view than the other 4 presented, these are represented with dotted lines.

      The two scenarios with dashed lines in blue and red have an intermediate likelihood and my expectation is that the path of future output will be somewhere between these two scenarios.

      The two solid line scenarios (in gray and yellow) are the most likely scenarios on the chart and I expect reality to fall somewhere between these scenarios unless there is environmental or economic collapse or my URR estimates are far from the mark.

      Hope that helps.

      • Dennis Coyne says:

        Hi Paulo,

        I said Jean Laherrere estimates C+C-XH at 2700 Gb. That is wrong.

        His estimate for C+C-XH=2200 Gb, his C+C estimate is 2700 Gb.

        Sorry.

        • Paulo says:

          Thank you so much for your time and response. Fernando, too. It looks by your dashed line scenario that by 2025 the cat will be out of the bag, and undeniably so. Hmmmm,very interesting.

          • Dennis Coyne says:

            Hi Paulo,

            My best guess is that it will be somewhere between 2022 and 2030 when decline begins (and is permanent). I believe you have it right, 2025 to 2026 is a good guess, if my numerous assumptions are not too far from the mark.

    • Paulo, the timing of the peak depends not “simply” on how much oil is left in the ground but on how much oil is left in the ground that can economically be produced.

       photo Peak Triangle_zpsdkf3gsqb.jpg

      What Experts Miss When Discussing Peak Oil Thanks to Gail Tverberg for the above chart.

      Looking at URR, remaining reserves and/or reserve growth is a red herring. At least 90% of oil that will ever be discovered has already been discovered. The determining factor for the rest of the oil ear will be how much oil is left that we can afford to produce, not just how much is left.

      People on this list have demeaned Gail Tverberg for some of her predictions but she is one of perhaps half a dozen peak oil people who truly understands debt. And the problems with a debt based oil production is finally coming home to roost.

      The potential mismatch between the amount of supply and demand is exacerbated by the oversized role that debt plays in determining the level of commodity prices. Because the oil problem is one of diminishing returns, adding debt becomes less and less profitable over time. There is a potential for a sharp decrease in debt from a combination of defaults and planned debt reductions, leading to very much lower oil prices, and severe problems for oil producers. Financial institutions tend to be badly affected as well. If a person looks at only past history, the situation looks secure, but in reality it is not.

      Cheap oil has definitely peaked. Will there be enough borrowed money to produce the very expensive oil that is left and keep the peak at bay? I do not think so. But time will tell.

      • Doug Leighton says:

        “Looking at URR, remaining reserves and/or reserve growth is a red herring.”

        Totally agree. Apart from cost of extraction, environmental considerations increasingly come into play. Coal is a perfect analogy; the so-called URR of coal greatly exceeds the amount that will ultimately be produced. Most heavy (and expensive) oil will simply stay where it is as our poor planet bakes in the sun.

        • Nathanael says:

          Worth recalling that the original “peak resource” theory was peak anthracite, which Hubbert studied. The high-quality coal peaked way back in the 1910s. The high quality light sweet oil from “gushers” peaked decades ago now, too…

      • Dennis Coyne says:

        Hi Ron and Doug,

        The IMF estimates World GDP (at market exchange rates) will be 96 trillion US dollars in 2021 (nominal dollars). Generally it is assumed up to 5% of World GDP can be spent on oil without a recession resulting. If World output in 2021 is 82 Mb/d, and the IMF estimate is correct, then nominal oil price could be as high as $161/b in 2021 without a recession.

        Now it is certainly possible that sales of plugin hybrids, hybrids and EVs might accelerate to 15 or 20% increases each year in response to high oil prices so that demand for oil might fall faster than the decline in the supply of oil at those high oil price levels. In that case the price of oil will fall and ceteris paribus less oil will be economically recoverable, I hope that is what occurs, but I doubt it.

        Perhaps you guys are just more optimistic than me. 🙂

        • Huh? Was that post intended to be a reply to my post, or Doug’s? If so, I just don’t get the connection.

          • Dennis Coyne says:

            Hi Ron,

            The connection is that oil prices can rise to $161/b by 2021 if the IMF estimate is correct. A lot of oil will be profitable to produce at that price.

            If we assume only 80 Mb/d is produced in 2021 and World GDP grows at only 2.5%/year from 2016 to 2021, then the oil price could rise to $141/b (in 2021 $) without causing a recession. This makes sense because demand for oil correlates very well with GDP.

            I disagree that Gail understands debt well.

            The current fall in oil prices is due to an oversupply of oil, not due to a lack of oil demand as predicted by Gail.

            Gail said debt problems would cause economic problems which leads to lower oil demand, lower oil prices, and then problems for the oil industry.

            That story might be correct at some point in the future.

            It is not an accurate description of what has occurred from 2014 to 2016.

            I agree that 90% of oil has been discovered, but I think that as reserves are developed and there is further technological progress that the estimates of reserves will increase.

            As I have demonstrated, if proved plus probable reserves are 1.7 times proved reserves in the US, then US reserves grew by 63% from 1980 to 2005.

            There have been a total of at least 2000 Gb of C+C already discovered, using your 90% estimate this suggests another 200 Gb will be discovered. The 2800 Gb C+C-XH URR estimate would need 600 Gb of reserve growth, if the 2200 Gb estimate was correct. In fact I think at least 2150 Gb of oil has been discovered and assuming this is 90% of total discoveries then with no reserve growth we would have 2400 Gb.
            High oil prices in the future after decline begins will result in 400 to 550 Gb of reserve growth over the next 100 years.

            If demand falls for whatever reason (economic collapse or development of alternative transportation) there will be less reserve growth.

            I know you think alternatives will not be developed so economic or ecological collapse is the scenario you believe is most realistic.

            I admit that is possible, but believe other scenarios are possible (slow decline in oil output allowing more efficient use of oil to develop (hybrids and plugin hybrids) and for pure EVs to gain market share and also expansion of rail and light rail networks.

            • using your 90% estimate this suggests another 200 Gb will be discovered.

              No, no, no, that was not my estimate. I said at least 90% of all oil to be discovered has been discovered. My personal opinion is that a lot more than 90% has been discovered, but at least that amount. I think it far more likely that 95% has been discovered. But as to the exact percentage, I have no idea.

              Just one more point, declining oil production is not the only reason the world economy will collapse, it will be just one of the contributing factors. It is a contributing factor in why Venezuela is collapsing today. It was not a contributing factor in why most of the world’s failed nations have collapsed or are in the process of collapsing.

              • Dennis Coyne says:

                Hi Ron,

                Yes you only gave a maximum estimate. Note that at 2000 Gb of total oil discovered through 2010, your maximum estimate for future discoveries matches Jean Laherrere’s best guess.

                I think Jean Laherrere’s guess is likely to be too low as he has been in the past.

                Do you have an estimate for World Economically recoverable resources(ERR)? Note that URR always implies that the resources are economically recoverable, it is not the same as technically recoverable resources(TRR). I think you know this, but your initial comment seemed to imply that URR and ERR are different, they aren’t, it is TRR and URR that are different.

                • Nathanael says:

                  Doesn’t ERR depend on the oil price?

                  That means you really need a chart of estimates:
                  ERR for $20/bbl
                  ERR for $25/bbl
                  ERR for $30/bbl
                  ERR for $35/bbl
                  ERR for $40/bbl
                  ERR for $45/bbl
                  ERR for $50/bbl
                  ERR for $55/bbl
                  ERR for $60/bbl

                  • Dennis Coyne says:

                    Hi Nathaneal,

                    Yes that is true, the ERR will depend on future oil prices. So if oil prices are lower the URR will tend to be lower. The scenarios I have presented assume that oil prices remain relatively high so that the oil supply which can be produced is barely adequate to satisfy demand at that price.

                    The oil price is high enough so that demand destruction is just enough to keep oil output at the maximum possible rate given depleting resources without resulting in shortages that cripple the economy.

                    It is possible that 30 or 40 years from now that oil prices will fall due to lack of demand, and in that case URR will be lower.

                    How the economics will play out is too complex to predict. So the chart you suggest would be even more speculative than the charts I have produced so far.

                    Feel free to produce your own charts.

                    Generally low prices would coincide with my lower scenarios and high prices with the higher scenarios. What those prices are, you are free to guess.

                • AlexS says:

                  Nathanael,

                  “Doesn’t ERR depend on the oil price?
                  That means you really need a chart of estimates”

                  “given my projections for demand destruction running at accelerating rates starting in 2018… well, by 2025 if not earlier the demand destruction will likely be outracing any supply depletion. I wouldn’t make any investments based on assuming prices higher than $30 (inflation-adjusted, obviously) after then. ”

                  You will need to destroy a lot of global demand in order to keep prices at $30

                  Oil production costs for various resource categories
                  source: http://www.iea.org/Textbase/nptable/2013/Resources2013_f8_3.pdf

                  • Nathanael says:

                    Yes. I am projecting the complete destruction of at least 1/3 of land transportation demand for gasoline & diesel by 2025, possibly more. (As well as further destruction of demand in the heating and industrial sectors.) Given that transportation demand is very roughly half of oil demand, this is a lot of demand destruction. The heaviest fuel users will stop using oil first. This does not include any gains from fuel-efficiency by those who still use oil; this is just the effect of people quitting oil entirely.

                    The demand destruction slows down if oil manages to drop to $30/bbl.

                    Maybe oil fields will manage to deplete fast enough to keep up with the demand destruction. But it looks to me like many of the crazy guys running the oil companies really want to believe that demand for oil will go up. Accordingly, they’ll make their drilling decisions based on overly high projections of demand — year after year after year — and the result will be supply gluts and low prices, until they admit to the low demand (which the major company execs show *no* signs of admitting to).

                    The other effect, of course, will be years and years of financial losses for said companies.

                • AlexS says:

                  Oil production costs for various resource categories
                  source: http://www.iea.org/Textbase/nptable/2013/Resources2013_f8_3.pdf

  3. DentalFloss says:

    In the reference case, 8 million electric cars will have taken the place of an internal combustion powered vehicle by 2020. By 2030 this will be 108 million. And by 2040 it will be 424 million. This would reduce growth in crude oil demand by 0.3 million barrels per day by 2020, 3.4 million barrels per day by 2030 and 13.8 million barrels per day by 2040.

    http://oilprice.com/Energy/Energy-General/Who-Will-Benefit-From-The-Electrification-Of-Transport.html

    Tverberg has been calling for collapse soon or in the next two years for almost 7 years now. A broken clock is correct twice a day.

    • Adam Ash says:

      Hi DFloss! Gail has not been predicting the crash, she has been explaining it. Her work makes a lot of sense after years of many of us simply taking the view that there will be depletion of the resource hard-coupled with exponential increase in price due to market forces in the presence of a diminishing essential resource. In fact the price has collapsed hasn’t it, in spite of steadily worsening EROI and now virtual cessation of exploration and development.

      Gail’s explanation fits the evidence we have in front of us today. Simple EROI or depletion models don’t so well.

      • DentalFloss says:

        “she has been explaining it”

        Record population
        Record GDP
        Record oil production
        Record Electrial production
        Record Employment
        80″ Flat Screen TV’s
        Smart Phones
        Electric Cars
        The Best Ever Medical System
        Google

        What Crash ? 2008 ?

        • Jef says:

          Record population – Thats a good thing?
          Record GDP – Creation of debt is counted on the growth side of GDP.
          Record oil production – At a major loss to producers of 100s of billions.
          Record Electrial production – The vast majority being Coal produced.
          Record Employment – NOT! research record low participation rate.
          80″ Flat Screen TV’s – Now I see where you are coming from.
          Smart Phones = ignorant people.
          Electric Cars – All 10 of them.
          The Best Ever Medical System – Still the #1 cause of personal BK and small biz.
          Google – A monopoly that is anticapitalist but is good for selling STUFF.

          • DentalFloss says:

            Jef, you may disagree with the evolution of man over the last 8 years. But, there has been no collapse or crash in which Tverberg “has been explaining”. Maybe a lower percentage of growth. She has been totally wrong on this matter.

            • Caelan MacIntyre says:

              Who posts periodically in this way about Gail?

              ChiefEngineer? (so to speak)…

              “I was over at Gail Tverberg’s the last couple of days under a hand full of different screen names pointing out the ignorance.” ~ ChiefEngineer

              “Data mining expert Bing Liu (University of Illinois) estimated that one-third of all consumer reviews on the Internet are fake. According to the New York Times, this has made it hard to tell the difference between ‘popular sentiment’ and ‘manufactured public opinion.’ According to an article in the Journal of Business Ethics, astroturfing threatens the legitimacy of genuine grassroots movements. The authors argued that astroturfing that is ‘purposefully designed to fulfill corporate agendas, manipulate public opinion and harm scientific research represents a serious lapse in ethical conduct.’ A 2011 report found that often paid posters from competing companies are attacking each other in forums and overwhelming regular participants in the process. George Monbiot said persona management software that supports astroturfing, ‘could destroy the Internet as a forum for constructive debate.’ An article in the Journal of Consumer Policy said that regulators and policy makers needed to be more aggressive about astroturfing. The author said it undermines the public’s ability to inform potential customers of sub-standard products or inappropriate business practices, but also noted that fake reviews were difficult to detect.” ~ Wikipedia

      • AlexS says:

        “In fact the price has collapsed hasn’t it, in spite of steadily worsening EROI and now virtual cessation of exploration and development.Gail’s explanation fits the evidence we have in front of us today. Simple EROI or depletion models don’t so well. ”

        The 2014-16 price collapse was due to over-production, which was a result of a 4-fold increase in upstream capex over the previous 10 years. It’s a cyclical event, like in 1982-86, 1998, 2001-02 and 2008-09. The global supply and demand are gradually rebalancing. Prices are already recovering (+80% since Fenruary lows) and will rise much further in the next several years due to the current sharp decrease in exploration and development spending.

        • shallow sand says:

          AlexS.

          I agree with you.

          One point I would like to make is that, unlike in response to prior cyclical downturns, OPEC, thus far at least, has not cut production. I question if anyone has spare capacity, outside of that caused by war/political strife.

          It took massive amounts of leverage for the US and Canada to ramp up production, along with a relatively stable oil price band of $85-$105.

          It remains to be seen if that type of leverage will occur again in the immediate future.

          I note, despite the price improvement, the rig count we all follow, North Dakota, is down to 24, with one still listed as stacking.

          I will tell you how “sane” companies react to down turns like we are going through. They batten down the hatches, cut costs to bare minimum. When prices recover, they do not immediately go great guns. They first get caught up on the maintenance that was delayed due to the downturn. Then, once that is done, they slowly begin to spend money on new wells.

          Early on, most companies were hoping for a quick recovery. 2015 persistent low prices, followed by the hammer of $20 oil in Q1 has really taken a toll, IMO. This is why we are now seeing many BK. Q1 knocked them out.

          If OPEC’s goal is to finish off US companies, they will figure out a way to keep a lid on prices this summer, and then drive prices back down into the $20s again. However, I am not sure if this can be accomplished, or if OPEC members can even handle that. Further, it is clear to me that Russia can ride out low prices better than most, but not $20s. The Q1 price collapse caused Russia to act.

          We are still here, and cautiously optimistic, but it is a very, very cautious optimism.

          What I think should worry many people is that those of us considered “marginal” are weathering this storm better than many of the large companies. We are operating stuff that the majors/large independent companies got rid of decades ago, that was deemed to be too costly for them to continue to operate.

          Now, those majors/large independents are finding there is almost nothing left of “cheap” to develop oil. Deep water, no. Shale, no. Tar sands, no.

          The shale companies are spending over $5 million per well to obtain 150-400K BO over a period of 20+ years. Folks, they have sold off assets all over the world to go after this stuff. That should be a big concern.

          This point has been made here repeatedly. Despite this severe price downturn and the alleged glut, I think it is still true. There may be a lot of oil out there left to produce, but it will cost a lot per BO to get it out of the ground.

          • Dennis Coyne says:

            Hi Shallow sand,

            Agree with all you say.

            A question:

            You say:

            …but it will cost a lot per BO to get it out of the ground.

            Can you define “a lot” ?

            I think $75/b (2015$) will allow a fair amount of oil to be produced profitably, but agree it will take 6 to 12 months before there will be much of a production increase (say 1 Mb/d Worldwide) in response to oil prices at $75/b. I imagine the slow response will result in a price spike to $100/b as supply starts to run short (probably in 2018).

          • Ves says:

            Alex, SS,

            In December 2008 oil price was $40. Shale started expansion around that time with the free money from the banks. Today in mid 2016 price of oil is $48 and it is evident that Shale is gradually closing the shop with just additional life-support from the banks to scrape the bottom of the barrel in the remaining sweet spots. So the price in Shale case did not play ANY role. So where is that “cycle” that you see it? There is no cycle. Shale was drilled regardless of price to kick the can just for few years to mask over-leveraged economy.

            • Dennis Coyne says:

              Hi Ves,

              Prices did not remain between $40 and $48 per barrel.

              The cycle is the large swings in the oil price from $40/b to $120/b to $30/b and now headed back up.

              If you believe the change in the oil price does not make a difference, I would disagree.

              • Dennis Coyne says:

                Also from Dec 2008 to March 2008 only 27 wells per month were added in the Bakken/Three Forks. Other LTO plays didn’t really get going until 2010.

                By August 2009 Brent was up to $72/b, from March 2009 to July 2009 the average wells added per month in the Bakken was 40 wells/month.

                Also it was the high prices earlier in 2008 that got things started, oil prices were over $80/b from Oct 2007 to Sept 2008, the dip in oil prices was relatively brief, the oil price was under $60/b for only 7 months from Nov 2008 to May 2009. The oil industry takes some time to react to oil price changes. Chart with annual average Brent oil price in nominal dollars below. The price has been above $70/b for all but 2 years from 2007 to 2015 (2009 and 2015).

              • Ves says:

                Hi Dennis,
                There is no free market CYCLE if OPEC cuts 4.2mbd in January 2009 and then it does not cut single barrel in November 2014. Of course there is always a “cycle” in long term.

                “Prices did not remain between $40 and $48 per barrel”

                That just shows you that price points are irrelevant. In 2008 when price was $40 did Shale had crystal ball to know that price will go $100 in the next 6-7 years?
                400 rigs that are drilling right now in US do they know where the price will be next year?

                • DentalFloss says:

                  Ves, your cherry picking.

                  “$100 in the next 6-7 years?”

                  The industry had just seen a run up in price to $140+ because of short supply. There was lots of reason to believe oil would return to 100+.

                  “where the price will be next year?”

                  There is plenty of reason to believe the current low price isn’t sustainable with hundreds of oil companies loosing money. As soon as the market balances the price will recover.

                  • Ves says:

                    DentalFloss,
                    I am not cherry picking. I am just telling you that you don’t run a business on “expectations” but on current profitability. Second you don’t run a business on DEBT, it will kill you in the long run. Just because oil was run up to $140 does not mean that you will make money in oil business in the debt based economy when tide turns and oil price goes to $26 like it did in January of this year.

                    “There is plenty of reason to believe the current low price isn’t sustainable with hundreds of oil companies loosing money.”

                    That is only one side of the coin. The other side is that there are plenty of reason to believe debt is also not sustainable with billions of broke people and countries. Broke people don’t consume oil. So the price will be determined between these two sides of coin (plus few other factors). But that does not guarantee that oil price will be $150 forever.

                    If you want my speculative number I would say $70-80 in 2016 $ is magical number to keep equilibrium between debt based economy staying afloat and profitability of majority of producers as of today. But in couple years that number could be $50.

                  • DentalFloss says:

                    Ves, I absolutely disagree with these two statements:

                    “you don’t run a business on “expectations””

                    “you don’t run a business on DEBT”

                    An apple farmer plants trees because he expects to be able to sell them for a profit years into the future. Tesla expects to be able to sale EV’s in the future. A utility company build a generation plant because it expect to sale electricity for the next half century. All business have “expectations”. Just because companies get their expectations wrong, doesn’t mean they don’t have them.

                    Ves, please name me two S&P 500 companies that don’t have debt. Debt is a means of leveraging equity to maximize profit. Just because it can be mismanaged doesn’t mean it’s not used.

                  • Ves says:

                    DenatlFloss,

                    All I am going to tell you is just to wait for November and when new austerity administration gets in you will see the connection between debt based economy and depleting resources.

                  • DentalFloss says:

                    Ves,

                    Please point out the first example in November, because I have idea what your talking about. Am I suppose to guest which party in your opinion is the “new austerity administration” ? Haven’t resources always been depleting from day one ? What’s going to change in November ? Your back pedaling.

                • Dennis Coyne says:

                  Hi Ves,

                  It is the expectation of what the future price level will be that matters. Nobody knows future prices, businesses just make their best guess, that is all they can do. Current prices affect businesses expectations, that affects business decisions.

                  I still disagree with your assertion that prices don’t matter. Perhaps people who actually produce oil like Shallow Sand could comment on the idea that oil price does not matter.

                  On the free market cycle, yes you are correct in 2009 when OPEC cuts to balance the market we have the pricing power of a cartel interfering with the market. In 2014 the market remained “free” because OPEC chose not to act. For a capital intensive industry, free markets don’t work that well. That is why such industries eventually become oligopolies where pricing is tacitly agreed on by the few firms controlling the market.

                  • Ves says:

                    Hi Dennis,

                    “It is the expectation of what the future price level will be that matters. ”

                    Could you explain how do you calculate “expectation” in real word scenario? How Permian drillers calculated their “expectation” and kept drilling versus “expectation” of Bakken drillers that dropped drilling 88% (probably after they drilled every single sweet spot) ?
                    It is the same price for oil that both of them will get.

                    Shale only drilled if they have something tangible to drill and if banks kept their credit lines open. Price did not matter in shale case.

                  • Dennis Coyne says:

                    Hi Ves,

                    Of course price matters. How much drilling occurs if the price is zero?

                    The oil companies will move where the opportunities are. The Permian had better economics at prevailing prices so more drilling there relative to the Bakken.

                    Permian is closer to refineries so there is an economic advantage over the Bakken.

                    Every oil company forms its own forecast for future oil prices. Business decisions are based in part on those forecasts. These price expectations (forecasts) are not the same for every company.

                  • Ves says:

                    Hi Dennis,
                    For shale the price does not matter. Profitability numbers will tell you that. Less oil they produce, less debt they produce. More oil they produce more debt they produce. Numbers speak for themselves. You have to show me where is the profitability otherwise you just talk slogans: “Price matters”,” Supply/demand”, “Work sets you free” 🙂

                    Dennis: ” Permian is closer to refineries so there is an economic advantage over the Bakken.”

                    That is not true. There is brand new refinery right in the heart of Bakken.

                    Dennis: ” Every oil company forms its own forecast for future oil prices.”

                    But I have asked you to explain me how companies calculate these “expectations” and you did not tell me. So that calculation of “expectation” it does not really exist, it is not science. Yes they can buy some very expensive forecast reports but that is just reports. Didn’t one of major shale developers removed their hedges right at the top? (I forgot company name?). So it is proof that does not work in real life. But they are still drilling.

                    Why do you have problem to accept that maybe the oil that is in these major prolific shale plays is not paper profitable to extract within current debt based economic system that we have? That is all to it. That oil can only be extracted as pretend and fraudulent game like we are seeing now by banks OR as 5 year Soviet central type of plan where nothing matters but production at any cost.

                  • DentalFloss says:

                    “Why do you have problem to accept that maybe the oil that is in these major prolific shale plays is not paper profitable to extract within current debt based economic system that we have?”

                    You use the word “maybe”.

                    Maybe major shale plays are profitable at $50 per barrel. Of course no one will know until is actually a temped. This is the risk a business takes in it’s operation and management. Oil production has huge up front costs. If we all bought homes with cash and didn’t use a mortgage. Most people rent or live in huts.

                    Borrowing money is a comment of two parties with “expectations” to be paid in the future.

                  • Dennis Coyne says:

                    Hi Ves,

                    Can the refinery in North Dakota process 1000 kb/d?

                    A lot of the Bakken oil needs to be moved out of North Dakota.

                    Every business has to guess future prices when making a business decision.

                    Think about it, you are deciding whether you should drill a well, how do you know if you should do it? The well will produce oil for 15 years or more so you need to estimate the oil price for those future years to do a discounted cash flow analysis along with the expected well output, OPEX, royalties, taxes, transport costs, G+A, and interest expense. Some companies do this better than others, my guess is that XTO and Statoil know how to do this very well.

                    I do not have a problem accepting that at current prices wells are not profitable, for the Bakken the current average well is profitable at an oil price of $80/b (2016$) at the refinery gate (for East coast refineries this is usually the Brent price).

                  • Synapsid says:

                    Ves, DC,

                    That brand new refinery right in the heart of the Bakken may be looking for a buyer, as of a week or so ago. Current prices have hit it hard.

                    As I recall, it was intended to supply diesel to the local market, not contribute on a very large scale.

                • Schinzy says:

                  Heinrich Leopolds
                  comment http://peakoilbarrel.com/north-dakota-declining-slowely/#comment-569882
                  seems appropriate here. His chart reflects a hysteresis in extraction rates
                  with respect to price changes. In the last cycle, the rig count followed
                  price changes by about 6 months. Extraction rate changes followed rig count
                  changes by about 18 months. If the time lag is the same this cycle, we
                  should expect extraction rates to be effected by the current low price
                  environment for at least the next 2 years.

                  • Dennis Coyne says:

                    Hi Schinzy,

                    Heinrich Leopold’s suggested 18 month laf does not apply to LTO, for LTO the lag is more like 4 or 5 months between rig count changes and output changes and for price change to output change it might be 12 months for LTO.

                    My guess is that oil prices reach $80/b by June 2017 and LTO output starts to increase in June 2018. This is the latest it will be, if prices move to $80/b sooner (say by Dec 2016) then the LTO production increase also will be sooner.

                    The longer lag times would apply to deepwater and oil sands projects.

          • George Kaplan says:

            Shallowsand,

            There may be a lot of oil available at higher prices but I’m not sure it is in the Bakken. North Dakota rig count is down to 23, with one shown to be due for stacking and one on the same site since early April. Maybe they are running out of prospective places to drill at any price. An interesting exercise is to look at the GIS map that the DMR has. Find the dry holes (open circle in a cross), these are mostly situated at the periphery of the drilled areas, and mentally draw a line connecting them (this is quite tedious as you have to pan around on the map). There is a large core area and a few outliers (mostly small areas and with vertical wells so I assume conventional reservoirs). Outside of theseboundaries there is no oil. Inside most of the areas have been drilled fairly thoroughly. There are some blank spots but if you zoom in you often find either more dry holes or cancelled permits (an open circle in a horizontal line) scattered about, or a number of confidential wells (orange circle) indicating the area has been drilled but not reported yet. Note the dry holes could be directional but the bore line is not shown, so the area found to be dry might be quite extensive. Maybe there are stacked seams (or whatever the correct term is for tight oil – horizons?) in the shale in some areas, and there could be intermediate wells with tighter spacing, but overall I’d say there is no way that 40,000 producing wells are going to be drilled in that area. At best maybe only 5,000 more, and these will likely be less productive, and in the time they come on stream others will be abandoned.

            • Dennis Coyne says:

              Hi George,

              Proved reserves in North Dakota at the end of 2014 were 6 Gb.

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

              In the UK proved plus probable (2P) reserves are typically 1.7 times proved reserves. If we assume the US is similar, that would be 10 Gb of 2P reserves. Let’s assume no reserve growth and no discoveries after Dec 2014. We will also assume only 5000 more wells are drilled in the Bakken/ Three Forks and add these to the 11,000 wells already drilled and producing and 9 of the 10 Gb is Bakken/Three Forks oil. So that would be 16,000 wells total and we need to add the 1.2 Gb of cumulative Bakken output to Dec 2014 so total oil would be 10 Gb.

              That would be 625 kb of oil for every well (if all wells were average). Note that prior to Jan 2008 less than 500 total wells had been completed in the Bakken Three Forks. Even if we take only the proved reserves plus cumulative output (6.7 Gb) and assume probable reserves are zero, we would have 420 kb per well on average. I think you are right that 40,000 wells is too many, but think the total will be around 25,000 total wells drilled (14,000 added to the 11,000 already completed and that have started producing), with total output between 8 and 9 Gb.

            • shallow sand says:

              Yes, definitely seems Bakken has lost its luster. Will be interesting to watch future developments there.

          • Wake says:

            Shallow do you know lifetime Production of good conventional wells of the 90’s 70’s, 50’s?

            I know the input cost in fracking is high and decline steep but do now know what people used to get on conventional wells

  4. Lee Grove says:

    I guess all these scenarios assume no heed paid to climate carbon budgets?
    Full steam ahead until we incinerate ourselves…

    • Dennis Coyne says:

      Hi Lee,

      The EIA and BP scenarios are not my scenarios, what happens after (if either is correct) depends on many factors, such as the potential URR, the price of oil and other fossil fuels, and the price of non-fossil fuel energy sources. My “medium scenarios” for oil, coal, and natural gas and a reasonable scenario for land use change, cement production and, natural gas flaring result in about 1200 billion metric tonnes of carbon emissions from 1750 to 2100. This is 200 Gt too much if equilibrium climate sensitivity is 3C. Atmospheric CO2 would peak at about 500 ppm in 2100 and we would probably see close to 2 C above 1750 CE temperatures. The ocean takes about 400 years to reach “equilibrium” with this level of radiative forcing and by that time CO2 will have fallen to about 410 ppm (assuming no net carbon emissions after 2100).

      It will be better if we limit carbon emissions to 1000 billion tonnes. After the peak in fossil fuels (around 2030) prices will increase and non-fossil fuel energy sources will become more competitive, eventually the prices of alternatives will drive most fossil fuel use from the market and we may be able to keep within 1000 Gt of carbon emissions.

      These scenarios do not account for that possibility, that is a future post.

  5. Oldfarmermac says:

    I am going to post some thoughts that might or might not make good sense involving energy returned on energy invested on the new non oil thread. It seems very likely that ereoi is going to be a significant problem going forward for the oil industry, for a number of reasons.Oil production may decline faster than expected because ereoi is a double edged blade.

    • Dennis Coyne says:

      Hi Old Farmer mac,

      I think EROEI can go in either thread, your choice. it is relevant for any kind of energy fossil or non-fossil imo.

    • Brian Rose says:

      OFM,

      The EROEI problem is quite evident in how it exacerbated this supply glut.

      A huge amount of metals production globally was allocated to the global oil boom for rigs, wells, platforms, vehicles, heavy equipment, etc,

      An article on Bloomberg not long ago detailed a small Wisconsin town with particularly good sand for fracking. This entire town in Wisconsin, hundreds of miles from the Bakken, had boomed since 2010. Now it is in severe recession, and many businesses are struggling – not just the sand producers.

      THAT is how lower EROEI unfolds in the real world.

      All the extra energy needed to produce that oil was “spent” on water trucks, sand businesses, metal extraction and refining, and a huge number of other ancillary businesses. The economic expansion it created fueled even more energy demand as the trucker, the business owner, the roughneck, or the expanding water truck companies new accountant spent their new income.

      As this low EROEI energy source went to a halt the last 2 years it made the oil glut even worse on the demand side as a significant driver of demand – fueling the multitude of ancillary businesses that make it low EROEI in the first place – also shut down.

      It is also why a slow uptick in low EROEI production as prices rise will actually have an odd tail-wind effect to rising prices at first. Its very nature means a significant investment of energy, and the way that plays out economically, in the real world, is the increased demand for everything from sand to chemicals, steel, specialty manufacturer parts, housing, and even pizza and strippers requires, and perpetuates as it passes hands multiple times through the economy (increasing money velocity in monetary terms).

      It’s the true double edged sword of low EROEI (i.e. high cost) energy sources – if they shut down because of low prices created by a supply glut it makes the glut EVEN WORSE as that energy is no longer used, and the economic impact is a decrease in money velocity.

      If prices rise enough because the glut is ending, then increasing supply will also carry increased demand and money velocity with it. This can create even higher prices, albeit on a marginal scale globally, due to the multiplying effect of money velocity.

      I shouldn’t suggest it is extremely marginal though – 5 of the 10 largest companies on Earth were energy extraction companies in 2014. The global impact, on a shockingly large amount of diverse industries, from a boom in low EROEI energy extraction is meaningful for how it creates self-reinforcing demand growth, and for how it exacerbates its own glut with demand destruction as their activities slow down.

      The ripple effect from, say, a parts manufacturer laying off 10 employees, who now don’t go to Chucky Cheese on Friday’s, or buy Sam Adam’s as often, or don’t give the stripper a $20 anymore. The knock-on effect of lower money velocity amplifies the economic impact of low EROEI energy going offline, but has the opposite effect on the way up.

      This can then ALSO lead to inflation picking up faster than expected, and Central Banks running to keep up by raising interest rates continuously (2004-2008 is an ideal example). That can lead to serious consequences if, say, the low EROEI supply coming online is only replacing declining supply elsewhere, all the while fueling higher demand, so prices keep rising because supply isn’t rising, but demand is. A double crunch eventually makes SOMETHING in the economy crack as higher interest rates and rising oil prices (and therefore higher prices for… everything) hit the economy with a one-two bunch of stagflation.

      Next thing you know it’s 2008, or 2018, or 2020, or… whenever the next crisis hits.

      • Fred Magyar says:

        Excellent points, Brian! I think it underscores why the financial shenanigans of funding low EROEI projects such as shale oil and tar sands backfired so badly. It is the classic example of throwing good money or good energy after bad!

        While it is becoming ever more self evident that as fossil fuels peak and their EROEI ratios decline that a BAU based industrial civilization can no longer be sustained, it also raises the question as to what kind of civilization we can maintain with relatively low EROEI alternatives such as wind and solar.

        My hunch is that if we can somehow muster the political will use what is left of the fossil fuel windfall we have had access to over the last century or so and go pedal to the metal in building out a renewables based civilization some pockets of humanity might be able to live quite well for a long time into the future. BUT! there will still be a lot of pain and suffering for the majority of earth’s population.

        I view what is happening with mass migrations from the Middle East into Europe as just the beginning of a long term process of upheaval that will become more and more evident in many parts of the world. It is really a process of triage of those who will make it through the coming energy bottleneck.

        This is exactly why I mentioned recently that I was becoming more interested in studying EROEI.

        • Brian Rose says:

          Fred,

          Completely agree. Couldn’t have said it better.

          On a broad basis, the increasing migration and social inequality created from the growing gap between those who transition and those formerly in the middle class that didn’t make it, could manifest societal breakdowns that impact everyone.

          A global financial crisis that isn’t handled as well as 2008 was by governments and Central Banks could be a strong catalyst for the more grim scenarios some here see as inevitable.

          It’ll be a shame if we don’t make it through. We will have been SO CLOSE to keeping it together and getting past the most critical period of initial transition.

          Here’s to hoping for the more sanguine outcome!

        • islandboy says:

          Fred, what did you think about the exercise I did in my post on the last key post, attempting to compare the financial returns on a typical LTO well with one particular alternative energy source? In one respect, I think the extremely poor short term financial returns of the alternative when compared to the LTO well, are an indication of the relatively low EROEI of the alternative.

          On the other hand I also tried to examine the long term performance in that, the alternative is expected to produce not less than 80% of it’s nameplate after 25 years while the LTO well drops to half of it’s first years average production in it’s second year, less than one fifth in it’s fifth year and almost a tenth in it’s ninth year.

          A crude comparison of vehicle miles traveled using the output of a typical shale well compared to the output of the alternative suggested that, while the LTO well would fuel travel over a much larger distance early in it’s life, an equal investment in the alternative would provide enough energy for as much as twice the distance over 25 years.

          If you think your answer is going to go too far off topic, we could take it over to the non-oil thread

          • Fred Magyar says:

            If you think your answer is going to go too far off topic, we could take it over to the non-oil thread

            I’ll probably do that later this evening when I have a bit more time to re-read your post and answer your question.

            BTW, I was thinking if we have a non oil thread would the Ron and Dennis think it a good idea if we could do a non oil themed post once in a while?

            I think EROEI might be a good topic to discuss.

            Cheers!

            • Dennis Coyne says:

              Hi Fred,

              I am happy to post it if you write it.

            • GoneFishing says:

              Fred, the numbers I come across range from 2:1 to 7:1 for shale oil. All positive, unlike ethanol, but not very attractive.

              • Fred Magyar says:

                Ethanol from corn is definitely a boondogle and the numbers I’ve come across for its EROEI are negative. It’s just bad news all around.

                Your numbers for shale while still positive at the point of extraction hide an untold EROEI story, the consequences of which I’m just beginning to grasp myself.

                I don’t have the link or actual numbers in front of me but if you look at the entire chain of events from production, through refining, down to the EROEI of the end use in an ICE with an overall energy efficiency of at best 20%. Converting heat energy into work moving those 3,000 lbs of steel box down an asphalt road, it starts to look really really bad and that doesn’t even take into account the cost of externalities like environmental damage caused by climate change.

                If you look at it like that it starts to make even relatively low EROEI of solar, wind and EVs with 95% efficiency of electric motors look a heck of a lot better.

                BUT! this needs to all be looked into at a much deeper systemic level.

                • Oldfarmermac says:

                  HI Fred,

                  I am firmly in the anti moonshine camp but to be perfectly honest, I don’t think anybody can ever actually give an honest answer to the ethanol moonshine balance. This is a question that in my opinion is simply not answerable in usual context.

                  The left overs are a very high quality livestock feed, and so long as we are going to be raising meat for the table on the grand scale, we are going to be feeding livestock for the butcher.

                  So far I have not seen an analysis taking both the moonshine and the feed concentrate into account that made sense to me.

                  Feel free to post any links you might have, I am sure I have missed some.

                  One thing I AM sure about is that we ought to be using less oil, and that we would do better to lower consumption by upgrading fuel efficiency standards across the board rather than making moonshine, which is an obvious abuse of the environment and an obvious waste of a hell of a lot of resources that could be BETTER used for other purposes.

      • GoneFishing says:

        Good points Brian. As the EROEI drops and the complexity needed to produce oil increases, more people get to make money or at least attempt to make money. The complexity factor boosts economic growth and monetary distribution, but at the same the resulting energetic response is weakened, so the effect of effort diminishes.
        Just the opposite of work smarter, not harder.

        • Brian Rose says:

          GoneFishing,

          I wish I could say what I said in as few words as you did.

          Low EROEI resources are actually drivers of economic growth on the front end due to job creation and increased money velocity.

          However, in the long-term the fundamental physics of the situation creates what I would call “bad mojo” and economics would call recession, inflation, stagnant growth, or simply stagflation.

          I’m sure Easter Islanders had a jobs boom as they cut down more and more trees further and further from home. It was not a sign of genuine growth, but a red flag of lower and lower EROEI.

          Luckily, our situation is, hypothetically, different. Whatever unfolds over the next few decades will be either entirely our fault or our accomplishment as a species.

      • Wake says:

        While all true to some extent let’s not get carried away

        The world made 100mm cars more or less in 2015. At 100 horsepower each that is 10 billion horsepower.

        Fracking uses unprecedented amounts of power. Over the past a decade the installed base has risen to ….19 million horsepower in North America

        The rising cost of oil extraction is big enough to slow global productivity but there are still lots of ways to offset

  6. Brian Rose says:

    Big news from Canada today:

    http://www.reuters.com/article/us-canada-wildfire-idUSKCN0YA0Z1

    “The joint-venture Syncrude project told customers to expect no further crude shipments for May, trading sources said on Thursday, extending a force majeure on crude production from earlier in the month.”

    Eventually market sentiment focused on the recency bias of a 2 year glut is going to shift into the realization that disruptions, depletion, and growing demand have thrown the global balance into a dearth where inventories are being drawn to meet demand – such as the news about Saudi’s relying on inventory to meet demand, the “missing” 800,000,000 barrels of OECD inventory from Q1 2016, or next weeks inevitable U.S. inventory draw.

    Suddenly, an extra outage (like… say… if anything happens to Venezuela) will cause meaningful rallies instead of being mostly written off.

    In fact, judging by the price action on oil over the last 24 hours, I’d say that sentiment is very close to a shift. From 11 AM forward crude oil marched higher relentlessly, even in opposition to dollar strength. Most every single commodity was down, as we’re most every stock market… except oil.

    The best, live, interactive charts I am most fond of are here: https://www.dailyfx.com/crude-oil

    I expect one last fight around $50, a few day consolidation move lower. Then market realities will push WTI past $50, and shorts will have to cover pushing it even higher.

    Next thing you know were range bound in the mid-$50s at the end of June as everyone questions if shale production will magically skyrocket overnight. Maybe the rig count will go up by 3 or 4, and it’ll spark a sell-off back to or below $50 because of the psychological recency bias of a “repeat of 2015”.

    That is, until rational minds, or the market itself pushes prices back up as it becomes obvious that a slowdown in U.S. production declines will mean little in the face of mounting production declines around the globe, and “surprisingly” strong demand – because apparently predicting that lower prices will cause stronger than average demand growth is beyond the economic capability of the EIA or IEA, and markets tend to take their word as gospel.

    I remember looking back on the IEA’s 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious.

    Every step of the way analysts and talking heads will be confused that prices aren’t dropping back to $30 just like they were for 5 straight years from 2003 to 2008. They’ll predict Saudi’s will raise production to 12 mbpd any day now, or that shale will magically take off overnight.

    They’ll never even realize that they don’t understand the history of Saudi production, or the logistical and financial complexities of shale production rising as fast as it did before. Instead they’ll blame the banks, or speculators, or Big Oil for artificially making oil prices rise (without questioning why they let them fall for 2 years in the first place)

    But then again if gas is cheap, which average people are fond of, their brain says “I like this, so it must be right”. If gas is expensive their brain says “I don’t like this, it must be wrong, what evil force made this happen?!?”

    Most people are simply incapable of seeing a bigger picture, and they’ll simply never understand the relationship between depletion, economic and population growth, and the long-term fact that this equals higher prices (and probably also, in the long run, higher poverty and unemployment).

    Their lives will have ups and down, growth and recession, but they’ll know and feel it is generally getting harder. They’ll never be aware that this is the “fault” of nothing but physics and thermodynamics, even if told directly and shown all the rather clear evidence (I know every one of you has experienced this as I have). Instead, they’ll blame those dang immigrants, or the Chinese, or the Congress, or regulations.

    They’ll blame anything that fits their paradigm enough to allow cohesiveness so their fragile lives can at least MAKE SENSE. You can’t blame physics, and, frankly, I think that is a large psychological barrier for people comprehending what is happening. We need to have some agent to blame for things, and physics has no agency. Blaming something for a problem is settling because it gives us something to focus on to solve the problem, or, at the very least, avoid it. The evolutionarily beneficial need to assign agents as the cause of events is what pre-disposes us to believing that events we cannot easily assign agency to are, nonetheless, the will of… a greater, invisible, omnipresent agent.

    It is for that exact same reason that so many people we know will simply never get it. Physics doesn’t have agency, it cannot be avoided, cajoled, or “blamed”. It simply is, and that is so unsettling to our psyche that most people have a strong, unconscious drive to negate and ignore that conclusion even if they will acknowledge it is a sound and true explanation of how economics, growth, employment, wealth, energy (physics and thermodynamics), and depletion are woven of the same fabric.

    • George Kaplan says:

      Brian – I think you are closer to reality than EIA or USGS, it will be interesting to see how it plays out against your scenario. A couple of other impacts are summer maintenance season in North Sea (Buzzard and, I think, Ekofisk have major turnarounds), Alaska and Canada (maybe Russia as well) and increased demand from driving season in USA and AC use in Middle East. There doesn’t necessarily have to be more social breakdown in Venezuela to have an impact – Haliburton and Schlumberger are pulling out and will have immediate effect as the extra heavy oil production needs continuous attention to the wells. I’m surprised Angola and Algeria haven’t seen disruptions yet either.

    • Paulo says:

      Nicely said, Brian.

    • Oldfarmermac says:

      Well said, Brian!

      I often try to make a SIMILAR point in respect to evolution and the behavior of naked apes. Evolution is a not a god, or an entity of any kind. Evolution is a process that sorts out winners and losers via survival of the fittest, with the variation that creates greater or lesser fitness generated by chance variations in DNA during the reproductive process. Whichever organisms best succeed at reproducing and adapting to changing circumstances ARE the fittest, in evolutionary terms, and they gradually get to be more numerous compared to LESS fit competitors.

      ” Mother Nature” is utterly incapable of giving a rat’s ass about WHICH species or which individual organisms win out. Death is a foregone conclusion to every individual speck of life, and she no more CAPABLE of caring about which survives for how long that a flipped coin cares about whether it comes up heads or tails.

      “She” just records winners and losers in the fossil record, and in DNA which can be read going backwards in time just as fossils can be read.

      The typical “social ” scientist and the typical engineer and the typical man on the street seems to be utterly incapable of grasping this fundamental truth.

      If a behavior or physical trait confers fitness, then it follows that that behavior will be pursued, and that trait will be preferentially reproduced from generation to generation. All men die. If some men can survive long enough to have children, and grandchildren, at the expense of other men, it is perfectly NATURAL that they will do so. It is to be EXPECTED that they will do so, unless forcibly prevented from doing so.

  7. Heinrich Leopold says:

    Texas RRC data are out at
    http://webapps.rrc.state.tx.us/PDQ/changePageViewAction.do?pager.offset=20http://webapps.rrc.state.tx.us/PDQ/changePageViewAction.do?pager.offset=20
    Below XY scatter chart shows the dramatic decline of condensate production erasing swiftly all the gains made during the period of high oil and condensate prices. Evidence is also mounting that shale production is not viable below USD 50 per barrel.

    • shallow sand says:

      Heinrich. I would say shale is not viable below $80 per barrel, at a minimum.

      So, is TX C + C falling?

      Are you out there Dr. Dean? I really appreciate your analysis of TX production!

      • Heinrich Leopold says:

        Shallow Sand,

        Texas C&C is also falling, yet not as strongly as condensate and gas (see below chart).

        In my view there is something slowly cooking up for gas. As below chart shows total Texas gas still above 20 bcf/d in March, the recent http://www.bentekenergy.com report for the week to May 14 shows Texas gas at 18.3 bcf/d. This is a steep plunge from last year. If you take look at below chart you can feel the gravity drawing down the curves.

        And given the recent plunge of gas drilling to 88 rigs from a high of 1600 not so long ago, this can only mean a massive gas shortage in a few months. I took for my part considerable buy options for natgas.

      • Dennis Coyne says:

        Hi Shallow sand,

        I will do a full post in a few days, but Dean sent me the following Chart.

        He also said:

        …find attached the Texas data for March 2016. I also attach the evolution of my correcting factors over time: given these data, I’ve started thinking that Texas oil production did not fall in the first months of 2016, but actually increased (a bit), similarly to what we observed in 2015.

      • likbez says:

        I would say shale is not viable below $80 per barrel, at a minimum.

        I completely agree.

        I think that conventional oil production will get some boost in $50-$80 price range, but not the US LTO oil production.

        Prices of metals, transportation, almost everything, correlate with the price of oil. So they will move up and that (along with heavy debt load) makes the repetition of “carpet drilling” unlikely and a large part of so called “productivity gains” a mirage. IMHO.

        Add to this debt load and the status of red hair step child that LTO now got in financial industry and it is plausible that we need $100 per bbl for full revival.

        I think that oil industry internationally is now sufficiently screwed up for another oil price spike (and possibly a second crash in five-seven years time frame). So all those “linear extrapolation” forecasts in best EIA style does not take into account one crucial variable: the level of financialization of the world economy and as such are mostly wrong.

        Instability due to strong positive feedback loops provided by financialization is the hall mark of neoliberalism.

  8. Revi says:

    I thought that we were beginning a decline worldwide starting in late 2015, so the plateau and eventually the Seneca Cliff have already commenced. Am I wrong? This is according to Ron Patterson. We may not peak in nat gas nor coal for a little while, but it looks like we may have peaked in Crude + Condensates. What do you think?

    • Dennis Coyne says:

      Hi Revi,

      See http://peakoilbarrel.com/eias-annual-energy-outlook-seneca-cliff/#comment-570483

      I think at minimum we will see a plateau around 80 Mb/d for a few years, this is consistent with Ron’s 2015 peak, Ron has not said when decline would begin, although one could surmise that a “peak” implies a decline, so perhaps it would be more accurate to say that Ron has not predicted a rate of decline for World C+C output over the 2015 to 2020 period. My prediction is that decline will be zero or less over the 2015 to 2020 period.

      • Nathanael says:

        I’ve been doing strictly demand-side modelling. I think we’ve hit peak oil demand, more or less, or at least we’ll hit it by 2018. This is pretty consistent with Ron’s peak supply in 2015.

        I see the major demand destruction starting around 2018 and accelerating after that. We’ll probably see steady levels for 2016-2017, I guess…

  9. Pingback: EIA’s Annual Energy Outlook and the Seneca Cliff | Energy News

  10. Westexasfanclub says:

    Totally agree with the plateau, at least geologically. But even a plateau will cause severe strain on a growth oriented world economy. So prices might shoot up, but the oil industrie’s latency will cause a delay in growing oil output – so there could be a crash with extremely cheap oil following it – and a wrecked oil industry – not to speak about the general economy. Such a scenario could easily turn a plateau into a sawtooth-cliff.

    • Dennis Coyne says:

      Hi West Texas Fanclub,

      It is not clear how that works, if oil is in short supply, oil prices will increase and alternatives become more competitive (natural gas, biofuels, EVs, railroads, light rail, busses, car pools, moving closer to work and to more walkable neighborhoods). Some of this causes economic disruption, but it also creates opportunities for rail and light rail expansion, and more EV and battery production. The net effect is far from clear, the economy may be able to adjust to a plateau and eventually EVs and plugin hybrids may take off if oil prices remain high. Then the demand may fall and prices will drop and supply will decrease along with demand with prices adjusting to keep the two balanced.

      There could at some point be another GFC (2030 or so), but I think governments and central banks will be able to handle it, possibly avoiding mistakes (fiscal austerity in the face of severe recession) made the in the first GFC.

      • likbez says:

        Some of this causes economic disruption, but it also creates opportunities for rail and light rail expansion, and more EV and battery production.

        Exactly. That might shake neoliberal economies to the core due to severe stress on government budgets from lower tax income (middle class was already robbed and continued robbery present higher costs and social stability problems, such as emergence of politicians like Trump and Sanders) , higher maintenance of infrastructure and food supply costs and the cost of conversion to alternative technologies.

        Higher cost of commercial transportation will severely affect current supply chains and might reverse neoliberal globalization. High oil prices would all affect almost all aspects of functioning of the modern neoliberal society. With especially high influence on the cost of chemicals, metals and all products that require a lot of energy to produce.

        Probably a half of oil consumed by private cars for personal transportation might eventually be eliminated. That, along is cutting consumption of oil by military in half, is probably the biggest reserve the mankind has as for extending the “age of oil”.

        Neoliberal wars of conquest will became more and more expensive. That might reduce the ability of the USA and EU to intervene internationally using military action (Iraq, Libya), or color revolutions (Ukraine, Georgia, Moldova, Arab spring).

        The shift to natural gas might also provide an extension of the “oil age”, because it might be able to replace crude oil until some new solutions materialize. Will it be enough to prevent severe economic disruptions or not remains to be seen.

        High oil prices will also stress the suburbia model of life considerably as those standalone homes located 50-60 miles from metropolis will now come under severe stress and prices of houses in those areas might drop due to the rising costs of heating/air-conditioning and transportation to work. The latter might be partially offset by telecommuting. In any case it is possible the suburbia will experience a kind of the “echo of subprime crisis”.

        The importance of what Germans call the “oil ellipse” ( the region East of Europe reaching from Saudi Arabia in the South to Russia and former Soviet Union countries in the North) will increase.

        See German Military Study Warns of Potential Energy Crisis
        http://www.theoildrum.com/node/6912#more

        • Dennis Coyne says:

          Hi Likbez,

          A commute to a city center could occur with rail and light rail with park and ride facilities. Higher oil prices might result in an expansion of such facilities. Also EVs and AVs of the future may allow people to easily car pool using an Uber like service, EVs reduce the amount of energy consumed for private transportation due to the greater efficiency of electric drive. Wind and solar widely distributed and overbuilt by a factor of 2.5 above average load will require very little battery or fuel cell backup and at first backup can easily be covered by existing natural gas peaker power plants.

          It will take some time to accomplish this (30 years or so), but the sooner we get started once prices rise, the less disruptive the process of transition will be.

    • Nathanael says:

      The general economy has decoupled from oil, or anyway is doing so as fast as possible.

      The oil industry, however, *is* going to be *completely* wrecked, and I mean *completely and totally*.

      This is what I would do, personally: Get out of the stocks. Get out of the bonds.

      If you work in the industry… start retraining for a different industry now, and save up for your inevitable period of unemployment. If you have a pension from the industry… make sure your employer doesn’t control it, move it out to an independent location. If you can’t, consider it gone (corporations always raid the pensions before going bankrupt).

      If you have royalties or working interests or similar, consider them worthless. Either sell them or start accumulating a fund for the environmental cleanup liabilities which you’ll get hit with later.

  11. AlexS says:

    Baker Hughes rig count is out.

    There are clear signs that US oil rig count is bottoming.
    Particularly, Permian is up 4 unit this week.
    An interesting trend: Cana Woodford oil rig count now exceeds that of Eagle Ford and the Bakken

    • AlexS says:

      US oil rig count by direction

      • AlexS says:

        chart:

      • AlexS says:

        Bakken oil rig count is down 88.4% from October 2014 peak levels – a bigger decline than U.S. total.

        All 23 active drilling rigs in the Bakken are now horizontal oil rigs.
        20 of them (87%) are in the 4 core counties;
        11 of 23 rigs are in McKenzie county.

        The share of of 4 core counties in total horizontal oil rig count has remained in the 87 to 96% range since the beginning of the downturn in drilling activity (Oct. 2014). It has peaked a year ago, in May 2015. As such, this contradicts to popular concept of high-grading of asset portfolio.

        • AlexS says:

          Among 4 core Bakken counties, MacKenzie has sharply increased its share in total Bakken active horizontal oil rigs, although it has slighly declined since the end of April.
          In contrast, the share of the Williams county, after an increase in mid-2015, has sharply declined in the past several months.

          Bakken horizontal oil rigs by county (in %)

        • Aleksey says:

          Calculating percentage of 3 out of 23 items is an exercise that hardly produces valuable information. If one week it goes down to 2 another week goes up to 4 the corresponding percents would just amplify this noise.

        • Enno Peters says:

          Alex,

          I think the high-grading becomes a little more visible when we look at what happens within counties.

          I grouped all fields in ND in 3 categories:
          – bottom : those where wells produced on average less than 100 kbo in the first 2 years
          – middle : those where wells produced on average between 100 & 150 kbo in the first 2 years
          – top : higher than 150 kbo

          The following graph shows from 2014 Q1, until 2016 Q1, the % of new wells starting in each of these 3 groups, per quarter. It shows that the % in the top group hasn’t changed much, but that much fewer wells are starting in “bad fields”, in 2015 Q4, and 2016 Q1.

          • Enno Peters says:

            The same info, but now over the last several years

            • AlexS says:

              Thank you Enno,

              Yes, a more detailed field-by-field analysis is better than county-by-county.

            • Dennis Coyne says:

              Thanks Enno,

              Very interesting.

              One possible explanation is that there are fewer “top” locations to drill as the sweet spots get saturated with wells and the “middle grading” results from an attempt at “high grading” that is failing.

              I am assuming that you have fit a hyperbolic to the newer wells because we do not have 2 years of data for wells which started producing after March 2014. Fitting the well profile with too few data points is tricky, so we would be guessing to some degree on the wells from 2014 to 2016 for 2 year output.

              The high grading may have started as early as 2012, maybe most leases were held by production at that point and they started to focus on the sweet spots more strongly after 2011.

              The changes in frack stages and proppant used over time confounds the analysis.

      • AlexS says:

        Eagle Ford oil rig count is down 87.1% from 2014 peak levels; horizontal oil rig count is down 86.3%.
        Like the Bakken, the relative decline in EFS oil rig count was bigger than U.S. total.

      • AlexS says:

        The number of active oil rigs in the Permian basin declined 75.6% from its end-2014 peak levels, while the number of horizontal oil rigs is down 66.2%.
        A lesser decline in oil rig count and shift from vertical do horizontal wells explain relative resilience of oil production in the Permian basin compared with the Eagle Ford and the Bakken.

      • AlexS says:

        One basin where oil rig count declined the least is Cana Woodford (down only 31% from peak).
        There are currently 29 active oil rigs vs. 27 in the Eagle Ford and 23 in the Bakken.

        • AlexS says:

          Of Continental’s 19 operated rigs in 2016, only 4 rigs are in the Bakken, and the rest in the STACK, SCOOP and other plays in Cana Woodford basin.

          Some of CLR’s wells there look really good.

          CLR’s new completions in the STACK oil window:

          • Verona: IP 3,339 Boepd (70% oil), ,400 PSI FCP, 9,700’ lateral
          • Quintle: IP 2,192 Boepd (74% oil), 1,800 PSI FCP, 9,850’ lateral
          • Foree: IP 2,061 Boepd (69% oil), 3,300 PSI FCP, 7,200’ lateral
          • Bernhardt: IP 1,046 Boepd (77% oil), 2,145 PSI FCP, 4,550’ lateral

          source: http://investors.clr.com/phoenix.zhtml?c=197380&p=irol-presentations

          “The Verona well cost is about $9 million, which is $500,000 less than Continental’s yearend 2016 target cost for 2-mile lateral wells in STACK. The Verona well was drilled in Blaine County, Okla., east of Continental’s Ludwig unit.
          The Verona well is the independent’s ninth well in STACK’s overpressured oil window, and the company is completing four additional Meramac wells.

          Continental has 171,000 net acres of leasehold in the STACK play, 95% of which is in the overpressured window.”

          source: http://www.ogj.com/articles/2016/05/oklahoma-stack-well-flows-3-339-boe-d.html

  12. Oldfarmermac says:

    The fast growth of renewable electricity industries won’t have much effect on oil markets for at least five or ten years, because it will take that long at the VERY least for enough electric cars to hit the road, considering the huge legacy fleet. Even if we see ten twenty percent electric NEW cars within that time frame, that won’t be enough to matter much to the oil market for over ten years.

    But wind and solar power are already making serious inroads into the markets for coal and natural gas.It is not easy to find any figures that reflect the change in sales and prices of these two fossil fuels specifically because of renewable electricity, but my seat of the pants estimate is that wind and solar power have already captured very close to five percent of the combined former fossil fuel USA domestic electricity generation market. Virtually all of the loss must have been borne by coal and gas suppliers,since the marginal costs of both nukes and hydro are close enough to zero not to matter.

    This loss of markets in turn must have resulted in some significant drop in the market price for coal. Gas on the other hand is used in greater relative quantity, compared to coal, because gas fired generation is BETTER suited to ramping up and down in a hurry and because gas is cleaner. So gas prices may not have been affected much by renewable electricity.

    ( So far as I am concerned, the argument that coal fired generation can’t be ramped UP in a hurry is fifty percent bullshit, and ramping it DOWN in a hurry is almost all bullshit. I know some guys who run smaller boilers than the ones used by utilities, but they know about bigger boilers as well. If they have a sudden drop in load, they just dump steam. It costs some money, but it doesn’t hurt a thing, except the ears of anybody nearby. Ramping up is MOSTLY managed on a fairly predictable schedule, with a few boilers being kept hot to roll on standby. Utilities have been doing this on a regular basis since the grid was invented, in numerous places where there was no hydro or gas available to help with load balancing. It is not economical of coal, and it does result in increased boiler maintenance but this is a money issue, not an engineering issue. )

    The tight oil boom is illustrative of the way the economic pendulum can sometimes swing wildly given only a minor push to get it started, and the tight oil bust is the result of the pendulum swinging back the other way. What I am trying to say here is that the tight oil operators got started on a fairly reasonable economic basis, an EXPERIMENTAL basis if you please, drilling and fracking a modest number of wells in the early days of tight oil, and finding that there was probably some money to be made, so long as the price stayed up.

    This was the minor push that got the tight oil pendulum moving, and the FINANCIAL industries, or the investment industries, by whatever name you may wish to know them, jumped into the “next big thing” like a drunk frat boy in a suit into a swimming pool because there’s GIRLS in there, lol.

    When the money proved to be a chimera, the money started leaving even faster than it showed up. It’s mostly gone by now.

    This rushing in and rushing out of an industry is a natural part of the capitalist economic system, and over the really long haul, it probably doesn’t matter much, in most cases. The national and world economies have proven to be more resilient than most pessimists thought, over the years.

    Now pretty soon, the actual dollar costs of coal and gas are going to start going up, because depletion never sleeps , and ereoi IS A REAL CONSIDERATION, although it does not necessarily come into play as soon as one might think, in terms of businessmen and bankers making investment decisions. ( For now it would be quite profitable to manufacture synthetic gasoline from coal, with coal so cheap, if oil were two hundred bucks. A hell of a lot of energy would be wasted in terms of ereoi, but since the existing fleet of vehicles will run only on LIQUID fuel, the ereoi doesn’t matter YET from a business pov. )

    What’s going to happen is that the investment community, ever eager to chase the next big thing, is going to go crazy sometime within the next few years for renewable energy. The actual economics won’t matter much more than the actual economics mattered when everybody went crazy for tight oil.

    This boom will dwarf the tight oil boom because it will be nation wide rather than confined to the oil states. . It will go busted just like tight oil, due to over expansion more than anything else. But in the end, it will come back, like tight oil will come back, when the price of oil goes high enough. Oil will go up again because oil depletes. Solar and wind power will grow and grow more valuable because wind and sun do NOT deplete.

    Inflation is built into our money and banking systems, and while a catastrophic temporary deflation is a real possibility, a sovereign government in the last analysis can print as much money as it pleases.

    • Hickory says:

      Excellent insights OFM.

      I think it will be a very interesting battle between the need to burn coal, and the desire to use clean energy, in an oil short world.
      Epic battle will play out, I believe (unless some sort of cheap carbon capture comes into play-doubtful).
      Poor, chilly, underemployed vs ‘the haves’.

    • Dennis Coyne says:

      Hi OFM,

      Deflation will not be cured by printing money. As more money gets printed the velocity of money decreases and it has very little effect. Deflation happens when aggregate demand is too low, once interest rates are pushed to zero, printing money no longer matters. The only solution is for governments to either cut taxes or increase spending to battle inflation. You should read the General Theory by Keynes if you have not already. One of the most important books published in the 20th century.

      • Brian Rose says:

        Pushing on a string as they say!

      • Nathanael says:

        Well, it all depends who gets the printed money, doesn’t it? If the printed money is promptly spent by handing it to the general population (as Keynes recommended) then, the money-printing *is* actually fighting the deflation…

        There is actually not much difference between “cutting taxes or increasing spending” and “printing money” apart from accounting conventions…

        • Dennis Coyne says:

          In practice the money is not just given away.

          So an increase in the money supply does little to increase demand.

          The extra money just sits in the bank.

      • Oldfarmermac says:

        I have not yet read that book, but I intend to do so.I have read some other books that refer to it quite often, and a summary of it, and within the intellectual box wherein it was written, I believe it is a very solid work.

        But otoh, being an armchair historian,I know that intellectual boxes are made for the smashing, and history has a way of smashing them.

        The argument holds so long as the current rule book holds.

        When the shit really hits the fan, and it WILL, someday, maybe in a few years, maybe not within the lifetimes of the folks reading this forum today, the old rule book will go out the window, along with the people running the current banking and monetary establishments.

        Remember the French Revolution!

        A new rule book will be written, at the behest of Congress and the Executive, here in the USA, and the Supreme Court will necessarily go along, finding that laws passed by congress can be repealed by congress, etc.

        Our banking and money systems exist as they do because of laws passed by Congress in times past.

        Now I personally for the sake of this discussion hold to the man on the street’s definition of inflation, meaning inflation exists when the prices of goods and services are going up, no more and no less.

        There is NOTHING I know of that prevents a sovereign government from printing and distributing money, and distributing it as it pleases, to WHOM it pleases. Laws against such behavior on the part of government have been hollowed out from the inside on various pretexts from the day the first money was spent for the benefit of some particular class of people, be they multimillionaires or old folks who would be homeless except for the welfare net.

        For all intents and purposes, when the shit is in the fan, what remains of existing old statuatory and regulatory laws relating to the creation of money will be tossed out with the old rulebook.

        Deliberate printing of money to cover government spending as opposed to collecting taxes to pay for government spending does NOT fix or solve economic problems, except in the short term. But survival in the very short term trumps all other considerations, politically.

        In the short term, so far as I can see, deliberate inflation of the supply of CIRCULATING money can be understood as having the same effect as collecting taxes. The difference is that instead of the tax being collected directly from whoever has income, or cash, it is collected from those people preferentially, due to their losing purchasing power.

        Consider-I can buy a load of firewood for a hundred bucks today, with my own existing savings and current income. If the minimum wage is doubled, or if other relatively poor people around here are given a few thousand bucks annually, as a GIFT, then quite a lot of them will try to spend part of that gift on purchased firewood, rather than cutting their own, or getting by with less. My purchasing power will be eroded.

        This whole ball of wax or kettle of fish or whatever it may be called can be described as a race to the bottom, but hell, we are in overshoot. Not many options will be off the table when the shit hits the fan.

        Inflation may indeed bring on a catastrophic economic crash, but I personally do not believe it will play out this way, except if governments fumble the ball. Of course fumbles are very common, politically.

        I KNOW I have been painting with a very broad brush, and painting fast.

        Bottom line, government can create inflation when the incentive is sufficient to throw out the old rule book, and WILL print, so as to avoid IMMEDIATE collapse, even though the printing will only DELAY such a collapse anyway, UNLESS the people in charge manage to walk the fine line between printing and putting too much funny money INTO CIRCULATION , and too little. Successfully negotiating that fine line might enable a collapse to be prevented or delayed, just as a poisonous drug can sometimes be judiciously used and save the life of a sick person.

        Governments generally choose the easiest short to medium term options, and governments under extreme stress virtually ALWAYS choose the most expedient options.

        Printing money and giving it to people who WILL spend it is a more desirable option than dealing with riots and massive unemployment THIS week. The printing, if it is judiciously managed, might put off actual rioting for months or maybe even a year or two. 😉

        Of course I try to remember Yogi, and history can play out differently. An authoritarian government could arise that forces extreme austerity on everybody but the elite who control the government, even here in the USA. That wouldn’t go over too well here or in Western Europe, but the cards may well fall that way in other parts of the world.

    • Nathanael says:

      “e it will take that long at the VERY least for enough electric cars to hit the road, considering the huge legacy fleet. Even if we see ten twenty percent electric NEW cars within that time frame, that won’t be enough to matter much to the oil market for over ten years. ”

      I thought this but I don’t think so any more. I think we reach ~3% of new cars pure-electric in 2018, with another 3% plugin hybrids. This doesn’t sound like a lot — it’s a bit under 0.5% of total cars on the road — but a drop in gasoline demand of 0.5% is enough to swing the crude oil price.

      Of course, this is a permanent drop in demand and it happens again every year, only the drop is larger each time as more electric cars are sold each year. By 2022 we should be generating a drop of 1% of demand each year, and by 2024 a drop of 2% of demand each year. It accelerates from there. These are pretty conservative numbers which assume a failure of companies to capitalize on the electric car market. It’ll probably be faster.

      This only eats a small percentage of crude oil demand every year, but it’s enough to really hold the price of oil down, unless there’s an *sharper* and *faster* collapse in supply. And I believe most of Dennis’s models have slower supply decline rates than 2%….

      (P.S. I forgot about all the oil used for non-transportation usage. Ugh. So you might have to change all my percentage numbers by a factor of 2… I think the general point still stands.)

      Anyway, call this a “demand decline rate”. Each time X% of cars on the road are replaced with electric cars, roughly X% of oil-for-gasoline demand is eliminated permanently. So a particular constant production rate of electric cars will give you a particular constant reduction in the world bbl/day demand for oil, basically.

      (I am making the assumption that the upcoming electric cars are *inherently preferable* to gasoline cars, have comparable purchase prices, and are production-limited rather than demand-limited, but I have reasons to think this is true. They are certainly cheaper to operate. This would change if oil became very cheap, below $25/bbl, but is there any oil producer who can survive at those prices?)

      • Oldfarmermac says:

        Hi Nathaniel,

        Your arguments will hold if the price of electrified cars falls fast enough, thus enabling manufacturers to sell enough of them within the next few years. I am a big believer in the coming of the electric car and light truck as well, but I just don’t see the price of them coming down fast enough for them to have much impact on oil prices in less than a decade. Six percent combined of pure and plug in new cars within the next couple of years is a hell of a stretch in my opinion but I have been wrong before.

  13. shallow sand says:

    There were some comments above about what price is needed to ramp up shale production, and whether price is a big factor. Thought I would post down here to widen things out.

    I always pick on Continental Resources, primarily because they are big enough to draw some conclusions about LTO, but also because their financials are straightforward, they pretty much strictly operate LTO, and they have not raised funds through equity issuances. In other words, 10K’s are straightforward.

    CLR went public 5/14/2007. They had been in business as a private company since 1967.

    As of 12/31/2007, per the 10K, CLR produced 30,369 BOEPD, 82% oil, spent $526 million in CAPEX for the year, and had long term debt of $165 million at year end. For 2007 their realized prices were $63.55 for oil, $5.87 for gas, for BOE of $58.32

    12/31/2008.
    Production 36,018 BOEPD, 76% oil.
    CAPEX $989 million
    Long term debt $376 million
    Oil price $88.87
    Gas price $6.90
    BOE $77.66

    12/31/2009
    Production 37,323 BOEPD 74% oil
    CAPEX $444 million (refutes the idea that oil price does not matter – see 2008)
    Long term debt $524 million
    Oil price $54.44
    Gas price $3.22
    BOE $45.10

    12/31/2010
    BOEPD 43,318 75% oil
    CAPEX $1,237 million
    Long term debt $926 million
    Oil price $70.69
    Gas $4.49
    BOE $59.70

    12/31/2011
    BOEPD 61,866 73% oil
    CAPEX $2.224 billion
    Long term debt $1.254 billion
    Oil price $88.51
    Gas price $5.24
    BOE $73.05

    12/31/2012
    BOEPD 97,585 70% oil
    CAPEX $4.358 billion
    Long term debt $3.540 billion
    Oil Price $84.59
    Gas price $4.20
    BOE $66.83

    12/31/2013
    BOEPD 135,918 71% oil
    CAPEX $3.842 billion
    Long Term Debt: $4.651 billion
    Oil price $89.93
    Gas price $4.87
    BOE $72.04

    12/31/2014
    BOEPD 174,189 70% oil
    CAPEX $5.016 billion
    Long Term Debt $5.929 billion
    Oil price $81.26
    Gas price $5.40
    BOE $66.53

    12/31/2015
    BOEPD 221,715 66% oil (note for 2016 guiding 60% oil)
    CAPEX $2.564 billion
    Long Term Debt $7.118 billion
    Oil Price $40.50
    Gas Price $2.31
    BOE $31.48

    They are guiding about 15,000 BOEPD less production in 2016, are going to be spending close to $1 billion in CAPEX in 2016. They are going to be producing more gas as almost all completions will be in OK, which are primarily gas plays.

    I think posting these historical numbers from the 10K since CLR went public tell a story. I am not good at guessing what will happen in terms of production at $50 WTI, $60 WTI, etc. I have made general views here pretty clear, and I do not think I need to repeat them.

    I will note, however, that CLR has about 6 times long term debt per BOEPD as of 12/31/2015 than it had as of 12/31/2007. I think this is a relevant metric.

    Assuming investors and banks look at figures like these, it should take a very high price for LTO to “ramp back up”. It did not do so well, IMO, despite very high prices from 2007-2014.

    • Ves says:

      2008
      Price $77
      CAPEX 989 m

      2010
      Price $59
      CAPEX 1,2 m (refutes idea that price matters, see the price and CAPEX in 2008)

      And let’s look at Long term debt.
      Shallow when your debt starts increasing do you cut CAPEX spending or you keep increasing? Obviously if you look at that long term debt of CLR that did not matter in relation to CAPEX . So how can you say that price matters when CAPEX increased and Long term debt increased even at higher rate??

      and then 2015
      Price $31
      CAPEX 2.5 bilion (refutes idea that price matters see 2008 price and CAPEX)

      Here I am talking only about shale not the rest of conventional.

      • shallow sand says:

        Ves. My point is in response to the price collapse at the end of 2008, CAPEX in 2009 was cut substantially from 2008 levels.

        The same happened if we compare 2014 CAPEX to 2015 CAPEX, and will happen again 2015 compared to 2016.

        The 2008 collapse was very severe, I remember it very well. The price dropped over $100 in around 5 months. But the price recovered fairly well.

        The price of oil will always be a major factor with regard to CAPEX levels, but there is a lag, as companies react to oil prices.

        As for shale, it is very dependent on credit. If credit does not come back as prices rise, and just develops out of cash flow, I think the actual data from CLR is evidence that a very high price will be needed for it to begin to grow again.

        • likbez says:

          Shallow sand,
          As for shale, it is very dependent on credit. If credit does not come back as prices rise, and just develops out of cash flow, I think the actual data from CLR is evidence that a very high price will be needed for it to begin to grow again.

          Exactly. LTO companies will not be able to rump up production because:
          1. They have little or no positive cash flow
          2. Need to service accumulated (huge) level of debt
          3. Can not increase the level of debt further, as they fell out of favor for Wall Street.

          • texas tea says:

            Hello likbez,
            as a newbie to post but a long time reader of this blog, i think you hit the nail on the head. I have participated in LTO wells with CLR and others in Oklahoma (we own minerals) and have followed the companies who are active there since the “discovery” of the Woordford and others. Paying particular attention to CLR when they use the words like “patience” before starting to drill again, this is a sea change in attitude. Their stock price has been rewarded I think because they have hinted that their priority is maintaining liquidity and servicing their debt. If you can’t increase your production, how can you increase your net income? By letting prices raise and limiting spending. If prices rise 50% from here to $90WTIC, that is better then doubling your production and selling it at $45. There will be “new” money for sure come back into the LTO space as prices increase, but the best “sweet spots” are now HBP and will be developed as cash flow allows. Just my humble opinion. I have watched in amazement as marathon oil has permitted two multiunit wells on us and has spud one. I can’t help but think they believe oil prices will be higher (while drilling cost are lowest) by the time these wells get to market in late fall. If I had to pick a price point for the best areas in the LTO space it is $80 plus to make a decent return.

            • shallow sand says:

              Texas tea. Thanks for the input.

              If you do not mind me asking, am I correct that most of the BOE out of these “new” OK hz plays consists of natural gas and condensate, and that oil tends to decline very fast?

              • texas tea says:

                Hello SS,
                I have read your comments with interest as your experiences are very much mainstream of what the oil and gas industry is enduring. My first bust was 85-86 so this is not new to us. To your question, based on all the data public and otherwise some of the very best wells in the LTO space are being made in the SCOOP area of central Oklahoma. As with many of the shale plays there are different “zones” from dry gas at the deeper part of the play to “oil” in the most up dip areas. Thickness varies from 150′-350′. The area that is being focused on under the economic parameters that now exist is the “wet gas” area where you will get a flush of oil say 100,000 BO in the first year or so but the oil will decline rapidly and you are left with “wet gas”. 1350BTU. Some operators strip out the liquids other do not. But I have wells that are 4 years old still producing over 3oooMCFD. Now at $2MMBTU that sucks but when (if) nat gas prices normalizes it will ring the cash register. On the up dip oil part we have only two fully developed units, Good Martin with 8 wells and the May Unit with 7 wells. The Good Martin unit has been on production for a year last month. The production is within the range that was expected but I do not have pressure data to give me full confidence in the ultimate recovery. The May unit is still being completed. I will say, both CLR and Marathon have INCREASED their BOE recovery in the most recent reports. As with all things, as completion cost have come down, you can increase the load and up the recovery. I for one am in the camp that with higher frac loads and increased number of stages not only does the IP rate increase but I think the ultimate recovery also increases as more rock is broken down and open to the well bore. again just MHO, time will tell. One other quick point, a lot of the LTO players are selling assets elsewhere and buying leasehold in SCOOP and STACK. Over pressured, great infrastructure, favorable business climate, now if we can just get rid of the pesky earthquakes.

                • AlexS says:

                  texas tea,

                  Thanks for your comments; very interesting.

                • Roger Graham says:

                  The earthquakes “likely” will subside when the SWD is reigned in. That said, OK will be trial lawyer’s paradise for the next decade. Smart money (that can) is exiting OK…whatever profit is made will go to the attorneys and plaintiffs.

                • shallow sand says:

                  Yes, thanks for the comments.

                  Why do you think CLR presents these wells as oil wells?

                  • texas tea says:

                    SS, in the oil portion of the Woodford liquids are expected to be 70% of BOE produced and in the wet gas portion 35%. I don’t think Wall Street makes the distinction, liquid equals oil.
                    Roger, Oklahoma is a oil and gas business friendly state that depends on it’s oil and gas revenue, while they will be legal action, these assets will be developed, they are some of the most economic LTO plays in the world. Just the facts. There is a review on the latest CLR presentation that show the various LTO plays rated by economics, page 5. Nothing is going to stop this train, there is no where else to go to get the reserves, if there was we would not be here.

        • Ves says:

          “My point is in response to the price collapse at the end of 2008, CAPEX in 2009 was cut substantially from 2008 levels.”

          But that is only true if you pick years 2008 & 2009 and compare it. If you pick 2008 and 2015 CAPEX did not get cut substantially considering the price drop. CAPEX is 3x higher than in 2008 and debt is 6x higher. So I am asking where is correlation with the oil price in 2015? There is no correlation because CAPEX should be zero in 2016.

          Yes they need the price of $150 for the next 10 years if you look just debt but hey that’s why there is Chapter 11 so they will still be around for few more years (like Halcon) drilling little bit here and there even without $150 price.

          • shallow sand says:

            I don’t disagree that they should have spent less, or even zero, CAPEX in 2015.

            I am just making the point CAPEX was cut in half in 2009 as a result of 2008 crash, and again in 2015 as a result of 2014-15 crash, and in half again as prices trended even lower second half 2015 into 2016.

          • Ves says:

            I agree with you that CAPEX was cut but I don’t agree with you and Dennis that price was factor because look from 2008 untill 2015 BOE went from $77.66 (2008) to $31.48 (2015) and in between and debt increased from $376 million to 7 billion regardless of price movement.

            So I am asking you or whoever thinks price had any role in CAPEX to show me where is that correlation between price, CAPEX and Debt? If Debt has been increasing progressively every single year regardless of price how can you say that CAPEX has any correlation with price?

            12/31/2008.
            Long term debt $376 million
            12/31/2009
            Long term debt $524 million
            12/31/2010
            Long term debt $926 million
            12/31/2011
            Long term debt $1.254 billion
            12/31/2012
            Long term debt $3.540 billion
            12/31/2013
            Long Term Debt: $4.651 billion
            12/31/2014
            Long Term Debt $5.929 billion

            12/31/2015
            Long Term Debt $7.118 billion

            The only correlation that I see if you look numbers that you have put together is that CLR produce LESS debt if produce LESS oil and produce MORE debt if produce MORE oil.

            2008 Production 36,018 BOEPD
            2008 Long term debt $376 million

            2015 BOEPD 221,715 66% oil
            2015 Long Term Debt $7.118 billion

            • AlexS says:

              Ves,

              There is clear correlation between oil price and oil companies capex. Combined capex of the U.S. E&Ps was down more than 40% last year and will decline further this year.

              The issue with the shale players is that the decline in capex is not sufficient to achieve cashflow neutrality. Operating cashflow declines even more than capex; therefore their debt is rising.
              They were outspending cash when oil was at $100/bbl, and they continue to outspend it with much lower capex at $30-50/bbl.

              In that sense you are right that they “produce LESS debt if produce LESS oil and produce MORE debt if produce MORE oil.”

              • shallow sand says:

                Just like Tesla😊.

              • Ves says:

                Alex,
                ” In that sense you are right that they “produce LESS debt if produce LESS oil and produce MORE debt if produce MORE oil.”

                That is good that we agree because I was not sure that we looking at the same numbers that Shallow posted 🙂

                Well I was strictly speaking about shale and the oil price, and I said that in one of my posts above. But we have to remember that they are significant, (with tar sands nearly half) part of oil production in North America so obviously it is very important to see how their finances distort the market.

                Big guys/majors that you mentioned that also reduced CAPEX are completely different animal: they are vertically integrated, they produce overseas, in different currencies, they do all kinds of deals, they have economy of scales, and they are big and established long enough to make balance of payments in offices in New York or Panama and not just on the oil field, they have army of lobbyist, tax breaks, whatever they like. You can’t compare them with shale. They are protected like polar bears.

              • Dennis Coyne says:

                Hi AlexS,

                I think what Ves may be missing is that very few businesses have no debt. The CAPEX requirements of an oil company producing 221 kboe/d (CLR 2015) are very different from the CAPEX requirements of a company producing 30 kboe/d (CLR in 2008).

                They only outspent their cash flow because they tried to grow too fast, especially in 2012 when long term debt jumped by 2.3 B in one year (using shallow sand’s numbers).

                CLR is one company, not sure it is representative of the entire industry.

                EOG might make an interesting comparison.

                Until the recent price drop in 2015 EOG was doing very well. In 2014 debt to net assets was about 20%.

    • Roger Graham says:

      Disturbing indeed. That said, at $75k/BOPD (giving credit for what I suspect is ample PUDs), YE15 value is about $16B. They will survive…but debt will tie their hands until oil is above $150/bbl.

  14. aws. says:

    Creditors get priority over environment in Redwater Energy insolvency: judge

    Decision could lead to many more abandoned wells in Alberta

    Tracy Johnson · CBC News May 19, 2016

    The Redwater Energy case is one that the energy sector, international investors, bankers, lawyers and regulators were all watching closely.

    Redwater was a tiny oil and gas company that went into insolvency in the spring of 2015. It owned a stake in 16 producing oil and natural gas wells, as well as nearly 70 more inactive wells. It owed its bank, ATB Financial, a little more than $5 million.

    Redwater’s bankruptcy trustee, Grant Thornton, wanted the ability to sell the producing wells in order to pay back debt.

    However, the Alberta Energy Regulator (AER) argued that any proceeds from asset sales needed to go first to clean up the mess — namely those 70 non-operational wells, that have not been subject to the costly decommissioning process.

    The judge ruled Wednesday that secured creditors, such as banks, have priority over environmental concerns.

    • Roger Graham says:

      Texas went through this years ago. The RRC now requires a “plugging bond” be posted to operate in the state. Problem solved (though the state had to plug quite a few “orphan wells” before wishing up).

  15. Dark Fired Tobacco says:

    In following the debate on a “peak” over the last eight or so years I have to consider just what the impact of such knowledge would be on the general public. We are conditioned to respond to the price of gas, and economists have been surprised that the recent drop in prices has not resulted in a rapid public response to use more oil.

    The national talk show hosts are often sponsored by financial interests seeking people to invest in things like shale oil, promising historic returns. “Saudi America” is a phrase heard daily just a short time ago. However, I think something fundamentally is changing in our society that will ultimately impact capital formation for continued development of reserves.

    I’ve been in the transportation/municipal engineering field for four decades. For 37 years citizens told me we need more roads, better airports, shut down Amtrak, don’t waste money on public transit, electric cars are crazy, who needs sidewalks, etc. In the last five years, especially the last three, that has changed, much like a tanker changing course in the ocean.

    What I hear now is the frustration with the highway system, especially the urban Interstates. People are finding that a drive across a major metropolitan area is unpredictable, stressful, and hazardous. In Atlanta young people on different sides of town don’t even try to date. The Tennessee Department of Transportation uses the overhead electric information boards to urge drivers to put down their cellphones.

    While I hear some interest in electric vehicles, and more interest in self-driving cars, the real interest I hear in a major mid-South urban area is for a credible rapid transit system. Next on the list are walkable neighborhoods, with retail stores within a short drive or even bike trips. This comes from Boomers as often as it does from younger people. Our downtown skyline is filling up with mid and high rise apartments/condos.

    People are coming to the realization that the transportation system is broken, that we need new ideas and new leadership to actually build something. It need not be the Hyperloop or some other revolutionary system that will serve only an elite few. There is for the first time in my long life an interest in leaving oil and the auto environment behind in a quest for something better

    • shallow sand says:

      Dark Fired Tobacco.

      I live in a rural area. One reason is because I did not want to spend a significant part of my life commuting to and from work on busy freeways and toll ways.

      What you post makes sense. This transition will continue, but with financially stressed governments, the building of mass transit, such as rail, is going to go slower than it should.

      I would note, US demand has increased in response to lower oil prices. Look at the EIA website under products supplied.

    • GoneFishing says:

      The high density of cities does create a lot of problems, but one must look at these creations. They do not provide their own food, energy, water or services. The areas around and outside of the city provide the materials, food, water, power, services and manufacturing. Cities may appear to be more energy efficient but that is because the energy, products and materials to run them occurs elsewhere.
      With all that density, the road systems are bound to become over-saturated. This has happened multiple times, but now with development at maximum and the cost of real estate out the roof, building new roads is not easy. Internal mass transit is the only real solution to such over-developed areas as cities. In the slightly less dense regions outside the big cities, people have to drive to use the train, only a few rail corridors in the midst of a vast sea of people.
      As far as high speed rail goes, it is far too expensive and thus limited to provide a solution to people transport. It will always have to be highly subsidized (people that do not use it, pay for it).

      So where are the cities headed?
      “Today urban areas — ranging from Times Square to a small town in India — cover perhaps 3 to 5% of global land. But Seto and her co-authors calculate that between now and 2030, urban areas will expand by more than 463,000 sq. mi. (1.2 million sq. km). That’s equal to 20,000 U.S. football fields being paved over every day for the first few decades of this century. By then, a little less than 10% of the planet’s land cover could be urban. “There’s going to be a huge impact on biodiversity hotspots and on carbon emissions in those urban areas,” says Seto.”
      http://science.time.com/2012/09/18/urban-planet-how-growing-cities-will-wreck-the-environment-unless-we-build-them-right/
      So it looks like the concrete jungle and urban blight will double in a very short span of years. Ten percent of the planetary land surface will be urban by 2030, Probably 50% of it’s land surface will be needed to service the urban sprawl and it’s associated infrastructure.

      There is one good thing about cities, they keep lots of people out of the countryside. Problem is, not much countryside will be left if this keeps up. It will be all farms, watershed gathering, mines and industry to feed the cities.

      • aws. says:

        Urban areas were usually founded in prime agricultural areas with good access to water, and fishing. In short some of the most abundant ecosystems… which we’ve now paved over.

        • GoneFishing says:

          What most people don’t realize is that suburbs and rural areas are getting more efficient, while many cities are due for major infrastructure rebuilds just to keep functioning. This will mean that a huge influx of materials and energy will be needed from nature and society in general. The cities are going to have to take a whole new stance to become more efficient but they will have a tough go of it since much of their basic infrastructure is old and needs repair and replacement. So they will need huge amounts of capital to hold together and actually move forward.
          Where will all the money come from? Probably any shortfalls will be covered by the federal government.

    • likbez says:

      Dark Fired Tobacco,

      People are coming to the realization that the transportation system is broken, that we need new ideas and new leadership to actually build something. It need not be the Hyperloop or some other revolutionary system that will serve only an elite few. There is for the first time in my long life an interest in leaving oil and the auto environment behind in a quest for something better

      I am a great believer in the ingenuity of American people. The solution can and will be found and the revival of rail is probably one path that can and should be explored. Also with the technological innovations polished by the shale boom, I think “oil age” can be extended…

      You made a very good point about the leadership. There are serious problems with the USA neoliberal elite in general (o.1%), the problems that Clinton and Bush families had shown us all too well.

    • Nathanael says:

      Thanks for the anecdotes, Dark Fired Tobacco. I like to hear the “word on the street”.

    • PonziWorld says:

      “There is for the first time in my long life an interest in leaving oil and the auto environment behind in a quest for something better”

      Its called a slum. Apparently, DFT cannot even recognize the obvious.

      No surprise. The pseudos like DFT gave up on heavy manufacturing and the result of that is slums.

      But we still make the best cappuccinos

  16. Jef says:

    Great overview of coal to gas;

    “In a 2013 analysis for Nature Climate Change, Chi-Jen Yang and Robert B. Jackson of Duke University estimated that making synthetic natural gas (SNG) from coal in China and using it for electricity would lead to 36 percent to 82 percent more greenhouse-gas emissions per unit of energy than simply burning coal. ”

    http://www.vox.com/2016/5/20/11720320/china-coal-to-gas

    • I have an idea for mixing asphalt with pulverized coal and making hydrocarbons in a nuclear powered plant. That reduces emissions and allows cogeneration.

      • Hickory says:

        What about using heavy oil (unrefined) instead of the asphalt, in this process?

        • DrDoom says:

          You don’t want to crack molecules to make those molecules again from Syngas. Better to use the bottom of the barrel (assuming energy is CO2-free , e.g. nuclear) and you capture the resulting CO2 emissions from the cracking and upgrading of asphalt/bitumen/coal. Assuming you have a system to deal with the slag and the N,S byproducts gaseous or otherwise.

  17. old hermit says:

    What I would like to suggest, is doing one of these open thread, non oil about once a week like Kunstler, and J.M.G, I always read the oil posts but also enjoy the non oil posts as well.

    CFC

  18. AlexS says:

    The EIA has released two monthly reports with estimates of U.S. shale oil and gas production.

    The first report is based on “state administrative data collected by Drillinginfo Inc. Data are through April 2016 and represent EIA’s official tight oil estimates, but are not survey data.”
    http://www.eia.gov/energy_in_brief/article/shale_in_the_united_states.cfm#tightoil

    The second is Drilling Productivity Report, which shows data for 7 key shale oil and gas producing regions, including both LTO and some conventional output.
    http://www.eia.gov/petroleum/drilling/?src=home-b3

    According to the EIA/ Drillinginfo report, U.S. tight oil production in April 2016 was 4,289 kb/d.
    Monthly decline in the U.S. tight oil production has accelerated to 108 kb/d in April from 55 kb/d in March, 49 kb/d in February and 48 kb/d in January. Cumulative decline from March 2015 peak level
    (4,681 kb/d) is 393 kb/d (-8.4%).

    • AlexS says:

      Important to note, estimates for the last several months are preliminary. Like all other EIA monthly reports, they tend to be revised upward.

      EIA/ Drillinginfo U.S. tight oil production estimates: May 2016 report vs. April and January 2016 reports (kb/d).

      • AlexS says:

        Upward revisions for the past months were very significant.
        The EIA and other sources continue to underestimate the resilience of LTO output

    • AlexS says:

      According to the EIA Drilling Productivity Report for May, crude + condensate production in 7 key shale plays was 5,034 kb/d in April and is expected to decline to 4,924 kb/d in May and 4,812 kb/d in June 2016.

      DPR also show accelarating monthly declines (kb/d):
      Jan-16: -54
      Feb-16: -50
      Mar-16: -62
      Apr-16: -93
      May-16: -110
      Jun-16: -112

      Estimated cumulative decline between March 2015 and April 2016 is 476 kb/d;
      from March 2015 and June 2016: 697 kb/d

      • AlexS says:

        DPR estimates have been also constantly revised upward:

      • AlexS says:

        Estimates for the Bakken from different sources.

        According to the EIA/Drillinginfo report, C+C production in the Bakken declined by 48 kb/d in April vs. 10 kb/d in March.
        I think that projected decline for April may be overstated. Note that estimate for March was revised up by 20 kb/d vs. previous month report.

        According to the DPR, declines were: 11 kb/d in March; 23 kb/d in April; 26 kb/d in May; 28 kb/d in June

      • AlexS says:

        Estimates for Eagle Ford from the EIA/Drillinginfo and Drilling Productivity Reports
        show the highest declines among all key shale plays.

        Estimate from EIA/DI for April is 1,252 kb/d (down 51 kb/d month-on-month);
        from DPR (which includes some conventional production): 1330 kb/d (down 55 kb/d). DPR projects further declines to 1270 kb/d (-60 kb/d) in May and 1212 kb/d (-58kb/d) in June.

        Cumulative decline from March 2015 to April 2016 is 377 kb/d according to EIA/DI report and 402 kb/d according to DPR.
        DPR projects a cumulative decline of 520 kb/d by June 2016.

        Estimates for the Eagle Ford are also constantly revised upward (by 75-85 kb/d for the most recent months).

      • AlexS says:

        According to the EIA/ Drillinginfo report, tight oil production growth in the Permian Basin has virtually stopped since the beginning of this year.

        • AlexS says:

          According to the Drilling Productivity Report, oil production in the Permian basin
          (which includes about 660 kb/d of conventional production) should start a moderate decline in May and June.

      • Toolpush says:

        Thanks Alex,

        For all your research. The thing that strikes me is that nobody seems to have a good handle on what is actually happening in the LTO field. All the projected and estimated declines seem to be expecting larger declines than what is the reality.
        So something is going on in the operation of the LTO field that is not being taken into account in these estimations. Be it, halo, sweeter sweet spots, choke, better completions. even fudged number as ND has come under the spot light. I believe it will be awhile before the picture becomes clear, but we will eventually find out. Or we could just put it down to “another oilfield mystery”, as we would say, when something could not be explained.
        Keep up the good work.

        • AlexS says:

          Thanks Toolpush,

          Completely agree. Nobody knows exactly what is actually happening in the LTO industry, even those who work in that industry. Therefore, nobody can make more or less reliable forecasts about its future production volumes.
          I would add to what you said that we still don’t know how many wells can be drilled in the sweet spots; how economic will be development of the shale periphery zones; what could be potential impact of EOR, etc.

          That is why all existing forecasts, both of shale optimists and shale pessimists, should be viewed with a healthy dose of skepticism.

          • Dennis Coyne says:

            duplicate deleted

          • Dennis Coyne says:

            Hi AlexS,

            Well said, I agree.

            For the ND Bakken/Three Forks at the end of 2014 there were about 5.5Gb of proved reserves and 1.2 Gb of cumulative production.

            So for that play a reasonable estimate would be at least 6.7 Gb (though that is too conservative in my view) and as much as 10.6 Gb if proved plus probable reserves are 9.4 Gb (that might be a bit on the high side, though it assumes no new discoveries after 2014 and no reserve growth).
            around 9 Gb would be a reasonable guess.

            David Hughes estimates for the Eagle Ford seem reasonable to me, I am unsure about the Permian Basin, probably 5 Gb minimum.

  19. shallow sand says:

    Tom Ward, formerly of Chesapeake and Sandridge, yesterday on CNBC.

    “The dirty little secret in our business is that you cannot grow production within cash flow.”.

    This, my friends, is a statement guys like Mike and me have been waiting for the “shale barons” to admit.

    • Reno Hightower says:

      At least he admits it. They claim they are drilling “world class” reservoirs, but they drill hundreds of wells a year and NEVER reach a point where they can develop out of cash flow. That is far from a world class reservoir.

    • GoneFishing says:

      When even hard core businessmen stop making sense, we know that is just another sign of a failing society. The ride down is going to produce some strange actions and some strange bedfellows.

    • Ves says:

      ss,
      I was saying for the last few days that price does not matter for shale. It was so obvious. At least I am vindicated.

      • Dennis Coyne says:

        Hi Ves,

        Shallow sand showed pretty clearly that the oil price does matter. One way to see this is to look at the CAPEX spending each year for CLR and compare that to the change in the Debt level.

        What one sees is that a substantial portion of CAPEX comes from cash flow in years when oil prices are higher. So the higher oil prices have a big effect on debt, and CAPEX and production.

        In short I disagree with the assertion that oil prices do not matter for LTO focused oil companies. It would be interesting to hear from other oil pros, shallow sand agrees with me, I think.

        • shallow sand says:

          I agree with Dennis. Clearly, each company has an oil price and/or natural gas and liquids price where it is able to grow production out of cash flow.

          Implied is that for all shale companies, that price is very high, ballpark at least double current prices.

          Ves. I know your position that economically things are screwed up. I don’t disagree with you, but I am not to the point where I think nothing matters.

          Believe me, the price of oil matters to us. $20s WTI sustained will put us out of business. $30s WTI sustained will likely too, just not as quickly at $20s or lower. $40s WTI is survivable. $50s is better. $60s sustained, to us, would be a “sweet spot” as we doubt we would see CAPEX and LOE inflation.

          • Ves says:

            SS,
            see my post to Dennis and angle that I am saying “price does not matter for shale”.
            It matters of course. What I am saying is that in order for Shale to work it has to be some perfect Lab conditions market environment. But life is not perfect as you know. That is my angle.

            • shallow sand says:

              Agree, shale needs a high stable price forever, higher than our tired old field, which the big boys bailed on in the late 1980s-early 1990s, due to it having too high LOE and limited upside.

              Now, of course, the big boys are all into shale, not because it is cost effective, but because it is large scale and their best option.

              Scary, eh?

              • Ves says:

                Exactly. Shale needs fairy tale price that economy simply cannot afford and fairy tale market environment to accommodate their growth at conventional expense.

          • Nathanael says:

            shallow sand, given my projections for demand destruction running at accelerating rates starting in 2018… well, by 2025 if not earlier the demand destruction will likely be outracing any supply depletion. I wouldn’t make any investments based on assuming prices higher than $30 (inflation-adjusted, obviously) after then. Perhaps it’s best to think of your field as having about 10 more years to run and start planning to shut it all down around then…

        • Ves says:

          Hi Dennis,

          If we take Mr Ward statement who obviously worked with shale probably longer than you and me, that ” you cannot grow production within cash flow” then how high price has to be ?

          If you say price has to be on average $120 for the next 10 years straight in order to consistently grow and make a profit then that is just illusion that price matters. If you say that other producers have to cut the production to accommodate shale then that is another illusion. If you say that geopolitical circumstances don’t influence production and oil price then it is also another illusion. If you say that Fed and every CB will print $3k and deposit on each citizens account to afford $120 price than that is another illusion. So what I am saying don’t look at shale in some kind perfect Lab type of environment where you say if price is $XX then shale will extract YY bpd and if price is $ZZ then shale will extract QQ bpd.

          • Dennis Coyne says:

            Hi Ves,

            Some companies are run better than others. EOG has been doing fine. They lost money in 2015 because oil prices were so low, at $80/b they will be fine. Companies like CLR will go bankrupt if the price of oil doesn’t rise quickly and they don’t reduce their leverage (after oil prices rise).

            On debt growing, those with higher incomes or companies with higher revenue and assets can carry higher debt loads. Debt does not exist in a vaccum. What is important is the Debt to asset ratio.

            A debt figure divorced from any other information about net revenue or assets is meaningless.

            • Ves says:

              Okey Dennis if you say $80 is magical number where everything is peachy for shale again we will just have to wait for price to reach $80. I am just little bit suspicious that when “dirty secrets” about shale are airing on major tv networks like this one with Mr Ward then the game is probably up.

              • Mike says:

                If Tom Ward’s comments are true, that the shale oil industry cannot grow reserves from cash flow, and they most certainly are true, clearly, then how is the shale oil industry going to pay back its’ existing debt of nearly 260 billion dollars?

                To ramp back up and begin drilling new wells, manage NEW debt, and pay back OLD debt, will require, in my opinion, oil prices that are in excess of 115.00 a barrel, forever. Historically oil prices have never been stable, much less high and stable (that is precisely what caused the shale oil business model to fail in the first place). And 115 dollars a barrel assumes the shale oil industry can drill the same quality of wells in the future as it has drilled in the past, at much lower costs. That cannot now happen either because of the very nature of the rock.

                The only other way to pay back debt is for the shale oil industry to completely liquidate itself, to sell assets, pay down debt and start over. That requires a willing buyer and in my opinion most existing shale wells in company inventories are 5 years out or more and 65% or more to ultimate UR. Major oil companies wanted nothing to do with the shale industry from the beginning, why they would now want to buy these aging assets, these soon to be stripper wells, is beyond me. To get to the acreage so they themselves can drill more unprofitable shale wells? No way, Jose.

                Another overlooked aspect of this chicken mess is debt to asset ratios and current PV10 of PDP. By law nobody can loan 95% of these guys money anymore to get going again, at any price.

                Ves and Shallow have this pretty much sorted out. It is now not fixable, in my opinion. The price of oil only matters at unreachable and unsustainable levels. At this point predicting the role shale oil will have in our energy future is a complete waste of time. The folks with the money now have the US LTO industry completely by the ying yang.

                Thanks, Shallow. Tom Ward just threw a wad of mud against the wall, lets see if it sticks. Some fella with the WSJ called me last week (no joke!); we talked for 15 minutes. There is most definitely a significantly different attitude toward the shale oil industry than there has been in the past regarding available capital.

                • Reno Hightower says:

                  Enjoy your posts on oilpro. Keep saying it.

                  • Mike says:

                    Gosh, thank you sir. And I agree with yours, here. If the shale oil industry doesn’t have me whacked some day, I’ll do what I can.

                    You made my Sunday!

                • texas tea says:

                  Hello Mike,
                  Some color on your comments for you to consider. The LTO space is an extension of the tight gas drilling that most US players engaged in the 70 and 80’s. That is vertical wells were drilled in low porosity low permeability rock and fracced. In order to make those wells commercial in part certain tax credits were made to producers so that the resources could be developed. Those wells had the same type of production profile seen in LTO space today, high flush production and very long production life. (we have wells still producing that are 30 years old). Of course it worked to bring new supplies to the market, which ultimately let to a glut of natural gas, prices fell, tight gas stopped being developed. The cycle then turned as production dropped, early 2000’s, prices increased and tight gas was profitable on its own terms. That was the start of the horizontal tight gas play.

                  You say, “Major oil companies wanted nothing to do with the shale industry from the beginning, why they would now want to buy these aging assets, these soon to be stripper wells, is beyond me. To get to the acreage so they themselves can drill more unprofitable shale wells? No way, Jose.”

                  That is just flat out wrong. Exxon Mobil bought one of the largest horizontal tight gas operators (XTO) when the natural gas market when bust. I fully expect to see the same thing in the LTO space. They will buy those properties that offer a great deal of future development and they hold them until they are commercial to produce. That is reality of the situation. To make these reserves commercial, we will need some time for supply and demand to get back in to balance, may include much higher sales price of oil and natural gas, lower drilling and completion cost, possible tax inducements on both state and federal levels and increased efficiency. The long history of the US oil gas business model suggests your comments are wrong, these reserves will be developed because despite some fairly dust analysis regarding renewables not only is the US dependent on these forms of energy, the entire worlds is and that will not change in the lifetimes most contributors to this blog.
                  Every thing that has been said regarding the over use of debt in this cycle is correct, but we have seen this before in the 80’s. There is truly nothing new here except where the bulk of the financing came from.
                  With respect to Tom Wards comments, of course he is correct. But if you add the words, at current commodity prices and the current tax and regulatory structure, the context completely changes.

                  • AlexS says:

                    texas tea,

                    Exxon acquired XTO several years ago.
                    Today, I do not see significant interest from big oil in shale assets or in corporate deals in this sector. The buyers are other shale companies or private equity funds.

                  • texas tea says:

                    AlexS,
                    natural gas peaked in late 2005 at $13MMBTU, Exxon announced the merger with XTO in December of 2009 when prices were 2.88MMBTU, 4 years after the peak in prices but 5 years before prices finally bottomed, if what we are seeing now is the bottom. In the LTO space we are into this bust now less than 2 years. You may of course be right, that private equity or other shale players will end up with all the assets, but I would offer if you this, if you are standing in your back yard at 2am on a cloudy night there is little evidence that the sun is going to come up in a few short hours…but it always does:) we may be splitting hairs on who big oil is or will be.

                  • Mike says:

                    Mr. Tea; I am familiar with the history of LTO development, thank you; I have interest in shale wells, sat them, know what they cost, seen and heard all the technology bells and whistles up close and personal and have watched my checks dribble to nothing. I have spent a half century of economic analysis on wells I have drilled with my own money; I can add and subtract. Most of the time when I am analyzing shale oil economics I am subtracting.

                    I have also heard all the hubbub about the shale oil miracle that I can stand; much obliged.

                    The “long history of the US oil and gas business model” has absolutely nothing to do with shale oil extraction. The two have little to do with each other.

                    We have NEVER seen debt play such an enormous role in oil extraction as today, not in the 80’s, never in history.

                    Shell and BP got out of the shale biz early, Chevron never got in. CNOCC does not send CHK Christmas cards anymore, I promise you and if you could get a straight answer from Exxon, Statoil and BHP they’d probably say they screwed up, big time. We’ll see who buys what. I’d say if this shale stuff was so valuable there would be fierce competition to buy the stuff at low oil prices, now, when folks are so eager to get out of trouble; Mr. Alex is correct, thus far no major integrated oil company has even whiffed at shale oil acquisitions.

                    Hoping for higher oil prices is not a plan for long term sustainability, Mr. Tea. Good luck, sir.

                    Mike

                  • Nathanael says:

                    It’s interesting to speculate on whether ExxonMobil will buy up the bankrupt shale oil properties, or whether private equity will do so, or whatever. But it seems to me that it’s question of “who’s left holding the bag”. They will never be developed because the oil price will never again rise enough to develop them; they will be worthless.

                    The mistake texas tea is making is in assuming that the world is dependent on oil. Demand destruction is beginning and will rock the oil markets over the next 10 years.

                • Dennis Coyne says:

                  Hi Mike,

                  I would consider XOM and Statoil as major oil companies. Both are involved in LTO.

                  Rune Likvern showed the Bakken LTO players were cash flow neutral before the price crash, but perhaps there are no more good wells left to drill.

                  I think $80/b will be enough for the current average well to be profitable. I agree that eventually average new well EUR will decrease and higher prices will be needed for profitable wells. The figure below shows debt was being paid down in 2013, based on Rune Likvern’s analysis.
                  Since that time well costs have decreased and lower prices may be adequate ($80/b rather than $100/b).

                  • Mike says:

                    Yes, Dennis; I know they are majors. I suspect they would like to have now stayed out of the shale oil and shale gas business completely.

                    I appreciate your work a lot but I’ve leaned over the years to not get in pissing matches with you, Dennis. You are into numbers, I am into solving problems in real life. For instance, “cash flow neutral” is not good if you are actually in the oil business. The point in the exercise is to make money . I won’t now get argue with you, except to ask what is your definition of profitable “enough.” Is 80 dollars profitable enough to manage new debt and pay down old debt with wells that decline 73% in 3 years? No, not in the face of declining productivity and even higher costs.

                    Take care, sir; and thanks for the venue to occasionally blow down my SICP.

                    Mike

                  • shallow sand says:

                    Dennis. XOM, through it’s subsidiary, XTO, lost over $800 million in the first 90 days of 2016.

                    I should probably let Rune address this, but the impression I get from him is that Statoil likewise has suffered some heavy losses in the lower 48.

                    Furthermore, look at Schlumberger CEO recent comments about the profitability of lower 48 for service companies.

                    We have beaten some of this stuff to death, but we have a large incentive to do so.

                    So I am going to keep at it, LTO is high cost, it generally needs prices of at least those seen in 2010-2014 to be successful. Practically every LTO company has PDP PV10 less than long term debt at $50 oil. Further, this is after most knocked the crap out of estimated future production costs (IMO they had to fudge some numbers to even get them where they were reported).

                    99% of US residents want to believe that the “shale renaissance” means $20-$30 oil for the next 20 years. I want to help make sure they, and Wall Street in particular, know that isn’t going to work.

                    I also want it known the reason there is so much interest in LTO in the lower 48 is because these large companies have few other options. We have went through those.

                    Finally, we do not want to go through $20-$30 WTI again. It has been a harrowing experience. Maybe no traders read this stuff, but if they do I want them to know if they are shorting oil they better have good timing, because the price is STILL far below what is needed to meet estimates of future demand.

                    Dennis, I will again say thank you for keeping POB going.

                  • AlexS says:

                    Dennis,

                    My analysis of SEC fillings shows that a vast majority of shale players were deeply cash negative even before the drop in oil prices. This includes the largest oil producers in the Bakken, Continental and Whiting.

                    One of a few exceptions is EOG, which was cash-positive in 2013 and 2014. Others were large E&Ps with significant conventional assets (such as Oxy)

                  • Rune Likvern says:

                    Dennis wrote;
                    ”The figure below shows debt was being paid down in 2013, based on Rune Likvern’s analysis.”

                    What my chart shows is that some of the investments/CAPEX was recovered [temporarily cash flow positive] while oil prices were high, WTI above $100/bo.
                    It is not possible to derive from the chart how all the surplus [positive cash flows] was disposed.

                    Positive cash flows have likely been used for dividend payments, pay down some principal and/or increase cash to make companies better prepared to ride out what many expected to be a temporarily down leg in the oil price.

                    To see how companies’ actual total debts developed one needs to look at the their SEC 10-Q/K filings.
                    Some companies have reduced their debts, this was also accomplished through equity and/or assets sales.
                    My estimates (for the chart in question) has been revised and updated and was published in a post (ref figure 2) in early April-16.
                    https://fractionalflow.com/2016/04/06/the-bakken-lto-extraction-in-retrospect-and-a-forecast-of-near-future-developments/

                    For the months Jan – Mar-16, my estimates show that for all Bakken(ND) it was cash flow negative of about $1.1 – $1.2Billion.
                    That explains the resilience of the Bakken LTO extraction.

                    ”I think $80/b will be enough for the current average well to be profitable.”

                    Current as in existent producing wells?
                    And is $80/bo (@WH) a weighted average price?
                    Average for May-16 is $33/bo for ND sweet (and nat gas now comes with a loss on sales).

                    The thing is, and due to the geometrical shape of the profile from the existing producing wells, the longer the price remains low, the higher it needs to become later to reach a weighted average of $80/bo.

                  • Dennis Coyne says:

                    Hi Rune,

                    The $80/b is a breakeven price for a well drilled today, including only the cost of debt for that well.

                    Imagine a company who has bought up some existing leases from a bankrupt company. They are a company with deep pockets that can borrow at the prime rate.

                    For such a company, or a well run LTO player such as EOG, a 2014/2015 average LTO well in the Bakken, or Eagle Ford breaks even at about $80/b at the refinery gate.

                  • Rune Likvern says:

                    So companies managed by profitability goals are very likely to not spud, drill and complete any new wells as long the oil price is below $80/bo.

                    So how will the profitability of the producing wells fare with oil prices below $80/bo?

                  • Dennis Coyne says:

                    Hi Rune,

                    The average well will not be profitable below $80/b.

                    The companies that continue to drill and complete wells are just trying to stay afloat, hoping other companies go bankrupt.

                    Or they think that most of their wells will be above average. 🙂

                    To be honest I expected the decline rates to be much higher in the LTO plays at current price levels than we have seen.

                    The DUCs can pay back the completion costs at $50/b. The money spent on drilling cannot be unspent, so perhaps that explains some of the continued well completion.

                • Ves says:

                  Thanks Mike.
                  When 2 years ago at the time of oil price collapse I first looked at this “black box” called LTO the only people that made sense regarding LTO economics were you, shallow, Mr Berman, and Mr. Likvern. 4 people in the whole English speaking world!! There was one more person in Russian language that I have read his thoughts where he touched on LTO economics but more in context of general oil depletion. So 1000’s of blogs, 1000’s of tv channels, 1000’s of newspapers and only 4 people that made sense regarding this LTO subject in English!!! So after 2 years when shale economics are crystal clear there are still 4 people in English speaking world talking common sense!! Unbelievable.

                  It is just hilarious that you got call from WSJ just right now to have a chat after all has been printed regarding fake shale “technology improvements”, “efficiency”, and “energy revolution” in general. If you get ever invite by CNBC/Bloomberg for live TV appearance please let us now so we can all watch 🙂
                  But I know that they don’t want you near their parking lot because their audience is not ready to handle the truth. They will bring Mr. Ward who is not really independent analyst but he was part of shale for so many years so of course he knows the numbers. But he will only say things in small dosages, one tea-spoon at the time so audience can absorb the news in small bits.
                  Have a nice day.

                  • Mike says:

                    Ves, you are very kind, sir. Thank you!

                    In your honor, Ves, as soon as I hang up, so to speak, I am going to go immediately to the kitchen and have a glass of Vodka. Nostrovia!!

                  • shallow sand says:

                    Ves. Mike deserves some credit for taking the message to Oilpro. Rune and Enno do too.

                    Mike has opened several investment bankers eyes over there. These guys believed the shale guys break evens until the 2015 10K came out, and some of us started saying, “hey, these guys are ALL insolvent at $50 WTI, and the price is currently $30”.

                    Suddenly some light bulbs started going off that a lot of BS was being tossed around.

                  • Ves says:

                    Great stuff Mike, Thank you.

                    Shallow. Yes, Rune and I did mention Mr. Likvern but forgot about Mr Enno. That is some great stuff that Enno is doing and I am always wondering how he finds time with data that he is collecting because I am always short on time.
                    And Mr. David Hughes at this website http://shalebubble.org

          • Dennis Coyne says:

            Hi Ves,

            I have said $80/b will allow the average LTO well in the Bakken, Eagle, Ford and Permian Basin to be profitable. I think Mr. Ward is wrong. EOG has been doing fine with oil prices over $80/b. Perhaps oil prices will remain under $80/b forever, but I think by 2018 this will proven incorrect.

            • Ves says:

              Hi Dennis,
              I don’t think oil prices will stay below $80 forever but oil price could stay just long enough below $80 that stacked rigs are cannibalized, bankrupt hotels and employee accommodations in the area are boarded, school closed, gas & water are shut for bankrupt customers, employees are long gone, roads are full of potholes after just one year of no repair in very harsh climate and etc. That is already happening but you don’t have a chance to read that in the papers.

              Do you have an idea how life and area looks in Bakken? The nature of shale “carpet” drilling requires infrastructure for lot’s of people in the remote areas like Bakken. It is very different from drilling one-two wells in the North Sea, Artic. It requires a lot of people running around like ants and making money at the same time. When there is no oil related work they cannot switch to making solar panels while the oil price is low because there is nothing there to do beside little bit of farming.

              Regarding the sweet spots companies would always drill better areas first in order to maximize the return. It is like me opening the fridge and going first for the steak leftover over can of tuna 🙂 So how much sweet spots do we have at $40, at $50, at $60 and so on? I don’t know. Do you know? Probably more in Bakken then Eagle Ford but by 2018 when you predict price will be $80 all you have there to drill requires $100. So you are still unprofitable.

      • Jef says:

        I keep hearing “we lose money on every barrel but make up for it in volume”.

    • sunnnv says:

      The story link:
      http://www.cnbc.com/2016/05/20/the-dirty-little-secret-about-50-oil-tom-ward.html

      Tom Ward said $75 /bbl in order for drillers to ramp up.

      “Since the 80’s, haven’t been able to grow production out of cash flow (ex-majors).”
      but now capital markets are closed to drillers,

      Also found this, an ex-Shell guy thinks natural gas is forever.
      http://www.cnbc.com/2016/05/19/oil-production-wont-meet-demand-in-5-years-fmr-shell-ceo.html

      “In 3-5 years industry will be coming back.”
      “in 6-12 months, higher prices.”
      “Can never produce enough oil, will need natural gas, biofuels.”
      “By 2050, will have roughly same number of internal combustion engines we do now…”

      For those who haven’t heard of it, Art Berman’s presentation is a sobering account of the gas situation:
      Years Not Decades: Proven Reserves and the Shale Revolution
      pdf:
      http://www.artberman.com/wp-content/uploads/HGS-NA-Presentation-23-Feb-2015.pdf
      video on this page:
      http://www.artberman.com/art-berman-shale-plays-have-years-not-decades-of-reserves-february-23-2015/

      And biofuels are low EROEI, corn ethanol is 2 or less, even by its boosters,
      and more likely closer to 1 (range of 0.84 – 1.65 in this 2006 metaanalysis)
      http://pubs.acs.org/doi/abs/10.1021/es052024h
      And right at 1 (1.07 +/- 0.2) in this 2011 study of studies:
      http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.468.2464&rep=rep1&type=pdf
      i.e. can’t say if the EROEI is positive or not.

  20. daniel says:

    Following up the above charts, looks like Texas is holding pretty steady as well. Please note below numbers are for crude only and come from the “production query” rather than the table in the RRC webpage

  21. Longtimber says:

    We want it all .. and we want it NOW..
    “There is absolutely no doubt, and I mean none, that Saudi Arabia could ramp up production to 20 MMbpd if the price made sense for it – although that price could be at a point that is not economical. How much that production would cost is another story. Each incremental barrel of oil will, on average, cost more than the previous barrel produced. Here we find ourselves running headlong into the oil cost curve. Let’s have a look at the breakdown of the top 360 oil projects gathered by The Oil Drum below.”
    http://seekingalpha.com/article/3976773-saudi-arabia-can-produce-much-oil-will

    • Longtimber says:

      This one just made my head implode.. as well as EIA predictions. Ya think they should hire a professional Geologist? Can take no mas.. Forgive for the drive by Post. Viva ARAMCO ?!

  22. Watcher says:

    Price doesn’t matter? This is a conservative perspective. A more bold one is that price can be decreed to define function within the facade of normalcy.

    Surely every power center of the world knows oil is entirely decisive. It would be insane to allow it to fluctuate without efforts at explicit control.

  23. I*******Over says:

    Like I said before , this blog is populated by imbeciles and idiots. Why do you think they publish number of barrels of oil. Because you cannot draw any meaningful conclusion.

    You need a graph made with an energy unit such as BTU or Joule. Heavy and sour oil have lower energy content and totals numbers barrels of oil does not account for that.

    Only losers will lose their time counting and masturbation over barrels of oil.

    Combustion energetics can be estimated from the bond energies for all the classifications of fossil fuels. The amount of energy released is dependent on the oxidation state of the carbons in the hydrocarbon which is related to the hydrogen/carbon ratio. The more hydrogen per carbon, the lower the oxidation state and the more energy that will be released during the oxidation reaction. Thus the greater the H/C ratio, the more energy release on combustion.

    https://www.wou.edu/las/physci/GS361/Energy_From_Fossil_Fuels.htm

    I will repeat again so people understand what kind of data we really need:

    Thus the greater the H/C ratio, the more energy release on combustion.

    Thus the greater the H/C ratio, the more energy release on combustion.

    Thus the greater the H/C ratio, the more energy release on combustion.

    Thus the greater the H/C ratio, the more energy release on combustion.

    • Longtimber says:

      Carbon bee the H wrapping in ambient temp liquid fuels. Denser Fuel =more H per volume (gram?) – as well as more pollution ?? Catalysis are busy bees.

      • I*******Over says:

        NO, this is not how you write a intelligent comment or stupid . You have to mix everything in your comment and use big adjective. To look intelligent or stupid make sure to use the following words in your comment: money, debt, cheap oil, expensive oil, global warming ( with a an example like a forest fire), a general graphic with the world oil somewhere, renewable, solar panel.

        For example,

        Overpopulation is caused by multiples things such as babies, man and women. I think if women were less fertile we will not have overpopulation problems and will have less babies and this is good. Don’t forget that babies equal more CO2 and more global warming. Because of all these babies we will need more solar panel but solar panel take place and time to install on the roof of my house, . .. I wish I had a bigger house by wife love this house so much……………….

        • So how do we gauge an oil tank in joules? Do you have a market for oil where the price is quoted in joules? I thought that was a measurement unit used by those surrender monkeys in France?

    • Doug Leighton says:

      Mr I*******Over,

      To avoid confusion we should be using ergs: at six billion joules per barrel that comes to about 60,000,000,000,000,000 ergs per barrel. I avoided scientific notation to keep it simple for you. Now, did count my zeros properly……

      • Doug Leighton says:

        Before you say it, I realize the SI unit for energy is the joule but many Yanks get lost among metric units so using the erg might be easier for you to grasp. No, we’ve already been over this haven’t we; I have a better idea, why don’t you disappear, perhaps find a place not populated by imbeciles and idiots?

    • R Walter says:

      Can it only be one? I mean, imbeciles AND idiots is too many and becomes confusing. It is too difficult of a choice to make just one, so if I don’t want to be an imbecile and just an idiot, I don’t have to make a choice, I can remain an idiot. Imbecile is too humbling a word to choose to be one, an idiot would choose to be an idiot by choice, definitely not an imbecile. Although, only an imbecile would choose to be an idiot, adds to the confusion. If you are an idiot and not want to be an imbecile, but only imbeciles choose to be idiots, how can one make the choice? Seems as though imbeciles can choose to be idiots only if they aren’t an imbecile first. So, ergo, you have to be an idiot first, then an imbecile. Idiots refuse to be imbeciles, however, imbeciles are idiots too.

      Further discussion may be necessary in order to understand the difference between idiocy and imbecility. For now, the imbecile to idiot debate is settled. har

      A carbon chain 100,000 long would have lots of joules.

      Get some hydrogen and oxygen in the liquid state, some pumps and nozzles, voi-la, up in space. Don’t need no stinkin’ oil.

      • Fred Magyar says:

        Hey RW, give it up already! You can’t be both the village idiot AND the village imbecile at the same time! You gotta chose one or the other, though it does seem that Mr. IFuckYouOver is giving it his best shot, to be in the running for both positions simultaneously! So we may have to make an exception for him…

        A carbon chain 100,000 long would have lots of joules. jewels

        Perhaps if you arranged those carbon atoms in a tetrahedronic lattice. Which would make for some very expensive fire or is that ICE… 🙂

      • Bob Nickson says:

        “Further discussion may be necessary in order to understand the difference between idiocy and imbecility.”

        An idiot has an I.Q. of less than 25
        An imbecile has an I.Q. between 26 and 50
        A moron has an I.Q. between 51 and 75

        http://www.todayifoundout.com/index.php/2010/03/the-words-moron-imbecile-and-idiot-mean-different-things/

    • Dennis Coyne says:

      Hi All,

      Please do not use inappropriate language in your name or in comments or you will be banned.

      Thanks.

      • Brian Rose says:

        I’m beginning to fear the day this site becomes popular.

        Compare the comment section here to most every other site on the web.

        I’m torn.

        I WANT more people to become aware of the matters discussed here, but I fear it could lead to this site being, as a great man once said, “populated by idiots and imbeciles”.

        • Hickory says:

          I agree wholeheartedly Brian.
          And I must admit I’ve allowed myself to be reactionary when confronted with ungentlemanly postings, or just ignorant ones.
          I will hereby refrain from any personal or derogatory remarks, and perhaps even sarcasm, because even that is rude.

          Lets be here to learn and share, not to preach or condemn.
          And I support Dennis wholeheartedly if he bans someone for inappropriate remarks (including such as calling OFM a nazi!)

  24. Enno Peters says:

    I have a new post on the oil production from horizontal shale wells in the Eagle Ford, here.

    • What’s the typical gas to oil ratio for a well in its 4th-5th year of life?

      • Enno Peters says:

        Fernando,

        I’m currently only looking at the horizontal oil wells in the EF, on oil leases. The ones that reached year 4-5 are also at about a GOR of 2.0, but it appears that newer wells are also getting gassier quicker, not sure yet what they will do the in future.

        • Dennis Coyne says:

          Hi Enno and Fernando,

          I don’t think there are many horizontal wells that are 5 years old, only about 110 horizontal wells of that we have 5 years of data in the Eagle Ford, so the sample is very small.

    • AlexS says:

      Enno,

      Thanks for an excellent report (as always).
      Just a couple of questions/comments:

      1) You chart shows a peak in EFS output at 1,280 kb/d (in March 2015); while the EIA/Drillinginfo number for that month is 1,629 kb/d. Do you exclude condensate, or is that because of confidential wells?

      2) EIA/Drillinginfo, DPR, and your own numbers show a much steeper decline in Eagle Ford production compared with the Bakken. Given that the decline in rig counts were more or less comparable, this discrepancy may be explained by the following factors:

      – the data for the Eagle Ford is incomplete and will be revised upwards (in fact, there were significant revisions in the past months);
      – higher share of the DUCs in the Eagle Ford;
      – higher share of old wells (with slower decline rates) in the Bakken;
      – higher decline for new EFS wells vs. the Bakken. BTW, you numbers show that EFS wells that started production in 2014 were producing 845,496 b/d in Dec 2014 and 334,832 b/d in Dec 2015 (a decline of 60.4% in the first 12-month period). Bakken wells started in 2014 were producing 590,483 b/d in Dec 2014 and 271,200 b/d in Dec 2015 (a decline of 54.1%).

      Could you comment on that

      • Dennis Coyne says:

        Hi AlexS,

        Enno reports crude only. Approximately 80% of Eagle Ford C+C is crude the rest is condensate, so Enno’s March 2015 estimate for C+C would be about 1600 kb/d, if the 80% crude estimate is correct (this was the case in Oct 2015 so it was probably true in March 2015 as well).

        Also note that current RRC data for 12 months ago is probably 2 or 3% too low (this is the data that Enno uses). It takes about 18 months for the RRC data to reach 99% of the true output. Assuming the data is 2% too low, Enno’s estimate would coincide with 1632 kb/d which is close to the EIA estimate of 1629 kb/d.

        The decline rates are steeper for Eagle Ford wells and the Eagle Ford data will be revised upwards.

      • Enno Peters says:

        Alex,

        Thanks also for your continuous sharing of your research efforts.

        1. Difference. The difference is indeed condensate. There are about 5000 horizontal shale wells in the EF, on gas leases, and I’ve not included these yet. Will try to include them in the update for next month. These produce by definition not oil, but condensate.

        2. Decline.
        There will be significant revisions for these numbers. I cannot yet say how much for the EF & Permian, compared with Texas overall. But based on a few months of data, I’d say that Feb data will probably be revised upwards by around 10% or so. More data is needed to make a better estimate.

        Still, I also think the EF is undergoing quite big declines, also compared with the Bakken.:

        Total production is a function of 3 factors:
        1. # new wells
        2. new well productivity
        3. decline in legacy production

        1. The number of new wells clearly has dropped very sharply over 2015. It’s too early to say how that trend continues in 2016 (new well data is also incomplete for recent months). The RRC unfortunately does not provide easily accessible data on DUCs, so I have no visibility over that as well.

        2. Newer wells are somewhat better early on, but I don’t see (so far) the longer, high, initial production in new wells as we’ve seen in the Bakken (since the 2nd half of 2015). If newer wells only contribute a little more oil early on, but not more later, the effect (of 1. & 2. ) will be a delayed decline, but not a much slower decline. You still need almost the same number of new wells to keep production at a certain level.

        3. EF wells decline much faster than Bakken wells, and they keep up this high decline rate. From all the basins, it appears to me that only Bakken wells may still have some life in them, on average, by year 10, but EF wells are just doing around 20 bo/d by year 5 (Bakken wells are still around 50 bo/d by then). If I remember Shallow’s cost estimates correctly, these kind of wells are not earning much above operating costs (with current pricing). So the legacy declines are pretty steep, especially outside the Bakken.

        These factors explain to me why we see a steeper decline in the EF, compared with the Bakken. The DUC inventory is also important, but I’ve no data on that.

  25. GoneFishing says:

    Oil inventories are up. So why is the price of oil and fuel still rising?

    http://www.bloomberg.com/gadfly/articles/2016-05-22/brimming-oil-inventories-arent-crashing-prices

  26. texas tea says:

    Shallow Sand, Marathon Oil has a new presentation on the OK shale plays. I think you will find it informative.

    • shallow sand says:

      Texas Tea. I looked Marathon’s presentation over.

      I do not get a whole lot out of those. I get more out of company SEC reports and well production histories, Enno’s site, for example.

      My complaint about the “new” hz OK resource plays is they are advertised as oil plays, when it appears to me they are gas plays. This makes a big difference to me.

      For example, if I am operating some shallow gas wells in the Hugoton field, what would you think if I went around telling people my wells are averaging 10 BOEPD? You would think they are oil wells. And, if I told you my LOE was $9 per BOE, you would think I had some good production. However, not so good if I am getting $11 per BOE instead of $40 per BOE.

      It appears to me, and I think you confirmed, that the oil in Scoop, Stack, Merimac, etc, comes early on, but these wells are primarily wet gas. There is nothing wrong with that, just tired of the companies calling these oil plays.

      With comments like Tom Ward’s, at least we have finally quit the, “we can break even at current WTI minus $10 per barrel” BS. The shale guys did a heck of a job talking down prices all of 2015. EOG even attempted to in early 2016, when they said they were going to compete with OPEC in a $30 oil world, even though if you plugged that into their 2015 SEC statement of net future cash flows, there were none, and thus zero PV10. Thankfully, they backed off that.

      The problem with that talk was everyone in the US, outside the oil patch, wants to see a return to $20 oil. So it was believed, and IMO did affect prices.

      LTO is here to say, and that is fine provided that a) they don’t go so hog wild next time
      to again drive all lower 48 upstream costs through the roof, and b) they acknowledge the true oil and nat has prices they need to have viable businesses, instead of talking the prices so low that it puts a ton of stress on the entire lower 48 industry.

      • texas tea says:

        SS, the reason I brought the presentation to your attention is that you have routinely ask questions regarding CLR and others economics (stock price) so I thought you might find some of the information of interest. These presentation are of course NO substitute for actual drilling and production information. But let’s highlight the take-a-ways. For MRO in 2015 the actual well cost have come down 25% and they expect to bring them down another 15% in 2016(page 11). At the same time they INCREASED the estimated ultimately recovery by over 10% (page 5)of extended laterals from 2750MBOE to over 3000MBOE.
        Irrespective of what the actual ultimate recovery will be, by this presentation and by the facts on the ground cost are going down and production is going up.
        I get your drift when i see articles saying $10 can be profitable just pure and utter nonsense. The rig count is all you need to watch as to what areas are profitable and at what cost. The public may buy into the crap written but those that actually make the decisions do not. I can feel your pain as well as Mike’s in how you write and how emotions sneak into view points. The boom is over, and quite frankly I disagree with those opinions that say LTO production has yet to peak, I suspect it has and we will struggle to hold on the those production gains even with higher prices. One another puzzle I would ask the blog’s supporters. Let’s say you wanted to take a company public. Say for interest ARAMCO. Why in the hell would the owners crash the market for their singular product and immediately prior to the offering? How does that make any sense? Like Mike, they to can do simple math, such as if they cut 10% of their production their income goes up 30-50% as well as the value of their reserves, what ever they may be.

        • AlexS says:

          texas tea,

          “For MRO in 2015 the actual well cost have come down 25% and they expect to bring them down another 15% in 2016”.

          These gains were achieved mainly due to a sharp drop in oil services rates.
          Thus, drilling rates in the U.S. are down about one third from 2014 peak levels.
          This is called cost deflation. Sooner or later, as drilling activity starts to recover, there will be a return to cost inflation.

          Producer Price Index for Drilling oil and gas wells
          Source: U.S. Bureau of Labor Statistics

          • texas tea says:

            ALEXS,
            I understand that, I have been drilling wells for 35 years. With the rig utilization rate at 50 year lows, vast industry over capacity, my experience tells me the rate of cost decline will stop but the actual cost we stay low for some time. JMHO

            • AlexS says:

              texas tea,

              I agree that there will be no return to 2014 peak rates any time soon. But there will be a rising trend. Oil service firms’ margins are squeezed too much.

              My key point, though, is that large part of recent gains in shale companies’ costs wasn’t a result of improved technologies.

      • Mike says:

        Shallow, BOE is a big pisser for me as well and I could not agree with you more as to how and when it should be used. At 6:1 it is a slight of hand used conveniently by the shale industry. In economic evaluations the conversion should be based on dollars and cents, not BTU’s.

        Keep up the good work, Shallow. I have worn my welcome out again, I think. If you have not already, please look at Enno’s new post on the Eagle Ford and how those wells track exponential decline rates…I have been suggesting that for many years. It is a wowzer. At 50 dollar gross WH prices, apparently the new hope for shale oil sustainability, and $25.00 net back’s at the WH, after all costs, my take is that fewer than 8% of all Eagle Ford shale wells drilled in the past would hypothetically pay back drilling and completion costs.

        Mike

        • Doug Leighton says:

          “I have worn my welcome out again…..” Wrong, you’ll never be able to do that Mike. Because, it’s dudes like SS and you that make this Blog worth reading. Hang in there (here) man.

          • Mike says:

            Doug, thanks, man; coming from you that means a lot. I hope you are doing OK. I want you to know that you and Synapsid are the only two EV/Climate Change thugs, rather, gang members I ever pay attention to and believe!

            Try your best not to agree with Dennis anymore than absolutely necessary !

            Mike

          • shallow sand says:

            Thanks, Doug.

      • AlexS says:

        Shallow sand,

        “My complaint about the “new” hz OK resource plays is they are advertised as oil plays, when it appears to me they are gas plays. This makes a big difference to me.”

        You are right, these are mostly gassy plays. According to the EIA/Drillinginfo statistics, total LTO production in Woodford shale plays (which includes STACK, SCOOP and others) is now 53 kb/d. This constitutes only 14% of combined LTO and dry shale gas production in these plays (using a 6:1 kcf/boe ratio).

  27. texas tea says:

    Hello Mike,
    The oil and gas business experience you gave in the upthread reply gives me the context of your opinions. You have lost money you invested in horizontal shale plays. Therefor the glass is half empty from your perspective. I have made money in the horizontal shale wells I have invested in therefor the glass is half full. You have been around as long or longer then I have, but your conclusions as to why this cycle is any different then any other one dumbfounds me. Investing 101 Commodity cycles. When the cost of any given commodity is below the replacement cost, a company or individual invests to make a profit knowing only one of two things will happen, the commodity in question will no longer be in demand and the price will go to zero or the price of the commodity will increase to such a point new supply will be brought to market. With respect to oil and natural gas this does not require hope. The best of class LTO projects require ~$50 single well breakeven, according to CLR 2nd quarter earnings report. To make a profit and drill replacement wells, as all companies are required to do, the prices needs to be and will substantially higher.

    On a personal note, I like you have had my income cut significantly, people who I have worked with and know laid off, I have a neighbor who was directional driller (former CHK) out of work now for 18 months. There is absolutely no new business going on. The rig utilization rate still going down. There are less than 50 vertical rigs running in the country as of last fridays report. This means at sub $50 there are next to NO conventional oil and gas prospects currently meeting any economic criteria. Horizontal drilling is the future of the US onshore oil and gas industry whether or not the fully integrated oil companies play a role or not.
    I can tell you a spinoff of a major integrated oil company just paid $1600 a net mineral acre, with 1/4 royalty and a 3 year lease in OK just last week. They were 1 of 5 companies competing for the lease. Adjusting for inflation natural gas prices have NEVER been lower, while the extraction cost has almost never been higher, there is a lot of room here for those facts to reverse. The glass is half full to many experienced oil and gas professionals eyes.
    I wish you luck as well.
    TT

    • GoneFishing says:

      Texas Tea,
      Do you see coal as being a major competitive problem if natural gas prices rise significantly?

    • John Keller says:

      I think the presentations and reports by CLR and other shalies have to be looked at very skeptically as their breakevens are much, much higher than the numbers they tout. I have looked at loads of presentations by LTO players the last 5 years. Even with high oil prices, almost all their claims were disproven by the poor to mediocre financial results posted. The shalies will say anything to keep the money coming in. I would only trust the data you can see at the well level. In the Bakken, CLR has touted 800,000 EUR’s. In their recent 10-K, they actually booked about 170,000 in reserves per completed well in the Bakken in 2015. Their problem nowis there are actual well histories. They can’t book high PDP given what their past wells have produced.

      • Nathanael says:

        If they are *touting* $50/bbl breakevens, they’re toast.

        I just reran my model on when gasoline cars can compete with electric cars of a comparable upfront purchase price (within the US). If we assume 50 mpg gasoline cars, then at $50/bbl Brent, in the *cheapest gas* state in the US, electric cars are cheaper to operate. Even at lower oil prices, electric cars will be cheaper to operate in large portions of the country. Oil has to drop to $30/bbl to make gas cars cheaper to operate in the highest-gas-price parts of the US. But that’s with very optimistic assumptions about gasoline car mpg.

        Now, there are still no electric cars with similar upfront purchase price to the cheapest gasoline cars. But starting in 2017 and 2018 there will be electric cars with comparable upfront purchase price to higher price-bracket gasoline cars. Demand destruction should be kicking in very, very quickly — basically as fast as the new cars can be manufactured and sold.

        Any oil producer who is dependent on an oil price above $50/bbl should shut down now. Whenever the price goes that high, demand destruction will bring it back down, and quite quickly, until more than half of the current market for gasoline is *gone*. This may even happen at $30/bbl.

        • GoneFishing says:

          It took almost forty years to go from the first “horseless carriage” to the Ford Model T production car for the masses. I expect the low cost electrics to start showing up within the next 5 to 8 years. Things happen a bit faster now and the market potential is huge. From that point on, oil will be less and less necessary.
          Until then it’s high mpg ICE’s or used hybrids.

    • Mike says:

      Mr. Tea, up hole you have said, I believe, this: “I have participated in LTO wells with CLR and others in Oklahoma (we own minerals)…” It is understandable that your glass might be half full regarding the shale oil business if all your income associated therewith is free and clear of all costs. If on the other hand you have paid your share of drilling and completion costs with CLR, and lease operating expenses, and you are pleased with the outcome of your investment. Congratulations. You are one of very few.

      Don’t be dumbfounded, sir; I am an operator myself and do not believe that debt, and oil, works together. It has not worked in the US LTO industry to date, and it will not in the future. Believe it or not there are a lot of us experienced oil and gas professionals out here that feel the same way.

  28. Nathanael says:

    The problem with these models is that they seem to be entirely supply-based. I am strongly of the belief that demand destruction is kicking in. This will set a cap on the price of oil — the cap will probably be in place by 2020, though it may not become clear until 2025 — and this will cause a continuous downward forcing on volumes.

    • likbez says:

      The key to demand destruction is the conversion of personal cars to hybrids. I think it does not kick in before $4.5 a gallon gas or above $12o oil.

      At those prices the economy slides into recession, amplifying the effect. Choose your poison.

      • Nathanael says:

        I am quite sure demand destruction kicks in much earlier. Even at $2/gallon gas, it’s cheaper to fuel a car with electricity than with gasoline.

        Given the choice between:
        (a) a battery-electric vehicle with a 200 mile range and fast charging,
        and (b) a gasoline vehicle of the same upfront price,
        People will choose the battery-electric vehicle because it’s nicer, and cheaper to operate.

        So it’s entirely a matter of matching the upfront price here. This is about to happen to about half the car market in roughly 2018, thanks to Tesla. People will pay a premium for BEVs but I haven’t bothered to put a value on that because it’s hard to estimate — the point is, assume the premium is zero, and they still eat the upper half of the car market as fast as they can be manufactured.

        This is going to reduce gasoline demand, pretty much as fast as Tesla can manufacture cars, at least until electric cars totally saturate the upper half of the market. By that time they may be moving downmarket, however.

        • likbez says:

          Even at $2/gallon gas, it’s cheaper to fuel a car with electricity than with gasoline.

          And what price of electricity per KWh you use in your calculations ?

          This is not true for 0.15 per KWh (assuming EV 114 miles/gallon or 30 KWh per 100 miles — Leaf data)

          • Nathanael says:

            My assumption: $0.14 / kwh * .333 kwh / mi = $0.046 / mi
            You assumed: $0.15 / kwh * .30 kwh/mi = $0.04/mi

            $2/gal / (35 mi/gal) = $0.057 / mi

            Were you assuming astronomically high mpg ratings? You basically can’t beat 35 mpg without buying a hybrid, with the exception of a couple of econoboxes.

            $2/gal / (50 mi /gal) = $0.04 / mi
            And you basically can’t beat 50 mpg with a gasoline car at all, not even a hybrid.

            Plug-in hybrids end up, in practice, reducing gasoline usage the same way all-electric cars do.

            Non-plug-in hybrids have their own market problem: they have all the costs of a gasoline car and an electric car, and the consumer wonders why the 50 cent plug wasn’t included…

            Conclusion: electric cars are cheaper to fuel with gas at $2/gallon or above.

            If electricity rates are above 14 cents / kwh, it usually makes sense financially to install solar panels, which can almost always get you an effective rate of 14 cents/kwh or less; even the utility companies will do this. This is why I didn’t use higher electricity price estimates; anywhere which is paying much more than this is being gouged in some fashion (for instance Ontario is paying the excess costs for spending done 40 years ago on ancient nuclear plants, even though they produce very expensive electricity and there are lots of cheaper alternatives).

        • Brian Rose says:

          Let’s also not forget that the Chevy Bolt is going to be on the market in September or October.

          Also the new Chevy Volt is getting raving reviews, which could help the conversion – a lot of people I know are still skeptical of pure electric cars. A PHEV will be a great segue for many, and will still cut their gasoline usage by 90%.

  29. texas tea says:

    Gone fishing, I haves no business experience in coal but coal and natural gas compete directly for the same market so clearly they are linked, but the scales have been tipped by the heavy hand of government in favor of nat gas. Coal generation plants in the US are being replaced by nat gas fired ones at a rapid clip so with each passing year nat gas will continue to gain market share at the expense of Coal. US Coal producers may need to expand their market and compete in the international community.

    Sometime times it helps to stand back and look at the whole forest rather than the trees. What would oil and natural gas prices be and therefor retail electric and gasoline prices, if the “shale revolution” had not occurred? Where would oil prices be today if 4.5 million new BO were not available on the world market right now? Now ask your self, at those prices with today technologies would certain shale plays yield a substantial ROI. Hint: freakin yes they would. And what would have been the ultimate cost be to the consumer, to domestic discretionary income, to quality of life, to world security had this not occurred and would those cost be lower, equal to or higher then the debt that was spent providing it?

    • likbez says:

      texas tea,

      What you do not understand is that shale is no solution, it is just a temporary measure that prolongs the agony. It does not solve any problems it just moves them 20-30 years into the future. That’s the only role of LTO I see.

      In reality we need huge investments in infrastructure to switch to the “economy mode” as for oil consumption. That includes dramatic upgrade of national electrical grid, creation of better, safer car batteries, development of rail, light rail and trolley buses infrastructure to lessen the length of car commute from suburbs, switch to natural gas for municipal and short distance commercial transport, and a lot of other staff.

      National Marshall plan if you wish ( https://en.wikipedia.org/wiki/Marshall_Plan ) which should include cutting military expenditures at least by 50%, canning neocons from Wash, DC, cutting aid to Israel and similar puppet states and redirecting those funds into relevant infrastructure projects (which actually can be partially outsourced to military, as they are of strategic importance for the country)

      All those measures are impossible under neoliberalism because it deifies the market mechanism while here clearly you need a huge (albeit temporary) government intervention.

      What LTO did is just swipe those problems under the carpet while consuming huge amount of cheap money. Was it good or not is for the next generation to judge. I think it was not. It’s like drinking non-stop at the retirement party to look younger, stronger then you are.

      • texas tea says:

        likbez,
        Actually I do “get it” and I think you are generally right. We should get on our hands and knees and be thankful we have the next 20-30 years to make some progress. This is not unlike a seriously ill patient patient choosing chemo and other drugs to cling on to life. But as Ron P. has pointed out, that is what we as a species we do. That is not going to change. I live in a small rural town in central Texas. Go to any high school parking lot in this area and it will be filled with huge monster pickup trucks and SUV’s and that is not going to change until it must. The highways, grocery stores parking lots are the same.
        You do not amputate your leg unless it is to save your life. We are not at that point in the public’s consciousness just yet. I will know when we are there, when by necessity we have a fascist top down economy driven by renewables and when the US army contracts out for tanks or old farmers Macs buys a new tractor that are powered by electricity. Until that day comes we will make money the old fashion way by providing a product that the public demands. I would make one other point, I think many would be surprised at just how dependent local government, county governments and state governments on their revenue from oil and gas in those states that have production. So governments also have a vested interest in keeping the revenue stream they receive from oil and gas. I don’t know how other forms of energy are taxed. The world as you described will turn our society on its head.
        TT

        • shallow sand says:

          Texas Tea. Good point on the dependency of the oil states on oil and gas tax revenues.

          I was very surprised that OK did away with the marginal well rates with regard to its severance tax.

          I imagine OK must be in a real bind if it’s state legislators were willing to poke the eyes of stripper well operators. There are a heck of a lot of them in OK, and every one votes.

          A corallary would be Iowa state legislators imposing a per bu “corn tax” on Iowa farmers.

          • clueless says:

            SS – When they first passed the subsidy, it was to help small, marginal producers who focused on stripper wells. I think in 2013, it cost OK about $15 million. I am not familiar with the formula, but price had something to do with it. So, Devon, Continental, Chesapeake now could put a bunch of their wells into the program. Projected cost next year – $150 million. So, they capped the cost at $25 million and targeted it true stripper wells. You would be okay. This was a compromise, and I think that it is not yet law, but it sounds okay to me.

            • shallow sand says:

              Clueless. Thanks for the post. I found another story on this, they now require wells to produce 10 bopd or less to qualify. So stripper well operators would be ok, as you say.

              Next time I will make sure and read more before I post.

              In your view, how badly has the collapse of oil and gas prices hurt OK?

              • clueless says:

                SS- One day in 1984, when I was working for Boone Pickens, he mused, paraphrasing: “Years ago I remember John Doe saying: ‘Lord, please give me one more oil boom – I promise that I will not F it up again.’ I think that now I am in the same boat that he was.”

                Currently, I think that the Oklahoma Legislature must be thinking the same thing.

        • likbez says:

          Texas Tea,

          We should get on our hands and knees and be thankful we have the next 20-30 years to make some progress.

          Really? Was not LTO the key factor that “helped” to make the current oil price slump possible? Trojan horse so to speak to make BAU (in a sense of enrichment of Wall Street at the expence of everybody else) possible.

          What progress you are talking about? Conventional oil was severely hurt. Biofuels, which were problematic even with high oil prices, decimated. Conversion to hybrids stopped. Infrastructure upgrades postponed. Military expenses were not cut. Neocons still dominate Wash, DC (and can well get us into a new war, if Hillary is elected). And so on and so forth.

          It’s one step forward (in a sense of polishing useful technologies of oil extraction), two steps back. Progress toward what ? Hard crash ?

          Kicking the can down the road is not always a good policy, especially if you deal with peak oil problem. We need the return to high oil prices to make some steps forward (and actually save LTO, which now is thrown by Wall Street like an empty bottle to the garbage can: The Moor has done his duty. The Moor can go)

          My impression is that the current low oil price regime was engineered (at least partially) to save neoliberal globalization. Which can’t be saved.

    • Synapsid says:

      texas tea,

      US coal producers should compete in the international community?

      Well, the US is the fourth largest exporter of coal in the world after Indonesia, Australia, and Russia. Maybe we’ll see more sent away–I’m told that export facilities on the Gulf Coast have been expanded. The largest market has been Europe for some time now. India has been expanding its imports, I believe, and that’s the general theme in SE Asia too (Vietnam, for instance, used to be an exporter but now imports the stuff.) Coal still has a future overseas. Sadly.

      • texas tea says:

        Synapsid, thanks for sharing. Yea its a real bummer that other folks want refrigerated food and medicine and may want to read to their children at night or contribute fascist doctrine on their computer. I have NO respect for hypocrites so unless your computer/car/ workspace/ home/ vacation destination/ doctors office, grocery store etc is powered by off grid electricity…maybe you should look in the mirror before you judge. And speaking of Vietnam the average wage is $150 month, perhaps coal is all they can afford, some posters on this blog are no doubt kindred spirits to the Khmers rouges, kill if they can’t be re-educated. Is that your answer, because it is the only way coal is not going to have a market in the international community.

        • likbez says:

          I have NO respect for hypocrites so unless your computer/car/ workspace/ home/ vacation destination/ doctors office, grocery store etc is powered by off grid electricity…maybe you should look in the mirror before you judge. And speaking of Vietnam the average wage is $150 month, perhaps coal is all they can afford, some posters on this blog are no doubt kindred spirits to the Khmers rouges, kill if they can’t be re-educated.

          A shade of “kill if they can’t be re-educated” in excessive proselyting of EV is not exclusive, but is in general true for any flavor of “true believers” (Wikipedia):

          Hoffer states that mass movements begin with a widespread “desire for change” from discontented people who place their locus of control outside their power and who also have no confidence in existing culture or traditions.
          … … …
          Mass movements demand a “total surrender of a distinct self.”[9] One identifies the most as “a member of a certain tribe or family,” whether religious, political, revolutionary, or nationalist.[10] Every important part of the true believer’s persona and life must ultimately come from her identification with the larger community [or goal]
          … … …
          While mass movements idealize the past and glorify the future, the present world is denigrated: “The radical and the reactionary loath the present.”[12] Thus, by regarding the modern world as vile and worthless, mass movements inspire a perpetual battle against the present.

          … … …

          To spread and reinforce their doctrine, mass movements use persuasion, coercion, and proselytization. Persuasion is preferable but practical only with those already sympathetic to the mass movement. Moreover, persuasion must be thrilling enough to excite the listener yet vague enough to allow “the frustrated to… hear the echo of their own musings in the impassioned double talk

          … … …

          The urge to proselytize comes not from a deeply held belief in the truth of doctrine but from an urge of the fanatic to “strengthen his own faith by converting others.”[16]

          Successful mass movements need not believe in a god, but they must believe in a devil. Hatred unifies the true believers

          … … …

          The hatred of a true believer is actually a disguised self-loathing, as with the condemnation of capitalism by socialists while Russia under the Bolsheviks saw more intensive monopolization of the economy than any other nation in history. Without a devil to hate, mass movements often falter
          … … …
          Hoffer argues that “the fanatic is perpetually incomplete and insecure”[18] and thus uses uncompromising action and personal sacrifice to give meaning to his life.

        • Synapsid says:

          texas tea,

          I referred to the fact that we’d all be better off without coal being burned, including those for whom it is indeed the only affordable choice they have and so the one they must make.

          There’s no judgement of anyone in my post, only in yours.

          • texas tea says:

            Synapsid, you are correct my comments were a bit judgmental. I offer you this. With respect to your comment “we’d all be better off without coal being burned” that is a judgment and it is one shared by a number of people is this country including a couple of leading presidential candidates. With out challenging the facts of statement directly, let us look at another settled science argument offered up to us by our government back in the 1970’s. The food pyramid and how natural saturated fats in natural quantities are some how bad for human health. 45 years after this settled science has been swallowed hook, line and sinker by the world population we are left with an obesity epidemic, diabetes epidemic, heart decease and cancer epidemic that are now being traced by to that junk science. The point I am trying to make is that a real scientists constantly challenge their own assumption and welcomes the challenges from others. Because “settled science” stands on its own merits and the test of time, not the strong arm of government. To the extent renewables are preferred to carbon based energy, who is it that makes the judgment that today, at this precise point in time, the development of any particular form of renewable has reached it’s optimum level of efficiency and should be rolled out worldwide to the exclusion of coal, natural gas or oil. While we contemplate that, can we think of any other examples of command and control, top down decisions made by governments that did not work out so well? Better to think twice and be cautious then to condemn all your fellow citizens to a failed experiment (like Obama care) only to be “fixed” by the next set of know-it-alls.

            • Hickory says:

              Hi texas tea,
              I’d like to offer a slightly different take on your comment, to consider-
              “To the extent renewables are preferred to carbon based energy, who is it that makes the judgment that today, at this precise point in time, the development of any particular form of renewable has reached it’s optimum level of efficiency and should be rolled out worldwide to the exclusion of coal, natural gas or oil.”

              I don’t think most serious thinkers/planners are suggesting renewables to the exclusion of fossil fuels. Rather most would be hopeful that renewables could be rolled out to fill in some of upcoming shortfall of fossil production due to depletion.

            • Synapsid says:

              texas tea,

              “…we’d all be better off without coal being burned…” is based on the observation that the burning of coal has deleterious consequences. We’d be spared those if coal weren’t burned.

              That’s all I was saying.

  30. GoneFishing says:

    texas tea asked “What would oil and natural gas prices be and therefor retail electric and gasoline prices, if the “shale revolution” had not occurred? Where would oil prices be today if 4.5 million new BO were not available on the world market right now? ”

    I would say that oil would be $100 a barrel and descending. The reason for the descent is that the high oil prices would have driven increased efficiency and alternative energy and transport at a much higher rate than now. Constant pain at the pump would force a move to highly efficient cars and trucks and given electrics a much needed boost.
    Natural gas prices would be higher and people would be pursuing insulation, solar thermal, heat pumps etc. to heat homes and buildings. The price of coal would hold back natural gas prices from sky-rocketing.
    Solar electric and wind would implementation would have risen even faster, though they both have amazing growth rates.
    Low oil and natural gas prices due to an abundance of both limits the growth of renewable energy and transistion technology. High oil and natural gas prices fuel various demand destruction scenarios.

    • texas tea says:

      Good evening Gone Fishing, well i think you got part of it right. Natural gas would be much higher as we would be importing it. Two winters ago we almost depleted all nat gas storage, at a time where we had near record natural gas production. (this global warming thing is playing hell on our winters) I doubt solar or wind power can be implement at a much faster rate although that can be debated nor would they have ben able to handle that peak demand. More then likely what you would have had was a number of brown outs during in a very cold winter and news reports of freezing seniors and homeless all over the news and the whole of very large cites in the midwest and North East shut down. A lot of uncertainty and political up roar.
      As for where oil prices would be i think you are way off. But that is speculation on both out parts. I don’t disagree that low oil and gas prices limit renewable energy transition, but from where I sit that is not a bad thing:)

  31. texas tea says:

    likbez, I will not get into politics. This blog has a great number of very intelligent contributors. And I respectfully disagree with a bunch of them. And it is not because I think I am right and they are wrong, it is because my life experience is vastly different and leads me to different conclusions. I read this blog because of the excellent work summarizing the state of domestic US production better then any other source I can find. I was inspired to finally post because I just could not take all the doom and gloom end of the word as we know stuff any more. My job is to make good decisions as they relate to my business and hopefully in doing so, take care of my family. I have yet to invest in any Solar, windmill or electric car company, the facts just do not support those investments yet. They do however support continued investments in the oil and gas space, from my point of view. I hope Nathaniel puts his money where his mouth is and buys all the Tesla stock he can afford and then goes on margin:) from where I sit Elon Musk and Aubry McClendon are flip sides of the same coin.

    • Fred Magyar says:

      My job is to make good decisions as they relate to my business and hopefully in doing so, take care of my family. I have yet to invest in any Solar, windmill or electric car company, the facts just do not support those investments yet.

      Texas tea, obviously I strongly disagree! I certainly do not begrudge your right to make a living and support your family as best you see fit. However I just don’t see how you, or anyone else for that matter, are going to do that by continued investments in oil and gas. The EROI numbers just don’t support your point of view. Parking lots full of monster pick ups and SUVs notwithstanding. To me all of that looks like dinosaurs on the brink of extinction.

      To be clear, while personally I hope we still have a least a slightly better than a snowball’s chance in hell of pulling out of our current economic mess by transitioning to a mostly renewables based economy I don’t think the continuation of BAU is very likely for long.

      BTW some might find it a bit contradiction given some of my posts but I think you are right that TESLA and Aubry McClendon are flip sides of the same coin! But Aubry is dead while Musk is still alive to see another day. Musk and all of us could be gone in pretty short order if we don’t manage a transition very soon,

      Here is some food for thought:

      http://www.resilience.org/stories/2015-03-05/the-paradox-of-oil-the-cheaper-it-is-the-more-it-costs

      The Paradox of Oil: The Cheaper it is, the More it Costs

      What we do know is that the EROI of oil is in terminal decline, and it is this geological reality which means that there will forever be upward pressure on the price of oil, and that is forever going to put pressure on oil-dependent, growth-orientated economies. As Murphy and Hall argue: ‘increasing the oil supply to support economic growth will require high oil prices that will undermine that economic growth’ (Murphy and Hall, 2011a: 52). This is the world we now live in.

      That very same set of circumstances is also prejudicial to the yet to be born alternative energy paradigm which could very well be still born. Musk might yet end up slamming one of his TESLA P90D ludicrous mode luxury sedans into the side of an overpass at 100 mph just like McClendon did with his LNG powered vehicle.

      I wish all of us lot’s of luck and may we all see a brighter future for our families and children.

      Cheers!

      • Fred Magyar says:

        One of world’s largest solar plants to be used to produce … oil

        http://www.gizmag.com/solar-power-for-oil-production/43455/

        So basically the EROEI of this solar plant is better than the EROEI of natural gas! Rather ironic, no?

        • Doug Leighton says:

          Fred, if you insist on pursuing your EROI quest I recommend the following.

          EROI OF DIFFERENT FUELS AND THE IMPLICATIONS FOR SOCIETY

          http://www.sciencedirect.com/science/article/pii/S0301421513003856

          • Fred Magyar says:

            Thanks, I’ve downloaded it and will definitely read it but I’m interested in trying to understand the implications in a deeper more systemic way and more specifically if it is possible to identify thresholds and tipping points when a previously viable fuel ceases to be viable. At the moment I just have sort of a gut feeling but I suspect that no matter what happens to the price of oil from here on out, shales and tar sands are no longer going to be worth going after. Of course even if that can be proven I doubt it will stop society from going after them.

        • GoneFishing says:

          Fred,
          Does the EROEI of solar and wind really matter that much? If it is 5:1 or 50:1, why be concerned? They are the major options for energy production in the future.
          Fossil fuels have so many problems (climate change, political, pollution, war, inefficiency, wide cost swings) that even if they were not depleting, we must move away from them.
          The only choice right now is to make renewables work. If needed, modify society and culture to fit them.
          What other sane choices are available?

          • Fred Magyar says:

            Hey GF I agree that the future is renewables but I just want to get a better understanding of the details.

            If it is 5:1 or 50:1, why be concerned?

            Well, it will be what it will be but having an energy source that is 5:1 or 50:1 leads to very different outcomes as far as the kind of civilization we can build.

          • clueless says:

            GoneFishing –
            You say – “If needed, modify society and culture to fit them.”

            Reminds me of a comical, 20 item “test,” for prospective computer programmer trainees from the early 1960’s. The first item on the test was: “There is a collection of chemicals and water in the basket under your desk: Create life.” The second question was: “Describe how your life form will evolve differently than other life forms on earth.”

            You ought to consider sticking to fishing.

            • Fred Magyar says:

              GoneFishing –
              You say – “If needed, modify society and culture to fit them.”

              Not a problem at all!

              Just depends on whether or not you have a good enough reason to change!

              https://goo.gl/FN0Rmc

              • GoneFishing says:

                Fred,
                The current war is much bigger than WWI with much more devastating consequences on a larger scale. Yet we are just muddling along with little sense of urgency.

        • Nathanael says:

          This story shows how ridiculously hard it has been to find subsititutes for oil.

          My perspective at this point, taking the long view, is that even at $30/bbl, *oil is expensive*. It’s really expensive. It’s so expensive that people will use large amounts of solar energy to extract it. It’s so expensive that people have been switching their heating from oil to gas (or electric) for several decades. It’s so freaking expensive that even though it’s a great chemicals feedstock, people are using biofeedstocks and natgas instead. It’s only used for transportation because of how incredibly difficult it was to find a substitute.

          And at $20/bbl oil, we really don’t have a cost-effective substitute. But at expensive $30/bbl oil, well, after decades of research (starting in the 1970s), we *do*, at least for land transportation. (We still don’t for airplanes.)

          Perhaps the understanding that $30/bbl is actually *expensive* oil puts some perspective on peak oil. With a normal commodity, we all would have stopped using it in the 1970s when we reached the US lower-48 conventional peak. But it was really difficult to switch away from oil because it was so effective.

          • GoneFishing says:

            “But it was really difficult to switch away from oil because it was so effective.” Effectiveness by design. Due to the great availability of oil, the machines were designed to use it and our society built itself around oil.

            Before oil, coal moved the world. Before coal, wood, horses and wind moved and energized the world. We have spent the last century becoming dependent upon oil, it does not mean it is indispensable, it just means much of our current technology is designed to depend upon it. Cheap oil has allowed us to perform certain operations and society has expanded upon that. That does not mean we have to continue those operations. It just means we have to expend some thought and effort in utilizing our vast wealth of real-time energy.

            Once oil stays at a high price for a few more years, alternatives, efficiency and lifestyle changes will kill demand. People will only take so much monetary pain when obvious alternatives exist.

          • Eulenspiegel says:

            There is no big problem to convert transport to natural gas.

            There are even service stations here where you just can fill your car with gas, it costs about 1500€ and 24 hours at the garage to convert your car to natural gas.

            Some people drive them here, because there is less tax on natural gas than gas or diesel. Gas is at 5$/gallon at the moment here, and that’s cheap.

            • coffeeguyzz says:

              Eulenspeigel

              The average retail cost of natgas in the US today is $2.11 GGE (gal. gas equivalent) with Oklahoma averaging $1.39 GGE.

              With the advances in storage tanks this past year (adsorbing material that is flexible), the already ongoing push into natgas fueled transportation is accelerating.
              Over the road trucking will have an enormous economic advantage adopting this fuel as the retail supply stations continue to build out.

  32. AlexS says:

    Rystad Energy data on drilled, but uncompleted horizontal oil wells (“DUCs”):

    90% of US DUCs are located within Permian, Eagle Ford, Bakken and Niobrara

    May 19, 2016
    http://www.rystadenergy.com/NewsEvents/PressReleases/us-shale-ducs

    Operators have accumulated ~3,900 drilled, but uncompleted horizontal oil wells (“DUCs”) across the US shale, with more than 90% of these located within the major liquids plays, shows Rystad Energy’s latest analysis (05/2016).
    The largest DUC inventory is spread over the Permian Basin with 1,200, Eagle Ford with ~1,000, and Bakken with ~850 wells awaiting completion services. The remainder of oil DUCs are located in Niobrara (~620 wells) and other plays (~270 wells).
    —————————————–

    The current number of the DUCs represents a decline of 100 units vs. Dec. 2015 (~4,000) and 600 units from end-2014 (~4,500)

    from Rystad’s earlier research:

    The current fracklog will not save US shale production at a 30 USD/bbl WTI

    January 2016
    http://www.rystadenergy.com/AboutUs/NewsCenter/Newsletters/UsArchive/shale-newsletter-january-2016

    As of the end of 2014, the DUC inventory contained more than 4,500 horizontal oil wells.
    In early 2015, drilling activity showed a faster response to the oil price decline than completion did. This is due to a significant number of rig contracts being terminated before expiration. Thus, despite the completion delays, DUC inventory decreased by 500 wells over the first months of 2015. In the second half of 2015, the decline in completion activity caught up with the decline in drilling and DUC inventory stabilized at the level of 4,000 wells.

  33. Anonymous says:

    A good summary of prospects in the oil industry over the next few years:

    http://attheedgeoftime.blogspot.co.uk/2016/05/this-is-peak-oil.html

    • Nathanael says:

      Oh, that’s an excellent analysis.

      So we can probably expect price rises heading into 2018. He doesn’t try to project the character of the demand destruction cycle.

      My analysis says that the demand destruction will proceed basically as fast as
      (a) electric cars can be built and sold. Each time an electric car with suitable features is sold for $X,000, I think it permanently displaces a gasoline car at the same price point.
      (b) similarly, electric buses, trucks, etc
      (c) home heating can be switched away from oil to heat pumps, etc.

      All of these are cases where the financial payback of switching to the substitute is immediate even at $30/bbl oil. Higher prices may accelerate the switchover, but only if the manufacturers of electric cars can build the darn things fast enough to meet market demand.

      So the pace of demand destruction may actually be limited primarily by how fast electric car manufacturers can build factories, and not by the oil price at all.

      Still, I think the demand destruction will be setting in quite spectacularly by 2025, seven years after 2018. It’s a mug’s game trying to project whether prices will be high or low in that period, given the “fight” between depletion and demand destruction.

      If depletion runs faster, we may see more cycles of prices going up, inducing optimistic drilling, and then dropping again.

      If demand destruction runs faster, we may see range-bound trading where prices never really go up again. This will of course have to happen *eventually* but it’s an open question how many more cycles before it happens.

      • Oldfarmermac says:

        “If depletion runs faster, we may see more cycles of prices going up, inducing optimistic drilling, and then dropping again.”

        This could be true. But in my opinion, it is also possible for depletion to out run business cycles, so to speak. If the cards fall this way, and we are not ADAPTING fast enough to lesser supplies of oil, the price of it could stay “up” for a very long time.

        Oil is probably the next critical single commodity after food itself, and while “demand destruction” is a real thing or possibility, it may not be sufficient to actually keep the price of oil from rising, at least short to medium term. Yogi sez predicting the next inning is tough enough, let alone which team will win the series ten or twenty years down the road, lol.

        I couldn’t possibly farm with horses and mules as economically as I can farm with diesel fuel at twenty dollars a gallon. Five gallons of diesel moved as much food from my farm to the nearest town in an hour, round trip,except for unloading time, with a truck I used to own, as eight or ten men could deliver in a day, daylight to dark, using sixteen horses that have to be fed every day, worked or not.

        The demand destruction argument does not necessarily hold water in every possible scenario.

        I hope we manage to leave oil before oil leaves us, but it is such an incredibly useful substance that it might never get to be really cheap,due to depletion, even if it is used in small quantities. At some point in time, extracting or synthesizing even a small quantity might NECESSARILY require a high price.

        My own guess is that oil will sell mostly in the hundred dollar and higher range for most of the next couple of decades and maybe longer, due to rising population, and increasing prosperity on a world wide basis on the one hand and depletion on the other. It will take that long imo for demand destruction to reduce actual consumption far enough for the price to fall in the face of depletion and higher production costs.

      • likbez says:

        All this talk about the demand destruction might became true only if the oil price approaches $130-150 per barrel and the price of gasoline exceeds $4.5/gallon.

        This is the already proven level at which it starts to hurt the pocketbook of long distance commuters and they start to adapt discarding “monster” SUVs and light trucks in favor of more efficient vehicles

        Before that this is by-and-large a pipe dream of red eye EV enthusiasts, a fairy tale to “feel good” about perspectives of EV fleet and by extension alternative energy,

        People rarely acquire vehicles they can do without, unless this is a status symbol (the large part of popularity of Tesla is based on this effect)

        • Hickory says:

          I agree you (OFM and likbez) about demand destruction. It will take a long time to be a relevant factor.

          But I must quibble with you likbez about Tesla just being a status symbol.
          No I don’t have one, and I really would rather buy a diesel pickup this weekend.
          But for many people here in the crowded parts of Calif it makes sense to purchase a new $37K tesla when considering the local scenario.
          Ignoring the tax credit, when comparing the cost/mile of gas vs electricity out here, it looks favorable for electricity. Also, you get to be in the HOV (fast) lane, and if you commute in the megalopoli around Calif that is a big deal (priceless). Lastly, your maintenance costs and downtime are projected to be much less.

          Will a Chevy Bolt (similar economic scenario) also be considered just a status symbol? I think not.
          Lots of reasonably priced hybrid/elect vehicles are coming to a showroom near you over the next three years. This is no longer some future scenario.

          But I agree, it will take a long, long time to significantly cut into the global demand for petrol. I suspect depletion of supply will happen quicker.

          • Longtimber says:

            How about the Looks one gets upon menting that you just can’t rule out the possibility of Gas Rationing in next 2-200 months. Electric Car .. Bah ..

        • Ves says:

          likebz,
          Of course creating demand destruction through EV replacement is delusion because with current rate of replacements will take us 100 years give or a take. If anyone would really try to understands how difficult is to replace conventional oil with Gucci type of unconventional oil would understand that we don’t have those 100 years.

          I will tell you how oil demand destruction could happen in theory: if someone could dial Fed and all CB around the world and suggests them to increase benchmark interest rate with just additional 1-2%. It will create instant demand destruction in oil and more than combined EV & Solar panels put together in the whole world and multiply that by 1,000.000. But what would happen then?

          Our world Soap bubble economy would deflate within a month’s with mass layoffs and bankruptcies. So of course you can’t increase the interest rates. But can you go with negative interest rate? Not really. Because the one’s that create “money” out of the thin air would lose immediately the power of compounded interest and love for the infinitive “growth” that represent their paper wealth power. With the negative rates everything starts to shrink in terms of loans, deposits, collaterals and paper wealth.
          So we (and our economy) are now in this Wild E. Coyote moment, hanging in the air balancing (or pretending) around 0% interest rate and decreasing “cheap” resources.

          • Fred Magyar says:

            Of course replacing horse and carriages with those infernal automobiles is delusion because with current rate of replacements it will take us 100 years give or a take…

            • Fred Magyar says:

              It took only 13 years to go from all horses to all cars in NYC.

              • Ves says:

                Fred,
                You simply refuse to see or just not understand current dynamics between energy and debt base monetary system, fractional reserve banking, compound interest and infinite growth paradigm and legacy cost of manufacturing based on fossil fuels that were paid over last 100 years .
                You just count the ratio between horses and cars on 100 year old photos.

                • Fred Magyar says:

                  You simply refuse to see or just not understand current dynamics between energy and debt base monetary system,

                  Actually I do! Dilma Rousseff just got impeached in Brazil because of exactly that. Her substitute is going to be out because of that same dynamic. I also have a pretty good grasp of biological systems and the fact that humanity is overpopulated and in deep ecological overshoot.

                  However that does not mean that disruption is not occurring and that disruption can still change the dynamics in major ways and happen very very fast. Including leading to our ultimate extinction.

                  To be clear, I’m not in any way stuck on private automobiles be they EVs or ICEs. I think the bigger disruption in the pipeline is no more private ownership of automobiles.As an example my 20 something son, a computer science major doesn’t have a drivers license and has no intention of getting a car, ever, neither do his friends, but I digress.

                  Check out the Disruption Innovation Festival to understand that there is a lot more disruption happening in many so many different areas including financial, social, political and economic.
                  https://www.thinkdif.co/

                  None of that means any of us is guaranteed a future but it sure as hell means there is a lot more sand in the gears of BAU than you might know about. I see a lot of political upheaval in the works.

                  • Ves says:

                    Fred: ” Actually I do! Dilma Rousseff just got impeached in Brazil because of exactly that. ”

                    I don’t think you are reading Brazil correctly. According to you all Dilma Rousseff should have done it to stay in power is buy one kiwi Nissan Leaf for every single Brazilian and problem will be solved.
                    Let me tell you Fred since you follow Brazil what happened with Dilma. Dilma did not get impeached. The powers behind her allowed her to get impeached because they know that “return wave” in 2 years, especially in Brazil and considering debt/energy self destructive mutual dependence, will turn into tsunami and bring them back to absolute power.

                  • Fred Magyar says:

                    Ves, trust me on this, I know Brazil very well! It is a very different world from the US. Nissan Leafs are practically unheard of and selling them in Brazil will never work but I digress!

                    I was born there and lived through the military dictatorship after the coup of 64.

                    I also worked on oil rigs off the coast of Brazil for Sub Sea Oil sub contracted by Petrobras. The PT, Lula and Dilma rose to power on the coat tails of cheap Petrobras oil.

                    Lula’s government was able to pull a lot of poor Brazilians out of poverty because at the time EROEI was favorable and oil was bringing in substantial foreign revenues and sugarcane ethanol was a viable liquid fuel for the internal market. The coffers were full and the economy was booming!

                    So no matter how corrupt all the politicians were there was enough money left over for bread and circus. Lot’s of cheap cachaça for samba carnaval and soccer kept the people happy.

                    Credit became easy thanks to greedy bankers and the people were able to buy homes, refrigerators and their first cars and their children got jnto universities etc… Life was good!

                    Now that source of revenue is gone and times are really tough again and the common man is angry because the government can no longer afford to provide all those amenities while still pocketing the easy money of the past. They promised prosperity and they can no longer deliver because the price of oil has crashed and they had most of their eggs in that one basket.

                    The people currently trying to wrest power are not going to be able to provide prosperity either.

                  • Ves says:

                    Fred,
                    All that you described about Brazil are correct dynamics that I summed in one sentence: “dynamics between energy and debt base monetary system, fractional reserve banking, compound interest and infinite growth paradigm and legacy cost of manufacturing based on fossil fuels that were paid over last 100 years”

                    So you actually agree with me but you are not even aware of it.
                    But on the end you have to make wrong conclusion: “It is a very different world from the US. ”

                    How is that different? Does energy grow free in US? No. Does EROEI is significantly higher in shale/tar sands than subsalt sea oil in Brazil? No. Are there no bankers/investors in US that blindly run after high yield junk bonds and self destruct in the process? No on all accounts. Shale already bankrupted themselves and it is working very diligently to bankrupt the rest of conventional. So again, no difference then Petrobras.
                    There is a reason why no one heard about Leafs in Brazil or Greece. It is because they don’t make a difference in their life in regards to energy consumption.

      • Brian Rose says:

        Nathanael,

        The one thing that scares me is that global vehicle sales grew 2% in 2015, and have been up ~4% so far in 2016. Surely some or even most of that growth is from growth in vehicle ownership globally.

        Even if 2 million EVs are sold in 2016 – entirely likely considering China’s impressive numbers – then there’s no demand destruction at all. Those 2 million EVs are simply offsetting the demand growth from growing vehicle ownership.

        The impact of growing population and wealth really is THE thing that keeps me up at night. It just makes it that much harder as the tremendous gains made in deployment of renewables and EVs are gobbled up by the growing middle class in developing economies.

  34. AlexS says:

    Halcon Resources plans to file a Chapter 11 bankruptcy plan if enough lenders agree to the terms, the company said Wednesday in a press release.

    Since the start of 2015, 138 oilfield service companies and oil and gas producers have gone bankrupt owing more than $61 billion, law firm Haynes & Boone said in an April 29 report.

    http://www.bloomberg.com/news/articles/2016-05-18/halcon-resources-to-seek-bankruptcy-under-restructuring-proposal

    • likbez says:

      Alex,

      Halcon Resources plans to file a Chapter 11 bankruptcy

      Since the start of 2015, 138 oilfield service companies and oil and gas producers have gone bankrupt owing more than $61 billion, law firm Haynes & Boone said in an April 29 report.

      Those one after another announcements compose into something resembling a Requiem (aka Mass for the dead; Latin: Missa pro defunctis) for LTO boom and “low oil price forever” gambit (with due apologies for the deviation from your neoclassical supply-demand article of faith ;-).

      “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Sir Winston Churchill

    • shallow sand says:

      AlexS.

      Are you aware of any non-North American based oil/gas producers that have filed bankruptcy, or something similar, since the beginning of 2015? Same for non-North American service providers?

      • AlexS says:

        shallow sand,

        There could have been a few cases but I’m not aware of any.

        BTW, the oil majors are also making losses on US upstream operations:

        BP’s Upstream segment replacement cost profit before interest and tax in 2015 (USD million)

        US E&P subsidiaries: -2345
        US midstream and other: 62
        UK: 1561
        Rest of Europe: 56
        Canada: -220
        South America: 326
        Africa: -1895
        Russia: 1278
        Asia: 687
        Australasia: 863
        Total : 373

        source: BP Annual Report and Form 20-F 2015, p.170

        • AlexS says:

          For some reasons, the table wasn’t edited

        • shallow sand says:

          ExxonMobil and Chevron also had large North American losses.

          Due to the high CAPEX spent 2011-14, and given depreciation, depletion and amortization methods selected by US producers, expect $20-$25 per BOE in D,D & A for US oil weighted LTO producers for at least the next 3 years. Then add in $8 or more of LOE, $3-5 G & A, and $4-$7 in interest, all in BOE terms. Also, some monetized gathering, so there could be expenses there. Also include severance taxes of 6-10% of $ per BOE sold.

          If one assumes that gas stays low priced, WTI will need to pass $55 sustained for 3 months for most US LTO producers to not show losses for GAAP purposes.

          This, of course, does not include hedges.

          • AlexS says:

            In some regions, weaker local currencies and tax rates linked to oil price partially offset the effects of lower prices. But in the US upstream, both revenues and costs are dollar-denominated and tax rates are fixed.

      • AlexS says:

        LINN Energy, LinnCo Delisted From NASDAQ

        May 24, 2016
        http://www.ogfj.com/articles/2016/05/linn-energy-linnco-delisted-from-nasdaq.html

        LINN Energy LLC and LinnCo LLC have been delisted from The NASDAQ Stock Market. Trading of LINN and LinnCo securities were suspended prior to the open of the market today, Tuesday, May 24, 2016.

        On May 11, 2016, LINN Energy, LinnCo, certain of the company’s direct and indirect subsidiaries, and Berry Petroleum Co. LLC, filed voluntary petitions for reorganization under Chapter 11.

  35. Oldfarmermac says:

    Thanks everybody for all the comments on EROEI.

    Unfortunately in my opinion some comments seem to indicate a poor understanding of the practical problems associated with the use of this concept.

    Corn based ethanol is a prime example of the way EROEI can be misrepresented and misused. A lot of energy derived from coal and natural gas go into moonshine, and the overall process, even if it generates a positive energy return,which is disputable, certainly generates a piddly poor return. But the energy in coal and gas is not nearly so VALUABLE in economic terms as the energy in ethanol.

    EREOI mostly does not really apply FOR NOW in terms of making business and policy decisions. Now at SOME point in future time, when fossil fuels are scarce, and more expensive, due to depletion ( and also high taxes intended to both generate revenue and discourage their use ) the VALUE or UTILITY of a gigajoule of gas energy will likely approach the value of a gigajoule of oil energy. This result will probably come about for some fairly simple reasons. First off , we will quit using oil in such a reckless and wasteful fashion, and we will learn how to use gas ( more ) efficiently for some of the purposes we use oil for today.

    A gigajoule of coal energy may never be as economically valuable as an equal amount of oil or gas energy, because it is unlikely imo that coal can ever be used as efficiently as oil or gas. It’s more expensive to transport, and burning it requires more expensive machinery, and capturing the released energy and putting it to use is a tougher job.

    What this boils down to is that we need to remember that the concept is useful in understanding the LIMITS of what we will and will not be able to do in the future.

    I am not one to dream about something real for a literal NOTHING, but there does seem to be a real possibility that we can eventually produce solar electricity so cheaply, and on such a gargangtuan scale, that we need not worry too much about EREOI.

    It is no longer INCONCEIVABLE that the pv manufacturing process might be almost entirely automated and run on pv generated electricity within the foreseeable future.

    After all, sunshine IS FREE, and available in greater quantity than we are likely to ever use. It may not be SUSTAINABLE in some ridiculous ultimate sense, because even STARS last only a few billion years. As RW would say to that, har!

    If a virtually unlimited supply of energy becomes available, then the EREOI concept can be tossed on the trash heap of history, insofar as ENERGY ITSELF is concerned.

    What I am trying to say, in a roundabout fashion, is that we need to be careful about conflating ENERGY with OTHER resources, which are in real or potential short supply.

    Energy is NOT necessarily a good proxy for measuring economic activity, in the same sense that money is not necessarily a good proxy for measuring the energy intensity of a given activity, or a given industry.

    EROEI is a concept that will enable us to understand where hard limits lie, to understand what CAN be done, within the laws of physics. It is less useful, and maybe even useless, in understanding what is WORKABLE in terms of the real world.

    I don’t give a rat’s ass about the argument that the EREOI of a solar panel is too low for solar power to ever support an industrial civilization, except as an academic question. For NOW, we have PLENTY of fossil fuel energy that can VERY profitably be diverted from other economic activity to scaling up the pv industries.We have plenty of hydro power that could be diverted to the manufacture of solar panels. We use enough aluminum to make beer cans to manufacture pv panel racks out the ying yang, etc. We have millions of unemployed people currently supported on welfare payments of one sort or another, some of whom could be put to work manufacturing and installing pv systems large and small.

    For now, all we have to do is to decide what to do with the time and resources available to us. Sufficient unto the day are the problems thereof. Future generations will either solve their own problems, or perish if they fail.

    At the very worst, whatever we do NOW will extend the the life of our depleting supply of fossil fuels, and thus buy significant time to adapt to a less energy intensive economy.

    All the regulars here are all going to be DEAD before the EROEI of solar power becomes a REAL WORLD problem. DITTO wind and any other renewable energy industry.

    Let’s not forget that a kilowatt hour’s worth of actual electricity in the hand, so to speak, is worth at least four or five kilowatt hours worth of the energy equivalent amount of coal still buried under a mountain. 😉

    We lose fifty percent of that coal energy just burning it to generate electricity.

  36. Oldfarmermac says:

    Sometimes the big picture has smaller subtleties embedded in it that are quite obvious once you notice them, but nevertheless mostly overlooked.

    http://www.nytimes.com/2016/05/25/us/millennials-roommates-now-more-likely-to-be-parents-than-partners.html?_r=0

    http://www.pewresearch.org/fact-tank/2016/05/24/in-the-u-s-and-abroad-more-young-adults-are-living-with-their-parents/

    Now I am not about to argue that the SOLE important reason so many young people in the USA and all over Europe are living with their parents these days is MONEY, but there is no doubt in my mind that money is the PRIMARY reason for this defacto extended childhood arrangement. I know quite a few youngsters in this situation myself, and all of them would have a place of their own, spouse or lover or NOT, if they could afford one.

    This is one way we have adapted to tough economic times in general, and it is obviously having an effect on the consumption of oil as well, although the magnitude of this effect is hard to estimate. But one thing is for sure. As time passes over the next few decades, we are probably going to need substantially LESS new housing, fewer new schools, roads, stores, etc, as we double up even as the population peaks and declines.

    Young folks who inherit a house ought to be able to spend a substantial amount of money on it, upgrading it so as to increase their home energy efficiency.

    Housing prices in places such as Tokyo are probably going to crash as the population starts to decline noticeably, unless the Japanese decide to admit large numbers of immigrants, which seems unlikely for now.

  37. HR says:

    WTI and Brent spread has closed quite a bit lately. Anybody heard what the crooks at the tbtf mega banks are giving as an excuse?
    Citi just announced that crude was headed to 50 a barrel in Q3, that’s a pretty amazing call seeing as how it’s pushing 49.50 right now. Those “analysts” probably will get a huge bonus for making that call right?

    Anybody got a handle on overall accurate storage stats? I believe that we are heading into a period that oil in storage and market sentiment will be more important than production at some point. At least I’m hoping we are getting there. That’d be a great idea for a new post Dennis. Oil in storage. But there are no stats on private storage in the lower 48 right? Hell, me and my two best business buddies have 25 thousand barrels in our tank farms right now. And we are small fry compared to the gangster bank backed shale guys.

  38. John S says:

    Art Berman has a new post out on shale gas. He goes into some detail on the 1st Qtr financial results of several companies that are not often discussed here. Among them: Devon, Southwestern, EQT, Encana, Rice.
    Art says that the average debt to cash flow ratio has increased 4 times in 2016. Gas production is falling in all shale gas plays with the exception of the Utica which managed a small increase. It would be interesting to know more precisely where all of this debt is being invested and how much is in the Utica.

    http://www.artberman.com/shale-gas-magical-thinking-and-the-reality-of-low-gas-prices/

    • Heinrich Leopold says:

      John S,

      Below chart shows the correlation between natgas production change and Henry Hub price change. It clearly shows how strong the reaction has been during the 2012/2013 production decline. Although FED production data for March and April are not yet available, the chart screams for a strong rise of Henry Hub prices when production falls further (which it did according to my numbers) during the year 2016.

      • Toolpush says:

        Heinrich,

        It was a warm winter, storage is already full. They only need to average 68 mmcf per week to totally fill their storage. The supply can stay low this year and still have storage in good order for next winter.

        Now if the 2016-17 is cold and storage drops significantly, then the spot light will be on the producers and how they can ramp up their production. If they can’t, due to money problems or any other issues, that is when your sudden price increases may occur. It won’t be until the producers are put under pressure to perform, that we will know the result. After the 2013-14 arctic vortex, they did step up to the plate and performed. Can they do the same in 2017 with limited money supply, that will be interesting to watch!

        • John S says:

          Heinrich & Toolpush,

          I think you are both correct. Shale gas production seems to be falling, though not as fast as I would like it to. Storage is market supply. PDP reserves and PUD reserves are the unknowns to me.

          The SOB at the family reunion seems to be the DUCS. At what price are those wells really economic? How many exist and where are they in relation to the economic sweet spots? If a DUC can’t be counted as PDP or PUD then to me it’s a plugging liability and who would pay money for a liability?

          What about gathering systems or production facilities to get from the well head to a point of sale with a mid stream provider?

          There in lies the rub.

          I asked Berman about a year ago if he had changed his opinion on the gas shales. He said he had not. I think Berman has been right all along. I just don’t think geology can be trumped with with financial accounting. Notwithstanding GORs in the LTO plays,the first Seneca Cliff may well be natural gas.

          • Reno Hightower says:

            Agree John S. And these questions are all going to be answered while we increase consumption moving away from coal and we begin exports.

          • Heinrich Leopold says:

            Toolpush&JohnS,

            In my view there are three factors influencing the supply/demand picture and may come as a surprise to the market.

            – as two third of production represents shale, the decline may be much faster than in previous declines;

            – net imports could turn into net exports and this will draw much faster on inventories;

            – power burn is around 20% higher than last year (see beow chart) and rising much faster than even renewables due to retirement of coal power plants; in my view the reason for the high power burn could be also role of gas as a swing producer for PV and wind generation;

  39. I******You says:

    Like I said before , this blog is populated by imbeciles and idiots. Why do you think they publish number of barrels of oil. Because you cannot draw any meaningful conclusion.

    You need a graph made with an energy unit such as BTU or Joule. Heavy and sour oil have lower energy content and totals numbers barrels of oil does not account for that.

    Only losers will lose their time counting and masturbation over barrels of oil.

    Combustion energetics can be estimated from the bond energies for all the classifications of fossil fuels. The amount of energy released is dependent on the oxidation state of the carbons in the hydrocarbon which is related to the hydrogen/carbon ratio. The more hydrogen per carbon, the lower the oxidation state and the more energy that will be released during the oxidation reaction. Thus the greater the H/C ratio, the more energy release on combustion.

    https://www.wou.edu/las/physci/GS361/Energy_From_Fossil_Fuels.htm

    Stupid people are still talking about money and barrels of oil like if its matters. This society is not build on money and barrels of oil. It is build on Joule

    • R Walter says:

      Stupid people are still talking about money and barrels of oil like if its matters. This society is not build on money and barrels of oil. It is build on Joule

      Stupid people are still talking about money and barrels of oil like if it matters. This society is not built on money and barrels of oil. It is built on Joule.

      I corrected your last sentence so it doesn’t look like some imbecile is constructing the thing.

      You need to bone up on your writing skills so stupid people here can comprehend your incoherent babbling and caterwauling, which is impossible, but I will give you the benefit of the doubt.

      It is better to remain silent and be thought a fool than it is to speak and remove all doubt.

      Have a nice day.

      • Oldfarmermac says:

        Hi EVERYBODY,

        It is easy for Dennis to remove obscene comments so long as nobody replies to them.
        It’s harder for him if anybody replies.

        All the regulars here appear to be grownups here, so far as I can tell, but there are limits to what can be tolerated without destroying the forum. Too much cussing and vulgarity is BAD and will result in the comments section going downhill fast.

        Reading the main articles is like reading a homework assignment. The discussion in the comments is the equivalent of going to class.

  40. R Walter says:

    3900 GB, 1300 recovered, 2600 Giga barrels to go. 1 000 000 000 barrels used every ten days, 2600 ten day cycles of 1 billion barrels consumed, 26,000 days.

    26,000/365=71 plus years of oil when used at 100,000,000 bpd.

    Then it will be Seneca Cliff time, if not sooner.

  41. Heinrich Leopold says:

    The weekly status report for last week is out:
    http://ir.eia.gov/wpsr/overview.pdf

    Production fell just 24 000 b/d and week. However, the previous number has been revised downwardly by around 50 000 b/d and the recent number is down over 70 000 b/d, which is enormous and contributes very much to the recent oil price rise. US production is down by over 6.4% and net product exports fell considerably. This is exactly the right thing to do to bring oil prices up again.

    US oil production is now in its freefall phase and this makes me very optimistic about future oil prices.

    • likbez says:

      US oil production is now in its freefall phase and this makes me very optimistic about future oil prices.

      Not so fast.

      I am pretty positive that the worst days for the conventional oil are over, and “carpet drilling” days for LTO are also history.

      But the health of the USA economy in late 2016 and 2017 is a big open question and it might provide the celling for the oil prices. One of the key factors that prevented sliding of the US economy into the continuation of Great Recession in 2014 was the dramatic drop of oil prices, which started in the second half of 2014. So in 2014-2016 the resilience of the US economy was partially due to this “low oil price” factor.

      But the effect was pretty small; due to this the FED was not able to “normalize” interest rates (they made only one hike) and now can face the new phase of the recession with all the ammunition already fired.

      Impoverishment of the low 80% of population makes the recovery impossible; neoliberalism makes the redistribution of gains in favor of lower 80% impossible (most of the gains go to the top 0.1% — the financial oligarchy; top 20% probably hold their own; everybody else are gradually sliding into poverty). So this is a deadlock situation.

      Ves wrote something about his views on this subject in this thread and as far as I recall he thinks that without artificially low interest rates the game is over.

      So when oil price recovers to $80-$100 price band the stimulating role of low oil prices on the economy will be gone. From this point it might be a bumpy ride…

  42. The EIA’s Monthly Energy Review is out today with production data for April. US C+C production fell 123,000 barrels per day in April to 8,915,000 barrels per day. US lower 48 fell 100,000 bpd while Alaska fell 23,000 bpd.

    This data matches the weekly data very close. 8,915 K barrels per day is the average for April, not the production on the last day or the last week. The EIA has production for the third week in April at 8,767 K barrels per day. So it looks like US production will fall about the same amount in May as it fell in April, about 125,000 barrels per day.

    US C+C production has fell 779,000 barrels per day since peaking one year ago in April.

     photo US CC_zpsnu8gpafj.jpg

  43. Michael Rynn says:

    Between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C – Carbon Tracker.
    The way the world (and Australia) is going about making coal and gas as cheap as possible (they must be worried about the renewable energy competition, so much as to arrange their own premature bankruptcy), suggests that the global carbon budget will be used up before the extractable oil becomes too difficult. The growing smash down of climate change on civilization is likely to curtail population by a rising death rate, and economic depression, and industrial products affordability may well be awkward for the declining survivors. At this point in time there are too many inter-connected limits factors, too much regional variation with mixed insanity, to say what collapses next. Single factor studies are now near useless. A civilization in a phase of decline has only got growth of insanity to look forwards to. Just when I thought that global insanity had already peaked.

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