OPEC accused by the State Department of hiding excess capacity. Maybe the CIA discovered it, along with weapons of mass destruction? Says US output will rise by one million barrels over the next 12 months. Ok. Where is it that Santa Claus lives? Is there really a tooth fairy?
There’s going to be a big scandal within the next couple years about US government oil “forecasts.” Everyone looking at the fields and the data realizes it is ridiculous but the “forecasts” keep coming.
Since about 1960, when I was a petty officer in the Navy, I have realized that the government constantly misrepresents the truth to justify their actions. I have never seen them be held accountable for their actions. It’s probably true no matter what country you live in. Spin rules.
Propoly,
An alternative tight oil scenario to the EIA AEO 2018 in chart below.
Another chart comparing EIA’s AEO 2018 reference case for tight oil (100 Gb) with my scenario (58 Gb).
With sufficient drilling and pipeline the Permian *could* add that much but the problem is we know the takeaway capacity won’t be there. No other LTO basin has meaningful growth so EIA calling for 1M+ in a year is all on the Permian and then some (Eagle Ford declines?). Without pipelines up and running, Midland prices would completely tank and waste that critical first year of flow in terms of $$$.
This doesn’t fit theoretical curves because it is a unique externality.
Propoly,
Correct that the model might not fit 2019 very well, but once pipelines are up and running output may catch up to the model. The AEO reference case has lower prices than is realistic in my view. An alternative is to take the average of the AEO reference and high oil price scenarios, which has a more realistic oil price scenario. That average of the reference and high oil price cases is compared with my scenario in the chart below.
The URR for the AEO case from 2016 to 2050 is about 111 Gb, my scenario is about 55 Gb over the same period.
The descent shouldn’t be steeper?
eduard,
Based on the models for Permian, Bakken (North Dakota), Eagle Ford, Niobrara, and other US LTO (not in the four plays modelled separately) and reasonable economic assumptions and technically recoverable resources (about 60 Gb based on USGS estimates) the current models give the result shown above. The URR is roughly half the EIA’s estimate (55 Gb vs 110 Gb) from 2006 to 2050. If there was an economic depression and a crash in oil prices as a result, then decline would be steeper as the well completion rate would fall rapidly and so would output.
Note that much of the output would be from older wells which do not decline very steeply. Also it is assumed that the well completion rate drops gradually as wells become less profitable. The average annual rate of decline is about 6.6% over the first 10 years following the peak and the annual rate of decline from 2025 to 2035 is about 9.3% per year, that is pretty steep.
Guym,
US LTO could increase by 1000 kb/d in the next 12 months, not sure if the rest of US output will remain flat, but if oil prices rise as much as you project, perhaps conventional onshore increases might offset falling GOM output. It might be a bit less than 1000 kb/d due to pipeline constraints, but 800 kb/d is very likely. I agree prices will increase, but I think in the near term (end of 2019) oil prices are likely to remain under $105/b (12 month centered average oil price through Dec 2019, average price from July 2019 to June 2020).
What is your breakdown per field of that 800k?
Actually the model is running behind actual output by about 300 kb/d through July 2018, so it is about 700 kb/d (rather than my initial guess of 800 kb/d) from July 2018 to July 2019 with 340 kb/d from Permian, 144 kb/d from Niobrara, 142 kb/d from ND Bakken/TF, 36 kb/d for Eagle Ford, and 18 kb/d from other US LTO. Note that pipeline constraints might not allow this much of a Permian increase, but the other plays might increase more than the model as capital may move from Permian to other basins.
I’d go along with that, lowering Permian by 100k and adding to EF by 100k. Seeing a build up in DUCs in the EF. But most of Permian would not be seen until the fourth quarter.
Muhammed bin Salman admitted to Bloomberg’s that they have 1.3 mbd of surplus capacity if needed:
Bloomberg: And of that, the kingdom is producing how much?
MBS: Today we are around 10.7 million if I’m not mistaken.
Bloomberg: And for the next few months?
MBS: We have spare capacity of 1.3 million without any investment. So in Saudi Arabia we have 1.3 million to go if the market needs that. And with other OPEC countries and non-OPEC countries we believe we have more than that, a little bit more than that.
we believe that the rise of electric cars will not harm oil especially for Saudi Arabia. Oil demand will continue raising until 2030 by above 1 percent, 1 to 1.5 percent, maybe more. And some believe that after 2030, it will decline. But we believe that the other side will be a lot of producers disappearing. So for example we believe that China will be decreased sharply if not disappeared after five years from today. And other countries will continue every day to disappear as countries producing oil. Nineteen years from today, Russia will have declined heavily if not disappeared with 10 million barrels. So comparing the rise of the demand for oil and the disappearing supplier, Saudi Arabia needs to supply more in the future. So we don’t believe that there is any risk in that area for Saudi Arabia. No one is talking today about planes going and flying by electricity or ships moving in the sea by electricity. Adding to that the demand coming from petrochemicals and the future of petrochemicals after 10 to 20 30 years from today.
Replying to my own post, if oil demand grows 1% a year for a couple of more years (barring another global recession, which is probably nigh at hand–Powell has vowed to keep raising rates unless (that means until in this case) there is another market collapse like 2008)–but if consumption did manage to grow uninterrupted at 1% year for the next 2 years, would that not wipe out the Kingdom’s spare capacity? Can fracking ramp up at that point, or would we be looking at a return to the relentless price rises we saw in the three years just after conventional crude peaked in 2005? Will rising bond yields or rising oil prices send the global economy reeling first? If the bond market tanks it first, oil demand will sink and mankind can live a few more years with the illusion of abundant petroleum.
“We have spare capacity of 1.3 million without any investment”
You are assuming that they actually know what their spare capacity truly is. That is a pretty big assumption to base projections on.
“Saudi Arabia will invest $20 billion in the next few years to maintain and possibly expand its spare oil production capacity, Saudi Energy Minister Khalid al-Falih said on Thursday.”
“In 2016, when Saudi Arabia was flooding the market, it was still only producing at about 10.6 mb/d, right around where it is producing today. As such, we still really haven’t seen Saudi Arabia put to the test. The next steps are where the rubber meets the road. Saudi Arabia has indicated it could add around 500,000 bpd in the coming months, which could put production right around 11 mb/d.
Bloomberg reported that industry executives privately said on the sidelines of the Asia Pacific Petroleum Conference in Singapore that they doubt Saudi Arabia can even produce 11 to 11.5 mb/d for any lengthy period of time, far lower than the stated 12.5 mb/d. In other words, spare capacity may only stand at 0.5 to 1 mb/d at most, not 2 mb/d. ‘Near-term spare capacity is effectively maxed out,’ Amrita Sen of consultant Energy Aspects Ltd. said.
Some within Saudi Arabia agree. Producing ‘11 million is already a stretch, even for just a few months,’ one Saudi official told the Wall Street Journal for an article on September 21.”
$20 billion isn’t very much, over five years it might give 100 to, at best, 200 kbpd per year for greenfield, so it’s probably doing no more than compensating for natural decline and has probably mostly been in the budget all along as they are continuously redeveloping fields. It will take some time to see if Saudi can maintain any increase or whether they have simply delayed maintenance or sacrificed some short term voidage replacement.
This is the petroleum thread.
OOOPSYY!
EIA Weekly U.S. Ending Stocks to Friday 28th September
Crude oil up +7.98 million barrels
Oil products down -2.9
Overall total, up +5.08
Natural Gas: Propane & NGPLs up +2.14
chart: https://pbs.twimg.com/media/DosWIeDWwAEEsAa.jpg
Well, if you look to the long term trend, you will see a clear decrease since 40 years. I will try to post the graphs.
Not talking about 40 year trends, talking about measurement error range and the determination if a value is actually lower or higher than another value. Claim was lowest level, but it must breach the error range to be significant.
“We estimate error based on accepted knowledge of the sensor capabilities and analysis of the amount of “noise,” or daily variations not explained by changes in weather variables. For average relative error, or error relative to other years, the error is approximately 20,000 to 30,000 square kilometers (7,700 to 11,600 square miles), a small fraction of the total existing sea ice. For average absolute error, or the amount of ice that the sensor measures compared to actual ice on the ground, the error is approximately 50 thousand to 1 million square kilometers (19,300 to 386,100 square miles), varying over the year. During summer melt and freeze-up in the fall, the extent may be underestimated by 1 million square miles; during mid and late winter before melt starts, the error will be on the low end of the estimates. It is important to note that while the magnitude of the error varies through the year, it is consistent year to year. This gives scientists high confidence in interannual trends at a given time of year.
The absolute error values may seem high, but it is important to note that each year has roughly the same absolute error value, so the decline over the long term remains clear. NSIDC has high confidence in sea ice trend statistics and the comparison of sea ice extent between years.”
Since 40 years, arctic and antarctic had different trends, with arctic going lower and antarctic going slightly higher. The result was a decreasing trend.
Since about 3 years, antarctic Sea Ice extent is falling. This explains why Global Sea Ice for 2016, 2017 and 2018 are very low compared to other years.
I will try to post graphs later today.
+Chris, Antarctica and the rest of the world typically move in opposite directions. If you are correct that Antarctic ice has been retreating for 3 years, that should signal that the rest of the world is entering a cooling phase. Sometimes this seesaw effect is ascribed to the northern vs. southern hemispheres, but it is really just Antarctica vs. the rest. Svensmark’s theory neatly explains this, putting him in Occam’s corner, since one explanation for multiple phenomena (the seesaw effect, recent warming on earth, recent warming on other planets, and the ice house events that recur from time to time as earth orbits the edge of the Milky Way) is more likely to be correct than inventing a different explanation for each phenomenon. I know this is the petroleum thread, so I hope we are not straying too far off topic here.
Dunning-Kruger alert
Good point
One explanation could be the following: as melting of Antarctic continent ice seems to increase, sea salt concentration around Antarctica is lowering, so sea water freezes more easily. So as a paradox, Antarctic sea ice could increase with global warming (at least at the beginning).
If that is true, as you mention, the current decrease could be due to a lower rate of increase of global temperature: still increase at a lower rate, pause or decrease.
However, I have to admit I have not look for data about historical sea salt concentration around Antarctica.
From the graph below, there seemed to have a cycle of 4-5 years in Antarctica. Therefore the last decrease of sea ice extent was expected, but not with that amplitude. We have to wait a few years to know whether there is a change in the trend: either continuous decrease or increase to new high levels, and what will happen in Arctic.
Antarctic Sea Ice Extent history – yearly average
Arctic Sea Ice Extent history – yearly average
Global Sea Ice Extent history – yearly average
Ok, had the typical profit taking, prices going back up again.
Doesn’t sound like production is faring so well. Shipments still delayed because they can’t fix the dock.
Reading between the lines is all that can be done about interpreting what is going on in the oil market at the moment. The agencies keep predicting an unreasonable path of a well supplied (global) market, but that is nothing new as this has been the case in prior bull markets as well. There is most likely a gigantic supply problem judging by how preoccupied all major powers are about oil at the moment. No amount of twitter messages or statement of ambitions is going to make more oil flow out of wells globally in a short time frame. LTO is the exception, but the Permian is supply blocked by pipeline capacity. What can be done, and what most likely is the case right now, is a combination of draw down of global storages and utilising all available spare capacity (meaning availability close to maximum and maintenance postponed and production at an unsustainable level). And a lot is done to hide the inherent supply deficit – all speculation on my part ofcourse. The elephant in the room is decline rates for major fields around the globe. So postponing a shortage of oil (and assumably an oil price spike) is all that can be done. And to what purpose?; it is going to come anyway. What about a more coherent and transparent long term policy? Well, you don’t get that when markets are in charge.
Baker Hughes International Rig Count
Total down -4 to 1004 in September
Oil -12 to 780, Natural Gas +5 to 190, misc +3 to 34
Land +4 to 800, Offshore -8 to 204
Mexico +4 oil
Egypt -7 oil +1 gas
Libya +1 oil
Offshore China -3 oil -1 gas
Saudi Arabia -3 oil -1 gas +1 misc
Venezuela -2 oil
Chart offshore: https://pbs.twimg.com/media/DowjObRXgAAV0xk.jpg
Main story offshore rig count going down again. Libya controlled by western powers (+1 rig). The overall activity is too poor to support what many oil traders are accustomed with; oil price decline at certain intervals.
Interview with Saudi Crown Prince…
2018-10-5 (Bloomberg) “The request that America made to Saudi Arabia and other OPEC countries is to be sure that if there is any loss of supply from Iran, that we will supply that,” Mohammed Bin Salman, heir to the Saudi throne, said in an interview. “And that happened.”
Saudi Arabia’s crown prince said he’s getting close to striking a deal with Kuwait about two jointly owned fields https://www.bloomberg.com/amp/news/articles/2018-10-05/saudi-crown-prince-discusses-trump-aramco-arrests-transcript
Which is about 300k a day, or less than half of current purchases.
There is an interesting analysis of shale production projections on seeking alpha. The author, Laurentian Research basically says that shale oil is a valid investment, further that the allegations about red queen theory and ponzi ideas are not valid. He uses a lot of decline curve info to prove his points. I would love to hear what the math gurus here think about his approach and conclusions. https://seekingalpha.com/article/4210065-shale-oil-ponzi-scheme-evidence-decline-curves
Not a math guru, but I can usually get numbers to match my preconceived conclusions. Do know that his conclusion that they can get tier three and two stuff to match tier one production is unmitigated horse manure. There is no drilling alchemy that can change bad rock into good rock. Yes, you can drill a two mile lateral to produce twice as much as a one mile lateral, but have you drilled a better well per area?
The author is selling something.
“Join The Natural Resources Hub and get immediate access to a portfolio of high-alpha investing ideas in the natural resources sector and beyond, including those behind the paywall. … Disclosure: I am/we are long ESTE, HK, VNOM, WLL, XEC…
Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.”
I skimmed the article. Seems like he admits to the decline rates, and he is putting a lot of faith in increased efficiencies and reduced costs.
Went thru it. Early on he says BOEPD, then there’s no more mention of either bopd or boepd.
I suspect this is many measurements now for Bakken particularly. Celebrating higher IPs in recent years being evidence of techno miracles might rather be more gas capture than prior years.
dc
The article describes what has been taking place the last 3 years in LTO world as even a quick glance at Enno’s site should show.
While Guy says that the rock quality does not change, fact is the initial recovery rate in the Bakken is now at the 12/15% range, which gives a high financial recovery rate in the first year.
Operators have become exceptionally close mouthed concerning completion particulars.
However, reading numerous statements by various industry participants over the past few years might lead one to conclude a few things …
Precise targeting of most carbon rich areas is at unheard of levels compared to early drilling.
Latest iterations of RSS enable in zone drilling at very high ROP.
Bakken TOC is at the 15 to 20% range in many spots.
Micro proppants – effectively employed with pressure management and diverters during fracturing – are creating WAY more rubbilzation of the rock near the wellbore.
These ultra tiny fissures will actually extend the production tail as the hydrocarbons travel farther through the complex channels.
Operators have been choking back the initial flowback dramatically which is prompting the higher frac pressure to drive way more hydrocarbons into the wellbore (along with produced water levels 5 to 10 times the historical norm).
That article is dead on.
Probably underestimating future advancements which would include EOR.
Thanks for looking over the article. I’ve thought the term Ponzi Scheme wasn’t really applicable to shale oil because a Ponzi usually has no real investment just moving money from new investors to old. Of course there are lots of variations on this theme, and perhaps some shale is a pure rip, but I think usually it has been classic oil biz using OPM to try to make money with the deck set up so management does good no matter what, while investors odds are usually thin.
The production over time plots that the author publishes are perhaps the most interesting thing to me, along with the hyperbolic decline fit that he says is based on real data, but reaches a decline rate of only 10 percent annual. Like Gyum my inclination is that something is amiss in his fit or data, but my math skills are not up to determining whats wrong.
I think that one of the key factors in how successful shale oil production is in the long run will be basically how fat and long the production tail is. If this guy is correct, then shale will be around longer, and more successful than most folks here think. If he is wrong, we could see Dennis’s projections come out close.
dc
I agree with the fat production tail idea.
This is why I think Bakken could be best long term financially. Just seems like a good chunk of those wells hang in at over 1,000 BOPM, with little produced water.
Not so sure PB and EFS will be the same. Seems those wells fall below 1,000 BOPM faster and keep on steadily dropping from there.
Also, agree it’s not really a ponzi, it is the largest oil investment promo in US history, with management making $millions in salary, even during the depths of 2016 when all companies were losing large amounts of $$
To add:
The big issue with shale is the oil price.
I realize that is a “duh” comment, but IMO oil prices above $50 WTI are vital to survival, and likely much higher prices are needed for the long term to make shale overall a successful business on the whole.
It is very interesting to go back to 10K in the 1990s, where oil prices were generally below $25, and see companies were able to generate positive returns on upstream.
Now, $45 for 5 years would BK the majority.
In 2004 we did great at $45 oil. Now we just get by.
Assuming the world needs more oil annually for awhile yet, either the price will need to stay high and and keep trending higher, or someone will have to subsidize production.
World oil demand was 80 million BOPD in 2003. Have now hit 100 despite much higher prices.
IEA sees demand for plastics adding 7 million BOPD to demand by 2050. Article says a decent amount of this growth will be from the surge in the production of electric cars.
How many barrels of oil are burned per electric car, including all of the transportation costs involved?
The author of the article is selling something (an investment hub), so he does not attempt to be neutral or fair. He does not mention the issue of mounting debt in the shale industry. Investment -> oil + debt. The oil only pays for a small part of the investment so at the end somebody will be looking at a huge pile of debt that will not be repaid.
Almost anything can be defended with a mathematical model. The shale well decline curves are asymptotic to zero so small errors in the flat part amount to huge differences in final production. So I find the main argument in the article unconvincing.
It is important to rest on evidence connected to reality. To me the relevant question is why after 8 years the shale oil revolution has not been reproduced anywhere else in the world. It is not even in the process of being reproduced despite significant shale plays elsewhere. Here you have a map from EIA with shale resources (both oil and gas).
I don’t know the answer to that, but I suspect there is insufficient financial muscle outside the US to embark in an operation that requires so much money for so little profit. In contrast any important conventional oil play found that is not ultra-deep or Arctic, starts moving towards development and production quite soon. The problem is that conventional oil discoveries are at a 65-year low.
… shale oil will play a bigger role until the economy gives up. I consider the idea of a successful transition from oil a psychologically interesting fantasy, like trying to jump by pulling hard from your shoelaces.
That one should be a classic! Jumping by pulling your shoelaces! Let’s see, if we make the shoelaces x long with y strength, we would need z time for upper body conditioning to perform this feat. Yeah, it should work!
Great comment.
… important conventional oil play found that is not ultra-deep or Arctic: Very, very few of these not in FID, and most of those have other issues, like heavy oil, compartmentalised reservoirs, in Iran or Iraq etc. (maybe they wouldn’t count as “important”). Any decent finds in the last few years have almost all been immediately fast tracked, no matter what the oil price has been.
The major talking points are much like traditional emotional denial. It’s just human nature to believe those things. If we spend more on exploration, we will discover more and keep oil production up. If prices get too high, it will destroy demand so that prices will once again remain in the $65 to $70 range. OPEC has hidden extra capacity that they are hiding from us. If we release oil from the SPR it will eventually lower prices to the $65 to $70 price range. The list of denial emotional type arguments are now growing. The only things that overcomes denial is when harsh realities occur. Traders have to compete for sorely needed barrels. Refineries can’t produce the needed amount of oil. Until then, talk is cheap, and oil prices don’t have to rise too much.
It’s going to take the US and the world some time to get over this denial. For the past four years they have been fed a large diet of cow manure, and they have become addicted to it. Mushrooms.
IEA boss urges oil producers to ease supply concerns
“It is now high time for all the players, especially those key producers and oil exporters, to consider the situation and take the right steps to comfort the market, otherwise I don’t see anybody benefiting,”
…
A rise in oil prices to more than $85 a barrel coupled with concerns over global trade are putting heavy pressure on emerging economies, he said.
…
“Expensive energy is back at a bad time for the global economy,” Birol said.
Is this capitalism?
“Major oil producers must take ‘the right steps’ to ease supply concerns that have lifted crude prices to a four year-high, the head of the International Energy Agency told Reuters on Thursday.”
Does he mean lie to ease supply concerns?
Well there are some known reasons why the shale revolution hasn’t spread. It’s an expensive, huge messy footprint way to get oil and it needs a certain type of resource. The United States is unique in the amount of internal infrastructure to get to empty spaces and comparatively easy to frack rock.
Middle East? They still have cheap conventional oil with high budget breakeven, they aren’t going to touch it.
UK/Norway? The oil is all offshore. UK also doesn’t want fracking for gas, too densely populated.
Mexico? Mostly offshore and politically unpopular.
Canada? Almost all tar sands.
Russia? Middle of nowhere (also politics/sanctions). Also questions on geology, actual size of reserves etc.
A lot of this is true in the US as well outside of the current plays. See Monterrey bust.
France? The best stuff is directly under Paris.
George
Are you still watching the Weald basin. There have been short term tests at Horse hill and Balcombe that have demonstrated movable oil from the Kimmeridge micrites. EWT is just getting underway at Horse Hill and a production well is awaiting completion at Brockham. IP rates are promising but as yet we know nothing of decline rates.
Mr. Diaz
Surprised that you seem unaware of recent ongoing developments in Argentina.
Cuadrlla, in the UK, is abnout to frac its first 2 wells and has been hit with more delaying lawsuits.
Fuling is setting production records in western China, although the rate of development lags badly due as much as above ground influence as rock quality.
The pipeline constraints affecting Canadian expansion should not prevent recognizing plays such as the Montney and Duvernay as holding enormous resources.
The early Russian efforts in the Bazenhov may prove especially significant as the relatively high clay content is just one challenge operators face.
Should the issues with clay be overcome, numerous other areas, particularly in Eastern Europe, may become feasible targets for development.
Coffeeguyzz- “you seem unaware of recent ongoing developments in Argentina”
What do you mean by that?
well if there’s frackable gas in the Vaca Muerta then that will be the end of LNG shipments south from the US. They’ll pipeline that stuff to all of South America.
It does seem the most promising———–
We shall see.
Last I heard, it was pretty promising. However, they don’t expect a lot of capex going into it real soon, as a recent batch of hydroelectric power seems to be serving most needs, now.
I was in Argentina for a while.
Even with all the currency chaos, things work very well.
We shall see—–
Watcher
Your comment could prompt an in depth (if you are interested. I personally love these type of innovative processes) look into the rapid development of an entire array of LNG handling/storage devices.
Fact is, there are now at least 2 plans to emplace FSRUs off the southeast coast of Australia.
While the political and social reverberations could be enormous if this actually comes to pass, the mere fact that natgas might be extracted in Susquehannah county, shipped to Louisiana , chilled to liquid status, then shipped across the globe only to be stored and regassified as needed in an LNG exporting country should prompt a jarring look into what the heck is going on.
Building lengthy pipelines is receding in economic viability as smaller, mobile storage and regassification capabilities are introduced into the market. Argentina is mulling over several LNG concepts for export with the floaters understandably on the inside track.
Argentina’s own Galileo Technologies is just one company aggressively moving in this direction.
Hickory
Mr. Diaz made the comment that shale development is not underway in other parts of the world. (“It is not even in the process of being reproduced …”).
There is actually a good deal of activity underway from the Middle East, Australia, UK, Russia, China and elsewhere.
Political and economic forces are the biggest hurdles … perhaps way more than rock quality itself.
We are in the nascent stages in the US of smaller operators using unconventional techniques in targeting cheaper, shallower resources. These areas range from Kentucky, Illinois, Ohio, Colorado, and Michigan to name just a few.
That Seeking Alpha article mentioned above is accurate, especially regarding the Bakken.
The techniques are starting to be applied on a MUCH wider scale, area wise, with the results still to be determined.
Mr. Coffeguyz
You’ve got to be kidding me, right? Do you have any data that actually disproves what I said? Because showing that what you say is bullshit is fairly easy:
Exhibit One: Shale oil resources. US is second with about 60 bbl. Eight countries with above 10 bbl.
Exhibit Two: EIA data and projections for world tight oil production. Only Canada is producing a little bit in 2015. By 2020 it is expected that Argentina will produce a negligible amount. By 2040 it is expected that the US will still produce more than twice the rest of the world.
You are clearly uninformed if you are unaware that various countries around the world are engaging, in halting fashion, unconventional development of their hydrocarbon resources.
Just as the US started with gas in the Barnett, it is gas focused work that is leading local governments to enter into this field.
Algeria, China and Argentina being only the most prominent, with Argentina possibly exploiting its oil most effectively in the early going.
There is NO question that the US will maintain a large lead in LTO output.
I would fully expect the ever innovative, highly resourceful Russians to make impressive gains in the Bazenhov within a decade. They are already expanding their drilling program there at this very moment.
It won’t be fat and long when they get to the tier two and three stuff. I really think Dennis’ prediction is pretty close. Who knows when actual peak will happen? Whenever, it will be anticlimactic.
Guym,
I prefer scenario, I think you are talking about mu medium scenario which in my estimation has about a 50/50 probability that URR will be higher or lower. I have other scenarios, the low scenario would have about an 80% probability that URR would be higher, the high scenario would have about a 20% probability that URR might be higher, and the actual path of output is likely to be anywhere between the high and low scenarios (with roughly a 60% probability it will fall that range).
The shape of the output curve is impossible to determine because I cannot even guess when future wars, economic crises, and other crises I have not thought of might occur.
My only prediction is that my scenarios are likely to be incorrect, probability about 99.999%.
Some people call it a Ponzi (Social Security) scheme because, since the industry loses money, new investors’ money is needed, at least in part, to pay off the debt owed to previous investors. Rumor has it that Texas has peaked. Don’t know about the Bakken, but I would put more faith in the assessments of geologists like Art Berman than of the economists, business journalists, and stock promoters whom we usually hear from. BTW, Seeking Alpha and Zero Hedge make for an amusing contrast. For one, the glass is always half full, for the other, half empty. I enjoy reading both, and take both with a grain of salt. But I pay special attention if I ever see good news on Zero Hedge or bad news on Seeking Alpha.
Completions still trending down. So, are permits. EF not showing any significant uptick. All this is normal for this time of year. Huge expenditures in Capex this time of year, won’t yield much for the year.
Note that for 2018 the Jan to Sept cumulative oil completions are 47% higher than Jan to Sept 2017, but you are correct that the trend since June has been a lower oil completion rate in Texas.
So, Permian production in 2019 might be????? In essence, the way I read this, over 200k bpd will be available by January. A pipeline that was due to be converted after the next two pipelines, will be converted temporarily to oil by the second half. Not clear of that capacity, but the main pipelines are due to be closer to the start of the fourth quarter. This stuff changes every two weeks. But, they are trying to get it out faster. I’m going to stop discounting EIA’s estimation of an average of 11.5, because there are too many unknowns, now. It’s a fast moving target, and picking up speed. And it is really not helped by some really horrible reporting.
Guym,
Yes it is difficult to project output because of transportation difficulties, I wonder if reduced sand use might increase oil by rail in Permian, I have read that the amount of sand per completion is being reduced lately as they over did the sand lately (doubled sand with little increase in output so they are scaling back). Eventually the transportation constraints will be sorted, when that is is unknown.
We talk about economics here a fair amount.
I just found this article and he has a relevant section on the problem with economists. You can read the whole article if you wish, but I’d like to point you to the section, “Why do economists get it wrong?”
Just looking at the URL, if the Fed seriously wants higher inflation, why is it raising rates and selling assets to improve its balance sheet? Should it not be doing the opposite? Instead of paying the big banks a quarter point interest to hold their money, why has it not started charging the banks interest on the money it holds so they will have an incentive to lend it out more aggressively–because the only way to create inflation without a “helicopter drop” is to loan it into circulation.
SA unofficial viewpoint news. Takeaways:
SA is getting fed up with Trump. Not really news.
US has not created a large refinery since 1977. Definitely not news, but pertinent. Traders are starting to key in on Cushing inventory levels, and discount may get higher. That may be a real issue when the additional pipeline to Cushing is fully flowing by January by over 200k barrels. May pretty much offset any benefit of the pipeline. There is a substantial discount to WTI MEH for Cushing, now. It has a limited flow from Cushing to the Gulf. So, you have transportation costs to Cushing plus the discount of WTI, then you have substantial transportation costs from Cushing to MEH.
And all of these pipeline benefits are tied directly to the ability of increased shipping capability, which won’t come in until the beginning of 2020. FUBAR unfolding.
But they are trying to ship it. Demand is there VLCC capacity is waning. China is buying again. Three million has been the high, so far. We may see that tested, soon. The higher the discount, the more that will probably be exported, up to whatever capacity it will reach.
Scroll down to “Why economists get it wrong.” It seems relevant to some of our discussions.
When I look at that Forbes site there is a ton of advertising, so the WordPress spam filter must see it as spam. A way around this would be to give people a search that will work.
For example when I go to google and type in “forbes inflation”, it is the top link on the search.
That would be a way around the spam filter.
Thanks. I tried to copy what I wanted to highlight from the article to post here, but I find trying to copy using my iPad doesn’t work as well as it does on my laptop. I gave up and just used the link.
I don’t think I’ll be posting links to Forbes articles very often, anyway.
I have been unable for the past day to post a comment with a link. Am I on a spam list? I shouldn’t be.
Boomer II,
Not sure why that happened. You are not on the spam list, but sometimes comments with links go to the trash, just let me know when that happens and I will try to fix.
I posted similar comments about three times, so if they are in the trash, you should be able to see them.
It was about economists. The link was from a Forbes article. Maybe Forbes articles are banned?
It must be to do with that link. I restored one, so far it hasn’t shown up but I remember it took a bit of time once before.
The one you posted was all I wanted to get up. The other posts were just multiple attempts at posting the same link.
Forbes runs a lot of opinion pieces, so maybe it’s considered an unreliable site.
The article author did a good job of explaining why economists don’t have the insight they think they do, and I thought it was worth sharing.
I was an economics major in the 1960s and even then I was skeptical about some of my courses.
There’s lot’s of books pointing out why classical economics is wrong, but then the authors of those don’t seem to do a lot better. I think the main problem is that economics is a (relatively small) part of the environment but economists (except a few like Daly and Hall) treat it the exact opposite. The environment is constantly changing though in the past couple of hundred years the constant, increasing supply of cheap fossil fuels has covered up most ripples and that is when modern economics has been developed, but no more.
Moody’s in 2017 announced their credit rating for Pioneer debentures. Baa3 –> to Baa2.
Baa3 is one increment above Ba, which is their junk bond threshold. Baa3 to Baa2 moves one increment farther from junk, on which it teetered
A is investment grade. Baa is a limbo between junk and investment grade. A3 improves to A2 improves to A1 and then becomes Aa3 etc to the top rating of Aaa.
Exxon is Aaa and stable as of summer last year, their last rating re-evaluation. Note that S&P did downtick them one increment. Moody’s said no, their debt is as credit worthy as a Fed-purchased US Treasury bond.
So dont imagine shale companies are financially secure. The agencies know.
For the Bakken, Whiting has a Moody’s rating of B1 — well into junk territory, re-evaluated 3 weeks ago.
EOG as of July, Baa1.
What are the debt ratings for CLR.
CLR is back to emphasizing Bakken. 2 qtr 8K says average well cost is $8.4 million, EUR curve now 1.2 million BOE, do not break down how much is oil.
Assuming half is oil, is 600K BO is impressive if true, even if over a 40 year well life. But, like all of this stuff, have to question numbers.
Pretty sure the agencies don’t look at millidarcies or decline rates or EUR. It’s just dollars. I’ll give CLR a look later.
What’s really remaining absurd is how Exxon’s interest rate is so near Whiting’s. Artifact of QE, largely. It corrupted everything about translating poor debt rating into higher interest rates.
[not much later]
CLR was upticked to Ba2 from Ba3 March this year. This remains in the junk category.
They placed $1B of 10 year paper earlier this year at 4.375%, though that was covenant loaded stuff (that tends to camouflage interest rate). The 10 year treasury at that time was 2.5%. A lot of digging would be reqd to know the covenants imposed.
Regardless, less than 2% rate premium over Treasuries for a junk/near junk rated company. Vague recollection that when I looked at this a year ago I found that tiny premium (by historical norms) wasn’t limited to shale. It wasn’t some oil / finance conspiracy on Wall Street. It’s just QE corruption.
shallow sand,
CLR also claims Bakken/Three Forks will be at least 30 Gb URR, so if we take their EUR for a typical well and divide by 3, we end up in the right ball park. Typically the Bakken/TF wells are about 80% crude and 20% non-crude for the average producer.
The average 2016 North Dakota Bakken/Three Forks well has an EUR of about 363 kb, if we assume production is shut in at 8 b/d. If the 80% oil assumption is correct we would have about 453 kBOE, but I usually ignore the non-crude barrels as they barely provide any income and the gas would all be flared if it were allowed. So take 453 multiply by 3 and we get 1.36 MMb EUR, almost the same as the CLR “typical well”. It is amazing they can keep a straight face at their investor presentations. 🙂
If anything, the average CLR well has been below average in the Bakken/TF. When land costs are included (those are always left out of investor presentations), the real well cost is likely 9.5 to 10 million. Bottom line, not much money is being made at $65/b at the wellhead.
I know this kind of news is not new, but when the POTUS praises and does sword dances with this kind of regime, it sucks. I think trusting his new BFF’s isn’t going to play out well over time.
First of all, inflation is desired because it has to be. Lemme rephrase. First of all, it’s important to understand that what happened in 2008 was beyond anything ever seen before. By anyone. What was done since was necessary to keep the wheels turning on the global system. With total distrust of all counter-parties, as existed for a period in late 2008 and early 2009, the “system” would have had to resort to barter.
So keep that reality at the core of your thinking. What was done was a desperate measure and Fed governors have been quoted repeatedly since 2009 saying it’s all new territory and they don’t know how it is going to turn out.
But returning to the point, inflation is desired because it has to be. $21 Trillion in debt for just the US. Others have serious debt to GDP issues, too. Surpluses are never going to happen, or at least with never being defined as the next several age demographic decades. So if surpluses won’t happen, only inflation can erode the debt that is global. Talk about weak dollars or weak Euros or weak Sterling can’t mean anything because all of those currencies measure against each other and all of them want their currency to weaken . . . measured against some particular, undefined something. Weak currency is inflation and everyone must have it.
So it’s all gobbledygook. All pretending that the pieces of printed paper mean something, and they do only in the minds of people trying to work within the “system” (which almost everyone does).
In the end, and probably should be capitalized End, oil will make it clear that the desperate measures only bought time — and probably a lot less than hoped.
Yes. There will have to be a great reset, to erase the current debt (and ongoing obligations like pensions and health care programs) from the global balance sheet. This is the economic side of ‘overshoot’.
I hope to not witness that reset, because most of us cannot dream how ugly that will be.
It may come at the same time that oil supply starts to seriously fail to supply the global demand.
At that time, I think there will be very high inflation in consumables like fuel, fuel and clothing, along with relative deflation in assets like housing.
In effect, currencies will be devalued strongly, and yet debt will continue to rise because economic growth will reverse, that is contract.
Hopefully I’ve got this all wrong. I’d like to get a grade F wrong on this.
I see the election of Trump as a desperate attempt by the collective unconscious of the USA to be in denial about these prospects. ‘Tell me it ain’t true”.
It’s not a reset. Reset implies an event that restarts things. Things are placed at a lower level and then restarts progress from there.
This doesn’t happen.
When oil is gone, it’s gone. There is no reset. It’s a reduction of level of civilization and it’s permanent. Well, not permanent. It’s a reduction of level and the lower level then embarks on decline. The decline continues. It’s the continued decline that is permanent.
True. ‘reset’ is the sugar coat term.
I’d like to see a longterm graph of velocity of money (or money supply?) vs energy/capita. Probably hard data to come by, but the implications would be likely be sobering.
A similar link was posted on the non-petroleum thread. I think this was the original source.
“A study by Wood Mackenzie Ltd. found maturing wells in some parts of the Permian’s Wolfcamp shale were losing almost 15 percent of output annually five years after startup. That compares with the 5 percent to 10 percent initially modeled.”
My average 2017 well profile has annual decline rate at 5 years at about 16%, so not all models use 10% decline rates at 5 years. The annual decline rate gradually falls to 10% by 9 years and then is assumed to remain at that level until the well is shut in at 8 b/d after 266 months since first output (22 years). The estimated ultimate recovery for my model of the average 2017 Permian tight oil well is 425 kb over 266 months or 22.17 years. Output is 233 kb over the first 36 months and 283 kb over the first 60 months after first output.
LONDON/HOUSTON, Oct 9 (Reuters) – Chevron Corp wants to build or buy a refinery along the U.S. Gulf Coast to process crude oil from its rapidly growing Permian Basin operations, a senior executive said on Tuesday.
Chevron is a major oil producer in the Permian Basin of West Texas and New Mexico, the largest U.S. oilfield. The company’s Permian production jumped 51 percent sequentially in the second quarter to 270,000 barrels of oil equivalent per day. By expanding its refining capacity to Houston, Chevron would be able to process its Permian crude closer to where it is produced. https://af.reuters.com/article/commoditiesNews/idAFL2N1WP1CS
How long would it take to build a refinery? Will Chevron even need it once it is built?
Refining is far beyond my meager capabilities to understand, but I have read that an existing refinery can be refitted to refine lite oil. It just cant run both. It does produce a large quantity of gasoline and naptha, with a decent amount of diesel. Naptha gives a lot of additives for many things, including plastics, which appears to be a growing need. It was a natural addition for a long time, just no money to throw into it for a long time. LTO may have a huge decine rate, and probably won’t come close to matching EIA projections, but it will produce for a long enough period to cover costs, especially when there may be larger discounts.
The US will never be able to not import oil. Most of that is of heavier oil to match refinery capabilities. But, there is a lot of heavy oil from Canada, which is dirt cheap, now. It just does not have the transportation capabilities of getting to the refineries here. Canada and the US just can’t seem to get it together concerning pipelines. However, that seems to have a growing concern in the national security arena. Why the heck are we exporting all this oil, while the world is running out??! It would make sense, if we could just trade lite oil for heavier oil, but as it stands now, it’s pure stupidity.
Big jump in 40.1 to 50 API oil, particularly from Texas.
Imported crude gets heavier.
Now the oil companies have to spend money to alter their refineries so they can refine stuff that is lighter or heavier than what they used to use. Oil economics keep looking worse.
Hmmm, the electricity from solar, wind, run-of-river hydro, geothermal, … all works just fine in an EV, no light or heavy electron transmission line or battery storage issues…
Earlier had posted projection of a decline in Texas production for August vs an increase as per EIA. Through September, all of the trends I am used to looking at are pointing down. Not up. While totals all depend on where they are on the decline curve, the monthly well count by category of production is decreasing, both for wells producing more than 100 barrels a day, and those producing over 10. A sign of decreasing production, not of increasing production. It’s not going to give a production number, but it is a trend down. http://www.rrc.state.tx.us/oil-gas/research-and-statistics/well-information/well-distribution-tables-well-counts-by-type-and-status/
ZH article from oilprice.com. synopsis is Poland is trying to reduce Russian oil dependence and buying from Nigeria, and within the article are two sentences that are more important than most of the rest.
The first is a statement by the primary Poland refinery manager who says that if the yields turn out as expected this Nigerian alternative is viable. That’s interesting in that somehow they don’t know the constituent content of a Nigerian barrel. Or, more likely, he is just playing it safe.
The second sentence was the very last one in the article. It said that”declining Urals quality was part of the motivation to seek the Nigerian alternative”. That one drives one’s eyebrows upwards.
This has been going on for over a year. I think the Urals are in decline from what I read, but the better quality goes to China, and the poorer quality gets dumped in Europe.
Is the “quality” problem due to lighter gravity? Or too much BSW? Or what? Do we know?
FEBRUARY 5, 2018 (Reuters) The quality of crude oil is measured based on the amount of sulphur and the level of gravity or density. Usually, the higher the level of sulphur and gravity, the lower the quality of the oil and more difficult it is to refine.
For sulphur, the national standard requires a level below 1.8 percent.
“The Urals’ sulphur content exceeds 1.8 percent regularly,” a trading source said. Four other trading sources also said that the sulphur often exceeds the allowed level. https://www.reuters.com/article/russia-oil-urals-quality/europe-shuns-russian-oil-as-boost-of-chinese-flows-hits-quality-idUSL8N1PS0KH?rpc=401&
Traditional “quality” was sulphur and certainly vanadium.
The q word doesn’t get applied to diesel and jet fuel content. Some other word is needed for that.
updates on Iraq’s oil production from S&P Platts and Argus Media
2018-10-10 (S&P Global Platts) Basra — Lukoil’s massive new discovery in southern Iraq — part of the Russian firm’s sizable growth plans in the Middle Eastern country — will start production in 2021, the head of Iraq’s regional state-run oil company said.
Aggressive exploration continues at Block 10, Dhi Qar Oil Company Director General Ali Warid said in a statement emailed to S&P Global Platts, following Lukoil’s announcement earlier this year that “recoverable reserves in excess of 2.5 billion barrels of crude” from the Eridu-1 well was the biggest find in Iraq in 20 years. https://www.spglobal.com/platts/en/market-insights/latest-news/oil/101018-lukoil-to-start-production-at-iraqs-newest-massive-discovery-in-2021?
2018-10-10 (Argus Media) Further out, Ismael expects Basrah’s production to reach 5mn b/d by 2025. Argus estimates Basrah current production to be around 3.25mn b/d.
The long-delayed Common Seawater Supply Project (CSSP), which involves desalinating seawater for injection, is key to maintaining production at some of the country’s other mature fields in the south. Without it, Iraq will struggle to expand its southern production capacity.
The first stage of development will treat 5mn b/d of seawater, with the possibility of increasing this to 7.5mn b/d. The project will cost less than the original estimate of $4bn, Ismael said. https://www.argusmedia.com/en/news/1769364-hurdles-to-clear-to-reach-iraq-capacity-target?backToResults=true
Baker Hughes GE rig count for Iraq starts in 2012
I wonder if Iraq’s oil production numbers will magically rise as Iran’s “decreases” because of sanctions. Iran has strong influence in Iraq, is shuttling oil through there a possibility for them?
They have just to employ some horizontal rigs in Iraq near the border, and Iran builds some underground storage tanks …
I think smuggling and relabeling will get a few 100k per day to customers on this way.
2018-10-10 EIA STEO estimates that U.S. crude oil production averaged 11.1 million barrels per day (b/d) in September, up slightly from August levels. EIA forecasts that U.S. crude oil production will average 10.7 million b/d in 2018, up from 9.4 million b/d in 2017, and will average 11.8 million b/d in 2019. https://www.eia.gov/outlooks/steo/
World supply/demand balance https://www.eia.gov/outlooks/steo/images/Fig6.png
Midland Cushing spreads have been dropping since June. From close to eighteen to sometimes under six. That doesn’t indicate increased production that needs to get out. I haven’t seen anything that reflects an increase in Texas production, other than what is posted on the EIA site and is quoted by everyone else.
Forecast models are suggesting a large tropical system in the central GOM next week. That forecast will firm up by Friday.
https://oilprice.com/Energy/Crude-Oil/OPEC-Accused-Of-Hiding-Spare-Capacity.html
OPEC accused by the State Department of hiding excess capacity. Maybe the CIA discovered it, along with weapons of mass destruction? Says US output will rise by one million barrels over the next 12 months. Ok. Where is it that Santa Claus lives? Is there really a tooth fairy?
There’s going to be a big scandal within the next couple years about US government oil “forecasts.” Everyone looking at the fields and the data realizes it is ridiculous but the “forecasts” keep coming.
Since about 1960, when I was a petty officer in the Navy, I have realized that the government constantly misrepresents the truth to justify their actions. I have never seen them be held accountable for their actions. It’s probably true no matter what country you live in. Spin rules.
Propoly,
An alternative tight oil scenario to the EIA AEO 2018 in chart below.
Another chart comparing EIA’s AEO 2018 reference case for tight oil (100 Gb) with my scenario (58 Gb).
With sufficient drilling and pipeline the Permian *could* add that much but the problem is we know the takeaway capacity won’t be there. No other LTO basin has meaningful growth so EIA calling for 1M+ in a year is all on the Permian and then some (Eagle Ford declines?). Without pipelines up and running, Midland prices would completely tank and waste that critical first year of flow in terms of $$$.
This doesn’t fit theoretical curves because it is a unique externality.
Propoly,
Correct that the model might not fit 2019 very well, but once pipelines are up and running output may catch up to the model. The AEO reference case has lower prices than is realistic in my view. An alternative is to take the average of the AEO reference and high oil price scenarios, which has a more realistic oil price scenario. That average of the reference and high oil price cases is compared with my scenario in the chart below.
The URR for the AEO case from 2016 to 2050 is about 111 Gb, my scenario is about 55 Gb over the same period.
The descent shouldn’t be steeper?
eduard,
Based on the models for Permian, Bakken (North Dakota), Eagle Ford, Niobrara, and other US LTO (not in the four plays modelled separately) and reasonable economic assumptions and technically recoverable resources (about 60 Gb based on USGS estimates) the current models give the result shown above. The URR is roughly half the EIA’s estimate (55 Gb vs 110 Gb) from 2006 to 2050. If there was an economic depression and a crash in oil prices as a result, then decline would be steeper as the well completion rate would fall rapidly and so would output.
Note that much of the output would be from older wells which do not decline very steeply. Also it is assumed that the well completion rate drops gradually as wells become less profitable. The average annual rate of decline is about 6.6% over the first 10 years following the peak and the annual rate of decline from 2025 to 2035 is about 9.3% per year, that is pretty steep.
Guym,
US LTO could increase by 1000 kb/d in the next 12 months, not sure if the rest of US output will remain flat, but if oil prices rise as much as you project, perhaps conventional onshore increases might offset falling GOM output. It might be a bit less than 1000 kb/d due to pipeline constraints, but 800 kb/d is very likely. I agree prices will increase, but I think in the near term (end of 2019) oil prices are likely to remain under $105/b (12 month centered average oil price through Dec 2019, average price from July 2019 to June 2020).
What is your breakdown per field of that 800k?
Actually the model is running behind actual output by about 300 kb/d through July 2018, so it is about 700 kb/d (rather than my initial guess of 800 kb/d) from July 2018 to July 2019 with 340 kb/d from Permian, 144 kb/d from Niobrara, 142 kb/d from ND Bakken/TF, 36 kb/d for Eagle Ford, and 18 kb/d from other US LTO. Note that pipeline constraints might not allow this much of a Permian increase, but the other plays might increase more than the model as capital may move from Permian to other basins.
I’d go along with that, lowering Permian by 100k and adding to EF by 100k. Seeing a build up in DUCs in the EF. But most of Permian would not be seen until the fourth quarter.
Muhammed bin Salman admitted to Bloomberg’s that they have 1.3 mbd of surplus capacity if needed:
Bloomberg: And of that, the kingdom is producing how much?
MBS: Today we are around 10.7 million if I’m not mistaken.
Bloomberg: And for the next few months?
MBS: We have spare capacity of 1.3 million without any investment. So in Saudi Arabia we have 1.3 million to go if the market needs that. And with other OPEC countries and non-OPEC countries we believe we have more than that, a little bit more than that.
https://throughthelookingglassnews.wordpress.com/2018/10/05/trump-warns-saudi-crown-prince-mohammed-bin-salman-he-would-not-last-in-power-for-two-weeks-without-the-u-s-and-demanded-mbs-pay-up/
The young potentate also said, in part:
we believe that the rise of electric cars will not harm oil especially for Saudi Arabia. Oil demand will continue raising until 2030 by above 1 percent, 1 to 1.5 percent, maybe more. And some believe that after 2030, it will decline. But we believe that the other side will be a lot of producers disappearing. So for example we believe that China will be decreased sharply if not disappeared after five years from today. And other countries will continue every day to disappear as countries producing oil. Nineteen years from today, Russia will have declined heavily if not disappeared with 10 million barrels. So comparing the rise of the demand for oil and the disappearing supplier, Saudi Arabia needs to supply more in the future. So we don’t believe that there is any risk in that area for Saudi Arabia. No one is talking today about planes going and flying by electricity or ships moving in the sea by electricity. Adding to that the demand coming from petrochemicals and the future of petrochemicals after 10 to 20 30 years from today.
Replying to my own post, if oil demand grows 1% a year for a couple of more years (barring another global recession, which is probably nigh at hand–Powell has vowed to keep raising rates unless (that means until in this case) there is another market collapse like 2008)–but if consumption did manage to grow uninterrupted at 1% year for the next 2 years, would that not wipe out the Kingdom’s spare capacity? Can fracking ramp up at that point, or would we be looking at a return to the relentless price rises we saw in the three years just after conventional crude peaked in 2005? Will rising bond yields or rising oil prices send the global economy reeling first? If the bond market tanks it first, oil demand will sink and mankind can live a few more years with the illusion of abundant petroleum.
“We have spare capacity of 1.3 million without any investment”
You are assuming that they actually know what their spare capacity truly is. That is a pretty big assumption to base projections on.
Has this been posted here before?
More on Saudi spare capacity.
https://www.reuters.com/article/us-oil-opec-falih-investment/saudi-arabia-to-invest-20-billion-in-spare-oil-production-capacity-idUSKCN1ME111
“Saudi Arabia will invest $20 billion in the next few years to maintain and possibly expand its spare oil production capacity, Saudi Energy Minister Khalid al-Falih said on Thursday.”
And this.
https://oilprice.com/Energy/Crude-Oil/How-Much-Spare-Capacity-Does-Saudi-Arabia-Really-Have18418.html
“In 2016, when Saudi Arabia was flooding the market, it was still only producing at about 10.6 mb/d, right around where it is producing today. As such, we still really haven’t seen Saudi Arabia put to the test. The next steps are where the rubber meets the road. Saudi Arabia has indicated it could add around 500,000 bpd in the coming months, which could put production right around 11 mb/d.
Bloomberg reported that industry executives privately said on the sidelines of the Asia Pacific Petroleum Conference in Singapore that they doubt Saudi Arabia can even produce 11 to 11.5 mb/d for any lengthy period of time, far lower than the stated 12.5 mb/d. In other words, spare capacity may only stand at 0.5 to 1 mb/d at most, not 2 mb/d. ‘Near-term spare capacity is effectively maxed out,’ Amrita Sen of consultant Energy Aspects Ltd. said.
Some within Saudi Arabia agree. Producing ‘11 million is already a stretch, even for just a few months,’ one Saudi official told the Wall Street Journal for an article on September 21.”
$20 billion isn’t very much, over five years it might give 100 to, at best, 200 kbpd per year for greenfield, so it’s probably doing no more than compensating for natural decline and has probably mostly been in the budget all along as they are continuously redeveloping fields. It will take some time to see if Saudi can maintain any increase or whether they have simply delayed maintenance or sacrificed some short term voidage replacement.
This is the petroleum thread.
OOOPSYY!
EIA Weekly U.S. Ending Stocks to Friday 28th September
Crude oil up +7.98 million barrels
Oil products down -2.9
Overall total, up +5.08
Natural Gas: Propane & NGPLs up +2.14
chart: https://pbs.twimg.com/media/DosWIeDWwAEEsAa.jpg
A weekly measure of some international inventories
Crude oil & products: https://pbs.twimg.com/media/DosVZ3nW4AA-kF5.jpg
Products: https://pbs.twimg.com/media/DosUzGnX0AU75T6.jpg
Do you have an international crude and product supply chart for 2017?
I don’t have all of those weekly numbers
Ok, thanks,
Lowest Global Sea Ice on record for this date:
https://uploads.disquscdn.com/images/dec525660c021c73294c22288add10f878557e7d6e94b8c039ef77c2fdb292a8.png
Looks to be well within error range.
Well, if you look to the long term trend, you will see a clear decrease since 40 years. I will try to post the graphs.
Not talking about 40 year trends, talking about measurement error range and the determination if a value is actually lower or higher than another value. Claim was lowest level, but it must breach the error range to be significant.
You can find more information here: http://nsidc.org/arcticseaicenews/faq/#error_bars
“We estimate error based on accepted knowledge of the sensor capabilities and analysis of the amount of “noise,” or daily variations not explained by changes in weather variables. For average relative error, or error relative to other years, the error is approximately 20,000 to 30,000 square kilometers (7,700 to 11,600 square miles), a small fraction of the total existing sea ice. For average absolute error, or the amount of ice that the sensor measures compared to actual ice on the ground, the error is approximately 50 thousand to 1 million square kilometers (19,300 to 386,100 square miles), varying over the year. During summer melt and freeze-up in the fall, the extent may be underestimated by 1 million square miles; during mid and late winter before melt starts, the error will be on the low end of the estimates. It is important to note that while the magnitude of the error varies through the year, it is consistent year to year. This gives scientists high confidence in interannual trends at a given time of year.
The absolute error values may seem high, but it is important to note that each year has roughly the same absolute error value, so the decline over the long term remains clear. NSIDC has high confidence in sea ice trend statistics and the comparison of sea ice extent between years.”
Since 40 years, arctic and antarctic had different trends, with arctic going lower and antarctic going slightly higher. The result was a decreasing trend.
Since about 3 years, antarctic Sea Ice extent is falling. This explains why Global Sea Ice for 2016, 2017 and 2018 are very low compared to other years.
I will try to post graphs later today.
+Chris, Antarctica and the rest of the world typically move in opposite directions. If you are correct that Antarctic ice has been retreating for 3 years, that should signal that the rest of the world is entering a cooling phase. Sometimes this seesaw effect is ascribed to the northern vs. southern hemispheres, but it is really just Antarctica vs. the rest. Svensmark’s theory neatly explains this, putting him in Occam’s corner, since one explanation for multiple phenomena (the seesaw effect, recent warming on earth, recent warming on other planets, and the ice house events that recur from time to time as earth orbits the edge of the Milky Way) is more likely to be correct than inventing a different explanation for each phenomenon. I know this is the petroleum thread, so I hope we are not straying too far off topic here.
Dunning-Kruger alert
Good point
One explanation could be the following: as melting of Antarctic continent ice seems to increase, sea salt concentration around Antarctica is lowering, so sea water freezes more easily. So as a paradox, Antarctic sea ice could increase with global warming (at least at the beginning).
If that is true, as you mention, the current decrease could be due to a lower rate of increase of global temperature: still increase at a lower rate, pause or decrease.
However, I have to admit I have not look for data about historical sea salt concentration around Antarctica.
From the graph below, there seemed to have a cycle of 4-5 years in Antarctica. Therefore the last decrease of sea ice extent was expected, but not with that amplitude. We have to wait a few years to know whether there is a change in the trend: either continuous decrease or increase to new high levels, and what will happen in Arctic.
Antarctic Sea Ice Extent history – yearly average
Arctic Sea Ice Extent history – yearly average
Global Sea Ice Extent history – yearly average
Ok, had the typical profit taking, prices going back up again.
https://www.bloomberg.com/amp/news/articles/2018-10-01/pdvsa-and-international-jv-oil-workers-protest-pay-in-venezuela
Doesn’t sound like production is faring so well. Shipments still delayed because they can’t fix the dock.
Reading between the lines is all that can be done about interpreting what is going on in the oil market at the moment. The agencies keep predicting an unreasonable path of a well supplied (global) market, but that is nothing new as this has been the case in prior bull markets as well. There is most likely a gigantic supply problem judging by how preoccupied all major powers are about oil at the moment. No amount of twitter messages or statement of ambitions is going to make more oil flow out of wells globally in a short time frame. LTO is the exception, but the Permian is supply blocked by pipeline capacity. What can be done, and what most likely is the case right now, is a combination of draw down of global storages and utilising all available spare capacity (meaning availability close to maximum and maintenance postponed and production at an unsustainable level). And a lot is done to hide the inherent supply deficit – all speculation on my part ofcourse. The elephant in the room is decline rates for major fields around the globe. So postponing a shortage of oil (and assumably an oil price spike) is all that can be done. And to what purpose?; it is going to come anyway. What about a more coherent and transparent long term policy? Well, you don’t get that when markets are in charge.
Baker Hughes International Rig Count
Total down -4 to 1004 in September
Oil -12 to 780, Natural Gas +5 to 190, misc +3 to 34
Land +4 to 800, Offshore -8 to 204
Mexico +4 oil
Egypt -7 oil +1 gas
Libya +1 oil
Offshore China -3 oil -1 gas
Saudi Arabia -3 oil -1 gas +1 misc
Venezuela -2 oil
Chart offshore: https://pbs.twimg.com/media/DowjObRXgAAV0xk.jpg
Baker Hughes US Rig Count
Oil: -2 to 861
Natural Gas: 0 at 189
Permian: -1 to 485
Table https://pbs.twimg.com/media/DowpIvJW0AEJ3sK.jpg
Bloomberg chart, oil rigs: https://pbs.twimg.com/media/Dowp6uxXUAEkPAJ.jpg
Main story offshore rig count going down again. Libya controlled by western powers (+1 rig). The overall activity is too poor to support what many oil traders are accustomed with; oil price decline at certain intervals.
Interview with Saudi Crown Prince…
2018-10-5 (Bloomberg) “The request that America made to Saudi Arabia and other OPEC countries is to be sure that if there is any loss of supply from Iran, that we will supply that,” Mohammed Bin Salman, heir to the Saudi throne, said in an interview. “And that happened.”
Saudi Arabia’s crown prince said he’s getting close to striking a deal with Kuwait about two jointly owned fields
https://www.bloomberg.com/amp/news/articles/2018-10-05/saudi-crown-prince-discusses-trump-aramco-arrests-transcript
NEW DELHI (Reuters) – India will buy 9 million barrels of Iranian oil in November, two industry sources said, indicating that the world’s third-biggest oil importer is to continue purchasing crude from the Islamic republic despite U.S. sanctions coming into force on Nov. 4.
https://www.reuters.com/article/us-india-iran-oil/india-to-buy-9-million-barrels-of-iranian-oil-in-november-industry-source-idUSKCN1MF19U
Which is about 300k a day, or less than half of current purchases.
There is an interesting analysis of shale production projections on seeking alpha. The author, Laurentian Research basically says that shale oil is a valid investment, further that the allegations about red queen theory and ponzi ideas are not valid. He uses a lot of decline curve info to prove his points. I would love to hear what the math gurus here think about his approach and conclusions.
https://seekingalpha.com/article/4210065-shale-oil-ponzi-scheme-evidence-decline-curves
Not a math guru, but I can usually get numbers to match my preconceived conclusions. Do know that his conclusion that they can get tier three and two stuff to match tier one production is unmitigated horse manure. There is no drilling alchemy that can change bad rock into good rock. Yes, you can drill a two mile lateral to produce twice as much as a one mile lateral, but have you drilled a better well per area?
The author is selling something.
“Join The Natural Resources Hub and get immediate access to a portfolio of high-alpha investing ideas in the natural resources sector and beyond, including those behind the paywall. … Disclosure: I am/we are long ESTE, HK, VNOM, WLL, XEC…
Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.”
I skimmed the article. Seems like he admits to the decline rates, and he is putting a lot of faith in increased efficiencies and reduced costs.
Went thru it. Early on he says BOEPD, then there’s no more mention of either bopd or boepd.
I suspect this is many measurements now for Bakken particularly. Celebrating higher IPs in recent years being evidence of techno miracles might rather be more gas capture than prior years.
dc
The article describes what has been taking place the last 3 years in LTO world as even a quick glance at Enno’s site should show.
While Guy says that the rock quality does not change, fact is the initial recovery rate in the Bakken is now at the 12/15% range, which gives a high financial recovery rate in the first year.
Operators have become exceptionally close mouthed concerning completion particulars.
However, reading numerous statements by various industry participants over the past few years might lead one to conclude a few things …
Precise targeting of most carbon rich areas is at unheard of levels compared to early drilling.
Latest iterations of RSS enable in zone drilling at very high ROP.
Bakken TOC is at the 15 to 20% range in many spots.
Micro proppants – effectively employed with pressure management and diverters during fracturing – are creating WAY more rubbilzation of the rock near the wellbore.
These ultra tiny fissures will actually extend the production tail as the hydrocarbons travel farther through the complex channels.
Operators have been choking back the initial flowback dramatically which is prompting the higher frac pressure to drive way more hydrocarbons into the wellbore (along with produced water levels 5 to 10 times the historical norm).
That article is dead on.
Probably underestimating future advancements which would include EOR.
Thanks for looking over the article. I’ve thought the term Ponzi Scheme wasn’t really applicable to shale oil because a Ponzi usually has no real investment just moving money from new investors to old. Of course there are lots of variations on this theme, and perhaps some shale is a pure rip, but I think usually it has been classic oil biz using OPM to try to make money with the deck set up so management does good no matter what, while investors odds are usually thin.
The production over time plots that the author publishes are perhaps the most interesting thing to me, along with the hyperbolic decline fit that he says is based on real data, but reaches a decline rate of only 10 percent annual. Like Gyum my inclination is that something is amiss in his fit or data, but my math skills are not up to determining whats wrong.
I think that one of the key factors in how successful shale oil production is in the long run will be basically how fat and long the production tail is. If this guy is correct, then shale will be around longer, and more successful than most folks here think. If he is wrong, we could see Dennis’s projections come out close.
dc
I agree with the fat production tail idea.
This is why I think Bakken could be best long term financially. Just seems like a good chunk of those wells hang in at over 1,000 BOPM, with little produced water.
Not so sure PB and EFS will be the same. Seems those wells fall below 1,000 BOPM faster and keep on steadily dropping from there.
Also, agree it’s not really a ponzi, it is the largest oil investment promo in US history, with management making $millions in salary, even during the depths of 2016 when all companies were losing large amounts of $$
To add:
The big issue with shale is the oil price.
I realize that is a “duh” comment, but IMO oil prices above $50 WTI are vital to survival, and likely much higher prices are needed for the long term to make shale overall a successful business on the whole.
It is very interesting to go back to 10K in the 1990s, where oil prices were generally below $25, and see companies were able to generate positive returns on upstream.
Now, $45 for 5 years would BK the majority.
In 2004 we did great at $45 oil. Now we just get by.
Assuming the world needs more oil annually for awhile yet, either the price will need to stay high and and keep trending higher, or someone will have to subsidize production.
World oil demand was 80 million BOPD in 2003. Have now hit 100 despite much higher prices.
IEA sees demand for plastics adding 7 million BOPD to demand by 2050. Article says a decent amount of this growth will be from the surge in the production of electric cars.
How many barrels of oil are burned per electric car, including all of the transportation costs involved?
The author of the article is selling something (an investment hub), so he does not attempt to be neutral or fair. He does not mention the issue of mounting debt in the shale industry. Investment -> oil + debt. The oil only pays for a small part of the investment so at the end somebody will be looking at a huge pile of debt that will not be repaid.
Almost anything can be defended with a mathematical model. The shale well decline curves are asymptotic to zero so small errors in the flat part amount to huge differences in final production. So I find the main argument in the article unconvincing.
It is important to rest on evidence connected to reality. To me the relevant question is why after 8 years the shale oil revolution has not been reproduced anywhere else in the world. It is not even in the process of being reproduced despite significant shale plays elsewhere. Here you have a map from EIA with shale resources (both oil and gas).
https://www.eia.gov/todayinenergy/images/2013.06.10/bigmap.png
I don’t know the answer to that, but I suspect there is insufficient financial muscle outside the US to embark in an operation that requires so much money for so little profit. In contrast any important conventional oil play found that is not ultra-deep or Arctic, starts moving towards development and production quite soon. The problem is that conventional oil discoveries are at a 65-year low.
https://i2.wp.com/mrkt.co.in/wp-content/uploads/2017/01/OIL-Discoveries-1.png
I suspect that as oil price continues its inevitable long-term ascent…
http://www.thenrgroup.net/peakoil/BrentOilTrend.gif
… shale oil will play a bigger role until the economy gives up. I consider the idea of a successful transition from oil a psychologically interesting fantasy, like trying to jump by pulling hard from your shoelaces.
That one should be a classic! Jumping by pulling your shoelaces! Let’s see, if we make the shoelaces x long with y strength, we would need z time for upper body conditioning to perform this feat. Yeah, it should work!
Great comment.
… important conventional oil play found that is not ultra-deep or Arctic: Very, very few of these not in FID, and most of those have other issues, like heavy oil, compartmentalised reservoirs, in Iran or Iraq etc. (maybe they wouldn’t count as “important”). Any decent finds in the last few years have almost all been immediately fast tracked, no matter what the oil price has been.
The major talking points are much like traditional emotional denial. It’s just human nature to believe those things. If we spend more on exploration, we will discover more and keep oil production up. If prices get too high, it will destroy demand so that prices will once again remain in the $65 to $70 range. OPEC has hidden extra capacity that they are hiding from us. If we release oil from the SPR it will eventually lower prices to the $65 to $70 price range. The list of denial emotional type arguments are now growing. The only things that overcomes denial is when harsh realities occur. Traders have to compete for sorely needed barrels. Refineries can’t produce the needed amount of oil. Until then, talk is cheap, and oil prices don’t have to rise too much.
It’s going to take the US and the world some time to get over this denial. For the past four years they have been fed a large diet of cow manure, and they have become addicted to it. Mushrooms.
IEA boss urges oil producers to ease supply concerns
https://www.worldenergyreports.com/news/detail/iea-boss-urges-oil-producers-to-ease-supply-concerns-206893
“It is now high time for all the players, especially those key producers and oil exporters, to consider the situation and take the right steps to comfort the market, otherwise I don’t see anybody benefiting,”
…
A rise in oil prices to more than $85 a barrel coupled with concerns over global trade are putting heavy pressure on emerging economies, he said.
…
“Expensive energy is back at a bad time for the global economy,” Birol said.
Is this capitalism?
“Major oil producers must take ‘the right steps’ to ease supply concerns that have lifted crude prices to a four year-high, the head of the International Energy Agency told Reuters on Thursday.”
Does he mean lie to ease supply concerns?
Well there are some known reasons why the shale revolution hasn’t spread. It’s an expensive, huge messy footprint way to get oil and it needs a certain type of resource. The United States is unique in the amount of internal infrastructure to get to empty spaces and comparatively easy to frack rock.
Middle East? They still have cheap conventional oil with high budget breakeven, they aren’t going to touch it.
UK/Norway? The oil is all offshore. UK also doesn’t want fracking for gas, too densely populated.
Mexico? Mostly offshore and politically unpopular.
Canada? Almost all tar sands.
Russia? Middle of nowhere (also politics/sanctions). Also questions on geology, actual size of reserves etc.
China? Rock isn’t good.
https://www.bloomberg.com/news/features/2018-07-19/petrochina-sinopec-are-chasing-an-elusive-shale-boom
A lot of this is true in the US as well outside of the current plays. See Monterrey bust.
France? The best stuff is directly under Paris.
George
Are you still watching the Weald basin. There have been short term tests at Horse hill and Balcombe that have demonstrated movable oil from the Kimmeridge micrites. EWT is just getting underway at Horse Hill and a production well is awaiting completion at Brockham. IP rates are promising but as yet we know nothing of decline rates.
Mr. Diaz
Surprised that you seem unaware of recent ongoing developments in Argentina.
Cuadrlla, in the UK, is abnout to frac its first 2 wells and has been hit with more delaying lawsuits.
Fuling is setting production records in western China, although the rate of development lags badly due as much as above ground influence as rock quality.
The pipeline constraints affecting Canadian expansion should not prevent recognizing plays such as the Montney and Duvernay as holding enormous resources.
The early Russian efforts in the Bazenhov may prove especially significant as the relatively high clay content is just one challenge operators face.
Should the issues with clay be overcome, numerous other areas, particularly in Eastern Europe, may become feasible targets for development.
Coffeeguyzz- “you seem unaware of recent ongoing developments in Argentina”
What do you mean by that?
well if there’s frackable gas in the Vaca Muerta then that will be the end of LNG shipments south from the US. They’ll pipeline that stuff to all of South America.
It does seem the most promising———–
We shall see.
Last I heard, it was pretty promising. However, they don’t expect a lot of capex going into it real soon, as a recent batch of hydroelectric power seems to be serving most needs, now.
I was in Argentina for a while.
Even with all the currency chaos, things work very well.
We shall see—–
Watcher
Your comment could prompt an in depth (if you are interested. I personally love these type of innovative processes) look into the rapid development of an entire array of LNG handling/storage devices.
Fact is, there are now at least 2 plans to emplace FSRUs off the southeast coast of Australia.
While the political and social reverberations could be enormous if this actually comes to pass, the mere fact that natgas might be extracted in Susquehannah county, shipped to Louisiana , chilled to liquid status, then shipped across the globe only to be stored and regassified as needed in an LNG exporting country should prompt a jarring look into what the heck is going on.
Building lengthy pipelines is receding in economic viability as smaller, mobile storage and regassification capabilities are introduced into the market. Argentina is mulling over several LNG concepts for export with the floaters understandably on the inside track.
Argentina’s own Galileo Technologies is just one company aggressively moving in this direction.
Hickory
Mr. Diaz made the comment that shale development is not underway in other parts of the world. (“It is not even in the process of being reproduced …”).
There is actually a good deal of activity underway from the Middle East, Australia, UK, Russia, China and elsewhere.
Political and economic forces are the biggest hurdles … perhaps way more than rock quality itself.
We are in the nascent stages in the US of smaller operators using unconventional techniques in targeting cheaper, shallower resources. These areas range from Kentucky, Illinois, Ohio, Colorado, and Michigan to name just a few.
That Seeking Alpha article mentioned above is accurate, especially regarding the Bakken.
The techniques are starting to be applied on a MUCH wider scale, area wise, with the results still to be determined.
Mr. Coffeguyz
You’ve got to be kidding me, right? Do you have any data that actually disproves what I said? Because showing that what you say is bullshit is fairly easy:
Exhibit One: Shale oil resources. US is second with about 60 bbl. Eight countries with above 10 bbl.
http://blog.lmkr.com/wp-content/uploads/2017/04/Capture1.png
Exhibit Two: EIA data and projections for world tight oil production. Only Canada is producing a little bit in 2015. By 2020 it is expected that Argentina will produce a negligible amount. By 2040 it is expected that the US will still produce more than twice the rest of the world.
https://www.eia.gov/todayinenergy/images/2016.08.12/main.png
You are clearly uninformed if you are unaware that various countries around the world are engaging, in halting fashion, unconventional development of their hydrocarbon resources.
Just as the US started with gas in the Barnett, it is gas focused work that is leading local governments to enter into this field.
Algeria, China and Argentina being only the most prominent, with Argentina possibly exploiting its oil most effectively in the early going.
There is NO question that the US will maintain a large lead in LTO output.
I would fully expect the ever innovative, highly resourceful Russians to make impressive gains in the Bazenhov within a decade. They are already expanding their drilling program there at this very moment.
It won’t be fat and long when they get to the tier two and three stuff. I really think Dennis’ prediction is pretty close. Who knows when actual peak will happen? Whenever, it will be anticlimactic.
Guym,
I prefer scenario, I think you are talking about mu medium scenario which in my estimation has about a 50/50 probability that URR will be higher or lower. I have other scenarios, the low scenario would have about an 80% probability that URR would be higher, the high scenario would have about a 20% probability that URR might be higher, and the actual path of output is likely to be anywhere between the high and low scenarios (with roughly a 60% probability it will fall that range).
The shape of the output curve is impossible to determine because I cannot even guess when future wars, economic crises, and other crises I have not thought of might occur.
My only prediction is that my scenarios are likely to be incorrect, probability about 99.999%.
Some people call it a Ponzi (Social Security) scheme because, since the industry loses money, new investors’ money is needed, at least in part, to pay off the debt owed to previous investors. Rumor has it that Texas has peaked. Don’t know about the Bakken, but I would put more faith in the assessments of geologists like Art Berman than of the economists, business journalists, and stock promoters whom we usually hear from. BTW, Seeking Alpha and Zero Hedge make for an amusing contrast. For one, the glass is always half full, for the other, half empty. I enjoy reading both, and take both with a grain of salt. But I pay special attention if I ever see good news on Zero Hedge or bad news on Seeking Alpha.
http://www.rrc.state.tx.us/media/47968/ogdc0918.pdf
Completions still trending down. So, are permits. EF not showing any significant uptick. All this is normal for this time of year. Huge expenditures in Capex this time of year, won’t yield much for the year.
Note that for 2018 the Jan to Sept cumulative oil completions are 47% higher than Jan to Sept 2017, but you are correct that the trend since June has been a lower oil completion rate in Texas.
Yes, and my projections are going to be 100% wrong, too. Look at the latest on pipeline projections in this article.
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/100518-analysis-us-oil-rig-count-dips-by-two-as-permian-starts-fall-back-to-well-worn-range
So, Permian production in 2019 might be????? In essence, the way I read this, over 200k bpd will be available by January. A pipeline that was due to be converted after the next two pipelines, will be converted temporarily to oil by the second half. Not clear of that capacity, but the main pipelines are due to be closer to the start of the fourth quarter. This stuff changes every two weeks. But, they are trying to get it out faster. I’m going to stop discounting EIA’s estimation of an average of 11.5, because there are too many unknowns, now. It’s a fast moving target, and picking up speed. And it is really not helped by some really horrible reporting.
Guym,
Yes it is difficult to project output because of transportation difficulties, I wonder if reduced sand use might increase oil by rail in Permian, I have read that the amount of sand per completion is being reduced lately as they over did the sand lately (doubled sand with little increase in output so they are scaling back). Eventually the transportation constraints will be sorted, when that is is unknown.
We talk about economics here a fair amount.
I just found this article and he has a relevant section on the problem with economists. You can read the whole article if you wish, but I’d like to point you to the section, “Why do economists get it wrong?”
https://www.forbes.com/sites/johntobey/2018/09/30/the-fed-is-serious-it-wants-higher-inflation/#26fd477d1442
Just looking at the URL, if the Fed seriously wants higher inflation, why is it raising rates and selling assets to improve its balance sheet? Should it not be doing the opposite? Instead of paying the big banks a quarter point interest to hold their money, why has it not started charging the banks interest on the money it holds so they will have an incentive to lend it out more aggressively–because the only way to create inflation without a “helicopter drop” is to loan it into circulation.
http://www.arabnews.com/node/1383641
SA unofficial viewpoint news. Takeaways:
SA is getting fed up with Trump. Not really news.
US has not created a large refinery since 1977. Definitely not news, but pertinent. Traders are starting to key in on Cushing inventory levels, and discount may get higher. That may be a real issue when the additional pipeline to Cushing is fully flowing by January by over 200k barrels. May pretty much offset any benefit of the pipeline. There is a substantial discount to WTI MEH for Cushing, now. It has a limited flow from Cushing to the Gulf. So, you have transportation costs to Cushing plus the discount of WTI, then you have substantial transportation costs from Cushing to MEH.
And all of these pipeline benefits are tied directly to the ability of increased shipping capability, which won’t come in until the beginning of 2020. FUBAR unfolding.
https://www.spglobal.com/platts/en/market-insights/latest-news/shipping/100118-americas-vlcc-freight-jumps-1-million-in-two-days-on-demand-tight-tonnage
But they are trying to ship it. Demand is there VLCC capacity is waning. China is buying again. Three million has been the high, so far. We may see that tested, soon. The higher the discount, the more that will probably be exported, up to whatever capacity it will reach.
Scroll down to “Why economists get it wrong.” It seems relevant to some of our discussions.
https://www.forbes.com/sites/johntobey/2018/09/30/the-fed-is-serious-it-wants-higher-inflation/#54ef3c551442
Boomer,
When I look at that Forbes site there is a ton of advertising, so the WordPress spam filter must see it as spam. A way around this would be to give people a search that will work.
For example when I go to google and type in “forbes inflation”, it is the top link on the search.
That would be a way around the spam filter.
Thanks. I tried to copy what I wanted to highlight from the article to post here, but I find trying to copy using my iPad doesn’t work as well as it does on my laptop. I gave up and just used the link.
I don’t think I’ll be posting links to Forbes articles very often, anyway.
I have been unable for the past day to post a comment with a link. Am I on a spam list? I shouldn’t be.
Boomer II,
Not sure why that happened. You are not on the spam list, but sometimes comments with links go to the trash, just let me know when that happens and I will try to fix.
I posted similar comments about three times, so if they are in the trash, you should be able to see them.
It was about economists. The link was from a Forbes article. Maybe Forbes articles are banned?
It must be to do with that link. I restored one, so far it hasn’t shown up but I remember it took a bit of time once before.
The one you posted was all I wanted to get up. The other posts were just multiple attempts at posting the same link.
Forbes runs a lot of opinion pieces, so maybe it’s considered an unreliable site.
The article author did a good job of explaining why economists don’t have the insight they think they do, and I thought it was worth sharing.
I was an economics major in the 1960s and even then I was skeptical about some of my courses.
There’s lot’s of books pointing out why classical economics is wrong, but then the authors of those don’t seem to do a lot better. I think the main problem is that economics is a (relatively small) part of the environment but economists (except a few like Daly and Hall) treat it the exact opposite. The environment is constantly changing though in the past couple of hundred years the constant, increasing supply of cheap fossil fuels has covered up most ripples and that is when modern economics has been developed, but no more.
Moody’s in 2017 announced their credit rating for Pioneer debentures. Baa3 –> to Baa2.
Baa3 is one increment above Ba, which is their junk bond threshold. Baa3 to Baa2 moves one increment farther from junk, on which it teetered
A is investment grade. Baa is a limbo between junk and investment grade. A3 improves to A2 improves to A1 and then becomes Aa3 etc to the top rating of Aaa.
Exxon is Aaa and stable as of summer last year, their last rating re-evaluation. Note that S&P did downtick them one increment. Moody’s said no, their debt is as credit worthy as a Fed-purchased US Treasury bond.
So dont imagine shale companies are financially secure. The agencies know.
For the Bakken, Whiting has a Moody’s rating of B1 — well into junk territory, re-evaluated 3 weeks ago.
EOG as of July, Baa1.
What are the debt ratings for CLR.
CLR is back to emphasizing Bakken. 2 qtr 8K says average well cost is $8.4 million, EUR curve now 1.2 million BOE, do not break down how much is oil.
Assuming half is oil, is 600K BO is impressive if true, even if over a 40 year well life. But, like all of this stuff, have to question numbers.
Pretty sure the agencies don’t look at millidarcies or decline rates or EUR. It’s just dollars. I’ll give CLR a look later.
What’s really remaining absurd is how Exxon’s interest rate is so near Whiting’s. Artifact of QE, largely. It corrupted everything about translating poor debt rating into higher interest rates.
[not much later]
CLR was upticked to Ba2 from Ba3 March this year. This remains in the junk category.
They placed $1B of 10 year paper earlier this year at 4.375%, though that was covenant loaded stuff (that tends to camouflage interest rate). The 10 year treasury at that time was 2.5%. A lot of digging would be reqd to know the covenants imposed.
Regardless, less than 2% rate premium over Treasuries for a junk/near junk rated company. Vague recollection that when I looked at this a year ago I found that tiny premium (by historical norms) wasn’t limited to shale. It wasn’t some oil / finance conspiracy on Wall Street. It’s just QE corruption.
shallow sand,
CLR also claims Bakken/Three Forks will be at least 30 Gb URR, so if we take their EUR for a typical well and divide by 3, we end up in the right ball park. Typically the Bakken/TF wells are about 80% crude and 20% non-crude for the average producer.
The average 2016 North Dakota Bakken/Three Forks well has an EUR of about 363 kb, if we assume production is shut in at 8 b/d. If the 80% oil assumption is correct we would have about 453 kBOE, but I usually ignore the non-crude barrels as they barely provide any income and the gas would all be flared if it were allowed. So take 453 multiply by 3 and we get 1.36 MMb EUR, almost the same as the CLR “typical well”. It is amazing they can keep a straight face at their investor presentations. 🙂
If anything, the average CLR well has been below average in the Bakken/TF. When land costs are included (those are always left out of investor presentations), the real well cost is likely 9.5 to 10 million. Bottom line, not much money is being made at $65/b at the wellhead.
Turkish Police Believe Saudi Journalist Killed at Consulate:
This article is about a Saudi journalist who entered the KSA consulate in Turkey and was not seen again.
https://www.tasnimnews.com/en/news/2018/10/07/1846233/turkish-police-believe-saudi-journalist-killed-at-consulate-sources
I know this kind of news is not new, but when the POTUS praises and does sword dances with this kind of regime, it sucks. I think trusting his new BFF’s isn’t going to play out well over time.
https://www.usnews.com/news/top-news/articles/2018-10-08/exxon-mobil-pulls-staff-from-gulf-platform-ahead-of-tropical-storm-michael
Michael is obviously going to disrupt GOM oil production.
Shut ins include Thunder Horse according to that article. 250k bpd there alone even if Michael is avoiding most of the Gulf platforms.
https://seekingalpha.com/amp/article/4210308-hartstreet-eogs-progress-powder-river-basin-bodes-well-play
Powder river basin is picking up
Okay. Above there is talk.
First of all, inflation is desired because it has to be. Lemme rephrase. First of all, it’s important to understand that what happened in 2008 was beyond anything ever seen before. By anyone. What was done since was necessary to keep the wheels turning on the global system. With total distrust of all counter-parties, as existed for a period in late 2008 and early 2009, the “system” would have had to resort to barter.
So keep that reality at the core of your thinking. What was done was a desperate measure and Fed governors have been quoted repeatedly since 2009 saying it’s all new territory and they don’t know how it is going to turn out.
But returning to the point, inflation is desired because it has to be. $21 Trillion in debt for just the US. Others have serious debt to GDP issues, too. Surpluses are never going to happen, or at least with never being defined as the next several age demographic decades. So if surpluses won’t happen, only inflation can erode the debt that is global. Talk about weak dollars or weak Euros or weak Sterling can’t mean anything because all of those currencies measure against each other and all of them want their currency to weaken . . . measured against some particular, undefined something. Weak currency is inflation and everyone must have it.
So it’s all gobbledygook. All pretending that the pieces of printed paper mean something, and they do only in the minds of people trying to work within the “system” (which almost everyone does).
In the end, and probably should be capitalized End, oil will make it clear that the desperate measures only bought time — and probably a lot less than hoped.
Yes. There will have to be a great reset, to erase the current debt (and ongoing obligations like pensions and health care programs) from the global balance sheet. This is the economic side of ‘overshoot’.
I hope to not witness that reset, because most of us cannot dream how ugly that will be.
It may come at the same time that oil supply starts to seriously fail to supply the global demand.
At that time, I think there will be very high inflation in consumables like fuel, fuel and clothing, along with relative deflation in assets like housing.
In effect, currencies will be devalued strongly, and yet debt will continue to rise because economic growth will reverse, that is contract.
Hopefully I’ve got this all wrong. I’d like to get a grade F wrong on this.
I see the election of Trump as a desperate attempt by the collective unconscious of the USA to be in denial about these prospects. ‘Tell me it ain’t true”.
It’s not a reset. Reset implies an event that restarts things. Things are placed at a lower level and then restarts progress from there.
This doesn’t happen.
When oil is gone, it’s gone. There is no reset. It’s a reduction of level of civilization and it’s permanent. Well, not permanent. It’s a reduction of level and the lower level then embarks on decline. The decline continues. It’s the continued decline that is permanent.
True. ‘reset’ is the sugar coat term.
I’d like to see a longterm graph of velocity of money (or money supply?) vs energy/capita. Probably hard data to come by, but the implications would be likely be sobering.
This shows the point pretty well- https://www.researchgate.net/figure/The-relationship-between-per-capita-energy-use-and-per-capita-gross-domestic-product_fig1_225183204
Mainstream Journos Pissed As Saudi Clown Prince Nabs One Of Their Own
http://www.moonofalabama.org/2018/10/mainstream-journos-are-pissed-that-their-beloved-saudi-clown-prince-nabs-one-of-their-class.html
A similar link was posted on the non-petroleum thread. I think this was the original source.
“A study by Wood Mackenzie Ltd. found maturing wells in some parts of the Permian’s Wolfcamp shale were losing almost 15 percent of output annually five years after startup. That compares with the 5 percent to 10 percent initially modeled.”
https://www.bloomberg.com/news/articles/2018-10-09/mind-the-drop-decline-rates-from-maturing-oil-wells-on-the-rise
Boomer II,
My average 2017 well profile has annual decline rate at 5 years at about 16%, so not all models use 10% decline rates at 5 years. The annual decline rate gradually falls to 10% by 9 years and then is assumed to remain at that level until the well is shut in at 8 b/d after 266 months since first output (22 years). The estimated ultimate recovery for my model of the average 2017 Permian tight oil well is 425 kb over 266 months or 22.17 years. Output is 233 kb over the first 36 months and 283 kb over the first 60 months after first output.
LONDON/HOUSTON, Oct 9 (Reuters) – Chevron Corp wants to build or buy a refinery along the U.S. Gulf Coast to process crude oil from its rapidly growing Permian Basin operations, a senior executive said on Tuesday.
Chevron is a major oil producer in the Permian Basin of West Texas and New Mexico, the largest U.S. oilfield. The company’s Permian production jumped 51 percent sequentially in the second quarter to 270,000 barrels of oil equivalent per day. By expanding its refining capacity to Houston, Chevron would be able to process its Permian crude closer to where it is produced.
https://af.reuters.com/article/commoditiesNews/idAFL2N1WP1CS
How long would it take to build a refinery? Will Chevron even need it once it is built?
Refining is far beyond my meager capabilities to understand, but I have read that an existing refinery can be refitted to refine lite oil. It just cant run both. It does produce a large quantity of gasoline and naptha, with a decent amount of diesel. Naptha gives a lot of additives for many things, including plastics, which appears to be a growing need. It was a natural addition for a long time, just no money to throw into it for a long time. LTO may have a huge decine rate, and probably won’t come close to matching EIA projections, but it will produce for a long enough period to cover costs, especially when there may be larger discounts.
The US will never be able to not import oil. Most of that is of heavier oil to match refinery capabilities. But, there is a lot of heavy oil from Canada, which is dirt cheap, now. It just does not have the transportation capabilities of getting to the refineries here. Canada and the US just can’t seem to get it together concerning pipelines. However, that seems to have a growing concern in the national security arena. Why the heck are we exporting all this oil, while the world is running out??! It would make sense, if we could just trade lite oil for heavier oil, but as it stands now, it’s pure stupidity.
https://www.eia.gov/todayinenergy/detail.php?id=37213
The United States continues to increase production of lighter crude oil
Big jump in 40.1 to 50 API oil, particularly from Texas.
Imported crude gets heavier.
Now the oil companies have to spend money to alter their refineries so they can refine stuff that is lighter or heavier than what they used to use. Oil economics keep looking worse.
Hmmm, the electricity from solar, wind, run-of-river hydro, geothermal, … all works just fine in an EV, no light or heavy electron transmission line or battery storage issues…
Earlier had posted projection of a decline in Texas production for August vs an increase as per EIA. Through September, all of the trends I am used to looking at are pointing down. Not up. While totals all depend on where they are on the decline curve, the monthly well count by category of production is decreasing, both for wells producing more than 100 barrels a day, and those producing over 10. A sign of decreasing production, not of increasing production. It’s not going to give a production number, but it is a trend down.
http://www.rrc.state.tx.us/oil-gas/research-and-statistics/well-information/well-distribution-tables-well-counts-by-type-and-status/
https://www.zerohedge.com/news/2018-10-09/poland-buys-nigerian-oil-latest-attempt-cut-russia-oil-dependence
ZH article from oilprice.com. synopsis is Poland is trying to reduce Russian oil dependence and buying from Nigeria, and within the article are two sentences that are more important than most of the rest.
The first is a statement by the primary Poland refinery manager who says that if the yields turn out as expected this Nigerian alternative is viable. That’s interesting in that somehow they don’t know the constituent content of a Nigerian barrel. Or, more likely, he is just playing it safe.
The second sentence was the very last one in the article. It said that”declining Urals quality was part of the motivation to seek the Nigerian alternative”. That one drives one’s eyebrows upwards.
This has been going on for over a year. I think the Urals are in decline from what I read, but the better quality goes to China, and the poorer quality gets dumped in Europe.
Is the “quality” problem due to lighter gravity? Or too much BSW? Or what? Do we know?
FEBRUARY 5, 2018 (Reuters) The quality of crude oil is measured based on the amount of sulphur and the level of gravity or density. Usually, the higher the level of sulphur and gravity, the lower the quality of the oil and more difficult it is to refine.
For sulphur, the national standard requires a level below 1.8 percent.
“The Urals’ sulphur content exceeds 1.8 percent regularly,” a trading source said. Four other trading sources also said that the sulphur often exceeds the allowed level.
https://www.reuters.com/article/russia-oil-urals-quality/europe-shuns-russian-oil-as-boost-of-chinese-flows-hits-quality-idUSL8N1PS0KH?rpc=401&
Traditional “quality” was sulphur and certainly vanadium.
The q word doesn’t get applied to diesel and jet fuel content. Some other word is needed for that.
updates on Iraq’s oil production from S&P Platts and Argus Media
2018-10-10 (S&P Global Platts) Basra — Lukoil’s massive new discovery in southern Iraq — part of the Russian firm’s sizable growth plans in the Middle Eastern country — will start production in 2021, the head of Iraq’s regional state-run oil company said.
Aggressive exploration continues at Block 10, Dhi Qar Oil Company Director General Ali Warid said in a statement emailed to S&P Global Platts, following Lukoil’s announcement earlier this year that “recoverable reserves in excess of 2.5 billion barrels of crude” from the Eridu-1 well was the biggest find in Iraq in 20 years.
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/101018-lukoil-to-start-production-at-iraqs-newest-massive-discovery-in-2021?
2018-10-10 (Argus Media) Further out, Ismael expects Basrah’s production to reach 5mn b/d by 2025. Argus estimates Basrah current production to be around 3.25mn b/d.
The long-delayed Common Seawater Supply Project (CSSP), which involves desalinating seawater for injection, is key to maintaining production at some of the country’s other mature fields in the south. Without it, Iraq will struggle to expand its southern production capacity.
The first stage of development will treat 5mn b/d of seawater, with the possibility of increasing this to 7.5mn b/d. The project will cost less than the original estimate of $4bn, Ismael said.
https://www.argusmedia.com/en/news/1769364-hurdles-to-clear-to-reach-iraq-capacity-target?backToResults=true
Baker Hughes GE rig count for Iraq starts in 2012
I wonder if Iraq’s oil production numbers will magically rise as Iran’s “decreases” because of sanctions. Iran has strong influence in Iraq, is shuttling oil through there a possibility for them?
They have just to employ some horizontal rigs in Iraq near the border, and Iran builds some underground storage tanks …
I think smuggling and relabeling will get a few 100k per day to customers on this way.
2018-10-10 EIA STEO estimates that U.S. crude oil production averaged 11.1 million barrels per day (b/d) in September, up slightly from August levels. EIA forecasts that U.S. crude oil production will average 10.7 million b/d in 2018, up from 9.4 million b/d in 2017, and will average 11.8 million b/d in 2019.
https://www.eia.gov/outlooks/steo/
World supply/demand balance https://www.eia.gov/outlooks/steo/images/Fig6.png
https://www.cmegroup.com/trading/energy/crude-oil/wts-argus-vs-wti-calendar-spread-swap-futures.html
Midland Cushing spreads have been dropping since June. From close to eighteen to sometimes under six. That doesn’t indicate increased production that needs to get out. I haven’t seen anything that reflects an increase in Texas production, other than what is posted on the EIA site and is quoted by everyone else.