Has China reached Peak Oil?

Ron Patterson sends me the occasional e-mail when he sees something of interest.  Portions of his email are below.

Chinachart/
Dennis, I thought you might find this interesting.

http://www.wsj.com/articles/chinas-decline-in-oil-production-echoes-globally-1472122393
China’s Decline in Oil Production Echoes Globally

Aug. 25, 2016 6:53 a.m. ET
0 COMMENTS
BEIJING—China’s struggling oil sector has entered a challenging new phase: long-term decline of its domestic production.

Oil production in China likely peaked last year at around 4.3 million barrels a day, according to new data and interviews with industry executives. The development has significant implications globally, including the potential for higher crude prices over time as China steps up imports to meet rising demand at home.
“The turning point that we’ve been searching for, for years, is happening now,” said Kang Wu, vice chairman for Asia at energy consultancy FGE. As an oil producer, he said, “China is entering long-term stagnation and decline.”

For years, the world’s second-largest economy eked out gains from its aging oil fields as demand surged. But new discoveries haven’t been enough to keep production growing, and the crash in commodities prices led the state-owned oil giants to sideline less-productive wells.



At the same time, China will be forced to boost imports. As domestic production falls, additional barrels of oil that China needs to fuel the new cars hitting its streets will come from overseas.

That marks a fundamental shift for a country that not long ago saw energy independence as a key part of national security. It also deepens China’s exposure to global hot spots. Among its biggest suppliers today: Saudi Arabia, Russia, Angola and Iraq.

The global energy industry typically thinks of China as a huge oil consumer, second only to the U.S. It will also soon overtake the U.S. as the biggest importer in terms of total barrels purchased from abroad.

Yet, China is also the world’s fourth-largest producer, which has helped it keep a lid on imports. Oil prices could over time be given a lift by rising Chinese demand, although prices are determined by a wide variety of factors related to global supply and demand.

“China is clearly part of the crude-rebalancing story,” said Michal Meidan, an oil analyst at consultancy Energy Aspects in London. “This is certainly what will ultimately drive prices back higher.”

The changes in China’s energy sector have been on full display this week as the country’s main oil producers reported weak earnings amid the global oil slump. U.S. benchmark oil prices have fallen below $50 a barrel, from more than $100 two years ago.

PetroChina, the country’s biggest oil producer by volume, said Wednesday that domestic oil output fell 4% in the first half, double the pace of decline from a year earlier. Its rival, China Petroleum & Chemical, said earlier that domestic crude production fell over 12% in the same period.

The data so far this year paints a picture of an industry in decline. China’s domestic crude output fell about 5% in the first half compared with a year earlier. Then, in July, output plunged 8% to 16.72 million metric tons, or 3.95 million barrels a day, its lowest daily average in nearly five years.

The decline in domestic oil production stems from a dearth of new discoveries. Even if oil prices unexpectedly rebounded, China would unlikely be able to quickly ramp up its output.

“It doesn’t matter what the oil price is,” said Gordon Kwan, head of Asia-Pacific oil-and-gas research at Nomura in Hong Kong. “There has been no oil discovery.”

While some exploration continues, increasingly domestic growth is focused on tapping potentially vast natural-gas reserves, including those from shale.

Mr. Kwan projects that falling production in China will spur a 30% jump in crude imports by 2030, or the equivalent of over two million barrels of extra demand a day. China’s oil companies have beefed up their international trading divisions in London and elsewhere to prepare for the uptick.

More fundamentally, the declining domestic reserves pose an existential question for the future of China’s oil giants. The companies, born out of economic overhauls by China’s Communist government, once had a simple mission: produce as much as oil as possible to fuel China’s growth.

Today, the impetus is changing as China’s economy slows. PetroChina has ambitions to more closely resemble Exxon, with diversified business lines combining upstream oil- and gas-producing assets around the world with huge refining and sales operations.

Among the many options oil executives are considering is whether they can open up Chinese-branded gas stations from New York to Southeast Asia as one way to grow sales.

The expanded global operations would help them to stave off revenue declines at home from decreased crude output. Increasingly, Mr. Wu said, those declines look inevitable.

“The question only becomes: How much every year?” he said.

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347 Responses to Has China reached Peak Oil?

  1. AlexS says:

    Between June 2015 and July 2016, China’s oil production declined 470 kb/d, or 10.7%

    China monthly oil production data, 2002-2016 (mb/d)

    Sources:
    JODI (2002-2011);
    National Bureau of Statistics of China (2012-2016)

    • HuntingtonBeach says:

      Some people see peak oil. Others see a world wide supply glut, price collapse and increased consumption.

    • Watcher says:

      The US is down in that timeframe, too. Rather a quick leap for the implied conclusion this is geology.

    • Dennis Coyne says:

      Thanks Alex S,

      Using EIA data from

      http://www.eia.gov/beta/MER/index.cfm?tbl=T11.01B#/?f=A&start=1973&end=2015&charted=0-11-12

      I took the centered running 12 month average C+C output for China from July 2001 to May 2016 (most recent EIA data point) and then tacked on monthly data from Jan 2016 to May 2016 in the chart below. The decline since June 2015 has been very steep, the 12 month average C+C peak was 4285 kb/d based on EIA data, I doubt this 12 month average will be surpassed in the future, May 2016 output was 3973 kb/d. Peak monthly output was 4400 in June 2015.

      • AlexS says:

        Dennis,

        The EIA monthly C+C production numbers for China from January 2015 are the same as in China’s official statistics. Before that, there were some discrepancies.
        The peak in June 2015 was 4,408 kb/d.
        Preliminary estimate for July 2016 is 3,938 kb/d

        • Dennis Coyne says:

          Hi Alex,

          The data from China is no doubt better. The EIA data is just easily accessible and I think 12 month averages give a better sense of the trend as there are often seasonal changes, EIA also has 4408 kb/d in June 2015, I rounded to 4400 because I doubt that last digit is very accurate. Seems there has not been much change in output from May 2016 to July 2016, if the EIA estimate and China’s July estimate are accurate only a decline of 17.5 kb/d each month on average from May 2016 to July 2016, roughly a 5.3% annual decline rate.

      • Daniel says:

        Is there a chance that the chinese are the only smart ones around and “preserve” their reserves whilst they can get cheap imports?

        • Doug Leighton says:

          No.

          “CNOOC is extracting its oil reserves at a worrying pace. The WSJ says that its reserves in China – some of its most lucrative – can only last for three years at current production rates. CNOOC also has an overall reserve life of only 8.4 years, one of the lowest relative to international peers.”

          http://peakoil.com/production/chinas-oil-majors-are-burning-through-oil-reserves

          • Doug Leighton says:

            Of course, “…over the past year or so, China has been filling its strategic petroleum reserves as prices plunged. The EIA estimates that China is planning to build 500 million barrels of strategic crude oil reserve space by 2020….

            …No wonder: the Chinese now buy nearly 25 million oil-based cars a year.”

            http://www.forbes.com/sites/judeclemente/2016/08/28/global-oil-demand-can-only-increase/#189767f1a5eb

            • Nathanael says:

              The Chinese government is now mandating a switch to electric cars as a policy decision. (Through their “managed capitalism” economy, so it’s done through various incentives and penalties and licensing rules.)

              Should be very interesting. It may go extremely fast. China’s now the biggest and fastest-growing electric car market in the world by a *large* factor.

              • Dennis Coyne says:

                Hi Nathaneal,

                Unfortunately US policy makers don’t seem to realize that by not using aggressive policy (like the Chinese), we may cede the first mover advantage to the Chinese in the EV market and put ourselves at a competitive disadvantage.

                Maybe the Japanese and/or Koreans will realize this and act more quickly, but what the heck I have been buying Japanese autos since 1985, I guess if Tesla doesn’t make it I can switch to Chinese made cars, hopefully the quality will be as good as Toyota or Honda.

                • Cracker says:

                  Dennis,

                  You won’t need to own a car. You’ll just call up a self-driving computer/car and it will take you where you want to go and another will pick you up for the next leg of your journey.

                  The car you are now driving may be your last owned vehicle, unless you just want to use digital capital on depreciating assets.

                  The supposed clear trend will be reduction in demand for motor fuels, probably quicker than we think, according to a co-worker’s son who works at designing software for autonomous vehicles, for a big time auto maker. Four years, about, for the technology to be put into common use. Basic Toyotas can now drive themselves in ideal conditions, like on freeways, I’m told. The problem will be the human drivers mixed in with the machines.

                  Another clear trend will be increased travel by groups who will find it less challenging than driving. Elders, handicapped and disabled, non-driving millenials, and those of us who just hate driving in heavy traffic will probably travel more, so where is the reduction in motor fuel use with increased travel? Less costly just enables more use.

                  Enjoy your car. It may be the last one you own, or are allowed to drive yourself. That prerogative will soon go away to protect the greater good, to keep you from hurting an autonomous vehicle or its occupants.

                  Jim

                  • GoneFishing says:

                    I like the “robots are taking over” scenario. Seems like they already are, and they report us to the police too.

                    I too do not see how calling up an autonomous vehicle will save gas. It has to travel from wherever it is to the passenger, then go on the trip and then travel to another passenger. That is an extra dead-head trip for every filled trip, sometimes two per filled trip.
                    Plus when I use my car for other than shopping trips, I need it for hours on end, stopping and going here and there as I make my recorded observations. How would that work? It probably would not pull over where I want anyway, not preset destinations.
                    I can see them as city taxis, or as an auto-pilot on long highway cruises, but driving country roads and dealing with dirt roads is a lot different than the city or highway.

                    I really don’t like this meme that travel is from city to city or just within cities. Travel is anywhere, anytime, 24/7, on road and off-road. And I don’t want that car wandering off on it’s own.

                  • Lightsout says:

                    I have a car I chose the model and the colour. I use it when I need it and it has all my stuff in it incase of bad weather or simply if I stop somewhere for a rest or to take a look around.
                    It also has all the stuff onboard I need if my kids incur a small injury or are ill.
                    My small children drop crumbs in it spill milk in it and are sometimes sick in it.
                    None of this matters because it is my car.
                    Not sure how all this works when every car is shared by everyone.

                • me says:

                  It’s already happening. The market is starting to fill up with Chinese built small utility vehicles.

                  • me says:

                    People are missing it because they are focused on electric cars. The markets that are ripe for change are municipal vehicles and delivery vans.

    • Dennis Coyne says:

      Hi all,

      Ovi sent me the following chart using EIA monthly data.

      He asks:

      The question is “Is the drop due to geology or economics?”

      I think mostly geology, but we will know the answer when oil prices increase. I didn’t think US C+C would ever rise to more than 7 Mb/d back in 2010 no matter how high oil prices rose, I was wrong.

      • Martin says:

        Seems there is a cyclical low during summer months. How much of the decline this summer is a result of maintenance and how much is depletion?

  2. Oldfarmermac says:

    So China has either peaked or very likely will peak over the next few years. If the price goes up substantially, soon, they might be able to eke out a small net gain in domestic production for a little while.

    Which other large oil producers will be likely be peaking within the next two or three years?

    • James says:

      My guess would be Saudi Arabia, Russia, Canada, Colombia, Ecuador, Turkmenistan, Iraq, Oman, and prob a bunch of others. As well it’s likely Mexico may flip from exporter to importer in the next several years. The next 5 to 10 years are going to be extremely interesting! An ice free summer Arctic Ocean will only add to the wonder.

      • George Kaplan says:

        I agree with most – Oman could be the next one to go down hard. They used a lot of EOR to turn 4% decline rates in 2000 to 2008 to 5% increase, with no new fields really. That flattened out last year. IEA has 4% decline next year for them but I wouldn’t be surprised if it is much higher. Colombia is already at 11% decline. Ecuador should follow soon if they don’t add rigs. Canada will dip a bit but overall increase through 2019. Saudi should hold level overall through 2018 with Khurais expansion due. Russia could see a sudden impact like China. I don’t think prices changes will impact things enough over 3 years to make much difference.

        • George Kaplan says:

          Colombia dropped to 843,000 bpd last month, down 5% from June, 19% from January 2015 peak and continuing a 11% y-o-y decline for the last 6 months. Their internal use is increasing as well, if current rates continue they have two years before they need to import.

      • Fred Magyar says:

        Yup! ELM strikes again… and another one bites the dust, and another one down, and another one down and another one bites the dust!
        https://www.youtube.com/watch?v=rY0WxgSXdEE

    • SRSrocco says:

      Oldfarmermac,

      Been a long time. How are you doing?. That being said, it looks like all will peak in the next few years.

      New work out by Louis Arnoux and the Hill’s Group forecasts a $12 price collapse of oil by 2020. They label this as the Oil Pearl Harbor event.

      I will be interviewing these Gentlemen on my site in a few weeks to discuss their theory.

      Steve

      • James says:

        Please ask them if you can post their references, bibliography and equations that they use to construct their thermodynamic model of the global economy. I’m not an expert on the Etp model as I have not paid for a copy of it so I can read it but from what I understand they have constructed a thermodynamic model of the global economy. I imagine it’s rather complex on math and is heavily referenced. I’d be very interested in seeing them ‘show their work’, as my math teacher used to say.

      • Nick G says:

        Or, perhaps it’s been published in a peer reviewed journal?

        • SRSrocco says:

          James & Nick,

          Actually, they are collaborating on a white paper for Charles Hall Journal Of Physics and Quality Resources as well as one for the Royal Academy Of Sciences.

          From what I understand, they are trying to put forth the math and science in a way that leaves very little doubt on the inevitable outcome… which is quite dismal to say the least, and in a very short period of time.

          I have had three email exchanges with Louis Arnoux of nGeni, and I can tell you, the more I read and understand, the less doubt I have that the situation in the oil industry over the next 5 years is much worse than anything I have seen in most peak oil blogs.

          Basically, the problem they see is the huge SHADOW OIL PRICE (SOP) is killing the system. This SOP is many times higher than the actual price paid for a barrel of either Brent or West Texas Crude.

          Hence, the massive exponential increase in debt worldwide.

          Again, I will have them on for an interview in hopefully 2-3 weeks.

          steve

          • HuntingtonBeach says:

            “I have had three email exchanges”

            “problem they see is the huge SHADOW OIL PRICE (SOP) is killing the system. This SOP is many times higher than the actual price paid”

            “Hence, the massive exponential increase in debt worldwide”

            And the cow jumped over the moon

          • Joy says:

            Steve, I just can’t get my head around this $12 oil claim. First of all, the USD (if it still exists in some form in 2020) is a worthless metric, so using it decreases the authors’ credibility. If the baseline comparison is to 2016 USD, is the assertion is that a barrel of oil would be worth less than an ounce of silver in 2020??

            The “energy slave” concept of the value of oil still applies. If things have gone to wrack and ruin, having someone with a Cat build a moat and berm around my house would be priceless, certainly more feasible than hiring hundreds of men to work all summer with shovels. To me, the end user, the diesel would be worth ounces of silver a barrel to get the job done. So the fancy math doesn’t pass the smell test.

            • GoneFishing says:

              Yes Joy, refined oil products are a great convenience at this point but not much of an energy source. If they stay low enough cost, the products will still be used in the future. However, that implies other energy sources have to be low cost also. Not sure how long that game can play out.

            • James says:

              I agree. For example- Everybody is wanting to buy food. The crops need harvesting. We can burn a barrel of oil in that combine over there or hire 100 workers to labour 12 hours a day/7 days a week for a month to bring in the harvest. As long as the barrel of oil is cheaper than the wages of the workers then I suggest the barrel of oil is going to get sold. Probably for more than $12. I suggest decreasing flows of oil and the EROI of it, and an unaffordable cost of it is what breaks the system, so to speak. Not some thermodynamic equation of the global economy that sets the price at $12. I was reading shortonoil comments over at PEAKOIL.com and from what I can gather he doesn’t understand the difference between Price, Cost and Value. This causes me to be suspicious of claims that a thermodynamic model of the global economy has been accurately constructed.

              • Nick G says:

                I suggest decreasing flows of oil and the EROI of it is what breaks the system, so to speak.

                Sure. Of course, we have good substitutes with high E-ROI, so we’re likely to transition to them, instead of breaking.

                  • Nick G says:

                    Look closely at your first reference. Hall gives high EROEI values to wind and solar, despite using badly outdated data:

                    “Wind power has a high EROI value, with the mean perhaps as high as 18:1…”

                    ” we calculated the mean EROI value using data from 45 separate publications spanning several decades. These values resulted in a mean EROI value of roughly 10:1…”

                • James says:

                  What are your High EROI subs? I have a hunch you’re gonna say wind and solar.

                  It seems to me that without affordable fossil fuel there won’t be much energy and resources to build either wind or solar.
                  “On average 1 MW of wind capacity requires 103 tonnes of stainless steel, 402 tonnes of concrete, 6.8 tonnes of fiberglass, 3 tonnes of copper and 20 tonnes of cast iron. The elegant blades are made of fiberglass, the skyscraper sized tower of steel, and the base of concrete.”
                  https://carboncounter.wordpress.com/2015/06/11/can-you-make-a-wind-turbine-without-fossil-fuels-2/

                  I must say wind doesn’t look very ‘renewable’ to me. As long as you’re pouring concrete, mining metals, running copper wires and smelting iron I’d suggest you’re not ‘renewable’.

                  http://news.nationalgeographic.com/news/energy/2014/11/141111-solar-panel-manufacturing-sustainability-ranking/

                  Unless there a solar and wind power manufacturing plant that runs of nothing but inputs gathered with solar and wind power, it ain’t ‘renewable’.

                  • GoneFishing says:

                    Ahhh, the old purity ploy. If it’s not purely renewable down to the dirt, it’s not renewable. This has been discussed before and your argument does not hold water for many reasons. So let’s just stick with the definition of renewable energy and leave the rest to take care of itself as fossil fuels fade away.

                    The definition of renewable energy.
                    Renewable energy is generally defined as energy that is collected from resources which are naturally replenished on a human timescale, such as sunlight, wind, rain, tides, waves, and geothermal heat.

                  • Nick G says:

                    Horses drill oil wells, oil builds wind turbines.

                  • me says:

                    You are confusing the plant with the fuel.

              • HuntingtonBeach says:

                “We can burn a barrel of oil in that combine over there or hire 100 workers to labour 12 hours a day/7 days a week for a month to bring in the harvest. As long as the barrel of oil is cheaper than the wages of the workers”

                Wrong, “that combine over there” cost money. Maybe as much as a half million dollars. The same holds true of personal ICE. Energy for your ICE is only about 25% of the cost of operation.

                The cost of solar is basically zero after the capital investment. Under your analysis why would anyone use $12 oil if solar is free ? Because of the cost of the capital investment.

                • James says:

                  Ah yes free solar powered tractors and free solar power to run them. Gimme a break. You think solar panels pop out of the earths crust for free ready to go? When oil hits the wall so do all your little techno cornucopia dreams. Sure Solars got a decent eroi but what’s the eroi of the oil used to manufacture it. You think wind and solar are powering the manufacturing, production and maintenance of wind and solar. the Delusional thinking abounds! Sounds like the magic porridge pot. Why didn’t we just get all this free energy going in 1750? Why wait til now. Horses drill oil wells!? Yeah let’s get on that. I’m done with you guys lmao!

              • Nathanael says:

                Or we can buy an electric combine harvester and recharge it off our farm’s solar panels and windmill. That’s key. Obviously.

          • Eulenspiegel says:

            12$ oil? What they are smoking?

            For 12$, many wells will just close because pumping the stuff will cost money.

            If everyone is hedged at 50$, ok – but then oil price is irrelevant and the banks and hedgefunds (whoever is the future counterpart) will pay the bill, 4 billions dollars a day. Countdown to bank doomsday.

            • Dennis Coyne says:

              Hi Eulenspiegel,

              The Hill group thinks the price of oil is related to the net energy of the average barrel of oil, in my opinion there is very little relationship between net energy and price. The price of a good is determined by supply and demand. One could argue that demand will decrease much faster than supply, but only an optimist would do so. I am not that optimistic. In the short term (5 to 15 years up to 2030) the price of oil will rise but not enough to keep supply increasing. The economy will try to adjust to higher oil prices by using oil more efficiently, but by 2027 to 2033 a severe recession will begin, possibly bring oil prices down to $50/b (in 2016$). I doubt oil will fall to $12/b in 2016$ until EVs and plugin hybrids are 75% of new car sales, maybe by 2050 at the earliest, in this case oil price falls because there is too little demand for oil, in the sense that buggy whips had low demand in 1950 relative to 1916. I still doubt anyone can make a profit at $12/b in 2016$, but a price of $30/b for Middle eastern and Russian oil might be enough for some older onshore wells to be profitable. Oil sands and deepwater oil will no longer be developed as they will not be profitable. This scenario would be more similar to my low scenario (with oil sands reduced to 100 Gb and NGL at about 300 Gboe) for a total C+C+NGL of 2900 Gboe (billion barrels of oil equivalent.)

              • SRSrocco says:

                Dennis,

                You say a severe recession by 2027-2030? I think the wheels fall off much sooner. Looks like the crash has already begun.

                steve

                • Dennis Coyne says:

                  Hi Steve,

                  It seems you have been predicting a severe recession next year for the past 5 years, eventually you will be correct 🙂 , between 2027 and 2033. Oil (C+C) will start to decline from the present plateau (around 80 Mb/d for C+C output) in the 2020-2025 time frame.
                  By 2025 the fact that peak oil has arrived will be clear to all who do not have their head in the sand, output is likely to have fallen to 78.4 Mb/d by then and a gradual decline of 1 to 2% per year will continue until recession hits in 2027-2033 (this will be closer to the Great Depression in 1930-1936 than the GFC in 2008/9). If policy makers re-read Keynes’ General Theory, it might not be as bad as the 1930s, if they react the same way that Europe did to the GFC, it will be worse than the 1930s. My hope is that humans learn from past mistakes, but I am likely to be disappointed.

                  • HuntingtonBeach says:

                    Hi Dennis,

                    By 2025 the technology will be in place to replace ICE personal daily drivers with EV’s. ICE will go the way of the flip phone and CD’s. Peak oil will be brought to you by technology and the lack of demand, not geology.

                    Predicting the next recession or depression 15 years from now is a limb that may have not even started to grow yet. If you make the dart board big enough. Your liable to hit it.

                  • Dennis Coyne says:

                    Hi Huntington Beach,

                    There are a lot of ICE vehicles in the World (about 1.2 billion in 2014). A very optimistic person might believe there will be fewer in 2025, or that improved efficiency will allow demand to be met for existing vehicles at that time. Although I am often accused of being too optimistic, if you believe that peak oil will result from a lack of demand for oil by 2025, then clearly I am not the most optimistic person here.

                    My expectation is that if there has been no major recession(or depression) by 2025, that oil prices will be over $125/b in 2016 US$ by 2025. If you are correct and demand has waned due to rapid adoption of EVs, plugin hybrids, hybrids, and public transportation by 2025, we would expect oil prices to be under $75/b in 2016 US$ by 2025 (lets use the 12 month average Brent oil price for 2025).

                    We will have to wait 10 years to see how it plays out, I hope you are correct, but I think the depression scenario in the 2030 to 2033 time frame is more likely.

                  • Dennis Coyne says:

                    Hi Huntington beach,

                    In the scenario below I assume (unrealistically) that Worldwide plugin sales grow at an annual rate of 50% per year from 2016 to 2025. Sales in 2015 were 550,000 or 0.55 million. Annual global passenger car sales in 2015 were about 72 million. Plug in sales grow to 32 million in 2025 in this scenario with cumulative sales of 94 million from 2016 to 2025. The total global vehicles on the road in 2014 was 1.2 billion and if we assume this number remains constant (not very likely) then Plug in vehicles would be about 9.5% of total global vehicles in 2025, the global forecast calls for about 2 billion vehicles by 2035, so if we assume 1.62 billion vehicles in 2025 we would have 5.9% of global vehicles as plugins by 2025. If we assume the average number of miles driven per vehicle is unchanged, then average fuel economy would need to increase by 27% in order for fuel demand to be unchanged from 2014 levels (I assume plugins use no liquid fuel which is optimistic for plugin hybrids). In the case of passenger cars if Global average fuel economy was 30 MPG in 2014, this would have to increase to 38.1 MPG by 2025. Also note that large vehicles (trucks and busses) use about half of the total liquid ground transportation fuel in the US.

                    The other thing to keep in mind is that non-OECD nations tend to have weaker fuel economy standards and these markets are growing rapidly. OECD nations might improve their fuel economy, but developing nations may not.

                    China and India both have fuel economy standards, so that will help if they are enforced.

                  • Nick G says:

                    large vehicles (trucks and busses) use about half of the total liquid ground transportation fuel in the US.

                    That doesn’t sound quite right.

                    I believe US passenger vehicles (including pickups and SUVs) use just under 70% of the total liquid ground transportation fuel, and about 50% of ALL oil products.

                  • Dennis Coyne says:

                    Hi Nick,

                    You are correct, light duty vehicles use 73% of all highway fuel in 2014.

                    http://www.fhwa.dot.gov/policyinformation/statistics/2014/

                    Non-highway use (not including aviation) is a small amount 2% of total non-aviation fuel.

                    Thanks for the correction, I must have read 50% somewhere and it stuck.

                    In 2014 only 83% of the net inputs to blenders and refineries became liquid fuel (gasoline, diesel, jet fuel, residual fuel, and kerosene), the rest were petroleum coke, asphalt, road oil, waxes, lubricants, liquefied refinery gases, still gas, and petrochemical feedstocks.

                    Of the 16,492 kb/d of fuel produced, 68% was used on highways by vehicles (11,308 kb/d) and 8261 kb/d was used by light duty vehicles, so this is the 50% number that I remember and that you correctly point out.

                    The fuel economy standards that are often pointed to, only apply to 50% of the petroleum fuel produced for all uses, at least in the US.

                  • Nick G says:

                    The fuel economy standards that are often pointed to, only apply to 50% of the petroleum fuel produced for all uses, at least in the US.

                    And another 18% is used by commercial vehicles, mostly trucks.

                    The EPA just announced a version of CAFE for trucks: a reduction of fuel consumption of about 25%, IIRC over about the next 10 years.

                  • HuntingtonBeach says:

                    Dennis,

                    I think the CAFE requirements for new light weight vehicles is a better judgement of future consumption than your detailed list of EV’s, Hybrids etc. When the manufactures get to 2025 and 54.5mpg. EV’s are going to be ready to go full 100% production. Not to mention the world is going to be full throttle on climate change and it’s implications. EV’s will be a no brainier.

                    I also think most here under estimate the current conservation and efficiency that have already played on world demand. I would guest the increase in US demand in the last year plus is more about lower price than anything else(not growth).

                    A month or so ago you used a figure of .93 for growth after conservation and efficiency for the last 30 or 40 years. I think that number is now high mostly because of better than past CAFE standards are coming and climate change awareness. I think CAFE standard improvements have been hiding in demand for the last 1 1/2 years because of low price.

                    When oil price recovers over the next year or two. I expect demand to pretty much plateau or small increase and than start to decline as ICE is phased out for EV’s. I also expect heavy duty trucking to start to convert to NG plus efficiency improvements.

                    Expect to see personal vehicle speed limiters in 10 to 15 years in the 60mph range. This will help EV’s become the standard in the future. High speed driving is the worst for EV range.

                    http://www.greencarcongress.com/2016/08/20160826-usdot.html

                    Time will tell

              • Nick G says:

                The economy will try to adjust to higher oil prices by using oil more efficiently, but by 2027 to 2033 a severe recession will begin

                The interesting question is by what mechanism?

                For instance, Prof James Hamilton argues that the 2008 GFC was made much worse by oil, and he suggests a mechanism: fear, uncertainty and doubt on the part of car buyers, who stopped buying as many vehicles, thus contributing to recession. I’m not sure that’s realistic – car dealers at the time were saying that they had buyers, but that they couldn’t qualify them for loans due to the Great Credit Crunch – but at least Hamilton has identified a candidate “transmission mechanism” for PO causing recession.

                Now, if oil prices rise steadily, and there’s a general consensus on the need to switch to hybrids, plugins and EVs, there would instead be greater volumes of vehicle buying, thus stimulating the economy.

                PO could help, rather than hurt the economy.

                • Dennis Coyne says:

                  Hi Nick,

                  The mechanism is disruption. It may be that the transition goes very smoothly, but the World I am familiar with seldom works smoothly, Mr. Murphy likes to throw a wrench into the works.

                  Eventually more jobs will be created, but that will be during the recovery from the recession.

                  Perhaps we will transition to alternative vehicles and everyone will happily car pool to work, do you think that will occur without a crisis? I don’t.

                  Do you think in the US proper policy actions will be taken without a crisis? Maybe in California and Southern New England and New York, most of the nation thinks we will be energy independent by 2020, those people are in for a rude awakening.

                  • Nick G says:

                    The mechanism is disruption.

                    What kind of disruption, or crisis? I believe it would help your thinking to be more specific.

                    Oil prices were high very roughly from 2011-15, and there was no crisis. That period helped spur the growth of energy efficiency and electrification. A longer period of high prices would cause such a transition to accelerate. Commercial consumers, such as Fedex and UPS, would implement the contingency plans that are currently in “pilot” mode, awaiting a clear signal that they’re needed.

                    Research shows that oil scarcity in the form of stagnant supply in the face of growing demand does not cause disruption. I saw that on Prof Hamilton’s blog, I’ll look for it if you like.

                    Don’t get me wrong. You know that I think that we should transition from oil ASAP. But, it’s good to be realistic about our ability to transition away from oil, even if we do it later than we should.

                    Of course, it’s always possible to screw things up in the face of challenges. There are good managers and leaders and bad. But, is it necessary? No.

                  • Dennis Coyne says:

                    Hi NickG,

                    We have never had permanently decreasing oil supply at the World level, so that has never been researched. There have been brief periods of supply decreases (3 years was the longest from 1979 to 1982) and somewhat longer periods of stagnant supply (2005 to 2010), but we don’t know what will happen with continually decreasing oil supply which is what we will see after 2025. My guess is that eventually this will lead to a crisis. Economics is far from straightforward and no specific mechanism for “the cause” of a depression can be foretold, it is likely to be many factors in combination. There is a lot that can go wrong in an attempt to quickly transition from heavy dependence on liquid fuels for transportation to something else.

                    The dream of a quick and easy transition with no difficulties is a fantasy. It is one I would prefer, but the realist says depression is quite likely.

                  • Nick G says:

                    We have never had permanently decreasing oil supply at the World level, so that has never been researched.

                    Well, that’s similar to saying that we can’t know anything about climate change, because we can’t test models in the real world. Really, there are lots of ways to test models, even if you can’t “run a world model”.

                    There is a lot that can go wrong in an attempt to quickly transition

                    Sure. For instance, Europe handled fiscal policy badly, compared to the US. On the other hand, the US did in fact do better. And everyone did much better than they did in the 1930’s.

                    So, does that tell us that bad management is likely? I’d say not. I think that if you think about it, you’ll find ways to illuminate your intuition, rather than just going on a pessimistic hunch. I’ll think about that too. In the meantime, remember: you’re going on a hunch, not good evidence.

                    One other thought: if oil prices rise in 2017 and stay high for 10 years….that’s absolutely not ” an attempt to quickly transition”. After 6 or 7 years I think it would become very clear to everyone we were in a permanent situation, and the transition would go into a very, very different mode. That mode would see better government policies, car companies that were deadly serious about EVs, and industrial/commercial consumption would decline pretty quickly – we’d see something like we did in 1979, when oil for electrical generation in the US mainland got phased out for good in just a few years.

                  • Dennis Coyne says:

                    Hi Nick,

                    Well we will just have to disagree, it is a fact that we have not had a long term event with high oil prices and declining oil output. We did have high oil prices for 3 to 4 years from 2010 to 2014, but output was rising.

                    I expect oil prices will rise and output will remain on a plateau from 2017 to 2022 (possibly as long as 2025), the economy will struggle but we will muddle through, when output starts to fall, I anticipate that we will have difficulty reducing our oil use.

                    There are policy actions that might be taken to help with the transition, but if you have been paying attention to US politics, you might agree that there has been little tendency to compromise in Congress and I think any serious policy action is highly doubtful. Perhaps the magic of the market will lead to a smooth transition, but I am skeptical.

                    My argument is not that a crisis is certain, only that it is more likely than not.

                    I do I agree that once a crisis occurs people might pull together and take proper policy action, but in my view only a crisis will lead to a willingness to compromise.

                  • Nick G says:

                    it is a fact that we have not had a long term event with high oil prices and declining oil output.

                    Sure. And again, we haven’t had rising CO2 in quite a while. Yet…we manage to find ways to analyze it’s impact.

                    you might agree that there has been little tendency to compromise in Congress

                    Two thoughts.

                    1st, politicians mostly just have to keep out of the way, in a scenario in which oil prices are high for 5-10 years. Free markets aren’t perfect, but they can be very, very effective in that kind of scenario. Industrial/commercial consumers, and vehicle makers, can move very fast if they want to.

                    2nd, you’d be surprised at how sensible the US congress has sometimes been. In 2005 it passed a major energy act that has helped quite a bit. Just last year it extended wind and solar tax credits for a long period. Who’d have thought?

                  • Dennis Coyne says:

                    Hi Nick,

                    The atmospheric concentration of CO2 has been rising since about 1600, so although our knowledge of the climate system is not perfect, we can model based on the past.

                    I agree the market can sometimes allocate resources very effectively, but there can also be cases where government intervention is needed (1930-1933 being the obvious example). With the help of Keynes we know better what to do in and economic crisis, but that didn’t stop the Europeans from doing the opposite of what Keynesian economics would recommend in response to the Global Financial Crisis. Sometimes politicians do the right thing and sometimes they don’t.

                    I hope your optimism is correct in this case, but I maintain my position that it is more likely that an economic crisis will be needed to spur any needed government action. Market forces alone are unlikely to get the job done in my view.

                    On solar and wind tax credits, these are a band aid needed because the proper policy has not been followed. The appropriate policy would be to eliminate all subsidies to fossil fuels and alternative energy and either put an appropriate tax on carbon emissions, or limit carbon emissions and auction off the right to emit a certain amount of carbon into the atmosphere with no free handouts to those that burn the fuel.
                    It is unlikely that such a policy will be followed in the US until peak oil is clearly in the rear view mirror.

                  • Dennis Coyne says:

                    Hi NickG,

                    There is no evidence on how the economy will respond to high oil prices with decreasing supply over a period of more than 3 years. We have two hunches, yours which suggests we will easily transition away from oil without problems, and mine that suggests this is highly unlikely to be the case.

                    Earlier you suggested there was a period of stagnating supply with increasing demand, this cannot logically be the case. Unless someone can fix World oil prices, supply and demand will be equal. If supply of oil stagnates with flexible oil prices, then oil demand will stagnate as well through demand destruction.

                  • HuntingtonBeach says:

                    Hi Dennis,

                    “Earlier you suggested there was a period of stagnating supply with increasing demand, this cannot logically be the case”

                    Not to speak for Nick, but I think what Nick is saying here is that the demand curve will shift to the right(more people with the same price demand curve). The supply curve will remain the same. This will move the intersection of the two curves at a higher price. Which would make demand equal supply again.

                    Also, in the real world, supply and demand are never in perfect balance, but always in the process of trying to re-balance.

                    By the way, let Watcher’s comment roll off your back. He has nothing on you.

                  • Nick G says:

                    There is no evidence on how the economy will respond to high oil prices

                    Well, there’s no direct evidence. Again, as we’ve seen in Climatology and many other sciences, direct evidence isn’t essential for useful knowledge. Heck, in economics it’s pretty rare. And, that is what we’re doing here – economics.

                    We have two hunches

                    No, there’s really a body of research here. If I get a chance, I’ll find some of it for you.

                    In the meantime, a couple fo thoughts:

                    1st, short term elasticity of demand is very different from longterm. WHen people realize that a problem is longterm, they act faster, and change things more deeply.

                    2nd, most of our intution about oil shocks comes from very short term events – we don’t have evidence from that about long term effects, such as we’re discussing here.

                    If supply of oil stagnates with flexible oil prices, then oil demand will stagnate as well through demand destruction.

                    Well, I’m using the traditional economics definition of the demand curve, not consumption.

                    If oil supply is flat, and people are wanting drive more, or transport more freight, then the oil price will rise in order to keep supply = consumption.

                    Of course, as the price rises then substitution grows…

                  • Dennis Coyne says:

                    Hi Nick,

                    Got it. We don’t always know what the demand curve is doing as increased prices can lead to rightward shifts in the demand curve due to substitution.

                    The body of research is not clear, Hamilton focused on the US, oil is a World market and other research at the World level does not give consistent results.

                    Generally for every two economists there are 6 different answers to any question, so the body of research in economics is not all that helpful.

                  • Nathanael says:

                    Dennis, oil isn’t unique. We had permanently decreasing whale oil. What happened? Substitution. We had permanently decreasing anthracite. What happened? Substitution.

                    The pattern of substitution is a little different in each case. In this case it’s become clear how the substitution will work. The only question is how fast the electric vehicle manufacturers can ramp up.

                  • Dennis Coyne says:

                    Hi Nathaneal,

                    My contention is not that such substitution cannot occur, it is that the transition is likely to be difficult and may lead to a depression (likely with other triggers such as a financial crisis.)

                    It will not only be oil that peaks, energy from fossil fuels is likely to peak by around 2025 to 2030, perhaps we will smoothly transition to other forms of energy. I do not assert that such a smooth transition is impossible simply that the probability is less than 50% (and my wag would be about 35%+/-10%.) My definition of smooth is no Worldwide recession of similar magnitude to the Great Depression.

              • Nathanael says:

                Your model depends very closely on how fast plugin cars take over the auto market. I see them hitting 50% of the auto market by 2022. Seriously.

                • Dennis Coyne says:

                  Hi Nathaneal,

                  Do you mean 50% of the fleet or 50% of new car sales? Have you run it on a spreadsheet?

                  The vehicle fleet is likely to be 1.5 billion vehicles by 2022. In 2015 about 0.55 million plugin vehicles were sold out of about 72 million total vehicles.

                  Half of new cars sold is possible, but it will take at least 30 years to replace the vehicle fleet, if total vehicle sales (plugin plus non-plugin) grow by 1% per year. The ramp up might slow down after 7 years or so as there may be unforeseen bottlenecks. Batteries are likely to be the eventual bottleneck.

                  • Nick G says:

                    New vehicles are used much more heavily than old ones.

                    In the US, vehicles less than 6 years old account for 50% of Vehicle Miles Traveled.

                  • Dennis Coyne says:

                    Hi Nick G,

                    Most of the cars that are registered are 12 years old or less, so if 50% of VMT is from cars 6 years old or newer, there is not a significant difference in VMT between old and new cars. In addition the range limitation on many EVs (100 miles or less) means that VMT may not be that high on these vehicles because longer trips will not be practical. It will take time to accomplish the transition, the 10 year transition envisioned by some is just not realistic, 30 years maybe (and that might also be too optimistic).

                    We can get 100% growth rates when only 250,000 cars per year is the starting point, it becomes less likely when we have reached 10 million cars per year that growth rates will even be as high as 15% per year.

                  • Nick G says:

                    Most of the cars that are registered are 12 years old or less

                    I’m not sure what you mean. Where did you get the figure of 12 years old, and what is “most”? As a wild guess, I’d estimate that very roughly 40% of the 235M vehicles in the US are more than 12 years old. The average sales rate over the last 15 years is probably about 14M: divide 235 by 14, and you get an average lifetime of about 17 years. Of course, it’s not that simple – there’s a very long “tail” of older cars.

                    there is not a significant difference in VMT between old and new cars.

                    That’s just not the case. The Federal Highway Administration (DOT) collects this data. Here’s a sample document from a quick google search:

                    https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/809952

                    the range limitation on many EVs (100 miles or less) means that VMT may not be that high on these vehicles because longer trips will not be practical.

                    80% of VMT comes from short trips, within 30 miles of home. EVs are often high mileage commuters.

                    Also, there’s no reason to focus on pure hybrids. Plug-ins, like the Volt, reduce fuel consumption by 80-90% (depending on the driver).

                    It will take time to accomplish the transition

                    It could. It might. But, it doesn’t have to. And, in the scenario you’ve envisioned, in which oil prices are consistently high over a 10 year period, it would accelerate pretty quickly.

                    We can get 100% growth rates when only 250,000 cars per year is the starting point, it becomes less likely when we have reached 10 million cars per year that growth rates will even be as high as 15% per year.

                    Actually, growth rates can accelerate until the transition gets very close to saturation, perhaps at 85-90%. It all depends on the pressures behind the transition.

                    Again, the stock of “non-EV” vehicles won’t be sitting there, with no changes. We may well have a majority of vehicles hybridized in 10 years, just to meet the CAFE requirements. Hybrids are a very short hop, skip and jump away from being plug-ins: just add a plug, and make the battery a little larger. For instance, just going from the Prius 1.3kWh battery to a small 7kWh battery allows a 15 mile electric range, which would cover roughly 1/3 of the average drivers daily driving.

                    So, new cars could move to plug-in very quickly.

                    Hybrids are pretty easy to convert as retrofits. Heck, you can even convert conventional ICEs: at the peak of oil prices several years ago there were startup companies developing conversion which involved adding electric motors, batteries, etc.

            • Dennis Coyne says:

              Hi Huntington beach,

              On CAFE standards see

              http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_04_23.html

              The actual fleet efficiency lags the CAFE standards by 10 to 15 years and never seems to reach CAFE standards, remaining at only 82% of the average of light truck and passenger car CAFE standard. I used the 1991-2002 average fleet efficiency (average of light duty short and long wheelbase) and the 1991-2002 average CAFE standard (taking the average of passenger car and light truck CAFE standard).

              Based on this data I would expect US average light duty fleet efficiency will only rise by about 16.5% by 2025 to about 25.5 MPG and might rise to 43 MPG by 2035 if new car average sales reach the proposed CAFE standard of 54 MPG by 2025.
              More EV sales might make this possible, though we will need to see high sales growth rates of about 25% per year for plugin passenger vehicle sales for the next 20 to 30 years. Seems a little optimistic 🙂

              • Nick G says:

                CAFE regulations have been fighting very low fuel prices for the vast majority of this period. They’ve done pretty well, given that challenge. So, 2 thoughts:

                1-if oil prices rise sharply, 40% growth for EVs wouldn’t be hard. That rate would convert all new vehicles to electric in about 14 years.

                2-conventional ICEs can go hybrid mighty easily: a mild hybrid just adds a slightly larger battery and start-stop capability. That can convert to stronger hybrid pretty easily, which can go to low-range plug-in pretty easily. Hybrid and short range plugins could easily have 50% growth rates for 10 years, which would also pretty much eliminate conventional ICEs from new vehicle sales.

                • Dennis Coyne says:

                  Hi Nick,

                  Plugin sales were 0.55 million in 2015 and new passenger vehicle sales were over 72 million, we would need 15 years to get to 72 million in plugin sales, of course total vehicle sales may grow over that time, if we assume 1% annual growth in new car sales, then all new cars sold could be plugins by 2030. Cumulative plugin car sales would be about 300 million. If we assume new car sales continue to grow by 1% per year then about 82% of the total passenger car fleet is replaced in 30 years with plugin vehicles (I have assumed the total fleet grows to 2 billion passenger vehicles by 2040.) Possibly high oil prices and falling battery costs, might allow the fleet to be replaced faster (the second 15 years of my scenario).

                  Note that the 40% sales growth assumption for 15 years seems optimistic, but PCs grew quickly, maybe EVs will also, 25% growth seems more reasonable.

                  • Nick G says:

                    Well, again, don’t forget: the rest of the non-EV vehicles wouldn’t be standing still.

                    First, CAFE requirements may not be quite as strong as the 54MPG would make them appear, but they still mandate a 22% to 31% reduction in fuel consumption over the next 9 years.

                    And sure, ICE MPG could stay at that CAFE minimum. But, if oil prices rise sharply in just one year, and stay high for the next 15 years, that just won’t happen.

                    There are far more hybrids being sold than EVs, right now, and everyone agrees that hybridization will accelerate due to the CAFE requirements. Even non-hybrid ICEs will improve sharply. And, the lines between all three or four categories are getting more and more blurred: mild hybrid, strong hybrid, very short range plug-in, long range plug-in, extended range EV, pure EV.

                    Heck…the lines got blurred when the Model T added an electric starter, and eliminated one of the advantages of the early EVs. Electric starters. Onboard electrical generators. The “ICE” has been hybrid-electric ever since.

                  • Nathanael says:

                    Tesla’s been growing sales by roughly 100% per year. And plugin sales in China have been growing by over 200% per year.

                    Your growth estimates are too pessimistic.

                    At the same upfront purchase price, electric cars are superior in every way to gasoline-dependent cars. Production costs have reached the point where they can be sold for the same upfront purchase price… as of 2018. Even the most stodgy auto manufacturers are recognizing this now and they’re scrambling to bring out electric cars in 2019 or 2020. Meanwhile, the Chinese companies and Tesla are getting way ahead of them.

                    At some point, *very quickly*, people who can’t afford an electric car *yet* will start putting off a purchase of a new car until they can get an electric car — a massive Osborne effect. The huge sales of electric cars will be obvious circa 2020. Come 2022, gas cars will be very hard to sell.

                    The market for horses and buggies collapsed fast.

                  • Dennis Coyne says:

                    Hi Nathaneal,

                    So do you think it would be reasonable to assume growth rates of 200% for 15 years?

                    Common on, you cannot be serious. 🙂

                  • GoneFishing says:

                    Nick G said
                    “First, CAFE requirements may not be quite as strong as the 54MPG would make them appear, but they still mandate a 22% to 31% reduction in fuel consumption over the next 9 years.”
                    I don’t think that will do much against the increases in drivers and driving in the world. It all helps.
                    Peak oil to the rescue. Hope for more EV’s.

              • HuntingtonBeach says:

                Thanks Dennis for the graph. I was hoping you would do this. I think most of the actual fleet lag time is in the first 6 or 7 years. Even though the average age of 11 years old. Most of the daily drivers are less than 7 or 8 years old. The blue line from 85 to 95 seems to confirm.

                Notice how the blue line rises from 03 to 08 without any real improvements from CAFE. I believe this is mostly from the rise in oil prices. I’m guessing for the last year and a half the opposite affect has been happening. This is what I meant by “CAFE standard improvements have been hiding in demand”.

                I think this graph also shows why I think “conservation and efficiency” will be better than the average of the last 30 to 40 years. It would be interesting if you could lay the price of oil on top of this graph.

                Thanks again, sorry about my post below in the wrong tread.

              • Dennis Coyne says:

                An interesting document of CAFE standards and real world fuel efficiency at link below:

                http://www.ucsusa.org/sites/default/files/legacy/assets/documents/clean_vehicles/Translating-Standards-into-On-Road.pdf

                • Nick G says:

                  Yes, that’s helpful.

                  Note that CAFE requirements may not be quite as strong as the 54MPG would make them appear, but they still mandate a 22% to 31% reduction in fuel consumption over the next 9 years.

      • Fred Magyar says:

        Hey Steve, maybe you can talk about this Sankey diagram with them.
        http://www.energyliteracy.com/

        • SRSrocco says:

          Fred,

          Yes….. I will make sure we cover each 10,000 of those flow chart items. So, what would you suggest for the remaining 55 minutes of the hour interview?

          steve

          • Fred Magyar says:

            Oh, I dunno, maybe you could talk about the origins of the Universe 🙂

            I was thinking maybe just focus on production costs and import cost of petroleum and how that energy flows through let’s say just the transportation supply chains. Who knows maybe you could use it as a basis for discussing EROEI and how their Ept model can explain that flow in terms of thermodynamics. As for the other 9,997 items maybe you could do an Ept soap opera and have an ongoing syndicated TV series… BIG GRIN!

      • I take it these guys say oil price will be $12 per barrel in 2020? Is that for WTI or Brent? 🐸

        • Dennis Coyne says:

          Hi Fernando,

          Can you refresh my memory? I think your guess is more like $120/b(2016 US$)for Brent in 2020? If so I would agree (though I would think $135/b (2016$) would be a better guess).

    • Watcher says:

      Maybe use of force will get those islands and oil will flow and be added to domestic production.

  3. Some graphs on oil production and consumption in Asia

    25/6/2016
    Peak oil in Asia and Oil Import Trends (part 2)
    http://crudeoilpeak.info/peak-oil-in-asia-and-oil-import-trends-part-2

    20/6/2016
    Peak oil in Asia (part 1)
    http://crudeoilpeak.info/peak-oil-in-asia-part-1

    The most important question is: if China’s growth has slowed, then what will future oil demand be?

    How will that match with the production of cars?
    http://www.tradingeconomics.com/china/car-production

    • Watcher says:

      Mazamascience.com/oilexport

      The definitive presentation of very detailed supply and consumption from the annual BP release, global, regional and indiv country.

  4. Nick G says:

    Yes, the most important question is what China will do to reduce demand?

    Will they:
    Raise efficiency requirements?
    Mandate more EVs?
    Eliminate the last vestiges of price controls on fuel?

    EVs are growing very fast in China. Limits on driving in major cities (due to pollution) are becoming more common.

    • AlexS says:

      China cannot reduce oil demand, it can only limit its growth.

      Rising oil imports is not an economic problem for China as long as it has a large trade surplus.
      But increasing import dependence is a serious geopolitical problem.

      • Nick G says:

        China cannot reduce oil demand, it can only limit its growth.

        Could you elaborate on that? To start with, have you seen a good breakdown of how oil is used in China?

      • Dennis Coyne says:

        Hi AlexS,

        In the short term I agree, but within 15 years China may reduce its oil demand even with 5% real GDP growth, eventually China will approach European levels of real GDP per capita and real GDP per capita growth will slow to 1.4% per year or less. Population growth is likely to slow soon in China which will limit overall growth.

        https://esa.un.org/unpd/wpp/Download/Standard/Population/

        At link above the UN population data and forecast can be downloaded.

        In the chart below I show the data and the medium variant population projection for China from the UN. Population is expected to peak in 2028 at 1.416 billion, in 2015 population is estimated as 1.376 billion in China.

        • AlexS says:

          Dennis,

          Theoretically, China could reduce demand within a 15-years period.
          But there should be very significant economic or geopolitical incentives.
          The question is: why would they do that in absense of such incentives?

          My opinion about the quality of the IEA, EIA and other similar projections is not particularly high. But there is no doubt their recent forecasts for China’s demand already take into account such factors as: slowing population growth; slowing economic growth; increasing penetration of the EVs, etc.
          The real growth in China’s demand may be slower than projected, but my base case is that it will still be increasing.

          • Nick G says:

            How can we even begin to make such analyses or projections if we don’t have basic data on the composition of their consumption??

          • Nick G says:

            there should be very significant economic or geopolitical incentives.

            They have them: pollution, insecurity of supply, loss of forex. Those are the reasons that gasoline (and diesel, to a lesser degree) cost twice as much in Europe as elsewhere. The Europeans have the price right – eventually some will follow their lead.

            there is no doubt their recent forecasts for China’s demand already take into account such factors as: slowing population growth; slowing economic growth; increasing penetration of the EVs, etc.

            You have far more faith in EIA/IEA projections than I do. There’s very little chance they include careful analysis of the impact of EVs, for instance.

          • Dennis Coyne says:

            Hi AlexS,

            I agree the EIA and IEA projections are not very good. What will constrain China’s demand is rising oil prices, the EIA and IEA assume there will be much more oil produced and far lower oil prices than is likely.

            Even if we take the EIA’s “high oil price case” they assume the high oil price is due to very rapid economic growth, they just assume supply will be adequate to meet demand. Not a good assumption in my opinion.

            I agree China’s consumption of oil will increase for 10 to 15 years, after that the rapid adoption of EVs and plugin hybrids will lead to a decrease in demand for oil.

            The incentive to do this will be peak oil, the Chinese do a much better job of thinking long term than most western nations (with the possible exception of a few European nations).

        • Dennis Coyne says:

          I double checked China’s real GDP per capita growth rate using

          https://fred.stlouisfed.org/series/NYGDPPCAPKDCHN

          The annual growth rate of real GDP per capita was 8.55%/year from 1980 to 2015, the rate fell to 7%/year from 2010 to 2015, by contrast the US growth rate in real GDP per capita from 2010 to 2015 was only 1.2% per year.

          The assumption of continued growth in Chinese oil consumption seems pretty reasonable in my opinion based on this data.

          • Nick G says:

            You may be right. But….again, how can we even begin to make such analyses or projections if we don’t have basic data on the composition of their consumption??

            For instance: if most oil consumption in China is industrial (let’s say, for electrical generation in areas with inadequate power), then that could be cut relatively quickly.

            Maybe passenger cars are 50% of consumption, as they are in the US and most of the world. But…average VMT seems much lower in China. And, restrictions on ICEs in major cities are growing fast.

            It would be nice to have data.

        • Nathanael says:

          China introduced sex ed in schools and made birth control available in 2008 and they’re still having trouble getting either done competently. The population won’t flatten until that is done successfully.

          • Nick G says:

            China’s fertility rate is well below replacement, at 1.66 children per woman. There’s no sign of it rising, even with the recent repeal of the 1 child policy.

            At that rate, China’s population has to flatten and then decline, right?

    • Watcher says:

      The demand will always be high. Consumption may be less so, but there are 4 million bpd cruising up their coastline to Japan. Easy pickings.

      • Dennis Coyne says:

        Hi Watcher,

        Consumption=demand. Where demand is the quantity demanded at any given price level. Wishes do not equal demand.

        • AlexS says:

          Well said, Dennis,

          consumption = effective demand

        • Greenbub says:

          Dennis, when a hot product is sold out of all stores at Christmas time, would you still say consumption = demand? How?

          • Nick G says:

            If the stores don’t raise prices, that’s a market failure: shortages.

            If the stores raise prices so that demand = supply, then the market has worked.

            Of course, many people don’t really like price mechanisms for allocating scarce resources – they think of it as taking advantage of consumers.

          • Dennis Coyne says:

            Hi Greenbub,

            Yes you are correct. When the product price is fixed (as would be the case for many consumer products at Christmas) consumption will not be equal to demand (unless by some miracle the supplier produces exactly the right amount of the product to meet demand). This usually won’t apply to oil unless the government decides to fix the price of oil.

            • Greenbub says:

              On the other hand, demand and consumption of canned Lima beans is probably EXACTLY the same. Blecch!

          • Watcher says:

            I guess those guys sitting in their car in gas station lines in the 1970s were consuming all they demanded.

            Economic platitudes is what you get when 2009 occurs.

            • Dennis Coyne says:

              Hi Watcher,

              The lines in the 70s were caused by the government fixing prices and not letting the market work properly. In the 1979-1982 period there were no lines for gas because the government did not intervene and try to limit the rise in gasoline prices.

              This is econ 101, get a book from the library.

              • GoneFishing says:

                Sounds like a CATO institute byline. Oil prices were regulated long before the embargo started.

                Yes there were long lines in the 1979 energy crises. Once again odd-even purchasing days (rationing) was instituted which relieved the lines somewhat.

                • Nick G says:

                  Oil prices were regulated long before the embargo started.

                  Price controls were primarily a floor, not a ceiling. The TRRC was protecting suppliers by preventing price competition.

                  This all changed when we went from a supply surplus to a supply deficit.

                • Dennis Coyne says:

                  Hi Gonefishing,

                  Yes there were long lines but only 6 of 50 states in the US instituted odd/even rationing. Where I lived I don’t remember any gas lines and there were no price controls as there had been in 1973.

                  Most control of prices came from the Texas RRC controlling output in Texas. They did not directly control price but set allowable output to create price stability. After Texas reached peak output in 1971, they allowed maximum output. In the early 70s Nixon instituted general price controls in response to rising inflation, this was abandoned by 1978.

                  • GoneFishing says:

                    A fun exercise to do is to simulate panic buying. Have every registered car and truck fill it’s tank in a day or two and see if our reserves would hold.

  5. Chart Monkey says:

    The Canadian N.E.B. Production of Canadian Crude Oil and Equivalent – 26th August 2016
    The latest firm figures are for May (but they’re still subject to revisions). I’ve included June but it’s only an estimate.
    Heavy Conventional Crude Oil Production has been revised steeply lower from January 2016. The figures for 2015 are largely unchanged. I don’t know why. And the June estimate shows a bounce back. Chart link: https://s13.postimg.org/vqp8181ev/Canada_NEB_Conventional_Crude_Oil_2016_08_26_2.png
    Annual production figures, the 5 sub totals, chart: https://s31.postimg.org/97c7au5qj/Canada_NEB_Annual_2015.png

    • Dennis Coyne says:

      The big dip in May is due to the fires in Alberta, low oil prices and lack of investment have also taken their toll.

      • aws. says:

        Chart Monkey,

        Could you separate out light and heavy crude?

        • Chart Monkey says:

          I don’t follow Canada’s data that closely, but there are 7 components for conventional light crude oil available. Just 2 for heavy and 4 for c5+condensates.

          CONV. LIGHT CRUDE OIL AB, BC, SK, MB, NWT/NT, NF/NL, ON

    • Nick67 says:

      ‘Heavy Conventional Crude Oil Production has been revised steeply lower from January 2016.’
      That is straight-forward. This is oil that is relatively more expensive to produce AND trades at a discount — and sometimes a steep discount — to WTI. When prices fall, as they have, Heavy Conventional is the first casualty. The fires in May resulted in production disruptions for Unconventional Heavy crude and synthetic crude (ie Oilsands production.) The big boys in Calgary cut exploration budgets in a draconian fashion. Forecast total holes to be drilled are the lowest since recordkeeping of that began in 1979 — and that INCLUDES the early 80’s crash numbers. A large proportion of that is actually political. The big boys were VERY UNHAPPY with the results of federal and provincial elections and are actively looking to create suffering. Whether exploration budgets for 2017 will return to levels dictated by price and geology remains an open question.

      While this is a discussion of China’s peak oil production, it has to be noted that unconventional supply in Canada that is known, but yet untapped remains absolutely enormous. The constraint is not geology, it is whether the capital investment needed to exploit the resource will be profitable over the long term. Pipelines that were stalled over local opposition are now not being actively pursued because the advent of the self-driving EV has cast enormous doubt on what the long term demand curve for transportation fuels looks like. The question is not ‘can we find hyrdocarbons to turn into gasoline’, it is ‘will anyone want to buy these hydrocarbons 20 years from now.’ Increasingly, the answer is ‘We’re not sure’ and multi-billion dollar investments are not made when that is the answer.

  6. Pete Mason says:

    Do we know how much China used enhanced oil recovery and therefore guess the sharpness of the decline? I assume they have used every technique known to science and that the drop would be sharp except that newer projects would mitigate.

    • AlexS says:

      For many years, Chinese companies have been using EOR, like polymer flooding and ASP flooding, at their old fields, particularly Daqing.

    • Doug Leighton says:

      “Do we know how much China used enhanced oil recovery…”

      Yes indeed, pretty much the same as every other oil producing country, depending on geology and economics of course. Think about it: for every engineering graduate in North America there are about 20 in China. And, many of these guys study in foreign universities (esp. North America and the UK) before returning home. I visited one project in China (a nuclear reactor) where the senior people all had PhDs from MIT. Besides, engineers are sort of like doctors without borders, they go where wanted or needed. One big difference in China is that labor is relatively cheap so there is usually less incentive for personnel inefficiencies — you find a ridiculous number of guys on a drill site.

      • AlexS says:

        “One big difference in China is that labor is relatively cheap so there is usually less incentive for personnel inefficiencies — you find a ridiculous number of guys on a drill site.”

        Before the privatization of its operating subsidiary, Petrochina (in 2000), China National Petroleum Corporation(CNPC) had more than 1 million workers.
        Just imagine that!

  7. R Walter says:

    Refined oil exporting countries:

    United States: US$74.7 billion (12.3% of total refined oil exports)
    Russia: $65.6 billion (10.8%)
    Singapore: $42.1 billion (7%)
    Netherlands: $41.9 billion (6.9%)
    South Korea: $30.7 billion (5.1%)
    India: $30.5 billion (5%)
    Belgium: $24.7 billion (4.1%)
    Saudi Arabia: $24.1 billion (4%)
    China: $19.1 billion (3.2%)
    United Arab Emirates: $15.4 billion (2.5%)
    Italy: $13.1 billion (2.2%)
    Kuwait: $13 billion (2.1%)
    Germany: $12.4 billion (2%)
    United Kingdom: $11.5 billion (1.9%)
    Canada: $11.4 billion (1.9%)

    The countries must use imported oil, refine the rock oil, petroleum, then export the refined oil products to buyers. The buyers really don’t want to buy crude, own a refinery, then use the desired refined oil product, they just want to buy gas and diesel fuels and not fiddle with the rest of it.

    Hence, China buys crude oil, refines the stuff, then sells refined oil products.

    Therefore, the domestic consumption is less than the total domestic production plus imports.

    My guess is about 450 million barrels of oil was re-exported refined oil products from Chinese refineries. About 1.2 million barrels of imported and domestic consumption was refined into refined oil products and re-exported each day.

    9.9 million barrels consumed, 4 million from domestic sources, net imports of 5.9 million barrels consumed in China.

    China buys crude to make them some money.

    • AlexS says:

      R Walter,

      The real picture is even more complex.

      U.S. is importing both crude and refined products and exporting refined products and some light crude and condensate.

      Saudi Arabia exports both crude and refined products, but also imports some refined products.

      China and India are importing both crude and refined products, but also exporting large quantities of refined products.

      Etc.

      The inter-country flows of crude and products are constantly changing as they depend on many variable factors:
      – supply/demand, prices and refining margins in particular regional markets;
      – quality specifications of different crudes;
      – processing capacity and specifications of refineries in different countries
      – logistics (including tanker freight-rates), etc.

      • Nick67 says:

        And it becomes even more complex when you look at what products transport well. Typically, finished gasoline is NOT exported in large quantites because the risk of explosion is so large. The US exports ~500K barrels of gasoline weekly, compared with 12M barrels of oil production daily. Fuel oils, kersosenes, and diesels are relatively simple to export. Gasoline, once you move beyond typical land transport quantities, is much more problematic.

  8. Robert says:

    sounds like we are running out of time to make the transition to renewables.

  9. aws. says:

    Demand Destruction. Investors beware.

    Electric vehicles – It’s not just about the car

    By Michael Liebreich, Chairman of the Advisory Board and Angus McCrone, Chief Editor Bloomberg New Energy Finance
    August 22, 2016

    The very fact that there is now a scalable technology competitive with internal combustion vehicles means there is a cap on long-term oil prices – currently around $80 per barrel but dropping fast. Never mind “lower for longer”, oil prices could well be “lower forever”. That would drive a lot more downsizing and consolidation among international oil companies and oilfield service providers, as well as deep pain and the need for economic restructuring among oil-exporting nations. Venezuela is unlikely to be the last oil-producing state to require international rescue.

    • Dennis Coyne says:

      Hi aws,

      Thanks. A great read which I recommend to everyone, though I believe they are likely to be too optimistic. Another excerpt from the Liebreich and McCrone piece linked above:

      4. Oil companies and oil exporters
      The flip-side of additional electricity demand from electric vehicles is of course reduced oil demand versus the 100 percent liquid-fuel-based fleet. In our central NEO (New Energy Outlook) scenario, there is a reduction of 13 million barrels of oil per day by 2040. Of course, there are other moving parts when it comes to absolute levels of gasoline demand, including the impact of GDP growth on car ownership in emerging markets, further improvements in the efficiency of internal combustion engines, modal shifts in transportation, and penetration of compressed natural gas, biofuels and other alternative transport fuels. But what is clear is that a rapid shift to electric vehicles, on the scale we are expecting, would be bearish for oil demand.

        • Nathanael says:

          Bad modeling. In order to do a good model you have to separate PHEVs from BEVs, and you have to separate BEVs into long-range and short range.

          PHEVs and short-range BEVs are losing their luster and their market is shrinking. Long-range BEVs continue to have massive growth rates.

          If you track the exponential curve on long-range BEVs, you find that the gasoline car market is safe for… about 4 years. Come 2022 it’s looking like all kinds of trouble.

          • James says:

            Speaking about bad modelling, what’s your view on using horses to drill for oil?

      • It’s hard to judge these guys’ work without looking at details. They could be projecting a 14 million BOPD reduction in demand versus an outlandish base case.

        • Dennis Coyne says:

          Hi Fernando,

          I believe they are saying that EVs will replace x number of ICEVs that they project would have averaged y barrels/d of average consumption in 2040. The 13 Mb/d estimate is simply x times y. Unfortunately I don’t have access to the detailed report. I think they overestimate how quickly EV sales will ramp up, a lot will depend on the price of oil, which is difficult to predict.

          If we assume the average ICEV in 2040 gets 40 MPG and drives on average 12,000 miles per year, we would need 664 million cumulative EVs and plugin hybrids sold between now and 2040.

          We would assume the plugin hybrids consume very little fuel (close to zero). There were about 550,000 plugin vehicles sold in 2015, if we assume a constant exponential growth in sales of 25% per year from 2016 to 2040, then cumulative plugin sales would be 725 million from 2016 to 2040.

          As I said before, this does not seem very realistic to me, but there are optimists that believe such a scenario is conservative.

          • Nick67 says:

            In Pittsburgh, the self-driving Uber car is debuting. The WSJ has estimated that every one of those on the road will lead to 11 conventional vehicles getting parked. Nobody really knows what the transportation industry will look like when a driver is no longer required. At present, 97% of the energy consumed by a vehicle is used to provide the driver with comfort and protect them from the other fools on the road.

            Speculate on what transport looks like without drivers. Why put 24 pallets on a transport truck when you don’t need a driver? Much much smaller trucks, that hold a single pallet? Many smaller transport vehicles that hold a single rider? Vehicles that hold 8 passengers and you pay less for as they make the stops to add passengers onthe way to destination.

            I have no idea what the final shape looks like — neither does anyone else. But given the cost in lives and healthcare, parking real estate, and wear and tear on roads, once self-driving vehicles start to be adopted, there will be massive, rapid economic incentives to see to their universal adoption. And what oil demand looks like then, who knows?

            I wouldn’t be at all surprised to see OECD demand fall by 90% within 15 years. Or maybe not. Perhaps the self-driving Uber car doesn’t see universal market penetration and fools continue to be permitted to drive, requiring our present massive safety cages — but I doubt it.

  10. Enno Peters says:

    Some of you may be interested in this article: ‘The Truth About U.S. Shale Oil Production’

    • Chart Monkey says:

      Your data should be on Bloomberg, unless they’ve got their own version already.

      Still waiting to see if there was a peak in production per well last year? Although drillers still seem to be squeezing a little bit more from wells in North Dakota.
      Chart: https://s15.postimg.org/ad11brtl7/Visualizing_US_shale_oil_production_2016_04_Enno.png

      I guess that only the best wells are still being completed while oil prices are low…

    • George Kaplan says:

      Enno – I had one more go at looking at the Bakken data. I checked all production wells against a theoretical core, which I took as the average longitude and latitude of all wells in the production list (but I think as I write this it would be better to do it weighted by daily production – maybe next week).I then plotted well density, average production per area, and average production per well in concentric circles away from the centre. I think this shows the drop off in well age and quality quite clearly, though ideally it should be shown month to month to see how the centre and distribution from it changes with time. But overall the productive area looks to be 50 km in diameter and unlikely to expand much.

      • Chart Monkey says:

        Thinking out loud – It says here that oil companies can drill 7,000 feet or 2.1 km. And so one drill pad could cover = Pi radius squared is 13.8 square km2. The area for a 50km diameter is 1963 km2. That would only be 1963/13.9 = 141 locations, which doesn’t sound right…

        Bloomberg – the length of lateral wells drilled there have simply gotten longer, from around 4,000 feet on average five years ago to about 7,000 feet in 2016, according to Bob Brackett at Sanford C. Bernstein.

        https://www.bloomberg.com/gadfly/articles/2016-08-26/blackstone-permian-buy-narnia-in-west-texas

        • George Kaplan says:

          CM – Should have been 50km radius (not diameter – I seem to have hit some sort of mental block concerning radius and diameter in my dotage), and each well pad could drill say 15 wells, so that would be 141 * 4 * 15 = 8500 wells (which is 230 acre spacing). There are 6600 producing wells in that circle at the moment. At 160 acres per well we’d get 12000, so say 5000 more possible as some locations will be dry. That all looks pretty consistent to me.

        • Nick67 says:

          There’s a lot more in play than just lateral distance. There’s your lease rights, which may limit how far out from the pad you can drill. All of your holes terminate at the pad — there’s an upper limit to how many holes can come to the same terminus. There’s strike zones. You may have rights for one zone and not another. There’s proximity of other holes. You can’t/don’t want to frack in such a way that YOUR fracked hole communicates with another hole, causing disaster. There’s the water table, and geology which can limit how you drill. LOTS of factors in play.

  11. aws. says:

    Perhaps someone with access could divine meaning from this.

    Trophy Hunting vs. Manufacturing Energy: The Price-Responsiveness of Shale Gas

    Richard G. Newell, Brian C. Prest, Ashley Vissing

    National Bureua of Economic Research, Working Paper No. 22532, Issued in August 201

    We analyze the relative price elasticity of unconventional versus conventional natural gas extraction. We separately analyze three key stages of gas production: drilling wells, completing wells, and producing natural gas from the completed wells. We find that the important margin is drilling investment, and neither production from existing wells nor completion times respond strongly to prices. We estimate a long-run drilling elasticity of 0.7 for both conventional and unconventional sources. Nonetheless, because unconventional wells produce on average 2.7 times more gas per well than conventional ones, the long-run price responsiveness of supply is almost 3 times larger for unconventional compared to conventional gas.

    • Nick67 says:

      Some of that extract states things that are staight-forward and well-known.
      The vast majority of the cost of natural gas is the cost of drilling the hole.
      Drilling budgets are therefore strongly influenced by present prices.
      Once that sunk cost is committed, prices have little effect on budgets for completion and operation of existing wells. It is the last sentence that is a bit misleading.
      Fracked gas wells produce large volumes of gas — that play out rapidly.
      Since you DON’T have a 15-25 year timeframe to recoup the investment in drilling, unconventional gas extraction is much, much more responsive to gas prices than conventional gas is.

  12. Watcher says:

    “The U.S. Energy Information Administration estimates the South China Sea holds 11 billion proved or probable barrels of oil—roughly equivalent to Mexico’s proven reserves—and 190 trillion cubic feet of natural gas, a significant sum for a region where energy demands continue to grow quickly.”

  13. Chart Monkey says:

    Bloomberg – Oil Discoveries at 70-Year Low Signal Supply Shortfall Ahead
    Mikael Holter – August 30, 2016

    New finds at lowest since 1947 and headed even lower: WoodMac
    Explorers replacing just 6% of resources they drill: Rystad

    Global spending on exploration, from seismic studies to actual drilling, has been cut to $40 billion this year from about $100 billion in 2014, said Andrew Latham, Wood Mackenzie’s vice president for global exploration.

    Exploration is easier to scratch than development investments because of shorter supplier-contract commitments.

    The result is less drilling, even as the market downturn has driven down the cost of operations. There were 209 wells drilled through August this year, down from 680 in 2015 and 1,167 in 2014, according to Wood Mackenzie.

    Persistently low prices mean that even when explorers invest in finding new resources, they are taking less risk, Bjurstroem said. They are focusing on appraisal wells on already-discovered fields and less on frontier areas

    Wood Mackenzie, exploration drilling chart: https://s15.postimg.org/5fyhnm79n/Oil_Discoveries_at_70_Year_Low_Signal_Supply_Sho.png

    Bloomberg: http://www.bloomberg.com/news/articles/2016-08-29/oil-discoveries-at-a-70-year-low-signal-a-supply-shortfall-ahead

    • Javier says:

      This is why the 2015 Peak Oil prediction appears quite solid. The decline in discoveries since 2010 took place despite very high oil prices and rising costs of oil production. This indicates that we have reached the end of new cheap-to-produce oil. Increasingly more expensive-to-produce oil will be no adequate substitute as its price cannot be met by a faltering economy. Even if oil prices increase there will not be enough new oil to bring to the market, as it has not been found. The US and China are entering a severe decline in oil production while their consumption still increases. Russia and Saudi Arabia are still slightly increasing their production, but unlikely to do so for very long.

      The world appears to have entered terminal decline in oil production at a time when our dependency from oil is at its highest. The next 15 years will bring developments that we would have not believed were possible.

      • Dennis Coyne says:

        Hi Javier,

        Jean Laherrere estimates approximately 1250 Gb of proved plus probable reserves (including 450 Gb of extra heavy resources) at the end of 2014, if we ignore the oil in the Canadian oil sands and Venezuela’s Orinico belt (Laherrere estimates these at 500 Gb total), there are about 800 Gb of C+C left to be produced if there are no more discoveries in the future.

        See his paper at

        http://aspofrance.org/files/reservesUS_SA_%20Ru_UK-JL2016.pdf

        Chart below is C+C less extra heavy oil 2P reserves (dark green line on chart) from page 11 of the paper linked above.

        • Javier says:

          I have a problem with oil reserves, Dennis.

          Since very little new oil has been found for years, that means that those reserves have been known for years. Since everybody exploits first the more concentrated, best quality, easier and cheaper to extract oil (low hanging fruit), that means that what is left is more expensive, more difficult, less concentrated, and lower quality than what we have been obtaining for the past hundred and fifty years. And by a wide margin for a significant amount of what is left.

          So I don’t think we are going to be getting more and more of that, but less and less. Hence Peak Oil regardless of reserves.

          • Dennis Coyne says:

            Hi Javier,

            Yes there will be peak oil and we may already be there, but we are likely to remain on a plateau until 2020 to 2022 and then decline slowly from there, unless there is a severe recession before 2022, this is difficult to predict, but I doubt that declining oil output will be the root cause and debt is also not likely to be the cause, maybe an asteroid will strike, but the probability for that is pretty low as well. 🙂

            • Javier says:

              Dennis,

              “I doubt that declining oil output will be the root cause”

              For countries that reduce their oil consumption at the same time that they reduce their total energy consumption, they also reduce their economic output. This is an observation, not modeling. Whether it is cause or consequence or both is a matter of opinion.

              The prediction is that if oil is constrained below what the economy demands, whether by production or price, the economy will stall and contract. And the need for oil from the economy is not currently going down.

              • Nick G says:

                For countries that reduce their oil consumption at the same time that they reduce their total energy consumption, they also reduce their economic output. This is an observation

                That’s interesting. Could you show your data?

                • Javier says:

                  I have a bunch of graphics, but the data is very easy to get. You only have to check oil consumption and energy consumption for Italy, Spain, Portugal, and Greece between 2005 and 2013. Italy was the first one to start a decrease in oil consumption around 2005. GDP for those countries is also very easy to get.

                  Here you have the situation for Spain. Primary energy consumption essentially follows oil consumption.

                  • Nick G says:

                    You’ll find that consumption of a lot of things dropped in those countries.

                    It’s pretty clear that the great credit crunch was the cause of almost all of those declines. Oil is bigger, but in principle it’s no different.

                    Oil is important, but it’s not a supernatural prime mover of the economy.

              • Dennis Coyne says:

                Hi Javier,

                There are energy sources besides oil such as coal, natural gas, nuclear, wind, solar, hydro, and geothermal power.

                A fall in oil consumption does not mean that there will necessarily be a fall in overall energy consumption as the use of other types of energy can increase.

                I agree that a fall in energy consumption is likely to reduce economic output, but it is not likely that overall energy use will fall, unless an economic crisis reduces demand for energy.

                Correlation is different from causation, we cannot prove one way or the other which way the causation arrow points, but in my opinion the most likely direction is that a change in economic output leads to a change in the demand for energy.

      • Nathanael says:

        Given that electric cars are cheaper to operate than gasoline cars *at current oil prices*, any rise in oil prices due to supply constraints will only make them *more* popular. I have no idea how fast electric car production can be increased but given that people have done conversions in their garages… it can’t be too hard.

      • Nick67 says:

        Javier:’The world appears to have entered terminal decline in oil production at a time when our dependency from oil is at its highest.’
        I am not at ALL sure how you can figure that. Graph global GDP against global oil output. There is much, much more output per barrel of oil now than say 1973.
        Graph it another way. Total spent on crude oil vs total GDP
        http://data.worldbank.org/indicator/NY.GDP.PETR.RT.ZS
        We have not yet hit 1980 levels of dependency on oil — nor will we ever hit them again, I think.

    • George Kaplan says:

      As usual no attempt to split out oil and gas – the chart I think is for both, for oil the situation is actually worse. All discussion focussed on the reduction in investment caused by low prices, no mention (although shown in chart) that this is a continuation of a downward trend that included three years with about the most ever spent on exploration (2012 to 2014). No mention that the trend is pretty much as predicted by the likes of Jean Laherrere, Charles Hall, Colin Campbell, ASPO etc. No mention that not so long ago they were saying we need to find 3 or 4 Saudi’s to keep going. No mention that pretty much all frontier exploration has been abandoned by the majors, so what is being found is dribs and drabs near field and will quickly run out to nothing. Just needs more money and everything will be fine apparently; geology – who needs it?

      • Dennis Coyne says:

        Hi George,

        Jean Laherrere has a recent paper at the link below, entitled “World, US, Saudi Arabia, Russia & UK oil production & reserves -Comments on Rystad 2016 world reserves” and published August 3, 2016 :

        http://aspofrance.org/files/reservesUS_SA_%20Ru_UK-JL2016.pdf

        An excerpt from page 16 of the paper:

        Because the large uncertainty on the estimate, I have increased the ultimates of
        -crude oil less XH at 2500 Gb = 2.5 Tb from previous 2.2 Tb
        -XH kept at round 500 Gb (half Athabasca, half Orinoco)
        -crude oil & condensate at 3000 Gb (Rystad ultimate is 3382 Gb)
        -NGPL at 300 Gb
        -crude oil +NGL at 3300 Gb

        Chart below is also on page 16 of the document linked above.

        • George Kaplan says:

          Dennis – Rystad had, I think, 900 barrels yet to be discovered. At last year’s rate that is going to take 300 years, at this year’s I’d guess 900, so unless somebody comes up with a technical revolution to find it (and probably another one to extract it at anything like an affordable cost) I’d say it effectively doesn’t exist. Why do you think we are finding so little and what is needed to change that and make any oil found open for development?

          • Dennis Coyne says:

            Hi George,

            Even with no discoveries the reserve estimates tend to increase over time.

            There have been about 2100 Gb of C+C discovered as of Dec 2014 (this includes oil already produced, but I have excluded oil sands, except oil sands already produced). To reach Laherrere’s estimate of 2500 Gb for C+C less extra heavy we would need 400 Gb of reserve growth which is 50% of 2P reserves. US reserves grew by 63% from 1980 to 2005.

            If there was no reserve growth or discoveries and no more oil produced from oil sands, then total URR C+C would be about 2100 Gb and we would have only 800 Gb left to produce (probably 755 Gb, since 45 Gb have likely been produced since Dec 2014). If we produced 25 Gb per year on average, the oil would be gone by 2046, but that is an unrealistic scenario. A linear decline in output would allow output to continue for 51 years. If we remained on plateau until 2020 and then declined linearly we would be out of oil in 44 years (if URR is 2100 Gb) or by 2060. I think Laherrere’s scenario (URR of C+C-XH=2500 GB) is more reasonable.

            • AlexS says:

              “Even with no discoveries the reserve estimates tend to increase over time.”

              Sometimes reserve revisions/extention at already developed fields are more important contributor to reserve additions than discoveries

            • George Kaplan says:

              But reserve growth is already included in Rystad figures as they include probable numbers in their discovered numbers. You can’t have it both ways – either use Rystad figures as they are or say they are wrong and justify some others.

              • Dennis Coyne says:

                Hi George,

                I am not using Rystaad’s numbers and Laherrere is not either, he is just using it for comparison.

                In the US proved plus probable reserves increased by 63% from 1980 to 2005 when new discoveries and oil produced are deducted from the data.

                Do you believe that the estimates of proved plus probable reserves do not change over time? I think a close look at US reserve data and UK reserve data will show that this is not the case. Link below explains my reasoning,

                http://peakoilbarrel.com/us-oil-reserve-growth-2/

                Note that I estimated 2P reserves by using the UK as an analog where we have 2P and 1 P data from 1977 to 2013, my best guess based on the data was a 2P/1P ratio of 1.7, but I also included cases of 1.4 and 2.0 which covers the range in the UK data over that 26 year period.

                If we assume 1.7 is too high for the 2P/1P ratio and prefer 1.4 as the ratio, then US reserve growth would have been 90% from 1980 to 2005, rather than my best guess of 63% (using the 2P/1P ratio of 1.7).

                Note (for those not familiar with 1P and 2P reserves)
                2P=proved+probable reserves (F50 or median estimate)
                1P=Proved reserves (F90 estimate, 90% probability)

                • George Kaplan says:

                  Reserve estimates don’t increase if you start with a reasonable 2P estimate, it’s just that probable tend to become proven. With current technology 2P estimates are usually pretty good on new fields. You have previously cited a USGS paper concerning reserve estimates. I don’t know if you have read it but it clearly states, more than once and with several examples that reserve growth estimates from one field are not really applicable anywhere except that field.

                  • Dennis Coyne says:

                    Hi George,

                    So what is a reasonable 2P estimate?

                    For the US if we assume 2P/1P=2, reserve growth from 1980 to 2005 is 44%.

                    In order to get close to zero reserve growth in the US from 1980 to 2005, we have to assume 2P/1P=3.35, and in that case the reserve growth falls to about 2%.

                    I think it is more reasonable to assume that estimates of reserves change as knowledge is gained through drilling the fields over time, but I know little about the oil industry.

                    The problem is that we do not have very good 2P estimates for the World, Jean Laherrere’s are probably best, but I think there will still be some reserve growth.

                    Is your position that our knowledge is such that on average “reasonable” 2P estimates would result in zero reserve growth?

                    It seems to me that petroleum engineers are by nature relatively conservative and that their “best estimate” will tend to be on the low side. Perhaps there is a petroleum engineer who could comment.

                    I realize that any particular petroleum engineer will believe that their estimates are spot on, it is the other engineers that might make estimates that are too low. 🙂

                  • George Kaplan says:

                    Dennis – as I said, current technology means that 2P estimates are now pretty good, I don’t know how to put it any clearer than that. On average the good fields balance out the bad ones, there have been some very bad ones such as Laminaria and Chad-Cameroon and I assure you such overestimates go down very badly in the E&P companies. Petroleum engineers aren’t free to choose how they present data, they are required to meet the requirements of the countries law such as SEC. In the past reserves were underestimated by a lot, simply because there was often no much to go on – i.e. poor seismic. I think where data is opaque and politically controlled the fields are overestimated (e.g. all of OPEC where no outside ‘western’ companies are involved). Also almost all LTO is probably overestimated because there is no history against which the data can be compared which gives the proponent companies a fairly risk free way of pumping up their reserves with an easy excuse when their numbers are later shown to be crap.

                    As you say: “it is more reasonable to assume that estimates of reserves change as knowledge is gained through drilling the fields over time” that is true for conventional fields, and the consensus is that now 2P estimates are good. There is no history for non conventional on which to pass judgement and any experience from conventional fields is completely useless for any such judgement.

                    “Is your position that our knowledge is such that on average “reasonable” 2P estimates would result in zero reserve growth?” – that is not my position, it is the industry and SEC position, which is why they changed the rules back in 2007 (or 6 can’t remember now).

                    Given the cost escalation over the past 10 to 15 years (e.g. because of move to deep water and tar sands) it has become key that the FID decisions for large conventional projects are made on accurate forecasts for ultimate recovery – there is no benefit to the E&P companies in biasing the reserve numbers on the low side and every incentive to get them as accurate as possible (and I think could lead to prosecution as fraud if they were seen to be benefiting unfairly from such manipulation). For non-conventional I have a feeling different rules apply – i.e. the ultimate return on the project might matter less than the immediate attractiveness to investors (real or imaginary).

                  • Dennis Coyne says:

                    Hi George,

                    Have there been significant improvements I the seismic technology from 2005 to today?

                    I used 1980 to 2005 for the US, because we have the best technology and I wanted to eliminate LTO (which was not significant before 2005).

                    I agree that it is difficult to estimate reserve growth, and I also agree that over time the rate of reserve growth is likely to fall to zero.

                    I doubt that we have reached that point. Note that those specific rules for reserves are designed to prevent overestimation of reserves, I think if 2P reserves were estimated correctly that there would be no reserve growth and that any overestimates would exactly balance underestimates.

                    It seems in the real World this tends not to be the case. There can also be technological progress which leads to greater recovery and makes earlier “perfect” 2P estimates obsolete and leads to larger 2P estimates.

                  • George Kaplan says:

                    Dennis – you can believe what you want but if someone experienced in the industry says 2P now they basically mean their best guess for recovery allowing for all expected growth.

                    Seismic has gone 2D, to 3D in the 70s to 4D meaning you follow depletion in the reservoir) in the 90s and later. Core sampling and analysis has improved. Reservoir modelling has improved beyond anything imaginable in the 80s. Completions have improved.

                    The best technology in the period you mention was probably in Saudi (admittedly from western firms) not in the USA.

                  • Doug Leighton says:

                    “Have there been significant improvements in the seismic technology from 2005 to today?”

                    Yes, yes, yes. As a geophysicist I assure you seismic science grows almost exponentially. Nowadays, depending on atypical structural complications, you can “see” a cupful of oil 5000 metres under your feet — virtually.

                  • Dennis Coyne says:

                    Hi Doug,

                    There have been big improvements, do you expect these now will stop?

                    Does it seem reasonable from your perspective that there will be no growth in 2P reserve estimates in the future?

                    Of course 2P estimates are the best estimate with the knowledge we have today.

                    Do we really believe that petroleum engineers can anticipate all future technological improvements so that today’s average estimates will remain unchanged essentially forever (or say for the next 30 years to make it more realistic)?

                    The story does not sound plausible to me.
                    Not your story, it is George’s, but your input would be valuable.

                    The short question, does an expectation of no reserve growth for the next 30 years seem a reasonable proposition, this seem to be George’s implication.

                  • Doug Leighton says:

                    Dennis, please don’t fill your comments with absolutes: never, always, etc. All George is saying is reservoir assessment has evolved so uncertainties have been reduced, a lot. You can’t reasonably disagree with this. Accordingly, my advice would me to downplay reserve growth estimates. George is the one to learn from, not me, but I will say with total confidence: seismic evolves and will keep evolving – indefinitely.

                  • Dennis Coyne says:

                    Hi Doug,

                    I agree estimates may be better, though we don’t really know what those estimates are (at the World level, though Jean Laherrere’s work gives us a rough indication.

                    I also agree that reserve growth rates have fallen and may continue to fall in the future.

                    My guess is that just as seismic technology is likely to improve over time, technology used to extract oil will also improve over time.

                    Would you agree that if my guess ( that technology will continue to progress) is correct, that it is fairly likely that future reserve estimates might need to be changed as the rate of recovery from known reserves gradually increases over time?

                    I do think that eventually we will reach a point where recovery rates cannot be increased any further, but also think we will need to have oil prices at around $130/b (in 2016$) or higher for 3 years or more before we know where the limits are.

                  • Dennis Coyne says:

                    Hi George,

                    What is your expectation for future average 2P reserve growth for the next 25 years?

                    From 1980 to 2005 US 2P reserves grew at roughly 2% per year (if 2P/1P=1.7).

                    Would 1%/per year seem reasonable?

                    I believe you would think that is too high an estimate, if I am understanding you correctly.

                    If one estimated that future 2P reserve growth is zero, would that imply that there can be no future increase in average recovery rates from known reserves?

                    Thanks.

      • George Kaplan says:

        Actually I got that wrong concerning oil and gas – they were only considering oil, but at the time the sun was shining the pubs were open and England were about to set a new record in the cricket (which I didn’t know then of course).

    • Chart Monkey says:

      If we do get another oil shock. I would like to see more cycle lanes like Denmark and The Netherlands. Then at least the people who manage to keep their jobs can get to work. I’ve always been a keen cyclist, although being hit by a car (or quiet EV) has always worried me.
      https://en.wikipedia.org/wiki/Cycling_in_Denmark
      https://en.wikipedia.org/wiki/Cycling_in_the_Netherlands

      • Fred Magyar says:

        Are there really too many bikes in Amsterdam?
        https://www.youtube.com/watch?v=99XDLZH0f6I

        • GoneFishing says:

          Doesn’t look like they have enough people in Amsterdam, so why worry about the bikes? If that is rush hour, they don’t have a problem. I liked the canal boat parking lot.

          Meanwhile China is squashing the e-bike revolution.
          http://www.forbes.com/sites/wadeshepard/2016/05/18/as-china-chokes-on-smog-the-biggest-adoption-of-green-transportation-in-history-is-being-banned/#4f3383853a73

          • Nick G says:

            It looks like some major Chinese cities are trying to suppress powered bikes, not e-bikes specifically.

            It’s a bike vs car thing.

          • Fred Magyar says:

            If that is rush hour, they don’t have a problem. I liked the canal boat parking lot.

            Of course they don’t. The point of the Youtube video was that the NY Times had an article portraying the bikes as being a problem and the poster of the video was making it clear that it wasn’t.

            BTW the video ends with a short part showing massive car and truck traffic jams on US highways and asking why there was no article complaining about that.

            Cheers!

            • Doug Leighton says:

              Fred, I frequently fly between Vancouver and Bergen via Amsterdam (friends there). There’s DEFINITELY no negative sentiment toward bikes in Holland – you could say bikes are even Dutcher than Gouda cheese.

              The ONLY (tiny) problem for a visitor is mistaking a bike path for a pedestrian path, which I’ve done on numerous occasions. Naturally you need to oil your bike from time to time (does that get me past the oil comment restriction?). 🙂

              • Fred Magyar says:

                Naturally you need to oil your bike from time to time (does that get me past the oil comment restriction?).

                Who says you need oil based lubrication? I use silicone grease, much better…

                Look ma, no oil! 🙂

            • GoneFishing says:

              Fred, I was being a bit tongue and cheek about the whole thing. Not in too serious of a mood I guess. I got the point, but we are always complaining about ICE cars so how about another subject?
              It’s nice that people are out and about getting exercise and not spewing pollution (well, not much anyway) out their tailpipes. Nice too that they can move faster than cars. They always show the weather as sunny and warm in these films though. How about normal weather? Wet, rainy, windy, snowy, slushy, cloudy, dark? So pleasant to ride that bicycle then. Do they skate to work on the canals then?

              What I find interesting and a bit annoying is that these vehicles have to fuel up at least three times a day, spending good money and a couple of hours a day at least. Yet people complain when their electric car might need “refueling” on a much longer trip and takes less than an hour. People are just never satisfied. Plus it is possible to run the EV without ever eradicating huge swaths of living land , poisoning it with chemicals, then running it over it several times with a petro fueled machine. That extra 100o calories a day really wacks the environment and stresses the food chain, day in, day out.
              So the bicycle is just awful for the environment, go EV. EV’s can take four people at once, eliminating the parking space for four bicycles.
              sarc?

              • Fred Magyar says:

                People are just never satisfied. Plus it is possible to run the EV without ever eradicating huge swaths of living land , poisoning it with chemicals, then running it over it several times with a petro fueled machine. That extra 100o calories a day really wacks the environment and stresses the food chain, day in, day out.

                LOL!

                Well, maybe we use a little CRISPR-Cas9 tech to tweak our genomes and insert some jellyfish genes to make our epidermis more transparent to blue and red wavelengths of light while also making a minor modification to our hemoglobin making it into a chlorophyll and then we can become photosynthetic and become directly solar powered… Win win! 🙂
                .
                .

                • Fred Magyar says:

                  My apologies for being off topic for oil in this response but my already rather pathetic attempt at humor would be lost if I posted this in the other thread.

                • Synapsid says:

                  FredM,

                  There was a science fiction story written in the 1940s or 50s about this very thing. It was set in the Amazon rainforests and had a grisly ending. I’ve never forgotten about it but I have forgotten both title and author.

                  What a fun search you have ahead of you!

                • GoneFishing says:

                  I would rather grow leaves. It’s hard being green.

  14. Chart Monkey says:

    Nigeria in the news again: NDGJM militant group blows up NPDC pipeline in Delta state on Tuesday. Unlcear if crude or gas.

    We will continue to bomb pipelines until oil companies vacate Niger Delta – New militant group warns
    By Seun Opejobi on August 30, 2016
    A new militant group, the Niger Delta Searchlight, NDS, has threatened to continue attacks on pipeline installations in the Niger Delta until oil companies vacate the region.
    NDS in a statement by one General Igbede N. Igbede, on Monday, disclosed that not all pipeline attacks were carried out by Avengers but they have allowed the separatist group which it claimed is now “compromised” to take the glory.
    The group swore that it will not be part of any negotiation with the Federal Government and its agents.
    http://dailypost.ng/2016/08/30/will-continue-bomb-pipelines-oil-companies-vacate-niger-delta-new-militant-group-warns/

  15. Watcher says:

    “Hi Watcher,

    The lines in the 70s were caused by the government fixing prices and not letting the market work properly. In the 1979-1982 period there were no lines for gas because the government did not intervene and try to limit the rise in gasoline prices.

    This is econ 101, get a book from the library.

    Dood, it’s just pathetic. The Arab Oil Embargo in the 70s eliminated oil from the US at any price.

    Aren’t you tired of self humiliation yet? You’re the guy who said oil prices would never (the N word) drop below $40/barrel. You said it here on this blog. About a year or so ago.

    That means you weren’t just wrong. You’re wrong every second of every minute of every hour of the rest of your life. Longer, actually.

    • Dennis Coyne says:

      Hi Watcher,

      Yes the embargo eliminated oil imported from OPEC, in a free market when there is a shortage, price goes up and people drive less, turn their thermostats down, insulate their homes etc.

      Can you find the comment where I said oil will never go below $40/b, I doubt I actually said that.

      I think it unlikely that oil will remain at less than $40/b on average for a 3 year period, unless there is a severe recession, or some time after 2040 when potentially more transport will be electric and demand for oil might fall, I think it not very likely to happen that quickly, 2060 maybe.

      As far as the oil price, I follow the 12 month centered moving average price, for WTI in Feb 2016 this was $41/b and the price has risen since that time, it may well fall to under $40/b at some point, but since June 2004 it has remained above $40/b and I doubt if it falls below $40/b, that it will remain there for more than a couple of months until the depression that might occur in the 2027-2040 period and then again after 2050 when EVs have become ubiquitous.

      • Watcher says:

        It’s there. Go find it.

        Then posture some sort of dignified verbage about this meant that and how it was just a projection and those can always be changed.

        Look. War is the normal state of affairs. Not free markets. Do scenarios based on effective force projection. And death counts.
        Then you’ll understand something of likelihoods.

        Spend some time analyzing the Hryvnia. Run with the bulls.

        • JN2 says:

          >> It’s there. Go find it. <<

          Watcher, not very helpful. You made the accusation. And you may be right. Maybe you could find it for us?

          • Dennis Coyne says:

            Hi JN2,

            My reaction as well, I believe the claim is baseless, Watcher will need to prove me wrong. I don’t really go in for monthly data, that was Ron’s thing, I think centered 12 month averages are more important and have been pretty consistent about that.

            • Watcher says:

              I don’t care enough about the matter to manufacture a story. You embarked on a series of price predictions and flung that one out amid a price bounce in some sort of spasm of relief, thinking your latest worthless models were saved.

              The N word. If you can get search to work, knock yourself out.

              In the meantime, this is about how Embargo sourced 1970s gas station lines were filled with people who consumed less than they demanded, and economics was not involved.

              Worst of all . . . you know it.

              • Dennis Coyne says:

                Nope,

                They consumed exactly as much as they demanded at the prevailing price, had the government not intervened by trying to control the price in an obvious shortage situation, then prices would have risen and those whose time was too valuable to wait in gas lines would go to gas stations charging a higher price where lines would be shorter.

                This is just one reason why free markets (with appropriate taxation for externalities) are far more efficient at allocating scarce resources.

                • Watcher says:

                  Dood, THERE WAS NO GASOLINE AT THE STATIONS.

                  OPEC’s shut off was absolute. Not price relevant. They were trying to punish the US for its Israel position.

                  You could have walked up to an empty station and offered 100X the prevailing price of gasoline and the owner would have shrugged and said he has none at any price, because . . . he had none at any price.

                  You need to stand down here before you dig a really deep hole.

                  • Nathanael says:

                    The problem was very simple: people didn’t have a substitute for oil which they could substitute in the very short term. In the longer term, there *were* substitutes, and Carter set the US on a crash course to develop those substitutes… but Reagan cancelled it.

                  • Dennis Coyne says:

                    Hi Watcher,

                    When prices are set too low then shortages arise, it is really quite simple, but I realize you will never understand.

                    I do not dispute that there was a shortage of oil due to the embargo, only that fixing the price of oil was not the appropriate policy response (unless one wanted to create long lines at gas stations). A temporary rationing plan would have been more sensible. A lot of fuel was wasted with people leaving their cars running while waiting in gas lines.

                  • Nick G says:

                    THERE WAS NO GASOLINE AT THE STATIONS.

                    That’s absurd. OPEC didn’t shut of the whole world’s oil supply. In fact, if memory serves they only reduced world supply by about 5%. And, of course, the US, Canada and Mexico were still producing oil and oil products.

                    You’re being goofy.

            • Caelan MacIntyre says:

              Hi Sweethearts,

              “Barring very unlikely scenarios, such as a total collapse of civilization by 2018, oil demand is not going to fall to 50 Mb/d any time soon. Unless that happens any fall in oil prices to under $40/b will be very short lived(less than 3 months). End of story.” ~ Dennis Coyne

              That’s all I could find from a cursory search.

              In any case, what with oil ping-ponging between roughly $50 and $40; peak oil apparently setting in; and BW Hill’s ostensible ‘projections’, it should be interesting to see what happens with price and so forth.

              • HuntingtonBeach says:

                WTI dropped below $40 the week of December 7, 2015

                Bottomed the week of February 8, 2016 at about $26

                Broke $40 again the week of March 14, 2016

                Dennis’s statement was made on September 9, 2015

                http://oilprice.com/commodity-price-charts?1=&page=chart&sym=CL%2A1&name=Crude+Oil+WTI&domain=advancedmedia&sg=true&display_ice=1&enabled_ice_exchanges=&studies=Volume%3B&cancelstudy=&a=W

                • Nick G says:

                  Looks like Dennis was prescient: the dip below $40 from December to March lasted just over 3 months.

                • Dennis Coyne says:

                  Hi Huntington beach,

                  The main point was that oil prices would not remain low for long, I typically consider the Brent oil price and follow monthly prices (in fact the 12 month average is of more interest to me).

                  Watcher claimed that I said the price of oil would never go below $40 per barrel, he did not remember correctly.

                  The monthly average Brent spot price was under $40/b for 4 months, my guess was 2 months, and I was wrong.

                  • Watcher says:

                    Just did 5 searches on Coyne and never. Search fails for me, and usually does.

                    How did you guys get search to work?

                  • HuntingtonBeach says:

                    Dennis, I don’t think of your statement as being wrong. Close counts in horseshoes, hand grenades and oil price predictions. I think you nailed it.

                  • Javier says:

                    Oil prices from December 2015 to August 2016 have been at an average of $40/b. That’s 9 months. I think that goes against the spirit of what Dennis was saying. If he considered $39 as improbable to last except for a dip why would he had considered $40 as a reasonable stable price?

                    It doesn’t really matter though. Dennis wisely says that he is not good at prognosticating oil prices, and nobody has a clue about how long $40s oil is going to last or where prices will go from that.

                  • Caelan MacIntyre says:

                    Hi Watcher,

                    It depends on what was actually writ and what you recall (and what Dennis wiped from the record ‘u^). Maybe there was another word for ‘never’ or ‘below 40’.

                    My search consisted of (if recalled) just…

                    “Peak Oil Barrel” Coyne 40 OR $40 OR “$ 40”

                    …or something like that in the search field

                    It is interesting the different ‘interpretations’ in the comments… Wrong by a factor of 2; prescient; and against the spirit of it? If you guys aren’t the cutest things since sliced bread, I don’t know what is. ^u^

                    Anyway, we are in increasingly interesting times and territory…

                    Did you read the most recent Zero Hedge clip on Korean shipping or Our Finite World’s article on renewables and the grid? I dedicate Gail’s article to the late ChiefEngineer (AKA HuntingtonBeach?). ‘u^

                    Incidentally, I am about to flip a coin… I call heads. If it lands on heads, just remember that (points at self with both hands) I predicted that.

                  • Caelan MacIntyre says:

                    ^u^

                  • Dennis Coyne says:

                    Hi Javier,

                    I agree. I should not try to predict prices,

                    I don’t think Brent was at less than $40/b for 9 months, I don’t count daily dips in price, look at monthly prices and it was 4 months at less than $40/b, I was wrong my wag was 2 months, I was off by a factor of 2, but for oil prices anything within an order of magnitude is pretty good 🙂

                  • Javier says:

                    I also stopped trying to predict oil prices long ago. In fact I think that a contrarian point of view is probably a better approach and if most people are expecting a price rise, it will probably not happen. When most people accept that low prices are here to stay, then prices will rise.

                  • “In fact I think that a contrarian point of view is probably a better approach…” ~ Javier

                    Geez, Jav’, flash that contrarian agenda for all to see why don’t you, ay? ‘u^

                  • Javier says:

                    Caelan,
                    “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
                    It is usually not a good idea to think like all the rest.

                  • Caelan MacIntyre says:

                    Javier, come on. It’s about the truth. You orient yourself around that as best you can, not some notion of an anti-herd.

  16. Chart Monkey says:

    ClipperData – OPEC exports from Saudi, Iraq, and Iran. Since December 2014 these three have ramped up exports by nearly 3 million barrels per day:
    http://blog.clipperdata.com/strong-dollar-thwarts-oil-rally

  17. Doug Leighton says:

    — George Kaplan

    WALKER ADMINISTRATION CONTINUES BRAWL WITH OIL PRODUCERS FOR GAS-MARKETING DETAILS

    http://www.adn.com/alaska-news/2016/07/01/walker-administration-continues-brawl-with-oil-producers-for-gas-marketing-details/

    • George Kaplan says:

      Doug – ExxonMobil looks to be pulling out. I think what the oil companies want is for someone else to fund the pipeline and plant and they would either sell the gas at the pipeline inlet or pay a processing fee for each mmscf and handle the marketing themselves – preferably the first because I don’t think it will be easy to find customers in the present LNG glut. That means someone else puts up the capital and pays the debt interest for ten years. In such cases it is usually a utility company who would then take the product on a 20 to 25 year contract – here Alaska is so desperate because of the loss of oil revenues they may be able to step in (that is socialism by the way). Alaska does have some leverage with the oil licences (more socialism – dear me), but I think the money the oil companies could lose is really high and they probably have some legal protection on their rights to the oil.

      • Doug Leighton says:

        Good analysis, as always. I think you probably nailed it George. I’ve followed the North Slope oil play from the beginning (early seismic surveys) but never paid much attention to gas. And of course I’m not a real oil guy so very much appreciate your insight(s).

        • Lightsout says:

          What is your take on the much touted HRZ shale play on the north slope.

          • Doug Leighton says:

            Well, Caelus operates the Oooguruk field from an offshore artificial island which involves horizontal production and injection wells. Further, the Company has sanctioned a new development, their Nuna project, from an onshore pad at Oooguruk. This requires an extra $1 billion in investment and is currently on hold (because of the low oil price).

            Costs are, of course, higher in the Arctic & fracking projects mostly require $70 plus to be viable there.

            Re the HRZ shale play I suggest you read the GEOEXPRO article below. Please note that I’m totally unqualified to give a creditable opinions on LTO projects BUT talking to people who follow this stuff (some Real Oil Guys), economics will be the deciding factor and the North Slope will always be an expensive place to be.

            http://www.geoexpro.com/articles/2013/09/alaska-north-slope-source-rocks-hold-promise

            • Lightsout says:

              You might be interested in this then first production test well to be drilled Q1 2017.

              http://88energy.com/

              They make some very optomistic claims for flow rate and production costs.

      • Synapsid says:

        George Kaplan,

        BP and ConocoPhillips also said that they weren’t likely to invest in next phase (FEED) with the project as presently structured, which is the same as you’re saying, of course.

        The fellow put in charge now has suggested that investors such as pension funds or Asian entities may be interested in funding the project; this sounds like desperation to me but I’m no financier.

        LNG keeps popping up (Pakistan? Poland? Helsinki) so I’m feeling a little sanguine about its future, especially after a glass of port.

  18. John Hummel says:

    Do you statistics on global oil discoveries by year from 2000 through 2015. Thank you.

    • George Kaplan says:

      I think that Bloomberg chart is oil. There were a lot of finds in the early 2000’s from deep water – possibly due to new technology (3D seismic and new generation drilling rigs) but also because of rising prices from the 1998 low. Then there was a really good year in 2010 with Brazil pre-salt (is it called Lula now?), Johan Serdrup (I think), Lucius and a couple of others in GoM, some in Iraq and one in Iran, and maybe something in Angola/Nigeria. And then a continuous decline till today, and I see no reason for it to change even if prices rise significantly in the next two years. Exploration involves buying leases, then seismic, then drilling and it’s quite a long cycle. The oil companies have lost interest in all phases of this at the moment and the NOCs have no money so were expecting the IOCs to step in – very wrong as it turned out, at least for the time being. It well be interesting to see the West Orphan lease sale off of East Coast Canada in November – there wells cost $200 million, recent frontier success rates have been 8%, that means companies might need to fork out $2.5 billion to find something – and not see a penny back for at least ten years – and at that rate, and in that area, they need 1 Gb recoverable, all oil (gas is a hindrance rather than a benefit), before they’d even look at a development.

  19. AlexS says:

    The EIA in its Annual Energy Outlook 2016 (apparently prepared in 2015) is projecting continued growth in China’s total liquids production from 4.6 mb/d in 2014 to 6.24 mb/d in 2040.

    Their most recent short-term forecast from the August STEO looks more realistic. The EIA expects China’ total liquids supply to decline from 4.72mb/d in 2015 to 4.54mb/d in 2016 and 4.46mb/d in 2017

    Note that, according to the EIA, China’s total liquids supply in 2014 included (kb/d):

    Crude Oil + Lease Condensate: 4189
    NGPLs: 7
    Other liquids 102
    Refinery Processing Gain 300
    Total: 4598

    China total liquids supply: historical data and projections by the EIA (mb/d)
    Sources: EIA International Energy Statistics; Short-Term Energy Outlook August 2016; Annual Energy Outlook 2016

    • AlexS says:

      Unlike the EIA, the IEA was projecting a deceleration in China’s oil production already in its February 2015 Medium-Term Oil Market Report

      • AlexS says:

        In the World Energy Outlook 2014 (November 2014) the IEA was projecting a slight decline in China’s oil output (C+C+NGLs) in 2013-2025 and a cumulative decline of about 900 kb/d by 2040

        Unfortunately, I don’t have access to the IEA MTOMR-2016 and WEO-2015. I guess their forecast for China was revised downward

        • AlexS says:

          In the Oil Market Report, August 2016, the IEA projects a decline in China oil production (C+C+NGLs) from 4.33 mb/d in 2015 to 4.07 mb/d in 2016 and 3.97 in 2017.

          From the report:

          Chinese operators have cut output at many of the country’s largest oilfields. CNPC announced earlier this year that lower oil prices had caused its main onshore oilfield at Daqing to fall below its break-even price. According to CNPC’s Daqing Oilfield Company, Daqing’s production costs are currently around $45/bbl. The field’s profit fell last year by 54.2 billion yuan from 2014 to 10.2 billion yuan, and at the start of the year the field was losing money. Daqing’s crude output fell by 32 kb/d to 768 kb/d last year due to sharp reserve depletion as well as high production costs. According to the company, Daqing has only 197 million tonnes of remaining oil reserves left for production, with about 92% of the original total having been produced. Water accounts for 95% of the liquids lifted from the reservoirs, with much of the current production maintained through polymer injection. Daqing, which started production 56 years ago, has cumulatively produced 2.27 billion tonnes of oil and 120 billion cubic metres of natural gas.

          • AlexS says:

            Below is a chart showing Daking oil field production in 1960-2008, in million tons
            Source: CNPC website

          • AlexS says:

            chart

          • George Kaplan says:

            Alex – Rystas has China proven developed reserve at 16 Gb, probable developed at 16 Gb and undeveloped P+P at 10 Gb. From 4 mmbpd current prodcution and exponential decline those three (as totals) would represent 9%, 4.7% and 3.4% decay rates. At the moment it looks closer to the proven only number. A 100% increase for probable with so many mature fields and already having extensively used EOR seems completely wrong to me, and if Daqing oil is so expensive then the 10 undeveloped must be in really bad shape for it not to have been bought online. Rystad also has 17 Gb undiscovered resource. Given China has 800 rigs and have found a relatively decent amount of gas recently I think they must be looking everywhere quite aggressively, but no real finds since 2010. Where is all that C&C hiding?

            • AlexS says:

              George,

              The Chinese claim that their estimated oil resources have significantly increased over the past years:

              BEIJING, 14th June, 2016 (WAM) — China’s estimated oil and natural gas reserves have risen markedly in the past few years as prospecting has increased, the latest official assessment shows.
              Xinhua News Agency quoted the Chinese Ministry of Land and Resources as announcing that potential oil resources now reach 126 billion tons, with an extractable amount of 30 billion tons, citing results of a national assessment completed in 2015.
              The numbers are up 64 percent and 42 percent respectively from the last such assessment in 2007, the ministry said.
              The ministry attributed the growth to increased exploration and better technology.”

              http://www.wam.ae/en/news/international/1395296716405.html

              30 billion tons = 220 bn barrels.
              I do not know what could be the equivalent of this “extractable amount” in Western reserve classification.

          • Doug Leighton says:

            MYSTERY OF OIL HELD ON CHINESE ISLANDS PUZZLES CRUDE MARKETS

            “The Chinese seem to embrace the concept of asymmetric information which holds that those in possession of proprietary information and data hold a critical, strategic advantage over the less-informed.”

            Actually that statement more-or-less mirrors my experience across numerous discussions with Chinese oil people. Either that or the right hand knows not what the left hand doeth.

            http://www.bloomberg.com/news/articles/2016-08-30/mystery-shrouding-oil-on-chinese-islands-puzzles-crude-markets

  20. HuntingtonBeach says:

    Earth is warming at a pace ‘unprecedented in 1,000 years’

    “Lingering carbon dioxide already emitted from power generation, transport and agriculture is already likely to raise sea levels by around three feet by the end of the century, and potentially by 70 feet in the centuries to come”

    “This year has already seen scorching heat around the world, with the average global temperature peaking at 1.38C above levels experienced in the 19th century”

    https://www.theguardian.com/environment/2016/aug/30/nasa-climate-change-warning-earth-temperature-warming

  21. shallow sand says:

    Speaking of Chinese commodity demand.

    Just read that since 2005, Chinese demand for soybeans has more than TRIPLED. China buys more than 60% of world soybean exports presently.

    The US will have a record soybean crop in 2016. However, ending soybean stocks are expected to drop for the second straight year. This despite 4 years (2013-2016) of bumper crops.

    A drought year in either South America or the US Midwest could cause some serious issues.

  22. shallow sand says:

    Furthermore, as to corn, Chinese demand is expected to increase by 41% from this year to 2023, according to the USDA.

    • farmboy says:

      on the topic of Chinese demand for oil and other commodities, from 2013 thru July China rail freight volume has fallen 20%. So I find it hard to imagine that they have been buying more grain or most any other commodity in the last year .

      Chicago corn price keeps dropping, currently at $3.03 while Iowa State figures show that atleast $4 is needed at the elevator for farmer breakeven. And just like the oil producers farmers will dig in and try to produce even more, until they can access no more money.

      • shallow sand says:

        farmboy. We are definitely going to have a record corn and soybean crop this year, for the fourth year in a row a very large crop. We have driven through Kansas, Missouri, Illinois, Indiana, and Southern Wisconsin in the last thirty days. Saw nothing but good looking corn and soybean crops everywhere.

        Cash corn at local elevators is already in the $2.90 range.

        Cash soybeans are $9.20 and some are predicting another $1 drop or more.

        I agree, commodity bust all around.

        I am just relaying USDA stats above, related to China. Maybe those stats are outdated?

        Interesting that land prices have not fallen much. Still a lot of $8,000+ per acre farmland in the Midwest.

        Just making point that if we had a couple of 2012 like years back to back, would really make an impact.

      • Watcher says:

        https://corncorps.com/2014/09/30/are-farmers-rich/

        Interesting blurb in there says most farmers rent their land. Don’t own it. So rental costs reduce revenue.

        From the wiki on china agriculture:

        “Agriculture is a vital industry in China, employing over 300 million farmers.[1] China ranks first in worldwide farm output, primarily producing rice, wheat, potatoes, tomato, sorghum, peanuts, tea, millet, barley, cotton, oilseed and soybeans. Although accounting for only 10 percent of arable land worldwide, it produces food for 20 percent of the world’s population.”

        20% of 7 billion is 1.4. China population 1.357 billion. They export. And confuse.

        “China is the world’s largest importer of soybeans and other food crops,[36] and is expected to become the top importer of farm products within the next decade.[37]

        While most years China’s agricultural production is sufficient to feed the country, in down years, China has to import grain. Due to the shortage of available farm land and an abundance of labor, it might make more sense to import land-extensive crops (such as wheat and rice) and to save China’s scarce cropland for high-value export products, such as fruits, nuts, or vegetables. In order to maintain grain independence and ensure food security, however, the Chinese government has enforced policies that encourage grain production at the expense of more-profitable crops. Despite heavy restrictions on crop production, China’s agricultural exports have greatly increased in recent years.”

        Wisdom, though. Victory is more important than cash flow. Always.

  23. Chart Monkey says:

    Bloomberg – China’s got the world puzzling over the size of its oil stockpiles – August 30, 2016

    Analyst opinion divided over level of China strategic reserves
    Purchases for SPR have lifted crude imports, helping prices

    From underground caverns by the Yellow Sea to a scattering of islands in the Yangtze River delta, the government has been stockpiling crude for emergencies in a network of storage sites dotted around the country. Record purchases this year by the world’s biggest energy consumer have helped oil prices recover from the worst crash in a generation. What the country plans to do next could determine where they go from here.

    The difficulty is that nobody outside China really knows for certain. The government won’t say how much it’s holding or when the tanks will be full. Energy Aspects Ltd. says the country will probably keep buying and fill up commercial tanks if it has to, while the likes of JPMorgan Chase & Co. say the purchases may soon stop. The difference in opinion is equivalent to about 1.1 million barrels a day, or more than the Asian country buys from Saudi Arabia.
    http://www.bloomberg.com/news/articles/2016-08-30/mystery-shrouding-oil-on-chinese-islands-puzzles-crude-markets

    • Oldfarmermac says:

      I have been saying all along that the Chinese OUGHT to be buying lots of oil and putting it into storage based on the facts that they have plenty of cash, plenty of workers able to build storage, and the industrial capacity to supply the needed materials.

      They aren’t bothered much by environmental regulators, etc, they mostly do as they please, being as they are a top down government.

      They are in my opinion probably putting oil into storage for half what it is apt to cost them to import it three or four years down the road.

      THAT is one hell of a good return, assuming the price goes up, on cash sitting around drawing hardly any interest at all. And if the price does not go up, they still have the oil, which is quite as valuable as military hardware in terms of their national security.

      Stored oil will not go obsolete on them like rifles and tanks kept in storage too long, lol.

  24. Chart Monkey says:

    Japan’s oil use is still falling, figures on Twitter…

    Japan: July crude oil imports 3.14mbd. -8.5% y/y. ministry of economy, Trade & Industry Wed.
    Japan: July gasoline sales -1.8% y/y. total oil product sales -2.2% y/y. METI data Wednesday.
    Total oil product sales 2.8mbd, lowest for July since 1986.
    Japan: crude oil stocks week ending 8/27: 92.01mb. -0.03mb w/w. PAJ data Wed.

    Japan is also gradually closing down its oil-fired power stations.
    Japan’s population has dropped the past seven years and last year fell to 126.9 million, the lowest since 2000, according to an estimate from the U.S. Census Bureau.
    Young Japanese drive less than their parents, and many new cars are electric-gasoline hybrids, cutting oil demand.
    Slower economic growth

  25. Chart Monkey says:

    EIA now using near-real-time export data to improve weekly petroleum consumption data

    Starting with today’s release of the Weekly Petroleum Status Report (WPSR), EIA is now publishing weekly petroleum export and consumption estimates based on near-real-time export data provided by U.S. Customs and Border Protection (Customs). EIA previously relied on weekly export estimates based on monthly official export data published by the U.S. Census Bureau roughly six weeks following the end of each reporting month.
    http://www.eia.gov/todayinenergy/detail.cfm?id=27752

    • Chart Monkey says:

      U.S. crude oil imports hit 4 year high 8917 kbd (weekly data)
      Bloomberg EIA, chart: https://pbs.twimg.com/media/CrM00hJWAAAjNOR.jpg

      US gasoline demand rose to monthly record of 9,664m b/d in June — revised EIA gov data
      Bloomberg EIA, chart: https://pbs.twimg.com/media/CrNZtJOWIAINDNt.jpg

      2007 gasoline price

      • texas tea says:

        According to the chart presented on US crude imports over the past year imports have risen from ~6500 6/15 to ~8900 6/16 and increase of 2400 which of course answers the question of why we keep getting the “surprise” inventory reports showing such high inventories. The question now becomes why such high inventories being maintained. I have no answer and I am prone to conspiracy theories. If the US was only importing the amount of oil sufficient to replace the decline in production only, inventories should be dropping like a stone? Must be the frackers fault😜 I do not have the numbers on US crude exports, last I saw was ~300,000BOPD perhaps the net number between exports and imports is much less? If not I think a rant is in order.

        • dclonghorn says:

          Tea, a seeking alpha author hfi says the increase of imports are the result of traders closing out floating storage arb trades. I’m not sure if that makes sense, but it could be correct. Link below.
          http://seekingalpha.com/article/4003408-weekly-oil-inventory-report-gasoline-glut-going-away

        • Chart Monkey says:

          Yes looking at net imports is best because U.S. crude oil exports just hit a new high at 698 kbpd. Exports chart on Twitter: https://pbs.twimg.com/media/CrMuHy5WcAEJxU0.jpg

          Net Imports are 8,219 kbpd compared to 7,378 kbpd at this time last year. The 4 week moving average is up 10% on last year.

          Floating storage
          It does make me wonder if the size of floating storage is big enough move the markets, first while it’s filled and then later in the year when it’s sold onshore?

          The IEAs chart of crude in floating storage from earlier in the year for anyone who missed it.
          https://pbs.twimg.com/media/Ck6G5b1WkAA8ATB.jpg
          SEB Banks chart for both crude and products on Twitter: https://pbs.twimg.com/media/Cno-HEbWAAAqkKc.jpg

          Also, there was a news article about North Eastern refineries buying imported crude whenever the WTI to Brent spread is very narrow. And some exporters have been offering big discounts to the benchmark prices. Lost the link.

          Some gasoline stats…
          US gasoline consumption in Jun 2016 was up +273,000 b/d (+2.9%) compared with Jun 2015
          US gasoline consumption in Jun 2016 exceeded previous peak set in Jun 2007 by +173,000 b/d

          • Chart Monkey says:

            The US exported a record high 1.45 million b/d of distillates in June, up 207,000 b/d from May, with increases seen to Latin America and Europe, US Energy Information Administration data showed Wednesday. Platts Oil

            • GoneFishing says:

              The refineries make a better profit margin if they keep production high rather than letting it fall off, explaining some of the import increases.

  26. Dean says:

    BREAKING: with a 1.5 years delay, the EIA revised its Texas data for 2014 and 2015 and aligned it to my corrected Texas RRC data.

    P.S. does this mean we will have to wait for 2017/2018 to see a revision in its 2016 data?

    • Enno says:

      Impressive Dean, well done!

      • Dean says:

        Thanks!

      • AlexS says:

        Indeed, very impressive Dean!

        As I understand, the EIA has revised up its estimates for Dec. 2014- March 2015, but reduced the number for April 2015?
        What were the revisions for the rest of 2015?

    • Nick G says:

      Wow. Looks like your analysis had an impact!

      P.S. Should “revised his” be “revised it’s”?

    • Javier says:

      It is not everyday that one sees a person’s research with limited means outdo a dedicated organization so clearly. We already knew that your estimates were better than EIA’s, but their precision is astounding. Perhaps you can sell your work to dedicated research companies. It certainly has value if we believe that EIA’s work has value.

    • Toolpush says:

      Hey Dean,

      Can you charge the EIA, with plagiarism? lol

    • Cracker says:

      Dean,

      Excellent work! Thank you very much for sharing it with us. I feel a bit privileged in seeing it here.

      Thanks again.

      Jim

      • Dean says:

        Thanks!

        • shallow sand says:

          Dean. Now we know for sure we have current, accurate, Texas production data.

          Great work! Thanks!

          • Dennis Coyne says:

            Hi Guys,

            Does this mean that now you guys believe Dean’s estimates after April 2015? The EIA has only revised its estimates through April 2015, after that, especially from Sept 2015, Dean’s estimate diverges from the EIA estimate.

            Anyone care to guess which estimate is correct? My guess is that Dean’s estimate will be closer to the truth. Time will tell.

            Chart below is Dean’s and the EIA estimate for Texas C+C in kb/d and on the right hand scale (RHS) the difference between estimates
            (Dean-EIA).

  27. George Kaplan says:

    Has anybody posted this before – accelerating decline rates in USA oil and nat. gas are starting to look a bit scary. I appreciate EIA number may be suspect in some areas but if they use the same basis then relative changes may be less suspect than the absolute numbers.

    • Dennis Coyne says:

      Hi George,

      If one believes that Dean’s estimates for Texas +C output are more accurate and we substitute those estimates for July 2015 to June 2016, then the decline in US output from May 2015 to June 2016 is about 4.1% per year, the slope of the annual decline is 382 kb/d per year and the average output over those 14 months (after we substitute Dean’s Texas C+C estimate for the EIA Texas C+C estimate) was 9321 kb/d. The decline from March to June 2016 was indeed steep (344 kb/d), about 218 kb/d (63%) of this drop came from North Dakota (84 kb/d), GOM(94 kb/d), and Alaska’s north slope (40 kb/d).

      If oil prices ever rise (I never guess oil prices correctly), which I believe will happen in 3Q2018, the rate of decline in US output may decrease, by 2019 we might see some increase in US output if oil reaches $80/b (Brent price in 2016$).

  28. George Kaplan says:

    Nat gas:

  29. Chart Monkey says:

    Euan Mearns latest charts based on IEA data…

    Oil Production Vital Statistics August 2016
    http://seekingalpha.com/article/4002720-oil-production-vital-statistics-august-2016

  30. Enno Peters says:

    I have posted a new update on the Permian, here.

    • George Kaplan says:

      I have read the paper that Dennis referenced above from Jean Laherrere. He states that a lot of the Permian horizontal wells are not going into source rock but rather thin, conventional reservoirs. Does that mean these are not needed to be fracked? This would perhaps explain why the Permian is favoured over the Bakken and Eagle Ford, as it gives higher initial flow from probably cheaper wells.

      • Enno Peters says:

        George,

        I don’t know, I hope someone else can answer this.

      • Dennis Coyne says:

        Hi George,

        I didn’t read Laherrere’s paper as carefully as you did. Maybe someone from Texas has the answer, my impression is that the wells need to be fracked.

        Only one article, but:

        http://insideenergy.org/2016/04/20/still-fracking-like-crazy-in-west-texas/

        another

        http://www.rigzone.com/news/oil_gas/a/145205/Shell_Sees_Strong_Potential_for_Permian_Basin_Assets

        Both articles imply there is fracking in the Permian, but I don’t know what percentage of horizontal wells are fracked, I had always assumed it was a high percentage (maybe 95% of Permian basin horizontal wells), but finding the data is not easy, I thought Enno would know as he has a much better handle on the data than I do.

      • AlexS says:

        A lot of conventional reservoirs around the world are now developed with horizontal wells. And most of them are not fracked.

        Conventional production still represents more than 25% of total Permian output, so it is logical to assume that part of horizontal wells target conventional reservoirs, and those wells are not fracked.

        Permian C+C production: LTO vs. conventional

        • Enno says:

          Alex,

          Interesting. I include basically all horizontal wells in the Permian (NM+TX), as the TRCC is quite clear on the slant of a well. But the total Permian production I get is about 1 million bo/d (only horizontal wells), while your graph shows almost 1.5 million bo/d LTO. I wonder where the rest of the LTO in your graph is then, especially if some of the horizontal wells I include would belong to the conventional category.

          Does that mean that a significant part of the output from vertical wells is also counted as LTO?

        • AlexS says:

          Enno,

          Sorry, I miscalculated the volume of LTO production. It is actually 1400 kb/d,
          and the share of conventional in total Permian output is around 30%.

          Below is the corrected graph:

          • AlexS says:

            The numbers for Permian LTO output are from the EIA report based on DrillingInfo statistics:

            http://www.eia.gov/energy_in_brief/article/shale_in_the_united_states.cfm#tightoil

            Total Permian production is from the Drilling Productivity Report

            Permian LTO production by play (kb/d)

            • George Kaplan says:

              There’s this and two previous linked articles within it:

              http://info.drillinginfo.com/permian-basin-production/

              It looks like at least some of the conventional horizontal wells are fracked. Does LTO mean source rock (‘shale’) or does it mean anything that needs to be fracked to be produced, independent of how the oil got there?

            • Enno says:

              Alex,

              Okay, that seems to explain it. It appears that Drillinginfo assigns all production from a formation to either conventional or LTO, even though e.g. the Spraberry has significant conventional production as well. Right?

              I thought a very high (>90%) percentage of recent horizontal wells in the Permian would have been fracced. Does somebody have data to the contrary?

              • Nick67 says:

                Fracking has been around a very long time, and at some point in a conventional well’s life cycle it is likely to be fracked. It used to be called stimulation, but the idea was very much the same: increase the permeability of the formation by injecting ‘something’ at high pressure. The ‘something’ varied by the geology of the reservoir. What was new was drilling into reservoirs that had very poor permeability to start with, and connecting lots of these poor permeability pockets with longer and longer horizontal drilling — and the sheer volume of frack fluids forced down the hole, which subsequently came back up.

                One can argue, but the first large scale use was Encana in the Horn River basin, where the technique created wells that produced eye-popping amounts of gas. At first, they thought they had a gold mine. And then they started producing, and the wells went from 100%, to 60%, to 30% to dead in the course of 4 years–and the economics of the natural gas industry changed. After the techniques had been worked out in tight gas formation, the idea to use them in oil shales was floated — and here we are today.

                Fracking itself has been around a long time. The type of geology that fracking gets used on, well that has evolved considerably over the last 15 years.

      • Thin conventional, and ratty or low permeability and porosity. The industry has been fracturing low permeability sands for decades. What they seem to be doing different is that tools and procedures evolved to allow many frac jobs to be done in a hurry at lower cost per job, and with less hassle (less fishing, less failures).

        About 35 years ago I got into a discussion with an old manager, who questioned what we were doing in our division. I remember he told me they didn’t complete lots of sands like we did. He was used to completing in the Spraberry, but their completions were puny compared to what we did.

        So what happened is that oil prices went up, technology improved, and they surged the number of perforated intervals, figured out how to frac them fast and cheap, and now they complete the Spraberry and the Wolfcamp, or add other zones.

        By the way, my experience,after quite a few years of watching this evolve, is that it’s better to drill a vertical well, run 2 7/8 inch tubing with a tubing anchor, and set the anchor just above the last three perf intervals (say you got 30). Put a sliding sleeve and a nipple above the anchor just in case. Let the well flow up the tubing and the annulus as long as possible, then go up the tubing when production rate drops. It worked for us.

        I tried doing this type of well from a pad, used S curves, and they really stink once you got to pump the well, so we tried them with jet pumps. This requires a packer, and the casing and wellhead has to take 5000 psi at the top, so it gets expensive.

  31. Chart Monkey says:

    Permian Completions, big drop into May. WTI touched $50 in June. Rystad Energy say that activity has increased since then. But with the oil price back down at $44 – who knows?

    Rystad Energy – Nearly 70 rigs in the Permian Basin have returned to operation since early May and current horizontal drilling activity in West Texas and New Mexico is comparable to the levels observed in 2Q-4Q 2015.
    http://www.rystadenergy.com/NewsEvents/PressReleases/us-onshore-oil-production

    • shallow sand says:

      Read the Rystad article.

      I have approached this several different ways.

      Have discussed LTO well payout (or lack thereof).

      Have compared PV10 to long term debt.

      Maybe take one more crack, and then call it a day.

      I was wondering if investors pay attention to price/earnings ratios anymore.

      What would be a reasonable price/earnings ratio for a US E & P?

      If someone wants to suggest something, I could plug that in and try to work back to a BOE price needed for certain companies to have achieved that price/earnings ratio last quarter.

      I did work up one, and found that they needed $72 per BOE to achieve a 20 P/E, based on most recent share price quote. Plugging in $3 natural gas, that came out to just shy of $106 WTI needed for said company to have earnings to achieve a 20 P/E, for Q2, 2016.

      The one caveat is my calculation of income taxes. Right now, all of the companies’ GAAP losses are reduced by “income tax benefit”. Of course, if WTI was $106, the company makes earnings, and recognizes income tax liability. I have just taken the effective rate listed for the company in 2014, and plugged it in to my calculation, which may not be entirely accurate.

      Given all of the dilution that has occurred, especially in the Permian centric companies, I wonder if investors are giving this any thought? Or are the shares just being run up by computer trades?

      Incredible the positive spin in the face of continual losses.

      • texas tea says:

        Generally in commodity investing the money is made when PE ratios are at their worst, as profits are poor and people are scared, not when profits are high and the consensus is it’s a “sure thing”. You may note that while oil prices have corrected down recently, many if not most of the better tier companies have not. Investors are looking to the future, not the past. With respect to your post below, a close friend of mine, owns an undivided 20 acres under a 320 tract in the permian, recently leased for 3 years 1/4 royalty and $14,000 per ac bonus by a established oil and gas exploration co. Someone believes😊
        I am curious SS, if you have ever been on the exploration side of our business? I ask because over the last 30 years, I have made literally 1000’s of meetings with oil and gas company professionals, presenting data, maps economics etc in hopes of getting them to invest in my ideas. While every company or individual had their own methodology for evaluation, I never once met any group who knowingly and willfully invested in ideas they knew, even if it was a geologic and scientific success, would lose money. Maybe, perhaps just maybe, they have information, like I do, that either you do not or that you just do not understand. Just saying, it is not all smoke and mirrors. The good ones are going to make money just like they always have. That is not to say that all LTO trends and all LTO plays are equal like many here seem to assume.

        • shallow sand says:

          All we have ever done is drilled our own wells with our own $$.

          That is the whole problem.

          No one is playing with their own $$ in the shale space. No one is on the hook.

          I was made fun of on SA because our private company is disadvantaged because we cannot “play the various games” the shales can play.

          TT. I still question your non-operated shale WI investments, especially after reading the comments of the poster known as deadshot7.

          Large public shales are all treating you fair and square on JIB’s, etc?

  32. shallow sand says:

    I will, however, jump back to well payout (as there are some folks out there lurking who HATE that I “jump around”).

    (The same folks who like to label me a “peaker” and a “nut case” I might add).

    Eyeballing Enno’s post for the Permian, it looks like a reasonable calculation for gross oil for a well with first flow on 9/1/15 would be 90,000 BO as of 8/31/16.

    So, if we take 75% of that, the WI owner would receive 67,500 BO.

    Looks to me that Permian operators, on average, received $37 per BO for the period 9/15-8/16.

    67,500 BO x $37 = $2,497,500.

    So, not even messing with severance taxes, LOE, G & A, gathering, etc, the first twelve month’s gross revenue to the WI owner is right at 1/3 of the well cost (not including the cost of land, seismic, etc., of course).

    On what planet is this profitable? Yet, if I had a dollar for every time I have read a shale pundit say the Permian is profitable at current prices, I would be retired and sure as heck would not be trying to state my case here, or elsewhere.

    • shallow sand says:

      TT.

      Let’s say you have 10% GWI in the above Permian well

      So over the last year, after fronting $700-800K, you have gotten gross oil of $250K, gross gas of $20K. Knock off 7-8% severance, and maybe $30-40K in LOE and overhead.

      Is that a good shale well for you?

      • shallow sand says:

        But, then they proceed to drill 11 more wells in succession in the same unit, and decide to DUC some of them?

        I assume you get JIB’d for whatever the operator spends, even for DUC’s?

        But, unlike operator, you cannot issue shares to pay for any of this.

        So you might get hit with $5-6 million pretty quick, with maybe just $1.5-$2 million of revenue in year one?

        I see a lot of non-operated working interests in LTO wells for sale, and some huge amounts get spent per acre on CAPEX.

        • John says:

          Texas Tea,

          It finally dawned on me tonight that you are the only self proclaimed independent oilman with non-operated working interests that does not bitch about his JIBs and being operated to death nay even stolen blind by public operators ESPECIALLY Oklahoma operators.

          Everyone working interest owner I know in this business is being operated to death right now. Some are in danger of losing everything they have acquired over their entire careers.

          I’m calling bullshit on $14,000/ac lease bonus. I’m on the ground in the Permian and I think that I would have heard about that IF it happened. And by the way, I try to keep several thousand acres of land leased in the Permian.

          Right now banks in the Permian Basin are foreclosing on non operated working interest owners loans because the non-ops can’t pay their notes.

          Banks are reluctant to foreclose on operators because they don’t want or know how to be operators and they don’t want the associated liabilities. BUT, there is no reluctance on the part of the local banls to foreclose on the non-operated WI owner who can’t pay their bills because of unscrupulous operators.

          One independent, that I have known for almost 40 years recently tried to sell his company’s non operated working interest on Energy Net and Simplex. Want to guess how many bids he received? That’s right…zero, zilch, NADA!

          • Reno Hightower says:

            I have non op WI with one Major. Conventional production on a deal drilled in 03. Good production and they have been good operators. Everything else I drill is with an operator I do regular business with. I have seen the AFE’s and JIB’s on a friends non op WI on the local resource play and they are a break even proposition. They crush him or try to on acreage. This was part of an interest they had with the company (publicly traded shale player) prior to the unconventional boom when the company was a pure E&P company. The conventional production is the only reason they have made money over the life of the field. They are trying to unload it but not sure if they have any takers. Have another friend that is in the same spot.

            I wouldn’t invest in a non operated WI in ANY resource play with my worst enemy’s money.

          • shallow sand says:

            JohnS. I have been thinking along the same lines as you for quite sometime.

            There are a ton of these non-op interests for sale. I pointed out recently Citation trying to sell one it is in with XTO on.

            BTW, was the 5.6 quake near Pawnee, OK felt as far as the PB? Hearing it was felt in Austin and up to Sioux City, SD.

            These shale dudes will likely put an end to all produced water disposal in the lower 48, thus breaking permanently all conventional producers, even ones like us disposing of low volumes in shallow wells at low pressure.

            • John says:

              Shallow,

              Didn’t feel the earth quake down here. My second assignment after college was OKC.

              I remember telling someone I was moving to OK. He told me that every time he crossed the Red River he started to look around for something to steal and his wife started cheating on him.

              OKC was a strange place back then. You could hardly get a mixed drink without belonging to a private club but there was a strip club on practically every corner. I wonder if the Red Dog Saloon is still there?

              Oh, had I only studied harder and gone to church in my youth! Perhaps I would not be where I am now.

            • clueless says:

              SS

              Sioux City, IA
              Sioux Falls, SD

            • Evidently they need to do produced water disposal a bit more intelligently. The Oklahoma regulatory authorities appear to be just as bad as the ones in North Dakota. There are ways around this problem.

  33. AlexS says:

    Baker Hughes U.S. oil rig count data

    Oil rigs: + 1 unit
    Gas rigs: + 7 units

    Sharp decline in the GoM rig count from 17 to 10 units

    • AlexS says:

      Rigs by state:

    • AlexS says:

      Rigs by key basins:

      • AlexS says:

        Oil rig count in 3 key LTO basins: Permian has been more resilient during the downturn and clearly leads the recovery

        • AlexS says:

          Chart: Oil rig count in 3 basins

        • AlexS says:

          the table with the basin names

          • Doug Leighton says:

            Alaska down to four rigs (from 12) : that has to be unprecedented.

          • AlexS says:

            It could be due to maintenance or seasonal downturn

            Alaska oil and gas rig count, 2000-2016

            • Doug Leighton says:

              Alex,

              Are you some kind of outré Star Wars data machine or an info mining robot from some other dimension? The stuff you continue coming up with is utterly amazing. BTW, good suggestion.

              • AlexS says:

                Thanks Doug, 🙂

                I am using only publicly accessible sources.
                BTW, the above chart is based on the BHI statistics

      • AlexS says:

        The number of horizontal oil rigs in the Permian basin is now 48% of the November 2014 peak level

        Permian basin oil rig count by trajectory

    • Toolpush says:

      Alex,

      Is the offshore rig count down due to the hurricane effect. Not sure how BH counts the rigs that temporary leave a well while drilling.

      • AlexS says:

        Toolpush,

        I am not sure
        All of the decline was offshore Louisiana: from 16 to 9 rigs. Previous such decline was in June-July 2010, from more than 40 to 13 rigs. But that could be the result of the drilling moratorium after the Macondo incident.

        On the other hand, there was no significant declines in rig counts during the hurricanes Katrina (August 2005) and Rita (September 2005)

      • George Kaplan says:

        Rigs have to be “turning to the right” to be counted. At least 13 rigs were evacuated, not all would have been drilling at the time, but there may also be rigs among the 60 or so production platforms that were shut down. I think the count will be mostly back up next week.

        • Toolpush says:

          Thanks Alex and George,

          We will see what happens next, I suspect a return to near last week as well.

          Interesting to see gas drilling is at long last starting to respond. I suspect things could get real interesting once the last years excess storage is burnt off, and nat gas current decline trend tries to turn itself around to meet increased LNG, power and industrial demand.

          • Reno Hightower says:

            I thought so too Tool, but the Utica only picked up one rig and the Marcellus 2. Just my opinion but I think those are the only 2 resource plays that you can count on significant growth unless prices get above $6. I would have expected more but I think even the public shale cos are having trouble making money on gas at these prices. I am almost positive after SS turned me on to Raw Energys posts on Seeking Alpha.

          • AlexS says:

            Gas rig count is still close to multi-year lows.
            Apparently, $2.8/kcf is not enough for a more significant increase in drilling activity

            • Coffeeguyzz says:

              Ohio just released 2qtr production results (oilandgas.Ohio.dnr).
              48 Utica wells had output exceeding 1 Bcf. Another 40 produced over 800 MMcf.

              I don’t think any of those guys are making money, but there is still a fair amount of hedges well above $3/mmbtu.

              • Enno says:

                Thanks for the info Gerard,

                I plan to have a closer look at Ohio next week.

              • Reno Hightower says:

                How are they hedging at $3 gas based on the last 12 months of pricing, including the differentials they are seeing in the Marcellus/Utica?

                • Coffeeguyzz says:

                  Reno

                  While I do not concentrate on the financial aspects of these operations, I do scan over the data that is put forth in the compsnies’ presentations.

                  From the most recent Investor Presentations from Range, Antero, and EQT …

                  Range claims 80% of remaining 2016 output is hedged at $3.22. 30% of 2017 at $2.94.

                  Antero says 94% of forecasted production through 2018 hedged at $3.81. 2019 at $3.58.

                  EQT says 156 Bcf from 2016 hedged at $3.61.
                  246 Bcf from 2017 at $3.31.

                  Once again, my focus is on operations, but this is the data these companies are publishing.

  34. texas tea says:

    An old Texas Oil Man drove his brand new Corvette convertible out of the dealership.
    Taking off down the road, he floored it to 80 mph, enjoying the wind blowing through what little gray hair he had left.
    “Amazing,” he thought as he flew down I-20, pushing the pedal even more.
    Looking in his rear view mirror, he saw a state trooper behind him, lights flashing and siren blaring. He floored it to 100 mph, then 110, then 120.
    Suddenly he thought, “What the hell am I doing? I’m too old for this,” and pulled over to await the trooper’s arrival.
    Pulling in behind him, the trooper walked up to the Corvette, looked at his watch, and said;
    “Sir, my shift ends in 30 minutes. Today is Friday. If you can give me a reason for speeding that I’ve never heard before, I’ll let you go.”
    The old oil man paused.
    Then he said, “Years ago, my wife ran off with a State trooper. I thought you were bringing her back.”
    “Have a good day, sir,” replied the trooper.

  35. Toolpush says:

    The Indians have been holding up at least one gas pipeline through their reservation, it appears they had other ideas of what they wanted done with “their” gas.

    http://hhpinsight.com/epoperations/2016/08/apg-gets-license-for-tribal-land-flaring/

    Deal with MHA Nation for Fort Berthold Reservation in Bakken

    The American Power Group reports a TERO/Tribal Employment Rights Office agreement with the MHA Nation (Mandan, Hidatsa, and Arikara tribes), paving the way for increased use of APG technology and equipment to help reduce gas flaring in North Dakota’s Bakken energy fields.

  36. Ian H says:

    Art Berman has a link to a new interview on his site:
    http://www.macrovoices.com/195-art-berman
    Pessimistic on the short and medium term outlook for prices.

  37. Watcher says:

    http://peakoilbarrel.com/wp-content/uploads/2016/08/580172.gif
    US oil production down YTD

    http://sputniknews.com/business/20160903/1044918043/russia-oil-production.html
    http://www.marketwatch.com/story/russian-oil-output-hits-post-soviet-high-swamps-hopes-for-production-freeze-2016-04-04
    Russia pumping record levels of oil and plans to have no decline in 2017.

    http://oilprice.com/Energy/Crude-Oil/Why-Saudi-Arabia-Continues-To-Pump-Crude-At-Record-Levels.html
    As the Financial Times reported on 12 July, Saudi Arabia’s oil-output reached record highs in June 2016. Increasing production 280,000 barrels/day to 10.6m b/d, Saudi Arabia has once again waved off OPEC’s request not to glut the market with oil.

    Behold, victory.

    • Nick G says:

      Behold, desperation and an unwillingness to transition away from economies based on dead-end extractive, commodity industries.

      Russia and KSA are in a lot of pain, right now. It’s nothing compared to the world of hurt they’ll be in when it becomes obvious that their main industries are obsolete.

  38. Oldfarmermac says:

    Does anybody here know what the odds are that the latest Oklahoma earthquake is a by product of the oil industry?

    This one was big enough to get the attention of anybody living there.

    • Very high. Earthquakes are to be expected when water is injected at high pressure without much regard for the stress field. The way it works, when water is injected at high rate for a long time, the pore pressure in the rocks increases, this high pressure zone can be so large it can eventually unlock an existing fault, and trigger an earthquake. Such an earthquake may have happened in the future, but water injection brings it forward in time. It can also trigger quakes which may never have happened.

      The solution is to reduce pressures. This requires using more injection wells, injecting in pressure depleted zones, controlling the rates, etc. I’m used to keeping an eye on this problem, measuring pressures in a well is pretty easy, so they have no excuse other than they save money if they get shoddy.

    • Doug Leighton says:

      OFM

      To answer your question, until 2008, there had never been an earthquake recorded in the Dallas-Ft. Worth area, which sits atop the Barnett Shale. The first wells were drilled there in 2002, and since 2008, they’ve had almost 200 quakes. Oklahoma has it worse: in 2014 their earthquake rate was greater than California’s, and in 2015 they had 890 earthquakes. Geophysicists are using the phrase “earthquake swarms” to describe the clusters of earthquake activity caused by industrial (oil/gas) activity in this area. Good summary in the referenced Extreme Tech article article.

      http://www.extremetech.com/extreme/225753-united-states-geological-survey-confirms-it-fracking-causes-earthquakes

  39. aws. says:

    Oklahoma Quake Matches Record Even After Fracking Waste Restricted

    by David Wethe, Sheela Tobben, Bloomberg, September 3, 2016

    “Without studying the specifics of the wastewater injection and oil and gas production in this area, the USGS cannot currently conclude whether or not this particular earthquake was caused by industrial-related, human activities,” the agency said Saturday in a statement. “However, we do know that many earthquakes in Oklahoma have been triggered by wastewater fluid injection.”

    • Whoever is in charge should order quarterly surface pressure fall off readings in injection wells, a monthly record of the water density and volume being injected, as well as a down hole measurement to calibrate the surface once every three years. Some of those wells may sand up, but they need to get really serious before they trigger an 8.

      • Doug Leighton says:

        An 8 is extremely unlikely (they tend to stay below 5.5) because induced quakes tend to swarm and are pretty shallow Of course the risk persists for years after the fluid injection stops and the threat cannot be ignored. Even small quakes can do significant damage as per the one that struck Oklahoma in Nov., 2011.

        • Nick67 says:

          New Madrid got nailed with what was the strongest earthquake known in North America in 1812.
          https://en.wikipedia.org/wiki/New_Madrid_Seismic_Zone
          The reality is that no one KNOWS what lubricating the geology under OK will actually do in the future. With earthquakes, the human scale past is not indicative of the future. There have been no big earthquakes in the SeaTac-Vancouver region since European settlement occurred, but a massive quake is absolutely assured because that region sits on a subduction zone, and we do KNOW how those act. The long-term effects of high pressure, high volume injection into the geology under OK are unknown. The past may be indicative of the future — or not. A fundamental change has occured — lots of lubricant added. It may ‘unseize’ the geology, or not.

  40. R Walter says:

    No, China is not at peak oil. Shanghai has a subway system, it has to remain functional. Electricity is vital to the operation of a modern transportation system. If the subway system fails, flights leaving and entering Shanghai will suffer serious disruption. It will be Peaking Chaos! No Peak Oil at all, just pure madness.

    Peak Oil is located in the Caucasian Mountains, not in the Himalayas.

    As long as China can buy crude, China will consume oil. Has to function, no disruptions, oil will keep China a well-oiled machine, add 11,000 coal mines and an adequate number of coal-fired power plants generating electricity, there is little danger of China collapsing into chaos. The dam they built is providing some serious power.

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