Gulf of Mexico Crude Oil and Gas Production

This is a guest post by Jean Laherrere

BOEM and BSEE have published in 2014 the GOM oil & gas reserves at end 2010 few months ago and at end 2011 lately.

The big change is that they now report proved and probable reserves = 2P (in contrary to SEC rules for operators reporting at the US Stock Exchange, forbidding to report probable reserves), when before they reported only proved reserves = 1P

They argue:

In order to more closely align BOEM GOM reserves definitions with the Petroleum Resources Management System definitions (SPE/AAPG/WPC/SPEE 2007), this report clarifies that Proved Reserves in this and previous reports are Proved plus Probable (2P) estimates.

The difference between original reserves estimates from previous year found little difference for discoveries before 1995

The difference between 2P 2011 and 2P 2010 is a very large decrease for Thunder Horse (-488 Mb or 573 Mboe) and the largest increase is Great White +73 Mb

Jean 1

The difference between 2P 2010 and 1P 2009 displays a large increase in Tahiti +169 Gb and large decrease with Atlantis -92 Mb (already in decrease in 2009)

Jean 2

The difference between 1P 2009 and 1P 2008 is as important as the difference between 2P and 1P: large increase with WD 030 +61 Mb and large decrease for Atalntis -161 Mb

Jean 3

The change in reserves with time  and definitions does not change the estimate on GOM ultimates: 24 Gb and 210 Tcf

The modelling for oil is complex because the subsalt and needs 4 cycles, meaning that a fifth one is difficult to guess

Jean 4

The modelling for natural gas is easier with only 3 cycles and one cycle model could be as good.

Jean 5

The increase from 1998 values comes mainly because these government agencies, selling leases to the oil companies, are unable to properly register the number of fields: about 10% missing!

The number of fields at end of 1998 was 984 in the 1998 study (14,3 Gb & 163 Tcf) when it is now in the 2011 study 1087 fields (18,5 Gb & 184 Tcf): 103 fields missing representing about 4 Gb & 20 Tcf: poor reporting!

But the last 2014 report at end of 2011 does not report any discoveries in 2010 and 2011, when it is known that Macondo (200 Mb) found in 2010 (with 6 other discoveries, in particular Appotattox (220 Mb) did produced some undesirable oil during the blow out. These reports are unfortunetly incomplete. Governments are unable to gather in time reports from operators and several years are needed to get them corrected.

The plot of oil production of the changing fields (p most in deepwater) shows large varitions, meaning that the estimate of reserves in frontier area (subsalt) is difficult

-Tahiti rank 7 deepwater 4320′ subsalt found in 2002:  414 Mb in 2009, 583 Mb in 2011

Jean 6

-Atlantis rank 14 deepwater 6285′ subsalt found in 1998: 689 Mb in 2001, 398 Mb in 2009, 352 Mb in 2011

Jean 7

-Thunder Horse (formerly Crazy Horse) MC 778 rank 2 in 2010, rank 41 in 2011 deepwater 6078′ found in 1999 by BP which produced the field with the largest semisubmersible platform as also North Thunder Horse MC 776 deepwater 5668′ found in 2000

Jean 8

BOEM & BSEE reports complete monthly production per lease
BOEM Deepwater Natural Gas and Oil Qualified Fields
but the oil reserves are reported by field.

field                                  lease            area   block   water ‘ operator          code          discovery
N.Thunder Horse       G09866          MC     776      5,668   BP                   MC776           2000
N.Thunder Horse       G09867          MC     777      5,668   BP                   MC776           2000
N.Thunder Horse       G09868          MC     778      5,668   BP                  MC776           2000
N.Thunder Horse       G19997           MC     775      5,668   BP                   MC776           2000
N.Thunder Horse       G21778           MC     734      5,668   Murphy          MC776           2000
N.Thunder Horse       G27312           MC     819      5,668   Murphy          MC776           2000

Thunder Horse         G09868          MC     778      6,077   BP                    MC778           1999
Thunder Horse         G14657          MC      821      6,077   BP                    MC778           1999
Thunder Horse         G14658          MC     822      6,077   BP                    MC778           1999

Unfortunatley lease G09868 belongs both to MC 766 and MC 778.

So to get the data by field it is neccessary to go from each annual report giving the monthly production per field and per lease.

Jean 9

MC 778 (in green) peaked in 2009 and declined sharply and was stopped during Macondi blow out, resume decline, but increases since February 2014.

MC 776 (in purple) peaked in 2010 higher and declined since rather chaotically.

Both fields (in red) dispolays a bumpy plateau in 2009 and 2010, a sharp decline and a new increase in 2014.

The watercut of the combined fields has u increased slowly and in 2014 is about 30% which is much less than most of GOM fields when in decline. Watercut is not the problem of deepwater fields.

From 2011 reserve report, the next graph shows the oil original estimate since 1999 for both fields, the rank and the cumulative production (up to 2013 from above graphs)

Thunder Horse (MC778) was in 2001 reported as the second largest field in the GOM, was still second in 2010 but in 2011 its rank fell down to 41

Thunder Horse North (MC776) was raked at 6 in 2006 and at 17 in 2011.

Jean 10

The oil and gas reserves of both fields were 1506 Mboe in 2000, 1227 in 2010 and 651 Mboe in 2011: divided by half.

And I guess that the fall can continuei

-West Delta 030 shallow water (49′) found in 1953

The fields has many reservoirs against a salt wall over a depth of 16 000 ft: see Energy XXI slide.

Jean 11

WD 030 peaked in 1973 and declined with bumps, in 2002-2006 the operator Exxon drilled 6 wells, small increase, mainly gas and in 2010 sold the field and 8 other fields to Energy XXI for 1 G$.

Energy XXI has drilled a new well and 9 wells were recompleted. The result is a small increase. Watercut stays around 85%.

Jean 12

The monthly oil production plot against cumulative discovery shwos that the original reserves went from 580 Mb 1P in 2008 to 641 Mb 1P in 2009 and 648 Mb 2P in 2011

Jean 13

The plot of the 1P reserves and cumulative production displays the usual increase of proved reserves with production and also with oil price. The last increase will take a long time to be produced.

Jean 14

This small increase, which can be described as EOR done by a small operator which has smaller operating costs than a major and can affords more drilling.

It remind the small increase in the North Sea UK Forties field sold by BP to Apache in 2004.

Jean 15

 

In conclusion it appears that the deepwater fields were overestimated, BOEM/BSEE are correcting theirs estimates.

In the world there was no giant discovery in 2013, the first time since 1903 and in the GOM the largest deepwater discovery was divided by half losing the volume of a giant field!

My last forecast on the US oil production is far from the last preliminary AEO 2015 and also from the official AEO 2014 which extrapolated needs an US ultimate over 400 Gb, when my guess is between 250 (adding the different estimates) and 300 Gb (global guess to take care of unknowns)

Jean 16

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173 Responses to Gulf of Mexico Crude Oil and Gas Production

  1. Watcher says:

    There was a guy who posted here who was aware of a new field of significant size GOM. Mississippi something. Not a new discovery. Just preparing to come online.

    Oil is down 20 cents in Singapore with the dollar largely flat.

    • Doug Leighton says:

      Watcher, How about the Deepwater Horizon which is (was) located in the Mississippi Canyon. I think some of the oil caught on fire. 😉

  2. Old farmer mac says:

    Any body prepared to predict how the senate vote on the keystone will go?

    It appears that it will take just one more dimorat to break ranks for the bill to pass. I have not looked into this situation at all closely and thus have no clear idea but it seems pretty likely to me that at least one or two more dimocrats will decide their own chances of getting re elected next time around will be improved by breaking ranks on this one bill.So I think it has a very good chance of passing -greater than fifty percent but this is only a personal seat of the pants guess.

    All the pundits say that Obama will veto it if it passes and maybe he will. If so it will please his base but in my estimation hurt the chances of the democrats winning next time around. Their better course would have been to just give up on Landreiu as I see it. I hereby predict she will lose in a landslide either way.

    Generally speaking I am of the opinion that the dimocrats while not as politically sharp witted as theyshould be ( hence my calling them dimocrats ) are still much more adept at political maneuvering than the repuglithans. But not this time around. This time the repuglithans win the propaganda battle hands down.

    It appears the repugs have allowed the dimorats to maneuver themselves into a damned if they do and damned if they don’t dilemma.

    I personally support strong environmental regulations but stopping this pipeline is not going to serve any real purpose other than perhaps as litmus test and as a line in the sand to rally the environmental troops.The tar sands oil is going to get to market no matter what, no matter how many speeches to the contrary are made.

    If the democrats were not in this case dimocrats they would have used this issue as a bargaining chip to get some more money for parklands or renewable energy research or any other worthwhile purpose but it is probably too late for that now.

    • Watcher says:

      Harold Hamm told the GOP not to bother with it. He had a point. Some Bakken oil may use it, but it will take a long time to build and it’s not going to matter soon, and soon is all that may matter..

      The overall bill is mostly trying to save Landrieu’s seat. She has a runoff in 3 weeks. She won Nov 6 by 1% with a third party guy getting 13% and since has been campaigning with the #2 guy, a Republican. She is going for broke sponsoring the bill to try to do SOMETHING to win.

      Odds near zero.

      • Old farmer mac says:

        I agree that Landreiu has a near zero chance of saving her seat.

        But are you referring to her re election or the odds of the bill passing?

    • DownToTheLastCookie says:

      “The tar sands oil is going to get to market no matter what” “used this issue as a bargaining chip”

      I couldn’t agree more with the statements above. The country already has tens of thousands of miles of pipeline running across it. It’s not like one more is going to make a difference. Controlling the flow of the oil will be much more important in the future for security reasons. Refineries on the gulf coast should be the cleanest in the world to process it. Pipelines are more efficient than rail. Plus, if something goes wrong. It’s in Republican territory. Which is better than in my backyard.

      Nothing says fish oil like the GOM

      • Old farmer mac says:

        It encourages me to see that at least one other person in this forum has enough raw basic survival instinct to understand that having that oil coming thru the US rather than leaving thru east and west pipelines inside Canada- which will surely get built if the Keystone does not- is critically important to the survival of YANKEES in this Darwinian old world.

        There will be energy crisis after energy crisis eventually morphing into one continuous crisis barring miracles.Resource depletion and overshoot are as real as the giant hole in the Titanic and that oil in a sense is going to be a lifeboat for whoever has immediate access to it.

        Ya know what they say about such issues in law offices.

        Possession is nine tenths of the law.

        There is another famous quote about such things in English history sorry I cannot remember the origin of it. But somebody asks somebody else by what right he claims possession of certain property.

        The reply is famous .” By right of a strong right arm!!!” while brandishing the sword.

        I do not wish to insult the readers and commenters of this forum who may see things differently but the only honest thing I can think of to say in this particular case is that if somebody believes in peak oil and economic and ecological collapse then they either must be terminally naive or just plain stupid if they do not believe there will be hot wars fought over access to oil.

        The only thing that just might prevent the major powers from going at it directly is MAD- mutual assured destruction as the result of such wars going nuclear. The threat of MAD is credited by quite a few serious thinkers as being the only real reason the Soviets never invaded the rest of Europe after consolidating their newly gained empire at the end of WWII..

        If WE have to have it to stave off collapse HERE and it is on the high seas that means attacking the shipping of other countries and starting WWIII.

        If it is flowing thru this country and we have it inside our borders if other countries want it that means attacking the US mainland.

        Dogs are always bravest and strongest in their own yards.This includes the dogs of war.

        I have little doubt that a number of sleeper terrorists have been infiltrated into this country and that more are arriving but such individuals or small groups can’t do very much except piss us off. Killing a few thousand people means nothing in terms of the strength and security of a country with three hundred million except as a political statement.

        Nobody is going to attack the US directly in the usual military sense of the word for the foreseeable future.IF we have that oil we have it and the rest of the world will just have to like it – and suck up to us politically hoping for a share of it.

        This is not something that pleases me..I would rather there was plenty of oil for everybody to pull thru the next few decades without fighting over it..

        There will not be any fight for the Canadian tar sands oil if it passes thru this country.

        Now as to which is worse – collapse due to energy wars or runaway warming due to having fossil fuels- well about that issue I guess we are damned if we do and damned if we don’t .

        My guess is that we will adapt on a world wide basis by burning coal and that oil shortages will make things worse rather than better in terms of climate.

        • Dennis Coyne says:

          Hi OFM,

          You are probably correct that it will be better if the pipeline gets built, the oil will be used one way or the other.

          One counterargument that I can think of is that the availability of this oil will tend to delay the transition that needs to occur.

          I find that argument unconvincing because the price of oil is determined in World markets and the price of oil is the key.

          An interesting fossil fuel forecast by Steve Mohr suggests that coal will peak before natural gas, with peak energy from all three fossil fuels (oil, natural gas, and coal) occurring in 2018 at about 260 Mboe/d (in 2013 consumption of fossil fuels was about 232 Mboe/d (boe is barrel of oil equivalent).

          A summary of the thesis can be found at the link below, note that an exajoule (EJ) is about 5.73 Gboe, so for Mohr’s best guess scenario (case 2)
          the URR of oil is 4200 Gb (including about 1000 Gb of shale oil, Green River shale mostly), for coal URR is 3400 Gboe, and for natural gas URR is 3000 Gboe (including 430 Gboe of coalbed methane).

          http://www.theoildrum.com/node/6782

          The full thesis can be downloaded at the link below:

          http://ogma.newcastle.edu.au:8080/vital/access/manager/Repository/uon:6530

          • Old farmer mac says:

            I place great weight on the argument that we need to transition away from fossil fuels as soon as possible for both economic and environmental reasons. Fossil fuels will not last forever and unfortunately runaway global warming is a near to medium term threat that may already be baked in.

            BUT in order to survive the long term we must first get thru the short term and every five or ten years more of business as usual means the built base of renewable wind and solar power will be doubled even as the price of the technology continues to fall.

            So as I the big picture we are in a race for the survival of life as we know it today in rich countries such as the US. I advocate keeping the pedal to the metal on all sorts of renewable investments plus building a new fleet of nukes as well as tough legislation involving the conservation and efficient use of all natural resources.

            If we are very very lucky some of us will skinny thru but an outright collapse of modern industrial civilization world wide is a very real possibility. I think countries such as the US are likely to survive more or less whole while maintaining a basically civilized industrially based life style but there are so many possible things might go wrong that the odds of our pulling thru are impossible to estimate in my opinion.

            But if I could lay a bet on it and live long enough to collect if I won I would bet three to two or maybe even two to one that the larger part of the US will have running water and grid juice and sewers and food in the stores and cops -maybe in military uniform- on the streets fifty years from now and a hundred years from now.

            Cars running on oil or biofuels will be extremely scarce but there might be a lot of electrics. There will be oil enough real or synthetic and biofuels enough to maintain food production and distribution and essential infrastructure.Airports and resorts are not essential. Football stadiums are not essential.

            Beer will be brewed locally unless it is hauled on trains. Food will come in returnable jars and boxes but hey we have to go back to the store anyway right?

            I would also bet that desperately overpopulated countries such as Egypt will have suffered a major die off under Somalian like circumstances.

            It is imo speaking as a real hands on plus professionally educated farmer than it is utterly impossible to transition back to any previous agricultural system and support the billions of people alive today. It is going to be industrial farming or starvation given the amount of land and water available and the unimaginable difficulties that would be involved in any attempt to put urban people back on the land by the tens and hundreds of millions.

            Most of them would gladly starve fighting first in my opinion and the ones who would move would have no relevant skills no housing no transportation no machinery no capital and very little hope.

            A time is coming when countries that import vast amounts of food are not going to have anything to exchange in payment for it and I don’tt think the rest of the world is going to be able to pay or even if able willing to do so.

            • DownToTheLastCookie says:

              Young Man At Heart (OFM),

              We are on the same page here. The answers to the worlds energy and co2 problems are on the demand sided, not the supply side. The first step we need to do is transition to a near sustainable low energy transportation system(renewable). Personal expectations and old money fossil fuel industries are the biggest obstacles, not technology.

              This is one time we can’t do the American thing and wait for the problem to become catastrophic before we fix it.

              We are destroying our only mother earth. Population growth has to be addressed. It’s the root of the problem.

              • Watcher says:

                Right, it is the root.

                And that gets addressed in China and India. Now explain how you will do that without using force.

                And then when you realize you can’t, the correct conclusion is not that you have to think some more.

              • Nick G says:

                Population growth is at not the root, and even if it were, it’s already been addressed in China and mostly addressed in India: China has a very low fertility rate, and India’s fertility is dropping like a rock.

                The problem is per capita consumption of fossil fuels. That’s pretty easy to fix, if we only choose to.

                • Nick, fixed your typo but I cannot fix your very obvious misunderstanding about world population. World overpopulation is the root of all our environmental problems. We are at about four or five times the long term carrying capacity of the earth. We are now well above the short term carrying capacity of the earth. A short term, in this instance, is defined as less than a century. And we are already well into that last century of exuberance.

                  In both India and China the water tables are dropping by meters per year. Land previously irrigated can now no longer being irrigated.
                  About every 30 minutes in India, a farmer commits suicide. In China the topsoil is blowing away and the Yellow River only reaches the sea in the rainy season.

                  I could write a book with stories about how our massive overpopulation is killing the planet. But some people just insist that there is no overpopulation problem. I will never understand that mindset. And just one more point. You wrote:

                  That’s pretty easy to fix, if we only choose to.

                  Do you actually believed the world is in its current condition because seven billion people chose its current condition? Or that they could change things if they simply “chose to”?

                  • Dennis Coyne says:

                    Hi Ron,

                    I agree there is an overpopulation problem at present, there are places such as Japan where population is declining, eventually this will happen everywhere. It may not happen as fast as is necessary, if not death rates will increase due to war, famine, and/or disease.

                    Chart below with Japanese population projection. Total Fertility ratio is less than 1.5 births per woman in Japan.

                  • Nick G says:

                    First, I was responding to the idea that something needs to be done in China and India. Fact is that they have done or are doing what needs to be done to stop population growth. The places that need intervention are in Africa and the Middle East: primarily, freeing women from forced child bearing.

                    Yes, we do have a choice. Our primary problem with sustainability is fossil fuels: both because they are limited and because they pollute. There are better and cheaper alternatives, which we don’t use for social reasons, primarily the resistance by minorities who would be harmed by change in the short term.

          • Old farmer mac says:

            I place great weight on the argument that we need to transition away from fossil fuels as soon as possible for both economic and environmental reasons. Fossil fuels will not last forever and unfortunately runaway global warming is a near to medium term threat that may already be baked in.

            BUT in order to survive the long term we must first get thru the short term and every five or ten years more of business as usual means the built base of renewable wind and solar power will be doubled even as the price of the technology continues to fall.

            So as I the big picture we are in a race for the survival of life as we know it today in rich countries such as the US. I advocate keeping the pedal to the metal on all sorts of renewable investments plus building a new fleet of nukes as well as tough legislation involving the conservation and efficient use of all natural resources.

            If we are very very lucky some of us will skinny thru but an outright collapse of modern industrial civilization world wide is a very real possibility. I think countries such as the US are likely to survive more or less whole while maintaining a basically civilized industrially based life style but there are so many possible things might go wrong that the odds of our pulling thru are impossible to estimate in my opinion.

            But if I could lay a bet on it and live long enough to collect if I won I would bet three to two or maybe even two to one that the larger part of the US will have running water and grid juice and sewers and food in the stores and cops -maybe in military uniform- on the streets fifty years from now and a hundred years from now.

            Cars running on oil or biofuels will be extremely scarce but there might be a lot of electrics. There will be oil enough real or synthetic and biofuels enough to maintain food production and distribution and essential infrastructure.Airports and resorts are not essential. Football stadiums are not essential.

            Beer will be brewed locally unless it is hauled on trains. Food will come in returnable jars and boxes but hey we have to go back to the store anyway right?

            I would also bet that desperately overpopulated countries such as Egypt will have suffered a major die off under Somalian like circumstances.

            It is imo speaking as a real hands on plus professionally educated farmer than it is utterly impossible to transition back to any previous agricultural system and support the billions of people alive today. It is going to be industrial farming or starvation given the amount of land and water available and the unimaginable difficulties that would be involved in any attempt to put urban people back on the land by the tens and hundreds of millions.

            Most of them would gladly starve fighting first in my opinion and the ones who would move would have no relevant skills no housing no transportation no machinery no capital and very little hope.

            A time is coming when countries that import vast amounts of food are not going to have anything to exchange in payment for it and I don’tt think the rest of the world is going to be able to pay or even if able willing to do so.

        • Paulo says:

          Mac….re: XL

          You will have the oil but will still have to pay close to world price for it. Remember, the shutoff/diversion valves will be on the Canadian side of the border. If US plays dirty with price (as they did with softwood lumber) I am sure the Chinese or someone else would be pleased to finance an eastern pipeline (Northern Gateway is dead in the water). New canal options being built, at least engineering is being done, as this is written. By the Chinese.

          Before any of this is an issue Kinder Morgan is increasing pipeline capacity with transit through Vancouver up to an estimated 900 k bbl/day. Contentious, but I would think it will happen as First nations have mostly signed on who live along the route.

          I do agree XL is important as decline and unrest sets in. However, that does not mean refinery export bans to landlock supplies in order to keep the SUVs on the road with lower than world gas prices. Everyone will have to change their consumption habits going forward.

          paulo

          • Dennis Coyne says:

            Hi Paulo,

            I do not think crude imported to the US from Canada is under any export restriction, in most cases the oil sands oil will be sold to refineries and there is no export ban on refined products, only on crude. The current make up of Congress may result in the elimination of any restriction on crude exports.

            For now, there would be no problem with shipping Crude to the US from Canada.

            As far as “owning” the oil, if the price is not right the oil sands can be sent elsewhere, by rail or other pipelines.

            The US imports about 7 Mb/d of crude, it might as well be from our friendly neighbors to the North. The peak will arrive soon, then oil prices will increase and the transition can begin.

            Even in Steve Mohr’s optimistic (case 3) scenario all fossil fuels peak in combined energy annual output by 2030, the realistic (case 2) scenario is 2018 (I think maybe 2020).

            We really need to get cracking on wind, solar, and nuclear now, the sooner fossil fuel prices start to rise, the better, as it will push the transition forward.

          • Old farmer mac says:

            I hope I have not given the impression we would get the oil at a discount or try to cheat the Canadians although hard ball politics are hard ball politics.

            Having that oil coming thru the US means that when the shit hits the fan we have physical control of it- and oil is the single most important strategic material in the entire world given that food is produced in significant quantities just about every where there are people.

            Navies run on oil. Armies run on oil. Economies for now and for the easily foreseeable future run on oil.Hitler invaded other countries as much for oil as for any other reason.

            Who ever controls it when the shit hits the fan is in a substantially better strategic position. Of course the Canadians could cut it off and deny it to us but they aren’t going to build pipelines on short notice in time to change the strategic situation in a time of crisis.

            And by the time they could build them we would probably be upset enough to say something along the line of ”you go ahead and load that Chinese tanker- but as soon as it is out of Canadian waters we are going to sink it since we are at war with China.”

            A country dealing from a position of great strength can often avoid going to war at all. Of course I hope we will never get into another hot war with another major power but history isn’t over.

            • Nick G says:

              A lot has changed since WWII. The U.S. has hurt itself enormously by focusing on controlling all supplies, instead of becoming independent of it. Fortunately the U.S. Navy didn’t make the same mistake, and is much less reliant on oil in it used to be.

              The US produces more than enough oil to proceed on a war footing.

              • Ilambiquated says:

                Yes, like a junky robbing a liquor store to buy more heroin. Sounds like a good plan, but it has its down sides.

            • Paulo says:

              No Mac, you did not give that impression and I mistakenly gave Dennis the idea that I said/thought refined products are export restricted. I understand that they are not. Now. But, I was cautioning or expressing distaste about the idea of political forces controlling exports to keep prices low for political gain, (continued wasteful use of resources).

              We pay far higher prices here due to our tax regime (my local price =$ 4.61 per US gallon)….in Canadian funds of course, which adjusted would still be roughly $4.05/US gal. Our tax rates help pay for our transit and infrastructure. In general revenue it helps pay for our socialized medicine program and other safety nets. Our Province has a balanced budget and Canadian budget is very close to being balanced after the recent debt crisis and recession.

              There is much crowing in media about dropping gas prices. This is a mistake as far as I am concerned. I think the price should be doubled to restrict waste and promote alternatives to FF powered personal transport. If gas was $8.00 per US gallon we would have simple 100 mpg made in America cars that consumers could afford to buy and operate.

              regards, paulo

              • Dennis Coyne says:

                Definitely with you on higher gas prices in the US.

                I misunderstood both Glen with the “possession is nine tenths of the law” in his comment (or something to that effect), and you on the keeping prices export prices low (and you are correct that laws can change.)

                I apologize to you both, I seem to be reading very poorly.

                • Dennis Coyne says:

                  and writing poorly as well!

                  “and you on the keeping prices export prices low” should have been
                  “and you on keeping export prices low”

        • Nick G says:

          In the short term, the pipeline benefits Canada, not the US.

          The US has far more oil than it needs to fight a war.

          In the longer term, it would be far cheaper and better for the US to ramp up production of vehicles that use less fuel.

          Reliance on oil is a bad idea. It’s promoted in the US primarily to benefit oil investors.

      • Mike says:

        Let there be no mistake about it, Keystone will do nothing more than further erode WTI prices in the US and make it harder for domestic producers to maintain production levels. A number of pipeline projects recently completed have been able to mover more oil out of the Permian Basin and are draining Cushing like somebody pulled the plug in the bottom of a bathtub. All of that is going to Houston and Pt. Arthur and there is no more room for another stinkin’ barrel of oil, anywhere. Shale oil from the Eagle Ford once commanded an 8-12 dollar premium to WTI based on a posting called LLS (Louisiana Light Sweet); because of the surplus that is down to
        < 3.00 dollars and falling.

        Keystone, in spite the rhetoric, will get more Bakken barrels to the Gulf Coast, EF LTO will get blended with nasty Canadian bitumen and limited refinery capacity will be dedicated to Canadian oil and Canadian exports, not US oil.

        Nobody in the oil business in the Texas or Louisiana wants this thing, I assure you.

        • Dennis Coyne says:

          Hi Mike,

          The project will only allow an extra 100 kb/d to be shipped by pipeline from the Bakken, the bulk of the oil will be oil sands oil diluted with condensate (700 kb/d of the 800 kb/d capacity of the Keystone XL).

          Wouldn’t the extra heavy oil from Canada just replace imports from Saudi Arabia and Venezuela?

          Despite what the average American thinks, I am sure that you are well aware that the US still imports 6 Mb/d of crude, seems like it doesn’t matter much whether it comes from Canada or some other country.

          The Bakken and Eagle Ford are unlikely to increase output much more (maybe another 500 kb/d combined). The Permian basin might grow a little (300 kb/d) as well, but within a few years the Eagle Ford and Bakken will be declining at 10% per year (probably 2015 to 2017 depending on oil prices). It is doubtful that other LTO plays will be able to keep US output at 9 Mb/d.

          Also current oil prices will lead to reduced drilling in all the LTO plays, output will level off or decline and oil prices will go up, probably within 6 months, even if OPEC does not cut output.

          • Mike says:

            Dennis, why do I always feel like you are lecturing me? Look, I don’t have the time to post 65 times a day, fortunately. When I do I am not trying to pick a fight, or prove to someone what I know, I am just trying to give some insight into the real oilfield. Not the oilfield people read about on the internet all day long; the real one, with real people and real problems.

            I wrote that we are full up down here along the Gulf Coast, flooded, awash, floating in oil, sometimes we can’t even get oil out of the field anymore into pipelines at the end of the month because there is no more places to store the stuff along the Coast. Premiums to WTI are dropping like a rock. That is a detriment to the ability to sustain domestic production. If you think that there won’t be more than 100K BO per day ultimately stuffed in Keystone from the Bakken, instead of on rail cars, simply because Trans Canada says there won’t on the internet, you are wrong. We’re worried about it.

            I am aware of current import levels to the US, thank you. I am also very much aware of the “give it to Texas, Texas will eat anything” mentality other Americans have. The infrastructure to move oil around this country sucks; it sucks because nobody else in the country wants refineries in their own yard. Keystone will just create more bottlenecks down here. If we have to keep that nasty bitumen crap in the North American family, build Keystone east, erect some refineries in Maine, or Vermont.

            • Caelan MacIntyre says:

              As an aside, your mention of Vermont in that context reminds me of what I’ve been hearing about with regard to some states, perhaps especially Vermont, that seem to be getting increasingly radical when it comes to local versus what corporations and national governpimps think they can get away with.
              Thomas Linzey seems to be spearheading much of this, though I imagine it’s catching on quite a bit. I noticed his site highlights some (banned) fracking, but perhaps he’s nevertheless aware that, given its ‘numbers’, the current price of oil, recent climate-change alarm, etc., it seems kind of self-banning anyway.

              “I think as the years roll on, more and more people will understand that we actually need to change the DNA of this country to have any chance. I think that as the ball starts rolling faster, more and more people will clearly see how the structure of law operates and the necessity of changing it.” Thomas Linzey, Esq.

            • Watcher says:

              Mike, here are some things about which you are right.

              US refinery capacity 18 million bpd. Portion of that around TX/Louisiana/Mississippi — looks like 45%. That means one helluva lot of oil is being refined elsewhere and if that elsewhere is shipped to Texas, the capacity isn’t there to refine it.

              One supposes the almost 1 million bpd refinery capacity of Illinois somehow can’t deal with Bakken oil, because that’s enough capacity to handle all of it — and it’s rather a lot closer to NoDak than Texas. That’s interesting on about 6 different levels.

              • Dennis Coyne says:

                Hi Watcher,

                I will assume your refinery capacity numbers are correct.
                PADD 3 (mostly Texas, Louisiana, New Mexico, and Gulf of Mexico) produced about 60% of US C+C output in August 2014, so having a fair amount of refineries (45% of capacity) near to where the oil production occurs, makes sense.

                I don’t know why the Bakken oil doesn’t go to Illinois refineries, some goes to the east and west coasts. Perhaps the refinery in Illinois is set up for heavier grades of crude.

                In fact the Midwest refineries take about 2000 kb/d of imported crude, probably from Canada, there is an excess of Canadian crude of about 700 kb/d that is probably already going to the Gulf coast refineries.

                I am not sure that Keystone XL will change the amount of crude getting to the Gulf Coast, it may only make it cheaper to get it there.

                In the short term the Gulf coast pipeline system may be swamped, longer term the LTO plays will start to decline and we will be happy to have the crude flowing to the Gulf coast from a stable neighbor.

                My understanding is that the input to the Keystone XL near the Bakken can handle no more than 100 kb/d, 700 kb/d will be coming from the oil sands.

                Currently we get about 2700 kb/d from Canada, and another roughly 2400 kb/d split in thirds from Saudi Arabia, Mexico and Venezuela (August 2014 4 week average data from the EIA).

                • Dennis Coyne says:

                  The rest of the imported crude comes from Iraq, Ecuador, Columbia, Angola, and Kuwait. In August about 6600 kb/d of crude was imported.

                  Also some Canadian oil goes to all 5 PADDs, but almost all goes to the Midwest with smaller amounts going to the other 4 PADDs. Excluding Canadian imports, 3300 kb/d is imported to the gulf Coast refineries (with 700 kb/d from Mexico).

                  So I was wrong about 700 kb/d of Canadian oil already going to the Gulf coast, in August it was only 200 kb/d.

            • Dennis Coyne says:

              Sorry Mike,

              I didn’t mean to offend. I am actually trying to learn. I do that by asking questions.

              In the future, I will just listen.

              Thanks.

        • DownToTheLastCookie says:

          “Nobody in the oil business in the Texas or Louisiana wants this thing, I assure you.”

          Phillips 66 and Valero would love to see discounted dirty oil via pipeline from the Tar Sands connected to their refineries. They already have the means to process it.

          Not everybody

          • Dennis Coyne says:

            Hi DTLC,

            I think the oil producers are not keen on Keystone.

            • Mike says:

              Dennis, we’re cool; you certainly don’t have to listen to me. I just try and keep it real. When I say oil people I was, of course, referring to producers, not the downstream folks, particularly high cost LTO producers, who are now loosing the WTI premium they once enjoyed…along with the 25% hit in NYMEX WTI. We (producers) all whine about oil prices but there have been a number of different circumstances over the years when just selling the stuff was problematic. Its getting that way now.

              I take stock in Watcher’s 45% total refinery capacity in the 3 states he mentioned, and your 60% C+C for the states you mentioned. But everything in OK, and AK, Kansas, drains toward Houston as well, and then everything from Mexico, Venezuela, and from where else? to what total volume? gets floated into TX and LA from afar. The only point I wished to make was that though it may be in the long term best interest of America, Keystone is going to put more pressure on prices in the US. I believe that. It seems this subject is relevant to Mr. Laherrere’s fine work in the GOM.

              I have seen heavy oil production in Venezuela, and tar sand stuff in Alberta… I love Canada but that is some nasty, ugly stuff they are doing up there.

              Mike

            • DownToTheLastCookie says:

              I’m sure local American producers aren’t interested in a pipeline that could drive the price of oil down, but that’s not what the original statement said. There is a reason why we are all not businessmen. In free market capitalism, some of us get hurt and don’t recover. But for the big boys, it’s who has congress in their back pocket. Elections have consequences. The Irony of President Obama protecting Oilmen of the South from themselves.

              Cookie

              • Mike says:

                Well, the only thing I have in my back pocket is a rag to wipe my hands on, but I get your point, sir. The irony is that the Prez might axe the Keystone in the name of climate change, and in a small way, for a short period, help prop up domestic oil prices. I was just making an observation about how oily folks think about Keystone; in the long run, however, if it is the best thing for American, let ‘er rip.

                But you gotta also admit how equally ironic it is that for the first time in oil history we have this big potential hydrocarbon resource (Bakken and Canadian bitumen) flat dab in the middle of North America, a lot closer to major concentrations of homo sapiens than Houston, but where is all going? Houston.

          • Synapsid says:

            DTTLC,

            D C–what he said. The producers are dead set against it. Rockman goes on and on and ON about it, and he’s an inside source, like Mike.

            • Watcher says:

              It always looked about politics to me, and jobs. You can win a lot of elections opposing that which everyone hates, and which the party in power has to embrace because it’s their policy — but eventually you have to govern and thus you need to present an alternative.

              The general populace knows there are jobs in NoDak from the “boom”. The boom was the jobs, not the oil. Ditto the pipeline. Lots of jobs.

              But again, nobody was elected with the pipeline as the centerpiece of their campaign. It is quite curious that this became issue numero uno for the GOP. Though . . . maybe Landrieu pushed the topic on the floor and the GOP decided to try to ridicule her for embracing a GOP issue.

            • Dennis Coyne says:

              Hi Synapsid,

              Part of what I didn’t understand initially when I read Mike’s comment was how stressed the oil transport system has become in Texas, in the future I will try to read more carefully so I don’t say dumb stuff that comes across as offensive.

              I have also heard Rockman say on several occasions that no oil producers in Texas were happy about the Keystone XL pipeline.

              I think they like the idea in North Dakota and definitely in Alberta. 😉

              • Synapsid says:

                Hi DC.

                KXL would be helpful in N Dakota though, if memory serves, one of the proposed Bakken/Cushing pipelines did get some interest and might go; not sure.

                A simplification I read today, of what Mike told us about oversupply in Houston, was “Let LTO be exported to get it out of the way, so the refineries on the Gulf Coast can concentrate on Canadian heavy.” I always fall for simple things that make sense to me, though I’m not successful at picking the winners. It’s a good thing I’m not in charge of anything.

                • Dennis Coyne says:

                  Hi Synapsid,

                  I agree on allowing crude exports (if I am reading you correctly), we don’t really have the refineries and pipelines to handle it, the Gulf coast refineries (and possibly those in the Midwest) have been set up to handle heavy and extra heavy crude inputs. Send the light stuff to Europe where they have the proper refineries to handle light sweet crude.

                  No doubt I am missing something, but let the free market decide what makes sense, if it doesn’t work out, change the rules again.

                  Bottom line, there will be much less LTO than the EIA thinks, about 11 Gb combined URR from Bakken/Three Forks and Eagle Ford at $100/b (2014$), possibly up to 20 Gb if oil prices rise enough, probably another 5 to 10 Gb of LTO from the Permian Basin and maybe another 5 Gb tops from other US LTO plays (Niobrara and others).
                  The most realistic scenario at oil prices that the economy can deal with is about 20 Gb from all US LTO plays give or take a couple of Gb.

                  Exporting some of the LTO and importing heavier crude that our refineries can handle would seem to make sense, let the market decide.

    • Longtimber says:

      Might new safety studies influence pipeline decision?

      http://imarketreports.com/fight-brews-over-crude-rail-rules.html
      “The regulator’s decision will be based at least in part on the testimony of a half dozen oil executives who urged the state to consider the conclusions of a study by the North Dakota Petroleum Council, a lobbying group for energy producers. That study found Bakken crude was no more volatile than other “light” crudes commonplace in Texas and elsewhere.”
      “Concern about the reliability of those results prompted Canadian federal authorities to commission new tests, to be carried out later this year and in early 2015, that will use newer methods designed to prevent light ends from escaping.”

      Perhaps some of what gets shipped by rail may not actually be “crude” . API < 45 or 50 ?
      Looks like many Volatiles get stripped out before pipeline shipping.

      • toolpush says:

        Longtimber,

        Pipelines can handle much higher vapour pressure than rail cars. As long as the high vapour gases can stay liquid in the pipeline, then they cause no problem. In fact a pipeline allows a greater quantity well bore products to be transported via one form of transport. The alternative, is to have a gas pipeline or rail/truck the NGLs out of the area.
        They have the same issue offshore. A pipeline can take the high vapour pressure products, but if the oil needs to be transported by ship, then these high vapour pressure products to be stripped out, and flared, unless they have a gas pipeline in place.
        From a safety point of view, the Bakken oil should be shipped by pipe, and the Tar sands by train. The heavy oil in a train crash, would be much less likely to burn, especially if the dilutent was stripped out, and would not flow on rupture of the tank car.

        • Watcher says:

          All true, but I’m intrigued that the Canadians noticed how the assay changed when it looked like the previous numbers would force the industry to fund rail car upgrades.

          This Canadian assay upcoming will be very interesting. Gates and Buffett (as major rail owners) will be interested (and maybe involved).

  3. Andy Hamilton says:

    Has this piece been highlighted? Some rather juicy bits:
    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11231383/Oil-price-slump-to-trigger-new-US-debt-default-crisis-as-Opec-waits.html

    ”This rush to pump more oil in the US has created a dangerous debt bubble in a notoriously volatile segment of corporate credit markets, which could pose a wider systemic risk in the world’s biggest economy. By encouraging ever more drilling in pursuit of lower oil prices, the US Department of Energy has unleashed a potential economic monster and pitched these heavily debt-laden shale oil drilling companies into an impossible battle for market share against some of the world’s most powerful low-cost producers in the Organisation of Petroleum Exporting Countries (Opec).

    It’s a battle the US oil fracking companies won’t win. ”

    • Watcher says:

      It has been highlighted. Later in the thread too.

      Pretty much all it takes is to threaten the world with swap trigger and you get a bailout.

  4. Ronald Walter says:

    The Bakken is located in a place where it is strategic for military use. Air Force bases in North Dakota, South Dakota, Montana and Wyoming are going to benefit from an oil formation near their locations. The wells can be seized and guarded for military use, i.e. nationalization, if worse gets worse.

    The oil is dynamite for producing jet fuel, 65,000 barrels per day are moved to a refinery that Delta Airlines is funding.

    http://www.upi.com/Business_News/Energy-Resources/2014/07/21/Delta-sources-Bakken-crude-for-Pa-refinery/5281405951764/

    The Air Force uses jet fuel, it is a no brainer that the oil will possibly be subsidized by the US gov, they are going to need it in the future and the future of the Bakken is a 100 year plan for oil and production.

    It is there to stay and the producers will be subsidized.

    The US gov benefits the most of all, a well-kept secret.

    • Longtimber says:

      Anyone have a handle of actual yields for kerosene/Jet Fuel from LTO. It’s similar to diesel .. 6-12 C’s. I was under the impression that yield of such distillates was poor for LTO.

      • Watcher says:

        It is relatively poor compared to that which is relatively good (Libya). Further, Bakkan and Eagle Ford yields aren’t the same. And further, there is variance within the Bakken.

        Of course, there is variance within Libya, too.

        The question, and the overall API rating, and vapor pressure in the rail cars, and metal content, seems to be so delicate that obfuscation is all over it.

      • Ronald Walter says:
        • Anonymous says:

          If you look at the bottom of that page, it’s dated 2011, pre serious fracking.

          I’ve seen a lot of these. They vary and there is disquiet in that the Marathon assay, which is somewhat definitive, showed problems with vapor pressure in a 2013 result, but Congressional hearings were scheduled for early this year (this was about the train explosions) and Marathon changed their page to show a 2014 result with less vapor pressure difficulty.

  5. Watcher says:

    Europe has spiked the dollar and smacked oil down, just under 75.

    Additive effect, Japan has re-entered recession, but no consumption data yet.

    • Doug Leighton says:

      BRENT FALLS TO NEAR $78 AS JAPAN ENTERS RECESSION

      http://www.cnbc.com/id/102189175#.

      “Brent crude fell by more than $1 towards $78 a barrel on Monday after Japan, the world’s fourth-biggest crude importer, slipped into recession and as Saudi Arabia reiterated the oil price should be left to supply and demand.”

      • Watcher says:

        The BoJ is buying JGBs and even Nikkei ETFs. They’ll next have to buy the GDP declaring organization.

  6. Okay, someone tell me what they think of Jean’s post?

    • SRSrocco says:

      Ron,

      I really enjoyed it . I plan on emaiing Jean with a few questions. I do have one though.

      Jean’s graph shows about 250 Mb total production to date. Is this correct? If so… looks like thunder horse was a big DUD.

      steve

    • robert wilson says:

      Excellent. I have been enjoying Jean Laherrere’s posts for many years. During the 90’s we had a connection through a mutual friend, L. F. Buz Ivanhoe. I do not speak or read French but I recall looking at some of the articles Jean published in French, just to see the graphs. Three years ago I had the opportunity at an ASPO meeting to sit at a table with Jean for two days. I can attest to the fact that in person, Jean is a charismatic gentleman. http://www.theoildrum.com/node/8397

    • Watcher says:

      My impression was delving into what happens if 1P becomes 2P as the decisive parameter for reserves determination is like delving into what happens when any definition on anything is changed.

      You do it for a reason and the reason is usually to get a desirable headline. One shrugs and one also applauds the outrage — when is occurs, and one hopes it can be maintained.

      There was no such thing as non GAAP financial reports 50 years ago. Now it’s harder to get the pure Generally Accepted Accounting Principles quote of earnings than it is to get the “ex items” quote.

      • Dennis Coyne says:

        Hi watcher,

        That’s what the annual and quarterly reports are for, they always give you the GAAP financials. On the 1P vs 2P reserves, the BOEM has been calling 2P reserves “proved reserves” for years, so they have finally made this explicit, but the numbers were unchanged. Note that reporting of proved plus probable makes the most sense because this is the “best guess” estimate.

        • Dennis Coyne says:

          I am wrong on the 1P being called 2P in past BOEM reports,it is clear from Jean Laherrrere’s post that this change caused reserves to increase in the 2011 report relative to earlier reports.

          I might be correct that Jean prefers 2P reserves over 1P, I think I have read that in the past, though I do not think he said that in this post.

          • Doug Leighton says:

            “I might be correct that Jean prefers 2P reserves over 1P”

            I doubt that Dennis. As Watcher might say: Just window dressing. I’ve yet to meet a geologist/engineer who would prefer to see the combined figure because P2 adds ambiguity to reserve numbers. What’s wrong with using two numbers and making your own decisions based to these?

            • Dennis Coyne says:

              Hi Doug,

              Perhaps we have read different pieces of Laherrere’s work (I have not read all that he has written, and I do not understand French very well so I have only read what he has written in English).

              My understanding is that Jean Laherrere believes that proved plus probable is closest to the mean estimate and it is what most of the world uses, besides the United States, for reserve reporting. The problem with using only proved reserves is that there tends to be a lot of “reserve growth” in the US because reserves are under reported by using proved rather than proved plus probable. In fact when the USGS did its World Petroleum assessment in 2000, it took the supposed reserve growth in the US, which was base on proved reserves and applied that rate of reserve growth to the rest of the World where proved plus probable reserves is the norm.

              To my knowledge when Jean Laherrere reports “technical reserves”, they are based on the scout databases plus adjustments for OPEC “phantom reserves” (about 300 Gb) and deducting oil sands (175 Gb) and Orinoco belt (200 GB?) reserves and are closest to 2P reserves (such as those reported by Norway and the UK).

              There is a huge difference between the political/financial proved reserves in brown, which has always increased since 1947, and the confidential technical 2P reserves in green, which has been decreasing since 1980. This graph explains why most economists do not believe in peak oil. They rely only on the proved reserves coming from OGJ, EIA, BP and OPEC data, which are wrong; they have no access to the confidential technical data. Economists ignoring peak oil do not think wrong, they thing on wrong data!

              Quote is from http://www.theoildrum.com/node/10009

              Chart referred to is below.

    • Texas Engineer says:

      I also admire Jean’s work, and enjoyed taking to him at an ASPO meeting, However, I struggle finding a conclusion in his long posts with multiple complicated graphs. When I finished this one I thought – so what does all of this data mean. I wish he would wrap it up with his conclusions.

    • Dennis Coyne says:

      Hi Ron,

      Jean’s post was excellent as always.

      I read up a little on the Gulf of Mexico, so I could comment semi-intelligently.

      Jean’s analysis follows the BOEM’s reserve outlook fairly closely where 2P total reserves (cumulative production plus remaining reserves) are 22 Gb at the end of 2011, his analysis anticipates future discoveries of about 2 Gb.

      When we look at how the total reserves have changed over time they roughly doubled from 1985 to 2008, but since 2008 total reserves have been flat (a slight increase of 1 Gb over the 2008 to 2011 period). From that perspective Jean’s URR of 24 Gb makes perfect sense.

      Link to reserve report below:

      http://www.boem.gov/BOEM-2014-656/

      A second report from the BOEM considers resources and what might discovered in the future as well as potential reserve growth.

      I will focus only on the central Gulf of Mexico, where most of the cumulative production has occurred so far in the US. The undiscovered technically recoverable resources (UTRR) in the central Gulf of Mexico are expected to be between 23 Gb and 41 Gb at the 95% and 5% probability levels, with a mean of 31 Gb. The report also considers undiscovered economically recoverable resources (UERR) at various oil price levels, for the central Gulf of Mexico at an oil price of $30/b (and a gas price of $2/MCF) the UERR is 21 Gb. In table 3 of the resource assessment 9.5 Gb of reserve growth is expected (this is most likely the mean value), at the 95% probability level the reserve growth would be about 6 Gb. A fairly conservative estimate of future discoveries (including reserve growth) based on this report would be about 27 Gb in the central Gulf of Mexico, quite a bit larger than Jean’s estimate. Report at link below:

      http://www.boem.gov/2011-National-Assessment-Factsheet/

      A more detailed report for the geologists at the link below:

      http://www.boem.gov/uploadedFiles/BOEM/Oil_and_Gas_Energy_Program/Resource_Evaluation/Resource_Assessment/GOM-2011-NationalAssessment.pdf

      From the last link in the appendix are detailed tables with total reserves of 32 Gb for the central gulf of mexico (including 9.5 Gb of reserve growth) and a UERR at the 95% probability level of 15 Gb @ $30/b and 18 Gb @ $60/b for a total endowment of 47 to 50 Gb at conservative oil price levels and a 95% probability level.

      My guess is that Jean does not trust the probabilistic methodology used in these types of assessments.

  7. Wood Mac: Gulf of Mexico oil production fades

    Energy consultant group Wood Mackenzie said it expects U.S. Gulf of Mexico oil production to enter a period of decline after peak output is reached in 2016.

    New fields — Heidelberg and Jack/St. Malo — should boost output from the Gulf of Mexico with 115,000 barrels of oil equivalent in new production by 2016. Overall production, including the expansion of older fields, means output from the Gulf of Mexico will pass a peak first set in 2009.

    “We expect production from 2014 to 2016 to grow 18 percent annually,” analyst Imran Khan said in a Thursday statement.

    After that, the analyst group said a steady level of investment will be needed to sustain production from the gulf basin. Several new discoveries have been made in deeper waters, where development can cost as much as three times higher than elsewhere in the region.

  8. Marcus says:

    Following on from the idea that some have on this forum that the US government will intervene (via the Fed etc) to prop up shale production as it crashes due to low oil prices it seems Knustler is also of similar opinion. See the end of the following article: http://kunstler.com/clusterfuck-nation/the-instability-express/

    • Watcher says:

      Ya Deutsche Bank has been beating this drum. If systemic risk exists then the Fed would move. Congress and the Prez aren’t going to do anything for a minimum of months on something like this.

      • Watcher says:

        Speculating on mechanism, the shale industry isn’t going to receive directly printed dollars from the Fed. The bonds already issued by the industry would be bought by the Fed, and if those bonds default the Fed won’t declare default. Any other bondholders who DO want to declare default (a declaration of default triggers swaps) would also have THEIR bonds bought by the Fed, at probably whatever premium the bondholder wants to gouge out.

        When systemic destruction looms, you do not quibble over price. They may get paid triple face amount just to get it out of their hands and into the hands of an entity who won’t declare default.

        So then we would have the bizarre situation where the bond issuers try to buy back their own bonds in order to sell them to the Fed at triple price. And . . . the Fed would do it to avoid the default swaps triggering.

        There are supposed to be swap regulating agencies around, but there’s no international coordination. A swap can be written in Malaysia for Continental Resources.

        • Watcher says:

          Reiterating from days ago . . . junk isn’t usually swapped and shale is funded with HY (aka junk) bonds. But . . . who knows.

          • Marcus says:

            Or to expand upon Knustler the Fed just buys high yield junk bonds (of various types) to disguise the fact that its specifically a shale crash intervention.

            • Anonymous says:

              Ya, but the point is . . . from whom do they buy?

              Present lenders about to be defaulted on will be delighted to sell. But the whole field only grows production and the whole operation only works if they can sell more bonds (borrow more money). So . . . then you are faced with the question, will private lenders continue to lend because they have faith in the Fed’s backstop?

              Or will the Fed have to be the buyer of future bond issuance?

              Like I said, from whom will the Fed buy.

  9. Ronald Walter says:

    The one sentence that stands out:

    In the world there was no giant discovery in 2013, the first time since 1903 and in the GOM the largest deepwater discovery was divided by half losing the volume of a giant field!

  10. Doug Leighton says:

    PEAK CHOCOLATE?

    Comment from my wife: “Well Doug, if you’re going to waste three hours every day commiserating with your Peak Oil buddies maybe I’ll be forced start a Peak Chocolate Blog.”

    WORLD’S LARGEST CHOCOLATE MANUFACTURER ADDS VOICE TO WARNINGS OF ‘POTENTIAL COCOA SHORTAGE BY 2020’

    http://www.independent.co.uk/life-style/food-and-drink/news/worlds-largest-chocolate-manufacturer-adds-voice-to-warnings-of-potential-cocoa-shortage-by-2020-9864437.html

    “The Switzerland-based Barry Callebaut Group has joined a host of industry experts in expressing concerns about “a potential cocoa shortage by 2020”, which has contributed to cocoa prices rising a staggering 25 per cent in the past year.”

    • HVACman says:

      Don’t worry – higher prices will just help the chocolate industry to refine their technology. Any day now, I expect to here on Fox that Hershey’s has started some horizontal growing and cocao bean fracking in the “Bakking” region of ND. There might be a problem with excessive aroma flaring, though. Not sure if the RR’s will start stocking up on more cocoa butter tank cars, nor if the current cars are rated for the more-volatile LTC that is produced with this new technology.

      • Caelan MacIntyre says:

        Food forest gardens. Vertical argiculture. Permaculture.

        Cocobutter to that, I say, cocobutter to that. ^u^

      • aws. says:

        As seen from space…

        • Caelan MacIntyre says:

          The style-shift of the font looks suspiciously like an effect (on a particular local) of some of the aroma-flaring.

          • aws. says:

            It’s hard to write with a mouse… and my handwriting is cryptic at the best of times. : )

            Now time for more chocolate.

            Wonder if that Bakking chocolate is organic and fair trade?

            • Cae says:

              It’s hard to write with a mouse… and my handwriting is cryptic at the best of times. : ) ~ aws.

              Really? I mean, take a look at your inability to even close your html tag at your other comment… Nice try, aws, but the other explanation seems the more plausible. ;>

  11. aws. says:

    Pipeline Alert From Federal Regulator Is First of Its Kind

    Reversing oil and gas pipelines or changing the product they’re carrying can have a ‘significant impact’ on the line’s safety and integrity.

    By Elizabeth Douglass, InsideClimate News

    Reversing oil and natural gas pipelines or switching the product they’re carrying can have a “significant impact” on the line’s safety and integrity—and “may not be advisable” in some cases, federal regulators told pipeline companies in a recent advisory.

    The alert is the first time the Pipeline and Hazardous Materials Safety Administration has officially cautioned the industry about potential safety threats stemming from restarting, reversing or reworking pipelines to handle Canadian tar sands oil and the surge in U.S. oil and natural gas supplies. If not handled properly, those changes can increase the risk of pipeline leaks and ruptures, the Sept. 12 notice said.

    The guidance is a sign that the agency believes its rules are being overlooked, misinterpreted, circumvented or ignored, according to Richard Kuprewicz, a pipeline safety consultant who has worked on the Pegasus case and others.

    “What PHMSA’s saying is ‘Look, we’re seeing too many projects where you’re changing the service, changing the flow direction, and you haven’t done adequate integrity management,'” said Kuprewicz. “That’s my interpretation of it.”

  12. aws. says:

    Kinder Morgan is adept at socializing costs and capitalizing profits. Nothing in the Trans Mountain expansion that’s good for B.C., or the nation as a whole.

    Trans Mountain Pipeline: Big Bucks for US Investors, Peanuts for Us

    Thanks to clever US owner, firm pays minimal taxes here, sometimes none.

    By Robyn Allan, Today, TheTyee.ca

    Kinder Morgan, the Texas-based multinational that owns and operates the Trans Mountain Pipeline System, claims Trans Mountain is a significant contributor to federal and provincial income tax revenues. The company is relying on this as proof it deserves a public licence to triple its pipeline capacity in Western Canada.

    Pouring tax revenues into Canada is not the story Kinder Morgan tells its U.S.-based shareholders. Promoting Trans Mountain south of the border, Kinder Morgan boasts of tax refunds — two in the past five years. From 2009 to 2013 Trans Mountain’s combined federal and provincial Canadian corporate tax contribution averaged just $1.5 million per year.

    How could this be? The answer lies in complexities of U.S. corporate tax regulation which I will do my best to explain here.

    • Old farmer mac says:

      Is there some reason the Canadian government cannot put a some additional Canadian taxes on the pipelines located in Canada? If the companies that own them are making big profits they can easily afford to pay more to Canada.

      • Dennis Coyne says:

        Hi Old Farmer Mac,

        The Canadians may feel that it is not fair to change the rules of the game.

        I am not familiar with these particular pipeline deals, but there are cases where tax breaks are given in order to sweeten the deal. Pipelines are expensive to build and profits are not assured, the Canadian (and provincial) government may want to wait until all the pipelines they need have been built, then the rules can be changed.

  13. Watcher says:

    The Japanese are reacting to their recession (2nd consec neg quarter announced last night). The relevance is future consumption. Here are the gems:

    Japan PM Abe plans to scrap the condition linking sales tax increase to the economy. Finance minister agrees.

    [Phase 1 of that fired off about 10 months ago and clearly has gently attenuated (aka smashed) retail sales. Phase 2 was to begin mid next year as I recall. A condition allowing that only if GDP were X% is going to be scrapped. They gotta have the money fiscally. This obviously means they are going to tolerate further weakening (induced) in the economy, which should smack oil consumption, price and North Dakota. (The really ugly news in this ideologically is the somewhat outright proof that a tax increase eroded economic activity, to which some will say duh, and austerity, in that order.]

    Nomura has halved its 2015 Japan growth forecast — and that Ransquawk was pulled a few minutes ago. Someone was off the narrative reservation.

    Helicopter Abe has ordered the cabinet to follow-up on Oct 31’s monumental BOJ QE (remember that, all of 2 weeks ago) with plans to hand out BOJ printed-money gift cards to the poor in order to stimulate retail sales. And the thing is, 9 years ago this would have been grist for undergraduate comedy sketches. But hey, maybe the gift cardage will get spent on gasoline, to save the Bakken.

    • Watcher says:

      Oh cool, Ransquawk restored.

      Nomura reducing previous estimate of 2015 growth of 1.7% down to 0.8% and . . . hahahah . . . they see further BoJ easing coming. Ink is infinite.

    • Dennis Coyne says:

      Hi Watcher,

      The sales tax (if it is structured in a similar way to US sales taxes on a simple % of the sale)is a regressive tax. So what this shows is that when you shift the tax burden to the poor, you reduce economic growth. When taxes are progressive (where the burden is shifted to the wealthy), there is much less of an economic effect to a tax increase.

      Generally speaking a tax shared equally (say a flat income tax) would probably be fairest and would certainly gave the effect that it would reduce spending and growth, unless any tax increase was matched by an equal increase in government spending where the increased tax revenue is simply spent by the government.

      Part of Japan’s problem is declining population and an aging population so the size of the workforce is smaller. They should probably change their GDP metric to GDP per capita or even GDP per working age person (15-64).

      This may also be somewhat of a problem in Europe where population growth is low, but there is more immigration to Europe than Japan so population is still growing for Europe as a whole.

      • Watcher says:

        The sales tax is not evenly applied across income. The stages of imposition are two fold, 8% since hmm 2012 as I recall and 10% Oct of next year. The 10% has been suspended in the recent move — and given that and recent cabinet scandals Abe is calling a snap election to reset the parliamentary democracy clock on elections. His personal popularity is around 50% and falling. Now is the time to have elections before it gets worse.

        These are not stupid people. They know taxation withdraws money from GDP. The BoJ doesn’tt buy JGBs because it’s fashionable. They buy them because they run enormous deficits from spending on all sorts of projects already authorized. They don’t lack for spending.

        They lack for oil. Period. There is no fix for this.

  14. Longtimber says:

    http://www.businessweek.com/articles/2014-11-17/halliburton-merger-with-baker-hughes-driven-by-cheap-oil-fear
    “So Halliburton needs a dance partner. Combining with Baker Hughes makes a lot of sense. It will insulate both companies from a pullback in drilling and potentially allow them to keep prices higher than they would’ve been if they were forced to compete for declining demand.”
    “there is real concern that at some point soon, oil will become too cheap for many companies to drill for it profitably.” Hello , SOP in the Patch… But but in the petro pre bubble age, few gave a flip. So Drill Baby Drill now shall be .. Merge Baby Merge
    Big Big Deal if the DOJ goes along… Who you going to call? HAL, SLB

  15. Chris says:

    Two news for your information:
    Russian gov’t vows to support oil producers

    Iraq and Kurds Reach Deal on Oil Exports and Budget Payments

    Other point: Are current efforts to sign an agreement with Iran a sign of imminent peak oil? Or a way to put pressure on Saudi Arabia?
    Final effort in US-Iran nuclear talks could settle 35 years of enmity and help defuse Middle East

    An agreement with Iran can probably postpone peak oil by one, maybe two years.

  16. Sam Taylor says:

    Redundancies appear to be picking up steam in the exploration industry. In getting whispers that western geco are shedding 10% of UK staff, and possibly US to. I wouldn’t count on there being quite as much exploration in gulf of Mexico as there has been the last decade or so.

    Personally I’m not sure right oil will be where the big declines come from. Lot of marginal conventional products are being hit hard at the moment.

    Regardless, maybe time for a career change!

    • Old farmer mac says:

      ”Lot of marginal conventional products are being hit hard at the moment.”

      I am not a number cruncher but I do read a lot of stuff written by the numbers guys and it is for sure my impression that some conventional oil producers are in the red zone at eighty bucks- especially the ones in deep water.Producing deep water wells will no doubt be kept in production – but if it really costs eighty bucks or more to get new deep water oil to market- new wells are going to be put on hold for some indefinite period of time until the bean counters get over being afraid the price will go down on them .

      I have no real idea how long that might be but I am guessing that it will take at least a year of steady or rising prices for them to get comfortable with spending the money again.

      Depletion never sleeps.

      • Sam Taylor says:

        I’m at petex today, the UK’s largest industry conference of the year. The keynote speakers this morning were somewhat downbeat

        • Dennis Coyne says:

          Hi Sam,

          Does the $80/b estimate for a new deepwater project to breakeven sound right?

          I assume you work in the North Sea, but would think the prices would be similar in the Gulf of Mexico. When I say deep I am thinking 800-1600 m of water rather than the ultradeep (>2400 m) projects which might require higher prices. You’re an exploration guy (I think) so I thought you might have some idea.

          • Sam Taylor says:

            Dennis,

            I’m mostly involved in seismic, so don’t really get that involved with project economics. However given what I’m heading from various people the smaller deep north sea deep prospects would really rather struggle at 80 I think.

            However petroleum tax here varies from 60-80% so differing tax regimes might come into it somewhere, as well as protect size of course. I certainly think lots of the more marginal stuff that people were looking at 2-3 years ago is probably being put on hold.

            • Dennis Coyne says:

              Thanks Sam.

              I am not in the industry, so I was pretty sure that you would know more than me, and I was correct. Hey, it happens from time to time. 🙂

        • Watcher says:

          Anybody still talking UK shale?

          • Sam Taylor says:

            There were a few technical posters up about shale but there was nothing really of note. There’s a 2 1/2 hour debate on the technical feasibility of shale in the UK on Thursday but unfortunately I won’t be there for that. However I exist I’ll be able to pick the brains of someone who goes at some point.

            • Watcher says:

              Should be good to hear how that flows. British shale drilling was supposed to be their jobs boom.

              • Sam Taylor says:

                If we do get any shale drilling here I reckon it’ll be more on the scale of Poland than the USA. Population density is just too high, and there’s not the mineral rights, nor the experience or available rigs. Anyway the odds of it coming close to offsetting north sea decline seems minimal.

  17. Ronald Walter says:

    The salt dome is massive. Millions of years of accumulation of deposits at a hundred feet for every million years, the salt dome possibly reflects 160 million years of duration to make it all the way it is. Count 40 million years of ice ages, the seas will wax and wane in levels. You’ll have die-off of marine life. You’ll have a new continent with no Bering Strait. The water frozen in ice caps thousands of feet thick will make the world a much different place. Ice ages contribute directly to the formation of oil.

    Another ice age, more oil.

    • Watcher says:

      Check your timelines.

      • Ronald Walter says:

        Well then, up to ten million years old, 1600 feet for every one million years. Those ten million years include one ice age for two million of those ten million years.

        I just like fiddlin’ with numbers and see what they do, not that they’re at all accurate, which they’re not, but it’s still fun.

  18. Jeffrey J. Brown says:

    Interesting item about Saudi Arabia that someone posted on Peakoil.com:

    http://www.bbc.com/news/blogs-trending-30047096

  19. Old farmer mac says:

    Maybe one or two percent of the little people in places such as Saudia Arabia will have the good sense to get out while the getting is good as the oil starts running short. The other ninety eight or ninety nine percent will wait until it is too late and getting into another country is going to be very hard to impossible.

    The ruling class – that part of it with brains and cunning at least- will make it out having already taken care to buy property and get the necessary paperwork started and make business and political contributions and friends in the countries they will be moving to. But if I were to guess at how many have brains enough to have done so- I would say not over ten percent of them.

  20. Jeffrey J. Brown says:

    Interesting 60 Minutes story on US and global groundwater depletion:

    http://www.cbsnews.com/news/depleting-the-water/

    • Old farmer mac says:

      This old farmer has a lot to say about oil but I have never claimed any expertise.I only know what I read on sites such as this one and from reading a few books specifically about the subject when it comes to oil.

      But I will never have anything to say about agriculture than you can’t take to the bank.

      We are collectively in one hell of a fix when it comes to water for irrigation and so far as I can see there is essentially zero hope the aquifers that are being pumped dry will refill within any meaningful time frame. Some of them will take tens of thousands of years to fill again once pumping stops and hardly any of them will regain any water even in a somewhat wetter than average year for a couple of easily understood reasons.

      First , once farmers in a general geographical area are equipped to irrigate some of them are going to find it profitable to do so even when the rainfall is adequate or even somewhat above normal because there are usually some dry spells during the course of a year – and putting the pumps on during that dry spell- once the pumps are in place- costs very little in comparison to the value of the extra yield.So a crop that would have done ok even though there was a three week dry spell will not be allowed to go without water for more than maybe a week to ten days- at that point unless the weather forecast is for a good rain at close to a hundred percent probability the farmer will fire up his pumps because a gallon of diesel that costs three or four bucks will bring in five or ten dollars of extra yield.

      Second the land area under cultivation is constantly increasing just about every where except close in to cities where farmland is being lost to development or to desertification. The more land is put into cultivation the more water is pumped. A county in the American mid west that had ten thousand acres under cultivation a decade ago is almost for sure to have more than that in crops now.This hold true just about anyplace where farming is practiced on a commercial basis. The only likely exceptions are places where there simply isn’t any land left to put to the plow that is not protected by being part of a nature reserve of some sort. And even such land that is theoretically protected is in actuality quite often being converted to farmland on an ongoing daily basis.

      The bottom line is that the green revolution has about run it’s course due to problems with fossil fuel based inputs which are indirect but still nevertheless very real limiting factors and with direct limiting factors such as lack of water and loss of soil and soil fertility made even worse by the build up of mineral salts- which is in and of itself a VERY SERIOUS problem – but one that takes a long time to make itself felt depending on how much irrigation water is used , its mineral content, the nature of the irrigated soil, and the amount of rain that falls and goes deep or runs off- run off and sinking water serves to flush accumulating salts out of the topsoil.

      IF the irrigation water is reasonably clean and not applied too heavily and there is enough rain then salts may never accumulate enough to be a serious problem.

      BUT-We have already lost tens of millions of acres globally to salt poisoning.

      The process is accelerating with no indication of leveling off until such time as we have to quit irrigating susceptible lands because they are no longer worth farming or because there is no money for irrigation equipment and fuel for it or no salty water close enough by to irrigate with it.

      I will add as an aside that in my opinion there is a very good possibility that farmers in places with good soil and plenty of ground water such as some parts of our midwest will eventually be going in cooperatively and buying some damned big wind turbines of their own and setting up some local area grid for their own use . I base this conjecture on the assumption that one really big turbine can be bought and set up for four or five million bucks and that transmission lines can be strung on farmland where the only work and expense involved is stringing the wire and setting the poles for only a few thousand bucks a mile.

      A thousand acre farm can easily gross in the neighbor hood of a million bucks these days and the big boy farmers will be able to pay for such an investment if it means the difference between irrigating and not due to a lack of diesel. They will find a use for the juice when they don’t need it for the farm most likely by selling it to the local grid operator.

      Folks in most places may get pushed around by their electrical utility but in a farm state the farmers as often as not are able to push around just about anybody and everybody given their voting and economic clout.If they want a few turbines of their very own nobody is going to stop them from getting them.

      Irrigation is an ideal use of intermittent electrical energy since the time frame is not very critical. It doesn’t matter if you put the water on a day or two early unless there is a flood later and it doesn’t matter MUCH if you put on a day or two late if necessary. With wind juice available the pumps will be started early.

      A hell of a lot of people are going to starve or die fighting over bread and water before this century is out.

  21. Ronald Walter says:

    The graph that is interesting, your basic ‘handwriting on the wall’ graph, is the monthly production and cumulative production, the WD030 oil decline graph.

    Get submersible robots combing the gulf to look for oil seeps.

  22. Watcher says:

    Oil is being smacked down over a buck today to presently $74.50ish. Is there anything out there pending to change the direction?

    1) Iranian agreement? Not favorable for an upside move. No agreement, no effect, that’s no change.

    2) OPEC cuts production? It would be cheated on, of course, but that might uptick it.

    3) Japan recession and election upcoming — an Abe replacement would hardly reinstate the upcoming Oct sales tax increase. No one will run on that. So no change.

    4) Russian sanctions enlarged? Gotta be negative for Europe economic activity and oil consumption.

    5) GOP Congress? In an environment of global disaster as is ongoing, the natural ideological tendency of the GOP to minimize government involvement will make oil subsidies a tad more difficult. They are likely also to limit Fed power, at least marginally. In general, because of the perpetual crisis underway, an ideology that actually acknowledges moral hazard will do worse than the alternative because it will be reluctant to interfere with the free markets (that cannot exist anymore) — not that either can succeed. Scarcity is a bi-partisan bringer of inevitable mass death.

    6) Greece elections effect? A huge oil relevant event upcoming. Once again the EU will be threatened. Consumption teeters on the brink of sharp descent.

    Of that list, only one has upward pressure potential on price. Russia may be enroute to victory here.

    • Watcher says:

      Greece btw has a double whammy. Yup, smashes consumption, but much more powerful, it smashes the Euro.

      Which makes the dollar rise.

  23. Watcher says:

    hahahah

    http://www.cbsnews.com/news/are-americans-switching-back-to-big-cars-and-suvs/

    Demand for used Hummers, along with other brands of large SUVs, including those that made their names back in the 1990s, is again on the rise.

    Industry observers say pent-up demand for those oversize vehicles may be behind the renewed interest.

    “During the recession, consumers didn’t buy much of anything but certainly not discretionary-type vehicles like big utilities and sports cars. Yet they still wanted them,” Michelle Krebs, senior analyst at AutoTrader.com, told CBS MoneyWatch.

    Krebs noted that the new versions of large SUVs and trucks are selling extremely well, thanks to lower gas prices, better mileage and some new offerings.

    “General Motors, for instance, recently freshened its entire line of large sport utility vehicles (as did Ford this year),” she said. “GM’s Cadillac Escalade, in particular, is selling very well — so well GM can’t keep up with demand.”

    AND THE PIECE DE RESISTANCE!

    “Almost all of the sales growth seen this year has come from the utility segments,” Ibara told CBS MoneyWatch, “while the sedan segments have been flat (note that overall auto sales are up 5.5 percent through the end of October). Hybrid and other alternative energy vehicle sales are down almost 12 percent.”

    hahahahahahahhhahahahahahah

    • Nick G says:

      Yeah, people are price sensitive, and oil prices are subsidized and kept artificially low, so this isn’t surprising.

      • Caelan MacIntyre says:

        People are less context-sensitive, though. Scary stuff sometimes in a world of overcomplexity.

        Watcher laughs, but I’m (also) over here thinking, OMG… Well at least the big vehicles are more like houses, such as when you might have to live/sleep in one.

        Governpimps, at least these daze, are ‘nothing’ without taxes are they? And oil? Shop-and-jobs? That’s the fundamental platform, yes? So what happens when their black blood flow slows/leaks? We are seeing it.

        Low oil prices = shop and jobs. Could it be that simple?

        • Watcher says:

          ZH presented some evidence of an absence of retail sales (broadly, economy wide, not just gasoline) correlation to gasoline prices.

          There is certainly evidence of inelasticity of gasoline demand wrt price. This indicates not much discretionary consumption and all these numbers come from the US — which doesn’t really tell the growth tale anyway. That comes from that sloping consumption black line on mazamascience.com from China.

          Embrace reality, people. There is no gentle, linking arm in arm community solution that is EVER going to happen. A lot of people are going to die, screaming, bleeding, lashing out at the enemy and there is NOTHING anyone can do about it.

          Thus, optimal behavior, be the winner.

          • Caelan MacIntyre says:

            “Morpheus: You can feel it when you go to work… when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.
            Neo: What truth?
            Morpheus: That you are a slave, Neo. Like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind…

            The Matrix is a system, Neo. That system is our enemy. But when you’re inside, you look around, what do you see? Businessmen, teachers, lawyers, carpenters. The very minds of the people we are trying to save. But until we do, these people are still a part of that system and that makes them our enemy. You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it.
            ” ~ The Matrix

            • Watcher says:

              You must always defeat the enemy, correct, with bullets — just like he did.

              • Cae says:

                “Only try to realize the truth: There is no spoon.” ~ The Matrix

                There are no bullets.

                In the third one, the enemy (“Agent Smith”) defeated itself by “eating” everything up, including The Oracle.
                Agent Smith is the NSA, CIA, FBI, CEO, etc..

    • toolpush says:

      Wathcher,

      I see you laughing, but I believe there is a saying, “you can’t fix stupid! So I will leave you with it!

  24. Watcher says:

    As oil has descended today, there has been a queue at the microphone of small OPEC countries announcing they want a production cut. No impact on price so far.

    • Watcher says:

      Close settle quoted at $74.61. Futures continue to trade from there and . . . not up. Presently at
      $74.36.

      And above, there is rampant talk of the Japanese election and recession crushing the Yen.

      Which makes the dollar go up even more.

    • Caelan MacIntyre says:

      Could low oil prices be The New QE?

      • Watcher says:

        Legit question. Of course, it would take money out of American oil producer pockets and put it into American oil consumer pockets. Not too stimulative.

        • Cae says:

          QE is/was a flop too, yes?

          • Watcher says:

            Didn’t want to fill text on this matter.

            Central banks are now centrally planning the global economy. That doesn’t work if the faux private banking sector is not solvent. It wasn’t post 2008 so the Fed embarked on buying up the worthless MBS on bank balance sheets at prices 100% opaque to the public. They were GIVING the banks money, who promptly took that money and redeposited it at the Fed as excess reserves earning 0.25% interest.

            So was it a flop? It was a concealed bailout. The banks are still operating, and the worthless MBS paper is in the Fed vaults where they pretend to be receiving mortgage payments. The banks might not have been operating without it. Allegedly. QE1 and QE2 are defendable in that regard, one supposes, but QE3 was announced just 6 weeks before a presidential election, at a magnitude the world has never seen, and there was no evidence of imminent collapse. So shrug.

            Japan does it too. So does the Bank of England. The ECB would love to, but they have constraints that they claim not to have — but to this date Super Mario has not bought a single Italian bond. He has been all talk.

            After one stops grinding one’s teeth at the corruption of what used to be a rational concept and process, one realizes that scarcity is like entropy and without QE, the mass death would have arrived probably by now. They are doing whatever they can, treating the symptoms. I suspect none really have embraced understanding the scarcity engine of deflation. There are so many other causes to hide behind (demographics, accumulated debt, etc) and that seem fixable that the central bankers of the world probably find sanctuary in and much prefer believing THOSE are the source of the problem. They seem fixable. Delusion is thus called forth.

            • Caelan MacIntyre says:

              I suspect it’s less delusion and more imprisonment— ‘cogs‘ that we seem to be, or perhaps to paraphrase Mike in this thread; navel hair-lint. It’s a dilemma; a (no-clothes-to-some) red queen-cum-emperor dance between a rock and a hard place (lock-in).

              “Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant.” ~ Wikipedia

              “According to him, the dystopia of the Wachowski Brothers’ Matrix trilogy is already here: the technological-industrial ‘machine’ is already running the world, a world where individual humans are but insignificant little cogs with barely any autonomy. No single human being – neither the most powerful politician, nor the most powerful businessman – has the power to rein in the system. They necessarily have to follow the inexorable logic of what has been unleashed.”
              ~ G Sampath on John Zerzan

              “At that time, David Fridley, an expert on oil economics, worked under Chu. In an interview given in 2009, Fridley claims, ‘[Steven Chu] was my boss…He knows all about peak oil, but he can’t talk about it. If the government announced that peak oil was threatening our economy, Wall Street would crash. He just can’t say anything about it.’ It is interesting to note that Chu based his projections for peak oil on the calculations of Colin Campbell, an expert oil industry geologist, who supposedly based his estimates on the confidential data of the consulting firm Information Handling Services (IHS)… The data and estimates of IHS on the global oil reserves are significantly less than those published in the public domain…
              ~ Tariel Morrigan, ‘Peak Energy, Climate Change, and the Collapse of Global Civilization: The Current Peak Oil Crisis’ “

  25. Watcher says:

    Keystone vote fails in the Senate. Didn’t even get to Obama.

  26. toolpush says:

    I have noticed over the last month, the diesel fuel sale have been down about 5% each week, Gas about level and Jet A1 up approaching 10%.
    http://www.eia.gov/petroleum/supply/weekly/pdf/highlights.pdf

    Does anyone know where you can find these numbers graphed? It would make it much easier to visualize.
    I am not sure what these number mean, I am sure does not reflect, less people taking a bus, and more people flying. I would have have thought the way the American airline system has become more expensive, and less customer friendly, then flying would have been flat to down. Also as more fuel efficient planes have come online, aviation fuel use would have gone down?
    As for diesel, there has not been any major fuel efficiency improvement in trucking, apart from Nat gas replacement, but I don’t believe that change over has been big enough to have much effect. So is diesel down due to lower goods transport, therefore lower economic activity, or is diesel for industrial purposes been replaced by Nat gas?

    • aws. says:

      EIA TWIP

      http://www.eia.gov/petroleum/weekly/

      This Week In Petroleum.

      It’s broken out into five sections (tabs : toppish right). Analysis, Gasoline, Distilate and Propane.

      • aws. says:

        Sorry Ron, artifact from my last comment got carried over. Delete the image please, or leave it to linger there… so as to shame me.

        Must be all the Bakking aroma flaring!

      • toolpush says:

        Thanks AWS.

        http://www.eia.gov/petroleum/weekly/images/dispsusm.gif

        It looks last year had a big spike in diesel. Maybe it was the big corn harvest? And there was a big drop in jet fuel. It looks like last year was the odd year and this year is closer to normal. We will see how things go next month.

    • Old farmer mac says:

      Part of the decline in diesel is due to seasonal usage tapering off in farming and transporting farm goods. Not sure how much but agricultural use is highly seasonal and in total amounts to quite a bit of diesel.

      Large scale construction seem to be in the doldrums too and dump trucks and bulldozers burn a hell of a lot of diesel – but only if they are running.

  27. aws. says:

    Andrew Nikiforuk on LNG and Petro-State Politics

    Quite a good presentation on issues related to shale gas production in North-East B.C.

    http://youtu.be/nv6RVyi-Zfg

  28. aws. says:

    “I told them in no uncertain terms to go f**k themselves because what they were doing was blatantly unsafe and illegal” -excerpt from TransCanada whistleblower Evan Vokes’ eye-opening speech

    14:00 minute presentation with a few startling slides. Evan’s a pipeline engineer, not a public speaker, but he gets his point across.

  29. aws. says:

    Not a good day for TCPL’s Energy East project in Québec.

    Fuite majeure de la stratégie de TransCanada

    reportage de Catherine Kovacs, Un texte de Thomas Gerbet, Radio Canada,
    Mise à jour le mardi 18 novembre 2014 à 17 h 59 HNE

  30. Old farmer mac says:

    http://guymcpherson.com/2013/01/climate-change-summary-and-update/

    I am not at all sure that runaway climate change won’t bring about the end of life as we know it before the shit is well and truly into the fan in terms of oil and gas supplies.

    Old Man Business As Usual can probably continue to limp and hobble along for a few more years so long as oil supplies don’t decline at more than maybe about one percent a year. Even such as slow decline as this will surely put a real hurt on economic growth but given improving efficiency and conservation measures we could probably still stay more or less in the same place economically speaking for a decade or so.

    So far as I can see the only real reason that we suppose catastrophic climate change is still decades away is that we hope it is. An impartial layman taking a good look at the evidence- one who understands tipping loins and positive feed backs- could very easily conclude that we may have only a decade or so of climate as usual left to us.

    If I were a young man knowing what I know today I think I would move at least a thousand miles north and and five thousand feet higher up.

    • Old farmer mac says:

      Damned spell checker managed to make a typo into loins instead of points …Too bad there is on edit function.

      • Watcher says:

        As regards altitude, retirees are headed from all over the world to 5000 feet high farms in the tropics. Mild weather perpetual. Essentially 3 growing seasons per year.

        • Old farmer mac says:

          MILD WEATHER FOR NOW.

          Somehow I doubt that will be the case in ten or twenty years except maybe spots with a good sea breeze.It is going to take at least a century for the open ocean to heat up anywhere close to a hundred degrees.

          In any event I would opt for a place with at least some serious freezing weather so as to make life more interesting and safer as well. Cold weather is the best natural protection available for most highly contagious diseases. It kills of the carriers/vectors and keeps people at home and away from the crowd thus breaking the transmission chain.

          Beyond that you can take off all your clothes only once given that human hide fits pretty tight and keeps the blood in and the bugs out. You can double up on clothing and then double up again if you have to.

          I have experienced a wet bulb temperature of one hundred degrees or so for a few hours .I could barely breathe and any exertion beyond walking a few hundred feet was totally out of the question.Impossible.

          There is no doubt in my mind this experience would have killed me in a day or two had it lasted that long.Probably the only reason I made it was that I just sat down and waited for the sun to go down and then got the hell out of that spot- a very large pit left behind by a quarrying operation.

          I was foolish enough to go into it just looking around on a really hot day after a hard rain.There is no way I could have climbed out once the summer sun got in there with no breeze and everything totally soaking wet including the undergrowth dripping water.

          I can’t blame the owners who put up an eight foot fence and a locked gate plus no trespassing signs at close intervals. But fences don’t mean much to country boy who grew up climbing fruit trees thirty or forty days a year with a picking bag or pruning saw.

          My personal guess is that as a practical matter it would be hard to survive ninety degree wet bulb temperatures day after day while having to do any substantial amount of physical work.It might be possible to adopt a partially nocturnal lifestyle and survive that way by staying in the shade and doing little or nothing during the middle of the day.

    • Watcher says:

      Pretty easy to imagine the Bakken declining output 50% over the next year with the destruction of the boom narrative and mass exodus. One guesses the Eagle Ford does the same if the price falls enough. That would be 1.5 million bpd taken off world supply in 1 yr.

      If new drilling NON SHALE also stops, then we’re looking at that global conventional well 5% decline number kicking in, and one has to presume NoDak has no monopoly on the effects of boom narrative destruction, so we might want to double that 5% decline to 10%.

      So pretty credible to imagine 10 mbpd coming right off the top of global supply, all at once.

      Should get us to what, $250/b? In 6 mos? With the death of shale’s poster child, one would expect the dollar to get smacked. So double whammy on oil price upward.

      • Watcher says:

        btw Singapore says $74.09. I suspect we’re going sub $74 tonight, at least until Europe opens. The yen is in freefall, up to 117 now. Dollar strength means what it means.

      • Watcher says:

        Smidgeon of clarification. Conventional decline rate of 5% is not all geology. It’s likely also dependent on well maintenance and pipeline maintenance etc. Again, destroy the boom narrative and have the dead end nature of the work clear, and people will leave. That’s how it could get to 10%.

    • The Wet One says:

      Holy Christ OFM!

      That article (I’ve read a few pages worth) is the most alarming thing I’ve since I read the Peak Oil Overview here: http://drmillslmu.com/peakoil.htm

      Great, now I’m going to go into a long deep depression and lose another job.

      Jeez. Learning about the world sure can suck sometimes. At least I got have sexual relations with some beautiful women before I died. 🙁

  31. Mike says:

    There seems to be great confusion as to what the term “break even” price of crude oil even means, much less how relevant it actually is in speculating about the future. The minimum product price required to economically justify the drilling of shale oil wells is entirely different than what it might be for drilling conventional resources; different companies in different states in different counties, along different dirt roads or in different depths of water, all have different internal rate of return requirements, different business plans and different “break even” price requirements when deciding whether to file, or defer filing the drilling permit.

    Oil folks don’t make emotional decisions based on fear (not too much anyway, and not for long). In 2008 the price of WTI fell from over 140 dollars to less than 40 dollars; nevertheless it was around 2008 that the Bakken began to be developed in earnest and the first Eagle Ford shale wells were getting drilled. Oil prices rebounded in 2 years and today, 6 years later, total domestic production in the US is up, what, 3 million BOPD? We are a resilient lot; we get knocked down in the dirt a lot, but never knocked out.

    What “break even” prices are relative to the prospect of drilling new wells, shale or conventional, has absolutely nothing to do with profit margins of existing, producing wells. Those margins on existing production are different for shale oil wells than they are for conventional resources, for different companies and, well, you get the picture. I am navel lint in the big scheme to things but I can make money producing existing wells with oil prices at 30 dollars a barrel; for lots of conventional guys with better stuff it’s even lower than that. Those kinds of wells will not get shut in and lots of that kind of conventional stuff, for instance infield development wells, will still get drilled even at 50 dollar oil.

    The shale oil business and the conventional oil business might be in the same animal family but they are two entirely different species; last I looked conventional resources in America still account for about 65% of total domestic production. Two thirds of the domestic rig fleet is still drilling conventional resources. The shale oil industry is scaret right now, and may get really sick, the conventional oil business is alive and kicking at 75 dollar oil, I assure you. There needed to be a major attitude adjustment for these shale doods, now they have it. They are borrowing way too much money and they have driven the costs of goods and services sky high in the oilfield, for everybody. Let the shale guys eat fish heads for awhile. Rigs on contract with shale oil companies will get stacked and dedicated frac pumping services will go to the house for awhile; that’s about it. All other goods and service provided to the oil industry are on an as needed basis. The service industry will not collapse just because a bunch of stinking shale wells don’t get drilled. Lower costs will create more opportunities for conventional guys to steady plod along doing what we have done for the past 150 years.

    Objectively (as much as possible, anyway), American is a lot better off counting on existing conventional resources that decline at reasonable, predictable rates, than putting all of its eggs in a very flimsy shale oil basket. That’s my story and IB sticking to it.

    Mike

    • Dennis Coyne says:

      Thanks Mike,

      Great perspective. Absolutely correct that conventional output is greater than LTO.

      I think the concern is that LTO output will fall pretty fast if the drilling stops.

      So overall US output will decrease if the LTO sector gets hammered. Eagle Ford and Bakken are the bulk of the LTO output (some is from the Permian but the conventional/LTO split there is fuzzy) at about 2.3 Mb/b.

      The wells that are producing already or that are waiting for fracking will continue to produce, but if prices remain where they are, I think the rate that new wells are added will decrease in the LTO plays. This will be good for conventional oil producers as costs may decrease (less completion for rigs and services) and oil prices will eventually rise.

      Note that I realize that Mike knows all this, I am thinking out loud to make sure I have the story straight. When I talk about breakeven oil price I am thinking of the oil price that would make the investment in drilling a new LTO well worthwhile for the average LTO company. Every company is different, some have lower costs, better areas leased and so forth, return requirements may also vary, there is no such thing as an average company, so a single breakeven oil price does not really exist. Also every oil company drills wells that are better than average 🙂

  32. Old farmer mac says:

    Any working farmer would tell about the same story over a cup of coffee or beer as Mike is telling here in respect to what prices are necessary to expand production or to maintain existing production.

    I have plenty of neighbors who are raising cows and calves and making a few bucks on land cleared and fenced by their grandfathers with equipment inherited from their fathers.

    But nobody is hiring wooded land cleared at a thousand an acre for the dozer to establish new pasture and hay fields.

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