Permian Basin and Texas Update- April 2017

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Chart 1 – A Model using data from Enno Peter’s shaleprofile.com.

The chart above (chart 1) needs some explanation. It is based on the Permian LTO model found by using Enno Peters’ data from shaleprofile.com and an estimate of future well completions. I doubt output will rise this quickly, but the peak level may be about right if oil prices follow the assumed scenario.

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Chart 2

The estimate of future well completions is based on past well completions and horizontal oil rig counts from Baker Hughes in Chart 2.

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Chart 3

For the most recent 3 months the average wells completed per horizontal oil rig count from 17 weeks ago (3.9 months) was about 1.89 wells per rig as seen in Chart 3.

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Chart 4

If it is assumed that this value (1.89 wells/rig) remains constant over the next 4 months, we can use the horizontal oil rig counts from the past 17 weeks to project well completion rates 17 weeks into the future. These were used as the estimate for Permian new wells per month for April to July 2017.

In the model, I assumed a well completion rate of 509 new wells per month was reached by Dec 2017 (rather than July which seemed too fast) and then remains fixed at that level until economics requires a decrease in Dec 2023.

The well completion rate for the model (see chart 1) was less steep from Feb 2017 (349 wells completed) to July 2017 (449 wells completed) compared to chart 4 (with a completion rate of 500 new wells per month by June 2017). The completion rate for the model is the lower line in purple from Feb 2017 to July 2017 and the 20 well per month increase in completion rate continues to Dec 2017 for the model in chart 1.

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Chart 5

The chart above is based on RRC of Texas data and Dean Fantazzini’s output estimate for Texas. In Sept 2016 about 523 kb/d of the output is from conventional C+C output which has declined while LTO output has increased based on estimates from the EIA’s Drilling Productivity Report (DPR).

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Chart 6

The chart above shows how EIA estimates of Permian LTO output have changed from Oct 2016 to April 2017, it is possible that a change in trend might be missed currently, just as in Oct 2016 the change in trend from May 2016 was missed. It is possible the EIA’s Drilling Productivity Report (DPR) has this right (see chart 7 below) and Permian output for Jan and Feb 2017 may be revised upward in the future (just as the Oct 2016 estimate had to be revised for August and Sept 2016).

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Chart 7

The DPR estimate matches fairly well with the model in chart 1 which does not include about 350 kb/d of Permian Basin LTO output from vertical wells (only horizontal well output is modelled) in May 2017.

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Chart 8

For the past 5 months Texas output has risen at an average rate of 31.4 kb/d or an annual rate of 377 kb/d.

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Chart 9

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Chart 10

US C+C output is up by an average rate of 49 kb/d each month for the past 7 months (July 2016 to Feb 2017). About half of this increase was from the Gulf of Mexico (GOM), 25 kb/d each month from July 2016 to Feb 2017. The increase in GOM output is not expected to continue so if the L48 onshore increase continues we would see an increase of 250 kb/d over the next 10 months and about 300 kb/d for the year. If optimistic estimates (see Chart 1 above) of Permian basin future output are correct, we might see higher growth rates of 850 kb/d for the year. Reality will probably fall between 250 kb/d and 850 kb/d, 450 to 650 kb/d would be my estimate for the US C+C output increase from Dec 2016 to Dec 2017.

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237 Responses to Permian Basin and Texas Update- April 2017

  1. HuntingtonBeach says:

    President Trump painted a golden future of “great wealth” and “great jobs” powered by oil pumped from the ocean floor as he signed an executive order on Friday to consider new offshore drilling around the country.

    But his efforts could splash harmlessly against the hardened barricades that California has been fortifying for decades with regulation and legislation to prevent additional drilling along its treasured coast.

    Even the faintest possibility of new oil operations prompted an immediate backlash in the state as environmentalists feared ecological disaster, surfers warned of soiled beaches and politicians promised new measures to block any development.

    At a time when California is forging ahead with ambitious policies on climate change and renewable energy, the mere suggestion of additional derricks dotting the horizon was met with revulsion from the state’s leaders, and it brought unwelcome reminders of the coast’s painful history with oil spills.

    “We will fight to the end,” said Susan Jordan, executive director of the California Coastal Protection Network, an environmental group. “They will not get any new ……..

    http://www.latimes.com/politics/la-pol-sac-california-offshore-drilling-20170428-htmlstory.html

    • Boomer II says:

      It doesn’t appear that Trump has given any consideration to other industries which might be threatened by increased gas and oil development.

      As I have tried to explain about Colorado, the state economy was once totally dependent on the fortunes of extraction industries. That led to a constant cycle of booms and busts. Therefore, the state made major efforts to become less dependent on mining and gas and oil and expand into other industries. Now there is military and defense, technology, tourism, and, in addition to traditional agriculture and ranching, organic farming.

      Trying to turn states back into Appalachia, where they are resource-driven, isn’t smart planning.

      Also, it’s ironic that the Trump administration touts states’ rights when it comes to national monuments, but not when it comes to environmental protection.

      • Boomer II says:

        Also, I keep hoping that economics will be more of a factor when it comes to fossil fuels than whatever Trump wants to do. Any efforts to increase the amount of gas and oil will just suppress prices. Coal is dying no matter what he says he wants. And the major gas and oil companies support the Paris Accord because it is good for business.

        • David L. Hagen says:

          Boomer II
          EIA estimates 254.9 billion short tons of recoverable coal reserves in the US, nominally 283 years worth at the rate of 0.9 billion short tons extracted in 2015. https://www.eia.gov/energyexplained/index.cfm?page=coal_reserves

          That compares with 35 billion bbl of proved crude oil and lease condensate reserves. At 7.2 billion bbl/year consumption, those proved reserves are only about 5 years current production. (Caution of different types of reserves.)

          That very short time for proven oil reserves does not give much long range comfort. Don’t dismiss coal too quickly.
          With natural gas prices/energy rising back above the price/energy of coal, coal is beginning to make a comeback. We can easily run power plants on coal. It is far harder to find oil to keep transport moving.

          • Boomer II says:

            But utilities are moving away from coal. Who is planning to switch back from natural gas to coal?

          • Boomer II says:

            Coal Is on the Way Out at Electric Utilities, No Matter What Trump Says – The New York Times: “But executives at the nation’s largest electric utilities say Mr. Trump’s announcement and the eventual fate of the regulations known as the Clean Power Plan make little difference to them. They still plan to retire coal plants — although perhaps at a slightly slower pace — and, more significant, they have no plans to build new ones.

            ‘For us, it really doesn’t change anything,’ said Jeff Burleson, vice president of system planning at Southern Company, an Atlanta-based utility that provides electricity to 44 million people across the Southeast, of the prospective rollback of the Clean Power Plan. ‘Whatever happens in the near term in the current administration doesn’t affect our long-term planning for future generation,’ he said.”

          • Boomer II says:

            Trump declares end to 'war on coal,' but utilities aren't listening | Reuters: “Reuters surveyed 32 utilities with operations in the 26 states that sued former President Barack Obama’s administration to block its Clean Power Plan, the main target of Trump’s executive order. The bulk of them have no plans to alter their multi-billion dollar, years-long shift away from coal, suggesting demand for the fuel will keep falling despite Trump’s efforts.

            The utilities gave many reasons, mainly economic: Natural gas – coal’s top competitor – is cheap and abundant; solar and wind power costs are falling; state environmental laws remain in place; and Trump’s regulatory rollback may not survive legal challenges.

            Meanwhile, big investors aligned with the global push to fight climate change – such as the Norwegian Sovereign Wealth Fund – have been pressuring U.S. utilities in which they own stakes to cut coal use.”

          • Gerry says:

            You seem to be oblivious to the fact that the price of renewables is falling to a level not thought possible just 10 years ago.

            Now think what would happen if battery storage prices dropped in a similar matter as those of PV panels did.
            Don’t think that’s possible?

            Mass production can do that.

            And mass production of battery storage has not even started, considering that a single company can build a single factory that singlehandedly doubles the world production of battery cells.

            I bet a bottle of coke that peak coal for electricity usage in the world and in OECD countries and China has already happened.

            • Schinzy says:

              I agree. I would add that it would be very foolish to install new coal capacity with current trends because a coal plant is a 40 year investment. The trend in the price of renewables is decreasing. The price of coal extraction is increasing. 44% of US coal production in 2016 was extracted by companies in bankruptcy http://uk.businessinsider.com/us-coal-bankruptcy-trump-2016-12?r=US&IR=T.

              In 2016 work on 100 coal plants was frozen in India and
              China http://endcoal.org/2017/03/new-report-global-coal-plant-development-freefall-sparks-renewed-hope-on-climate-goals/.

              My bet for future electricity storage technology
              is heat pumped electrical
              storage.

              • Ian H says:

                re Energy storage. Interesting, a startup with similar technology (granite chips storage & argon working fluid IIRC)went bust recently,
                https://beta.companieshouse.gov.uk/company/05077488/insolvency
                perhaps Newcastle will make it work, or at least work better than Li batteries etc. It looks as if it would fit in a smallish urban footprint.

                Another storage solution is the giant rock piston approach:

                http://www.heindl-energy.com/

                on the other hand huge projected initial engineering costs, but they scale very well with size.

                Looks more scale able to higher powers. I am a bit sceptical on the whole zero carbon thing practicality without fast reactors.

                Perhaps these schemes have stand alone un subsidised economic potential, if they do it changes the practicality of using large non dispatchable electricity sources.
                (Sorry, I know that this is an oil thread).

            • Mike Sutherland says:

              You seem to be oblivious to the fact that there had been a number of major solar panel manufacturer bankruptcies this year.

              • Boomer II says:

                Coal companies and gas and oil companies have filed for bankruptcy, too. So it looks like energy as a whole involves a level of risk.

                With China willing to promote solar around the world and lend developing countries the money to install it, I think solar should have staying power.

              • Folks, I wouldn’t put too much emphasis on bankruptcies as an indicator of which energy modalities are going to get us to sustainability, and which will fail. Bankruptcies are more of a tried-and-true method for capitalists to dispose of workers’ benefits (pensions, etc.) and generally downgrade the status of their workers.

                Hell, I mean your President has made a career of multiple bankruptcies, to the point where I think it’s accurate to say that any cash money he holds is actually ripped-off from other parties during one of his bankruptcies.

                Even when oil and gas companies are bleeding red ink all over the financial press, you see new deals getting done, IPOs, buyouts, more drilling rigs going up. The central bank will keep the fossil fuels industries afloat forever, because they’re the basis of the economy the central bank rests atop.

                • alimbiquated says:

                  >Bankruptcies are more of a tried-and-true method for capitalists to dispose of workers’ benefits

                  That’s true in America, but not in Europe.

          • SouthLaGeo says:

            David,
            I have to challenge your assumption about the 35 bbo of US proved reserves. Your comments assumes that no additional proven reserves are found, and that we just produce that 35 bbo away at 7.2 bbo a year and, at then end of five years have no more oil.
            That reserve number will be adjusted downward every year for production, but adjusted upward for performance based reserve additions, and new sanctioned projects. While I do admit, the new sanctioned project contribution will probably diminish in future years, there will be some. And performance based reserve additions are always a big contributor to reserve adds. (Remember, we are dealing with proved reserves, not proved + probable reserves).
            10 years ago, US proven reserves were under 30 Bbo. We have produced a lot more that 30 Bbo since then, and find ourselves with even more proved reserves now.

            • Dennis Coyne says:

              Hi SoLaGeo

              Can you give us an update on your expectations for GOM C+C output from 2017 to 2019?

            • I tend to agree that peak oil is very much a retrospective finding, more so than a predictive outcome — no matter how good the maths that go into the modeling. In other words, we’ll figure out when the fracking bust has occurred, probably a decade after it has occurred, when U.S. production stubbornly refuses to rise no matter how much debt is taken on to drill no matter how many new wells or re-frack old ones.

              Peak oil seems like a rear-view mirror event, to me. But I always check in on this website to see what the latest rear-view is saying. The EIA projections are hilarious tho.

              • SouthLaGeo says:

                Dennis,
                From my post last September – here were my projections of total GOM oil production from 2017-2019.
                Low (mmbopd) Mid (mmbopd) High (mmbopd)
                2017 1.5 1.6 1.65
                2018 1.45 1.6 1.65
                2019 1.4 1.6 1.65
                Ultimate cum 30 Bbo 37 Bbo 47 Bbo

                Early 2017 data, averaging over 1.7 mmbopd through February, suggests that even my high side estimate of 1.65 is a bit too low, but we will see how the future months play out.

                • Dennis Coyne says:

                  Thanks SouthLaGeo,

                  I wasn’t sure if you had done an update in light of output data to date or any new projects etc that may have come to light since you did your analysis.

                  It would seem that you think the EIA forecast is too high and expect output to be flat or declining slightly for the rest of 2017.

                  I would think that prices don’t affect things much for deepwater in the short term (I would think there would be a 3 to 5 year lag between changes in the oil price and changes in output for deepwater GOM).

                  Hurricanes in the late summer early fall can drop output of course, but those are almost as difficult to predict as the price of oil 🙂

                  • SouthLaGeo says:

                    I haven’t done an update to my predictions from last fall.
                    I, like many here, think the EIA GOM forecasts are too high, although, to be honest, I never thought we would see multiple months over 1.7 mmbopd.
                    I will probably do an update, if needed, to my forecast in early 2018 – once all the 2017 results are in.

                  • Dennis Coyne says:

                    Thx South La Geo.

                    If you are willing to share your insights again, I would love to post them.

          • Dennis Coyne says:

            Hi David,

            Those “reserves” are properly termed resources as they are defined similarly to the USGS technically recoverable resources. This is the amount of coal that the EIA estimates can be produced technically, the economically recoverable resource is far smaller.

            For example Wyoming and Montana combined have 110 billion short tons (BST) of reserves according to the EIA with most of this in the Powder River Basin (largest coal field in the US where at least half the coal is produced.)

            In May 2015 the USGS estimated that at then current prices (in early 2015) only 25 BST of the Powder river basin coal met the definition of reserves (they would be profitable to produce). That is about 23% of the technically recoverable resource (the EIA incorrectly calls these reserves). Extending this to the US TRR we would have 60 BST of reserves. Note however that this estimate is very optimistic.

            Much of the coal TRR is in areas where there is very little coal in the producing mines which for all of the US is only 18 BST.

            Also 3 of the 4 largest coal companies in the US are bankrupt. Coal does not compete well with natural gas, wind, solar, hydro, and nuclear power. Much of the resource will be left where it belongs (in the ground).

        • Offshore production in federal waters has, at best, a five to ten year cycle. This means areas opened now will not be ready for sanction until 2020 and beyond. A discovery that’s ready for sanction in three years would really exceptional, therefore it’s more likely sanction would be in the 2022 to 2025 window.

          Oil companies will bid on that acreage based on oil price forecasts, and the key prices will be those between two years before production starts and five years after peak is reached. That’s the price between say 2025 and 2035.

          I put timing and dates down so you would have a picture of the shape of things, I’m not giving a seminar on offshore oil developments. Nor do I know what’s going to happen, although it sure looks like oil prices will be a lot higher in 10 years.

          • Dennis Coyne says:

            Hi Fernando,

            Can you define “a lot” as far as your expected rise in oil prices (12 month average Brent Crude Oil Price in 2016$) in 2026? Does my $120/b WAG seem reasonable? Note that I do not expect the path will be a straight line rise as shown in my simplified scenario, take a sinusoidal function with a period of 2 years and an amplitude of $10/b and superimpose it on the scenario in chart 1 (right hand axis for price scenario) and that might be a bit more realistic. In reality the shape of the future oil price path is unknown.

            • The $120 per barrel you mentioned seems reasonable. It should be good enough to back deep water and Arctic offshore exploration and development.

              • Dennis Coyne says:

                thx

              • Entropy101 says:

                Why is $120 per barrel reasonable? At that price level renewables are cheaper.

                • Dennis Coyne says:

                  Hi entropy

                  It is reasonable because it will take time to replace the world’s 1.2 billion personal vehicles probably 25 years or more.
                  I expect about half of the 2 billion vehicles in 2035 will be plugins. Oil will still be needed for the 1 billion ice vehicles remaining.

                  • che says:

                    not to mention that we are far away from replacing e.g. jet kerosene fuelled commercial aircraft

                • Because renewables cant really compete due to intermittency. Could you describe your vision for container vessels, or how to deliver energy to 1.5 billion Indians?

                  • Boomer II says:

                    Seems to me that in areas that currently have little to no energy infrastructure, the way to go is to design a system around intermittency. If you currently have no energy source, and then get one that is intermittent, you have an improvement. You can structure economic society to operate at one level when power is available and operate at a different level when it is limited or unavailable.

                    Just as cellphones grew rapidly in popularity in countries with no landline systems, renewable energy can operate in areas where there have been no utilities. Solar power has been popular for at least 20 years in rural parts of the US where ranchers need power, but it is cost prohibitive to run electric lines out to those locations.

                  • That’s a good point, but the trend is towards urbanization, with population shifting towards towns-cities-mega cities.

                    I’ve worked in places where a village’s electricity supply came from a small generator, it was used to keep a fridge cold with medicines, to keep the military post radio open, and to provide power for a few light bulbs around a hand crank water pump and the outside of the store. It seems feasible to replace that with a set of solar panels and 10 car batteries.

                    But most of the power needs are in cities and towns, and the game changes. For example, most of those urban areas have crime, so putting a solar panel up seems risky. It would have to have a steel cage around it. And the needs go up. Each family expects to have a fridge, a tv, electric fan, light bulbs, etc. This makes interruptible supply an unpopular option. I have researched India and Jamaica as case studies, and they very difficult to solve. Don’t forget I expect fossil fuels to run out, so I’m interested in this problem whether global warming is that serious or not. And I can’t see a solution unless population growth is curtailed and nuclear power is used extensively in developed nations.

                  • Caelan MacIntyre says:

                    Nuclear power seems like an extremely dangerous lock-in, both in and of itself, as well as in the face of decreasing FF’s, and/or unless, or until, the issue of waste can be effectively solved.

                    As for cities, I wrote this some time ago:

                    “Despite the centralized nation states’ best efforts (hardly worth mentioning), I see a mass exodus out of larger cities and into smaller towns, with some elements of quaintness and old world charm at a scale humans can live with.”

                    That writ, I would ask if you might know of any dynamics or lack thereof in that regard in Venezuela, which might suggest the direction of things on a larger scale.

      • Bill says:

        The only real new business in most of over the last decade in Colorado has been cannabis. Trump wants to send that business back to Mexico, though.

        • Boomer II says:

          I think Trump will find that there are a lot of red voters who like to smoke, too. And what about states’ rights? I thought they wanted to give states more control.

          The only reason I can think to keep marijuana illegal is to have more people to send to those privately owned prisons.

    • sunnnv says:

      Trump’s (and Heritage Foundation, et. al.) plan will also crash upon the rocky shores of reality.

      The Western and Central Gulf of Mexico have half the U.S. offshore technically recoverable oil resource. Alaska has another 30%. The Atlantic and West coasts are comparatively nothing.

      https://www.boem.gov/National-Assessment-2016/

      It’s not just resource availability – there are also things like (lack of) infrastructure:
      specialized supply boats and their bases
      pipelines
      available trained personnel

      • Boomer II says:

        Some of this is likely comparable to the GOP stance on health care reform. When Obama was in office, it was a convenient issue for them to take a stand against because they knew they didn’t actually have to do anything about it.

        Trump’s statements about opening up federal land and offshore drilling sites keeps his hardcore supporters happy, but has little to do with economic realities. And given that he hasn’t accomplished much, he’s tossing these things out to make it look like he is doing something, even if they prove inconsequential.

        This is showmanship rather than sound economic policy.

        He can be championing coal all he wants, but even the industry knows it’s losing ground to natural gas.

  2. Hightrekker says:

    More Rigs Don’t Mean More U.S. Gas

    Gas rigs have doubled since August; output falls 1.2%
    Average Marcellus well produces 51% of what it did a year ago

    https://www.bloomberg.com/news/articles/2017-04-27/rigs-don-t-mean-more-gas-as-u-s-producers-run-to-stand-still

    • coffeeguyzz says:

      HT
      That Bloomberg piece is so skewed as to be hilarious.
      Even a quick check on Enno’s site (great work, Enno) shows 2016 wells numbering 2/3 or fewer than previous years yet December output is 1/3 higher, approximately.

      One reason the rig count has increased – in addition to higher realized prices – is the immanent in service of three massive pipelines that are currently under construction.
      Operators need to honor their contractual commitments for additional near 5 Bcfd gas and 275,000 barrels/day NGLs.
      If you want to get a sense of the size of those numbers, Haynesvile’s current total output is a little above 6 Bcfd and Bakken NGL output is under 200,000 bbld.

      Range just fractured 4 wells on one pad and could only put 2 online as the 31 MMcfd output from each well crowded out the remaining 2 for pipeline capacity.
      In ‘oil’ parlance, this high Btu gas has the energy equivalence of 6,000 barrels of oil … each well … per day.

      The Appalachian Basin is well on its way to being recognized as the premier gas producing region on the planet.

      • Reno Hightower says:

        “Range just fractured 4 wells on one pad and could only put 2 online as the 31 MMcfd output from each well crowded out the remaining 2 for pipeline capacity.
        In ‘oil’ parlance, this high Btu gas has the energy equivalence of 6,000 barrels of oil … each well … per day.”

        This one paragraph sums up the shale business perfectly. I just think you miss the point.

        • coffeeguyzz says:

          RT

          Too much product to squeeze into the shoe.

          Mariner East 2 goes into service in a few months’ time with firm transport commitments of 275,000 barrels of NGLs per day. Range is involved in a big way and is gearing up. Their liquid percentage in this area is 69% of total volume.

          As for economics, Cabot’s CEO went on at some length the other day for plans on their anticipated quarter billion dollar a year free cash for this calendar year.
          Incredible stance that will merit keen observation to see if it is a valid prediction.

  3. Do you have a Permian production profile either by field/area or by year as you have for the Bakken? How about conventional vs shale oil? Condensate? What is the API of this oil? Can the US refining industry absorb it? Or will it just end up in permanent storage, creating the impression of a general oil glut while actually it is a surplus of unsaleable extra light shale oil. Shale oil exports are mainly used as blending component.

    In addition, a general question: what will happen to refineries when there is a war around Korea and suddenly around 3 mb/d of crude available which now goes to South Korea? Of course, there will be a product shortage. Some numbers are in my latest post:

    29/4/2017
    South Korea’s oil trade under threat
    http://crudeoilpeak.info/south-koreas-oil-trade-under-threat

    • Hickory says:

      Interesting info on Korea Matt. Thank you.
      If all of S. Korea refining capacity was taken off line- who has 3Mbpd spare refining capacity?

    • Dennis Coyne says:

      Hi Matt,

      Just go to the link below to find average well profiles. For the Permian basin as a whole ( 93% of horizontal well LTO output only) including both Texas and New Mexico my estimate of the average well profile in Jan 2015 is in the chart below.

      http://shaleprofile.com/index.php/category/permian-monthly-update/

      I have no well data for conventional oil, but that is likely declining as is the amount of output from vertical wells so I focus on horizontal well LTO output in the Permian as that is what is being developed and will be the bulk of new output from now until 2030 in the Permian basin.

      I have no data on the average API of this oil, the EIA gives data for all of Texas, but most of the light stuff is from the Eagle Ford. Maybe Mike can comment on the quality of Permian Basin oil.

      • DougM says:

        If you’re looking for API gravity for oils, then you should navigate to an oil purchasers price postings. Here’s an example below:

        https://www.plainsallamerican.com/getattachment/5bace2e1-e049-440b-a553-c8ae7f8b4a50/2017-060-April-28-2017.pdf?ext=.pdf

        If you’re looking for North Dakota, just perform another Google search to find another marketer.

        • Dennis Coyne says:

          Hi DougM,

          That just gives us prices it doesn’t tell us anything about the api of the oil produced.

      • AlexS says:

        I think that most of light and ultra-light crude in Texas (>40API gravity) is from the Eagle Ford and Permian LTO

        • Dennis Coyne says:

          Hi Alex

          That chart only tells us about Texas it doesn’t give us the breakouts of Permian vs eagle Ford.

        • AlexS says:

          The data in the chart below is for the 1st half of 2014.
          At that time, LTO accounted for only 57-58% of the Permian C+C production vs.
          74-75% in the 1st quarter of 2017. So I think the average Permian barrel is now lighter than 3 years ago.

          • Dennis Coyne says:

            hi alexs,

            perhaps, that chart does not really say that though.

            it does confirm that the extra light (45-50 api) and condensate is mostly from the eagle ford and not from the Permian, the price posting from plains marketing has 40-44.9 as the premium grade of crude (highest prices listed). that chart does not break out conventional from
            lto, but it does make clear the Permian is very different from the Eagle ford.

          • AlexS says:

            Dennis,

            The chart below shows oil production by API gravity in Texas from January 2015 to February 2017.
            In that period, production of crude heavier than 30 API (heavy and medium), which was already insignificant, further declined by 22 kb/d.

            Oil with API between 30 and 40 API (medium and light) was slightly down (-57 kb/d).

            40-50 API (light and extra-light) was up by 241 kb/d.

            >50 API (essentialy, condensate) was down by 281 kb/d.

            The only source in Texas when oil production was increasing over the past 2 years was Permian LTO.
            Eagle Ford, Permian conventional, and other conventional were in decline.

            My interpretation of these facts is that Permian LTO mostly has API gravity between 40 and 50, so it is very light and ligher than WTI (39.6 API).
            But the Eagle Ford oil is even lighter (not surprisingly, output of oil with >50 API in Texas was down).

            Oil production in Texas by API gravity (kb/d)
            source: EIA Monthly Crude Oil and Natural Gas Production report, April 2017

            • AlexS says:

              In New Mexico, production of oil with API between 40 and 50 API also increased, by 80 kb/d between January 2015 and February 2017

              • Dennis Coyne says:

                Hi AlexS,

                Oil between 40 and 50 is an interesting category.

                Generally that is considered the best grade of crude and tends to command a premium price as it is very easy to refine into high value products.

                The Plains price listing shows that crude from 40 to 44.9 commands a premium price in the US.

                Based on the pricing data, the EIA should give the crude from 35-39.9, 40-44.9, and 45-49.9.

                Most of the oil is discounted by 2 cents per barrel for every degree API below 40.9 and by 15 cents per barrel for every degree above 44.9.

                The most valuable oil (sells for the highest price) in the Permian Basin has an API between 40.9 and 44.9, so producers are maximizing the flow of that oil.

                You are correct the amount of oil 40 to 50 API has increased in Texas (and in New Mexico).

                Based on the chart you posted earlier, a very small proportion of Permian output is above 45 API, whether the Permian LTO is mostly above 45 API or below is still not known, as the prices are highest for oil between 40.9 and 45, I assume the refineries can handle that oil and seeing as oil companies are expanding output in the Permian basin perhaps most of this output is below 45 API. With the data we have we can only guess at current levels of output of C+C above and below 45 API.

                • AlexS says:

                  Dennis,

                  “Based on the pricing data, the EIA should give the crude from 35-39.9, 40-44.9, and 45-49.9.”

                  I agree, more detailed presentation would be better.

                  I also agree that 40-45 API oil is the most valuable.
                  >45 API is apparently too light for US refineries which were designed to process mostly medium grades.

                  Probably, this is one of the factors explaining relatively poor oil production dynamics for the Eagle Ford.

                  • Dennis Coyne says:

                    Hi AlexS

                    I agree. Lately Eagle Ford is doing better with about 80 % crude and 20 % Condensate from the RRC data. This doesn’t tell us the API though.

  4. If oil prices go up as assumed in chart 1 (dotted red line), we are going to have another financial crisis. We already know the global economy tanks at $100/barrel. Next time around the threshold may be lower because of increased debt incurred during the high oil price period.

    • Watcher says:

      We don’t know that.

    • AlexS says:

      “We already know the global economy tanks at $100/barrel.”

      In 2011-2014, when Brent oil price averaged $107.6/bbl, the annual-average global GDP growth was 3.7% (PPP-based), or 2.7% (at market-exchange rate). Does that mean “tanks”?

      Global GDP growth (%) vs. Brent oil price ($/bbl)
      sources: IMF, EIA.

    • Dennis Coyne says:

      Hi Matt,

      The rise in oil prices is pretty slow in that chart. I agree with AlexS, that higher oil prices over time are unlikely to have much effect on the World economy, just as was the case from 2011 to 2014. The debt issue is really not as much of a problem as some believe. As more of the World becomes developed, more people have access to credit from financial institutions that gets reported.

      In addition the World economy will grow between now and 2024 when oil reaches $100/b in 2016$ in my scenario. So at that price and with output likely at only 85 Mb/d at most, oil (C+C) would account for only 3.4% of World GDP expenditure if we assume the World economy grows at 2.4%/y for the next 7 years. For comparison in 2011 expenditures on C+C output were 4.8% of World GDP and World real GDP grew at 3% in 2011 (at market exchange rates).

    • Schinzy says:

      I do not think a specific price of oil causes the economy to tank. I believe it is the rate of change of the price of oil which has an impact on the economy. If the price of oil doubles in two years, I believe this will cause financial bubbles to pop and a recession.

      • Dennis Coyne says:

        Hi Schinzy,

        The price of oil nearly doubled from 2009 to 2011, perhaps I missed the ensuing economic crisis in 2011 to 2014? 🙂

        In my scenario oil price doubles ($110/b) in about 8 years. Though I believe that estimate is conservative, it might happen by 2022.

        • Schinzy says:

          Hi Dennis,

          I have been a bear with respect to oil prices since 2008 with the exception
          of a short period from 2013 till the price of oil dropped in 2014 when I
          thought my intuition was wrong. I now believe that the economy was able to
          withstand the increasing oil price between 2009 and 2011 because of monetary policy, that is, lower interest rates and quantitative easing.

          If you look at the price of oil and extraction rates just after 1980, you
          will note that both the extraction rate and the price of oil decreased. I
          think this anomaly was due to Paul Volker raising interest rates because at
          the time the principle worry of the Fed was inflation so he raised rates.
          The principle worry of the Bernanke Fed after the financial crisis in 2008
          was preventing a financial meltdown. So interest rates were sent virtually
          to zero. High interest rates tend to cause economic contraction because
          people stop borrowing. The advantage of high interest rates is that people
          pay attention to what they do with their borrowed money so they make
          investments with a positive return. When interest rates are lowered, the
          economy does well at first because people increase borrowing. However
          low interest rates carry a danger of blowing financial bubbles. I believe
          the low interest rates allowed the price of oil to rise without provoking a
          recession between 2009 and 2011. If the price of oil were to double between
          now and 2019, the Fed would not be able to lower rates as they are already
          very low and I believe that the return on a large number of investments made
          in the last few years will be negative.

          • Dennis Coyne says:

            Hi Schinzy

            I think the economy will be more resilient to higher oil prices than you believe.
            Interest rates remained low for quite a long time without problems now they are rising.

            Also the bubble occurred when interest rates were higher.

            It was a lack of regulation that caused the bubble in the US imo.

              • Dennis Coyne says:

                Hi Schinzy,

                I do agree a fast rise in oil prices (doubled in 2 years or less for 12 month average prices) may cause a recession (on the World level I would define this as growth of less than 1% for the year).

                I do not think this will lead to a severe recession like the GFC or the Great Depression. I think sustained high oil prices (over $110/b) from 2022 to 2029 with declining or stagnant world C+C output levels is likely to leas to an economic crisis by 2030 after a peak in oil output in 2022-2025.

                I also agree only time will answer these questions.

              • houtskool says:

                Central banks buy up financial assets to compensate for the lack of affordable energy.

                This cannot go on for long.

                http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/04/19/more%20and%20more.jpg

            • alimbiquated says:

              I agree that high oil prices don’t really harm the economy. The fact of the matter is that most oil is wasted driving SUVs around in circles anyway, and if the prices go up workarounds can be found.

              But I do agree with Schinzy’s original point that wild swings in the oil price can be harmful to the economy in the short term. 1973, 1978, 1990 and 2005 come to mind. The reason is that everyone’s investments are suddenly bad choices.

      • Hickory says:

        Good point Schinzy- it is the volatility and rapidly rising prices that economies have trouble digesting. But even if crude was 200 bucks a gallon, that still is a very good bargain when you consider the basic power that it buys you for basic tasks of living and commerce. [ever try plowing with a horse?]

      • George Kaplan says:

        But the price of oil definitely is correlated with the Food Price Index, and that is correlated with hunger and social unrest. In the past issues start at about 200 (real) and unrest escalates at 220. The chart below has the index deflated from 1999 (i.e. there is a natural inflation above the impact of oil). To reach 200 would correlate with $76 oil in 2017 and $63 in 2022. 220 is reached at $90 and $76 respectively. Based on the GDP argument that would appear to mean poorer people will start going hungry before the rich have to start cutting back on vacations and manicures.

        • George Kaplan says:

          Also worth noting that the correlation has got slightly stronger recently, despite the growth in renewables for power generation.

        • Dennis Coyne says:

          Hi George

          Links?

          Looks from the chart that 120/b oil price would match with 200 food index in 2017.

          • George Kaplan says:

            Google FAO food index. The $120 doesn’t match a real 200 number because the chart shows deflated index, i.e add 2% to the shown number every year from 1999 to get the actual value.

          • Dennis Coyne says:

            Hi George,

            After a more careful analysis of the monthly deflated FAO food index vs real Brent spot prices (in 2016$ deflated using CPI), I find the FAO food index (deflated to 2002-2004 levels) would be 149 at Brent 100/b (2016$) and 164 at Brent $120/b (2016$).

            FAO=0.7632*Brent2016+72.573
            where FAO is the monthly delated FAO food index and Brent2016 is the real Brent spot price in 2016$

            In 2011 during the height of the Arab revolutions the FAO annual deflated food index was 169, in 2012 the food index was 159 and in 2013 it was 158.5, so you may be correct that $120/b might be a problem, though higher World income by 2025 might make it less of a problem especially if income inequality were addressed (which I think is unlikely, unfortunately.)

            More equitable distribution of income is a goal worth striving for, how best to get there is not so clear. Free education for those that choose it, access to health care, and progressive taxation would be a start.

            • George Kaplan says:

              There may be wage inflation which would raise the threshold for issues, but since 2008 there have been a lot of stories that wages have not been keeping up, and population growth has to go in there somewhere as well I think, but I’m not sure how. There were a couple of problems in 2008 also when the index reached 220 for a short time. Either way if I was one of the majority of the population who spends a large proportion of their money on food then I think I’d want a big recession in OECD to keep oil prices low for as long as possible.

              Chart below shows actual and deflated values with three possible oil price projections. My deflated value is not quite the same as the FAOs – I have to use a single number to be able to make a fit and projects, they use actual yearly numbers, but they come out close.

              • Dennis Coyne says:

                Hi George,

                using the deflated numbers makes more sense to me, so my analysis was in those terms.

                Adjusting for inflation always makes sense to me. Did you adjust oil prices for inflation in in your chart?

                If I do the analysis without deflating the Food Index or the Brent oil price, then $100/b nominal Brent gives a Food index of 202.7 and $120/b nominal Brent gives a Food index of 230. In 2011 the Food index was 230 and in 2008 it was 201, 2012-213, 2013-210.

                Also note that my scenario uses real oil prices, so $120/b nominal Brent would be similar to $100/b Brent in 2016$ if we assume 2.5% inflation from 2017 to 2024.

                We could account for population by doing a per capita analysis, but we don’t know how income distribution will change in the future. If we make the simplifying assumption that gains in income affect all people equally (such that a 1% increase in economic output raises all incomes by 1%) and that the 1970 to 2015 trend in real per capita income increases by 1.4%/year and inflation is steady at 2.5%/year, then nominal income per capita would rise by 3.9% per year for all families. Over 7 years (2017-2024) this would cause a 31% increase in income.

                Thus the World might withstand a 31% increase in the food index without problems or 230*1.31=301. The nominal oil price for $120/b in 2016$ is about $144.50/b, which would coincide with a food index of 263. So in this simplified scenario $120/b Brent oil prices (in 2016$) does not result in food riots.

                For the nominal analysis

                FI=1.3572*BOP+66.938

                where FI is nominal Food index (not deflated) and BOP is the nominal Brent Oil Price.

                The stories on wages not rising is in the OECD, we don’t have very good data for the rest of the World where food scarcity is more of a problem.

          • AlexS says:

            We were discussing the impact of high oil prices on global economy.
            There is indeed a correlation between oil and food prices (and, more generally, between energy and non-energy commodity prices), but:
            1/ high energy, commodity and food prices in 2001-14 had only limited impact on global economic growth; and certainly did not cause global recession;
            2/ the “Arab spring” did not have any meaningful impact on global economic growth;
            3/ the “Arab spring” was not caused by high food prices alone; there were many other (and more important) internal and external factors;
            4/ while social unrest in Egypt was indeed triggered by a sharp increase in bread prices, this increase was not directly related with the increase in global food price index. The main exporters of wheat to Egypt are Russia and Ukraine where grain crop in 2010 was very poor due to an unusually strong heatwave and drought.

            • George Kaplan says:

              There’s a graph somewhere that shows the food index against incidence of unrest, I think there were about 5 in 2008 and 20 odd around 2011, not just Egypt, and they made the point of the correlation at around 220. Somebody posted it here once. I was pointing out that GDP might not be the biggest worry for a lot of people in the world.

              • Dennis Coyne says:

                Hi George,

                Generally higher GDP correlates with higher income, and there are many who are concerned about how much money they earn as typically that buys them food (unless they are subsistence farmers).

                I think AlexS is suggesting that the story that chart tells may be incorrect or at least too simplistic. Often people like to boil things down to one simple factor (such as oil scarcity).

                This is not to say oil scarcity is not important, just that every problem in the World cannot be reduced to oil scarcity.

                And no you never made such a claim, but there are some that try to reduce everything to a single cause, for some it is debt, others oil, the World is complex and everything effects everything.

              • AlexS says:

                Correlation does not necessarily mean causation.
                As you say, there were only about 5 incidence of unrest in 2008, when oil price was higher than in 2011 (I mean the first 8 months of 2008).
                Unrest and civil war in Libya was not related with food prices (which remained subsidized under Qaddafi regime).
                The instability and civil war in Iraq was not related with food prices.
                The situation in Syria is not related with food prices.
                Same with Yemen, etc.

                • George Kaplan says:

                  Actually I got those numbers wrong. The incidents are much higher as below, I was just remembering the countries effected, and was low on those as well. The analysis is by the NE Complex Systems Institute (associated with MIT). Their analysis points to high food prices at 220. There may be other reasons for high prices, but that doesn’t change the fact that high oil prices are correlated with high food prices (admittedly possibly not causation but my guess is a lot of it is), and therefore high oil prices are likey to be associated with higher probability of unrest. Even if there isn’t unrest if you are spending 80% of income on food then any upward trend is going to be a problem for you.

                  I can’t find the original paper but here are two commentaries.

                  https://www.technologyreview.com/s/517396/south-africa-riots-and-the-price-of-food/

                  http://www.countercurrents.org/cc140912B.htm

                  • Hickory says:

                    Thanks for bringing this point up George. I acknowledge that just because I can easily afford food grown with more expensive crude doesn’t mean that the poorer half of the planet can afford food price increases.

                    On the other hand, the crude will still be purchased for food production even if it is very expensive, since it packs so much horsepower, and even more humanpower.

                  • Dennis Coyne says:

                    Hi George,

                    The paper is available at link below

                    https://arxiv.org/pdf/1108.2455.pdf

                    Note that the paper does not make the link between oil prices and the food index.

                    I think using the deflated food index and real Brent oil prices is the better way to do the analysis.

                    The real oil price viewer can be used

                    https://www.eia.gov/outlooks/steo/realprices/

                    along with brent spot prices

                    https://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm

                    The food index can be found at link below

                    http://www.fao.org/fileadmin/templates/worldfood/Reports_and_docs/Food_price_indices_data.xls

                    The real Food index (monthly deflated) and real Brent Oil price analysis is shown in the chart below.

                  • George Kaplan says:

                    Are you arguing that there is no link between oil and food? And the paper clearly states that commodity speculators have a role. The paper also doesn’t use deflated food index, but you’ve chosen that. Given the unknowns involved why the hell should it matter whether you use Brent or WTi.

                  • Dennis Coyne says:

                    Hi George

                    No I am saying that the paper makes no connection between oil prices and the food index. It says speculation in food commodities is a problem and using food for biofuels, but no correlation of oil prices an food index is done.

                    There is a correlation on both the real and nominal level which I gave the equations for.

                • George Kaplan says:

                  So I never claimed it said that – I said there was a strong correlation between between oil and food prices, and another between food index above 220 and unrest, as indicated in that paper. Is your argument that the unrest is caused, not by the high prices, but by the hungry citizens being angry with the speculators?

                  • Nick G says:

                    I think that food prices rose in the last 10 years in part because the US (in effect, if not as a published policy) went to a different approach to subsidizing farmers: they dropped direct payments to farmers, and instead raised the price of commodities, in part through raising ethanol blending requirements for refineries.

                    Don’t forget: ethanol blending was created as an ag subsidy, not as an energy production program: ADM needed a place to put excess corn production, and ethanol fit the bill.

                    And, don’t forget that world food commodity prices were artificially suppressed by US and Euro ag subsidies, which killed farmers in developing countries (Mexico, Egyp, Africa, etc). When they rose again it hurt consumers, but it helped farmers in those countries.

                    And, food prices are still historically low. Poverty and income distribution are the problems, not food supply or prices.

                  • George Kaplan says:

                    And yet, through all that you describe, the correlation between oil and food prices stayed at above 80% with only a couple of minor obvious excursions. Unless you can show some other quantitative data connecting what you say with the resultant food price changes, I’ll keep thinking that, to a first approximation, the only thing that matters for food prices is oil price.

                    Also interesting to note that there are estimates that about 90% of the calories in food come from fossil fuel – just about the same as the 86% correlation of the deflated index with oil price.

                  • Dennis Coyne says:

                    Hi George,

                    Correct, you never said that, but I thought you were reproducing an analysis from the paper. My argument is that if food the food price index is the main reason for social unrest that the oil price that correlates with unrest in the past (in 2011 where there was more unrest than in 2008) is higher than you suggest and I back it up with the data.

                    It is also likely that the rate of change in the food index is a key ingredient to unrest as in both 2008 and 2011 the social unrest followed a period of rapidly rising food prices.

                    The paper makes no such claim, nor do you.

                    I am applying (in very simplified form) Schinzy’s idea that it is the rate of change that is more important than the absolute level. I took current month deflated food index minus the value 12 months earlier divided by the average deflated food index over that interval, I show only rising food index values on the chart as I assume riots don’t result from falling food prices.

                  • George Kaplan says:

                    So I didn’t suggest anything – I reported the oil price that would give food price index of 200 and 220 based on my correlation. The paper from NECSI indicated they were key numbers, I have no data to argue otherwise. That is the first I’ve seen about an argument concerning rate of change, maybe quite interesting, again I have no data to argue either way. I’d point out again that just because there aren’t riots does not mean that rising food prices aren’t causing hardship. As the NECSI paper points out hunger is a stressor, there may be other requirements before there are riots. And I’d add (again) that GDP growth is not the only, and maybe not even the most important, impact from oil price variation.

                  • Dennis Coyne says:

                    Hi George,

                    See Figure 2 in the paper on page 6 (link below)

                    https://arxiv.org/pdf/1108.2455.pdf

                    FIG. 2: Time dependence of FAO Price Index at current prices (upper black curve) and constant prices (corrected for inflation, lower blue curve) from January 2004 to May 2011. Red dashed vertical lines correspond to beginning dates of food riots and events associated with the major recent unrest in North Africa and the Middle East. Black and blue horizontal lines represent the price threshold above which riots are ignited in current and constant prices respectively. Index backgrounds are fitted with a third-order polynomial; intersection with the threshold (July 2012 at current prices, August 2013 at prices corrected for world inflation, [65]) represents the point of instability.

                    For the constant price food index (blue line), the problem level is 180, based on my analysis (using Brent prices, because that is what my scenario is based on) $120/b Brent in 2016 $ correspondes to a constant price food index of 165.

                    Generally GDP grows at about 2.5% per year regardless of oil prices, income is determined by GDP, higher income allows a higher food index to be affordable.

                  • Nick G says:

                    George,

                    You might want to look at the correlation between various commodity prices: oil and copper, for instance.

                    As Dennis said, correlation is not causation.

                  • Dennis Coyne says:

                    Hi Nick,

                    That was AlexS that said correlation does not prove causation and I am sure George is aware of that. It seems a reasonable hypothesis that higher oil prices might lead to higher food prices, but I would agree that commodity prices in general tend to rise and fall together. The best explanation for the change in real commodity prices is the change in real GDP. Probably a better variable to explain social unrest would be the degree of income inequality or perhaps a ratio of the deflated food index to the income level of the lowest 2/5 of the income distribution worldwide.

              • Hickory says:

                Egypt is an interesting case, since it is the #1 wheat importer in the world and is so far into into overshoot territory when it comes to food that they are particularly vulnerable.
                The exports of oil became a trickle after 2005 primarily as a result of rising domestic consumption of domestic production.
                The government had been funding big bread subsidies with oil earnings, and when this was cut in 2008, social unrest followed.

                http://science.time.com/2011/01/31/bread-is-life-food-and-protest-in-egypt/

                Here is a good graph of Egypt oil prod and consumption and overall excellent post on the issue-
                http://crudeoilpeak.info/egypt-update-net-oil-importer-and-chokepoints

  5. A bit off topic: oil and service companies operating in Venezuela have ordered foreign personnel evacuations from Venezuela, which of course includes families. American USA embassy personnel are now limited to the Valle Arriba and Santa Fe neighborhoods (USA embassy is in Valle Arriba, a hill top area which has four access points, two of which go downhill towards Santa Fe. Santa Fe has 3-4 access points, the main one is the Santa Fe highway interchange which has been the scene of road blockades by the opposition).

    Last night a call was made for the state of Vargas to go into “full civil disobedience”. Caracas airport is located at Maiquetia, in Vargas. There’s one reasonable access road between the airport and Caracas. This highway goes under (via tunnel) or over (via elevated road) the 23 de Enero and other tough neighborhoods. Some of these have seen four way clashes (the people, regime paramilitary, irregular looters, police/national guard). The highway drops to ground level by El Paraiso, which has been the scene of clashes between the opposition and the police + paramilitaries.

    I’m giving you an overview of the Caracas scene so you visualize how difficult it is for a service company to mobilize personnel or ship parts in and out of Venezuela. Most service company work is done by Venezuelans, but there’s a sprinkling of expats in key jobs. Also, key Venezuelans happen to be middle class and likely back the opposition, so many of them are fleeing.

    Leaving Venezuela is a bit dicey because oil sector jobs are hard to get. This puts these guys in a pickle. But quite a few are going to Brazil, Argentina, and the Middle East.

    The net result is that Venezuela’s oil production is likely to decline more during 2017. I don’t have an idea of how bad it can get, but there is a slight chance they’ll sabotage a plant.

    Thus far Trump has been focused on his pet inner demons, hasn’t even named a sub Secretary of State for Latin America, or a new OAS ambassador. Other than building a wall and making the Mexicans pay for it, he met with Argentina’s Macri.

    The European Parliament condemned Maduro in a very lopsided vote, but that’s fairly meaningless. In Cuba we see much more repression, but that’s probably because Cubans are getting a bit feistier when they hear about Venezuelans actually having protests, getting tear gassed and shot in the streets.

    Which reminds me, Maduro’s police gas started firing tear gas grenades directly into the crowds at close range. The grenades do kill anybody they strike, and it doesn’t have to be a head shot, it seems they’ll kill a person if they hit the chest or torso, from the kinetic impact. A couple of weeks ago they were tossing tear gas grenades into a crowd from a helicopter, but that seems to have discontinued when they were reminded it’s a war crime to use gas on civilians from aircraft.

    I wrote opposition leaders and suggested they start mapping the number of grenades being used, as well as the country of origin and the expiration date. The regime forces are using grenades at a prolific rate, sometimes they fire them at buildings, a few days ago they tear gassed a hospital emergency room, and the clouds drift over the city like a fog. This means they have to be resupplying, and it will be useful to know who is selling those grenades. I bet it’s either European or Russian sourced.

  6. Krisvis says:

    I read that there is a pipeline constraint for Permian.
     
    BOSTON — According to Energy Security Analysis’ North America Watch, production of crude oil from the Permian basin will continue to outpace pipeline capacity in the region, keeping pressure on WTI Midland prices relative to WTI Houston. This constraint should be alleviated by the fourth quarter as new pipeline projects come online.
    ESAI Energy estimates production from the Permian basin will grow over 420,000 bpd in 2017 and the acceleration in drilling activity will increase the basin’s backlog of drilled but uncompleted wells. Midstream companies are responding to the bottlenecks in getting the crude to market by expanding takeaway capacity. By the end of 2017, four new pipeline projects are expected to add over 800,000 bpd of capacity.
    Elisabeth Murphy, analyst at ESAI Energy, explains, “the price discount at Midland will ease as more crude makes its way to the U.S. Gulf Coast. Permian production will continue to increase in 2018, but with more pipelines in the works, we do not anticipate the current constraint to last.”

  7. twocats says:

    i feel like I’m reading some of these charts incorrectly. TRRC seems to believe that Permian was producing 700+ kbd going back to 2010, but Enno Peters data (which this post is heavily reliant on), has 2010 production as basically zero.

    http://www.rrc.state.tx.us/oil-gas/major-oil-gas-formations/permian-basin/

    any clarification would be great. thanks.

    • shallow sand says:

      Enno just reports production from unconventional wells, hz wellbores that are in tight zones and that are heavily fractured.

      Oil has been produced from the Permian Basin for almost 100 years. Oil has been produced from the current “hot” unconventional zones since just after WW2 from vertical wells. For example, there was a Sprayberry drilling boom in 1951.

      Operators are basically pulling forward production from known areas in the Permian by drilling horizontal wells. Pioneer Natural Reaources is a leading Permian producer. They operate over 6,000 vertical wells, most of which produce less than 10 barrels per day. They are now drilling horizontal wells on the same acreage, and after a well in the Spraberry is about 5 years old it will be producing under 25 BOPD.

    • Dennis Coyne says:

      The data at Enno’s site is horizontal LTO only. The RRC data includes conventional and vertical well LTO as well, the difference of 700 kb/d is conventional and vertical well LTO and about 7% of the horizontal wells.

  8. Boomer II says:

    This will be an issue. As I have said, my fear has been that Colorado would have an oil-and-gas boom, followed by a bust, followed by a mess that the state would have to clean up. It has happened multiple times before in the state. The boom is less likely now for economic reasons, and residents are more educated about potential problems, so that will factor into the discussions as well.

    Firestone explosion reignites debate over drilling setbacks, but with a twist: “Development on open land is accelerating at the same time that oil and gas operations are drilling furiously in the same areas….

    Colorado authorities impose no limits on how close homes can be built to existing oil and gas facilities, which include 55,000 active wells and an estimated 36,500 inactive wells that are connected to tens of thousands of miles of underground flow lines. State officials also do not regulate the construction of homes above that network of active and inactive pipelines, and they don’t always require companies to test those lines for leaks.”

  9. Enno Peters says:

    I’ve a new post on the Eagle Ford, available here.

    • Dennis Coyne says:

      Hi Enno Thanks.

      Looking at the cumulative production well profiles, it looks like any further increase in well productivity will be very small in the Eagle Ford, the Permian by contrast still is seeing some pretty good gains in well productivity, relative to the Eagle Ford.

  10. Watcher says:

    Prez talking to Russia today. Senate dropping plans for a Russian sanctions bill as the price threatens $47 or lower.

    Imagine that.

    • shallow sand says:

      COP and BP basically broke even in Q1. $50 oil not good enough for either.

      • clueless says:

        SS – I have a question that you probably are the best expert for. I note that these oil companies show ultimate recovery figures going out 10 years to as much as 20 years. Then I see Enno’s Eagle Ford update earlier today. It looks like wells drilled in 2011 are averaging 13 bpd in January 2017, only 5 years later.

        At what point [bbl per day] does a large company have to get rid of wells to someone like you, because they can not afford the overhead to baby the wells as efficiently as a smaller operator like you can?

        Do smaller operators even have the equipment to deal with wells that have 1 to 2 mile laterals?

        Do you have an idea of what is involved and how much it could cost to P & A a well with a lateral of 1 – 2 miles?

        If you have any info that you could share, I would really appreciate it!!

        • shallow sand says:

          Clueless. Mike would know more than me about these deep wells and operating costs. Maybe he can chime in.

          I will say that a lot will depend on down hole failure rates and produced water volumes.

          Pioneer operates over 6,000 low volume vertical Spraberry wells that are 8,000-11,000 TD. Most of those produce from 1-20 BOPD, so I suppose they must still be economic, although they have shut in some.

          You make a good point, these multi billion dollar companies will be major stripper well operators soon. Not sure how that works with all the overhead they have.

          We have no desire to own wells like these. Too expensive if something goes wrong, such as a casing failure, etc. But we are very small. There are larger private companies who may take these wells on. Citation operates some deep wells that are low volume. There are others.

        • Watcher says:

          You know, the stripper thing sold to small fry would seem to be conventionals. Not fracs? There was a convo about Bakken low flow and salt encrustation requiring periodic flush.

          Ain’t free.

      • shallow sand says:

        I will say Diamondback had a very good earnings number. $1.46 per share. They are exclusively Permian but do operate a lot of low volume vertical wells there in addition to horizontals.

        Would be interesting to know what they do differently. Cimarex is another that has generated decent EPS in shale. They report soon.

        • shallow sand says:

          I would also note that Diamonback appears to be a company that is able to efficiently operate deep stripper wells in the Permian Basin.

          From the subscription site I subscribe to, it appears Diamondback (FANG) operates 829 vertical wells in the Permian Basin. Almost all have a TD of over 10,000′. Of those 829, 729 are active, meaning there have been no oil sales from 100 of those wells for over one year. Of those 729 active wells, 572 produced 15 BOPD or less oil in the month of February, 2017, meaning those 572 wells would be classified as stripper wells.

          Diamondback is shown to be operating 281 horizontal wells in the Permian Basin. Of those, 138 produced 100 BOPD or less during the month of February, 2017.

          It appears that Diamondback is a ten year old company, has mostly raised money through equity issuance, and has a very low employee count.

          In summary, over half of Diamondback’s wells are stripper wells, so I would say it is very possible that public companies will keep operating stripper wells.

          I would suspect we would all be surprised in how many stripper wells the majors operate, both in the United States, and in other parts of the world.

  11. JN2 says:

    Peak oil at 160 mbpd? In 2060? Guest article at Robert Rapier’s blog…

    http://bit.ly/2ptenRB

    [sorry if this has already been posted, it is dated March 28th!]

    • clueless says:

      I think that trying to “find” a graph to predict most complex things is pretty futile. Say that in the year 2000, someone came up with a graph for the Venezuelan stock market for 2017. I wonder how accurate that would have turned out.

  12. Longtimber says:

    “Saudi Aramco has become a 100-percent owner of Port Arthur, an oil refinery in Texas. Port Arthur has a capacity of 600,000 barrels per day, making it the biggest in North America.”
    https://www.rt.com/business/386803-us-saudi-arabia-refinery/
    EV’s looking better all the Time.

    • Boomer II says:

      I’ve read that Trump’s plan for increased infrastructure (if it ever happens) will involve foreign ownership, as we are already seeing with toll roads around the country.

    • Boomer II says:

      Saudi Arabia Now Controls the Largest Oil Refinery in North America | Foreign Policy: “Industry experts say this week’s deal is Aramco’s latest power play before its highly anticipated IPO next year. But it also unveils a wider Aramco strategy no other state-owned oil giant has pursued yet: buying up downstream refineries worldwide to ensure steady consumer access regardless of prices.”

    • Hickory says:

      If Saudi Aramco owns the refinery, does that mean they could export all the end product if they so desire?
      I remember them as being from the country that declared an economic war on the USA (1973 oil embargo), and as the country who is the biggest sponsor of hate teaching in the Islamic world.
      Don’t like it.

  13. George Kaplan says:

    Has anybody seen announcements of any recent discoveries for oil or gas? There were a few in January and two small onshore Indian wells announced yesterday, but between them I can only remember Eni offshore Mexico in the last three months. I guess the BP 200 mmbbls oil in Atlantis North might count but sounds more like possible reserve becoming probable.

    • George Kaplan says:

      It’s the last day of OTC today, and news from there has been quiet as well.

    • Energy News says:

      Reuters, May 3 Lundin Petroleum’s Gohta find in the Norwegian Arctic contains less oil and gas than previously thought after disappointing drilling results, the company and the Norwegian Petroleum Directorate (NPD) said on Wednesday.
      https://twitter.com/ReutersNordics/status/859672218632171521

      Bloomberg May 3rd
      Norwegian authorities expect companies including Lundin Petroleum AB and OMV AG to drill a record 15 wells in the Barents this year.
      https://www.bloomberg.com/news/features/2017-05-03/where-the-arctic-oil-industry-is-booming

      • George Kaplan says:

        Gohta is (was?) about 80% of Lundin’s undeveloped resources. I think make or break year for Barents in terms of whether the prospectivity for oil really is very high there. The outcome of the lease sale will be interesting to see as well.

        • SouthLaGeo says:

          In the northern GOM, I’m not aware of any substantial discoveries, that is discoveries that could warrant a new production facility. There has been a fairly steady number of tieback-size discoveries.
          These include a number of discoveries that have been made in eastern Green Canyon – LLOG has 2, Anadarko’s Warrior, BHPs Caicos and their current offset at Wilding – all of which could be tied back to Anadarko’s Marco Polo or BHPs Shenzi facilities.
          I’m not sure if BP’s announcement of 200 MMBO of additional recovery at Atlantis is a further expansion of the Atlantis North project, or something different. The seismic technology that they have perfected, full waveform inversion, has allowed them to make a step change in subsalt imaging. They claim this may unlock up to a billion barrels of additional recovery from their existing core assets. The potential full waveform inversion holds to unlock some of the most structurally complex areas on the deepwater GOM is pretty exciting.

          • George Kaplan says:

            Thanks, also North Platte maybe. Difficult to know if some of these count this year or against a previous discovery. What are the LLOG fields called?

            • SouthLaGeo says:

              I’m pretty confident North Platte will move ahead to ultimately get developed, but, you’re right, that discovery was made 4-5 years ago or so.
              The 2 LLOG discoveries are Mormont and Khaleesi. LLOG has not officially announced them, but I did run across one industry article that referenced them.

              • SouthLaGeo says:

                Went back to re-read the story about the LLOG wells. The article does not reference them as discoveries, just as exploration wells.

                • SouthLaGeo says:

                  And regarding the BP seismic technology – their claim is for up to 200 mmbo of additional resource at Atlantis, and up to 1 BBO of additional resource in their GOM core assets – resources, not reserves. (Since I fuss at others about this occasionally!)

          • George Kaplan says:

            This is Rystad’s take on major new projects that may be sanctioned over the next few years.

            http://www.epmag.com/new-projects-will-contribute-growth-1540016#p=3

            They have Kaskida included, which might be a long way off. Thy also have Anchor as a tie back, but I think it is likely to be a semi-sub, possibly a design-one-build-two with Tiber. They have Alta/Gohta included, which might have to be revisited. They also have Whisting, which I think is still being delimited and Rosebank, which has been on the verge of FID for about 10 years now. Kaskida, Rosebank, Johan Castberg and (i think) Shenendoah are all quite difficult reservoirs with multiple layers, or dispersed deposits, or difficult rock/liquids properties. They don’t include Vito/Power Nap, which I thought would be a reasonably big project – or has that already gone through FID?

            Overall they have total production for North Sea and Gom (oil and gas), taking a small dip in 2021 and 2022 and then coming back to plateau. Given the 15 to 25% depletion rates of proven reserves that Schlumberger indicated for the on stream fields that seems a bit difficult. Maybe there are a lot of probable reserves that can be converted to proven, but I don’t think so, it would be unusual in very mature fields, and there has been very little other reserve growths for these.

            • SouthLaGeo says:

              Thanks for the info, George.
              Have to agree with you on most of the GOM projects. My view on Kaskida, that I don’t see it being developed, is based on the fact that there is just nothing going on there. No drilling activity and no press releases about project status.
              On the other hand I’m more optimistic about Shenandoah because there has been a fair bit of appraisal activity. I’m not sure if an issue there is reservoir complexity per say,, There has been a lot of appraisal because it is actually 3 different discoveries that will be co-developed – not only Shenandoah, but also Coronado and Yucatan
              And I think you’re right about Anchor, in that it is likely to be a host facility, and not a tieback.
              And Tiber will probably be co-developed with Guadalupe, part of what Chevron calls their Tigres complex.

              • George Kaplan says:

                SLG – looks like the recent appraisal wells for Shenandoah didn’t work out very well as the news coming out today is that it will be downgraded, I don’t know what to – are there tie back options in the vicinity?

            • Lightsout says:

              Hi George

              Kuwait is starting to scrape the bottom of the barrel.
              http://www.theenergyinfo.com/detail.php?project=ktXHj8g7iWs8Ttw1kJs7itI4iwxx&sample=1

        • Daniel says:

          This does not sound right at all. Gohta was always quite marginal

          • George Kaplan says:

            I might have got it mixed up with Alta, which they are drilling next, but I think they were claiming about 250 to 550 (potential resources, not reserves) for the two.

    • Energy News says:

      Exploration activity in Alberta Canada – exploration wells drilled, this chart shows the total for oil wells (Vertical+Horizontal)
      https://www.aer.ca/

    • John Keller says:

      Exxon in Guyana. Snoek well. Not sure how big.

    • jed says:

      There’s an onshore exploration campaign kicking off in Uruguay’s Norte Basin this month. Pretty sure Uruguay import 100% of their energy at the moment.

    • Lightsout says:

      Hi George.

      There was one by ConocoPhillips in January, called “Willow,” evaluated at 300 million barrels. Also“Horseshoe,” made this year by the Spanish company Repsol in partnership with Denver-based Armstrong Oil and Gas, said to be the largest new U.S. find in more than 30 years. It is estimated at 1.2 billion barrels.
      Both in Alaska.

  14. George Kaplan says:

    This is quite interesting – really an advert for Douglas Westwood services, but it says:

    “The oilfield service industry can, at times, be intimidating in its complexity and depth. Furthermore, mega-mergers (e.g. GE – Baker, Technip – FMC, Wood Group – Amec Foster Wheeler) have created a supply chain that no-longer has homogenous competition that can be easily-grouped and segmented. All the leading players in OFS now have a materially different business mix and service line provision”

    That could be read as less competition and hence a possible risk of rapid cost inflation if prices and activity do pick up. Or maybe just another sign of an industry in it’s decline (albeit still early stages).

    http://www.douglas-westwood.com/dw-monday-unpicking-the-outlook-for-the-ofs-sectors/

  15. Energy News says:

    OPEC exports do seem to be falling (I’m not a subscriber to any TankerTracking services)

    OPEC crude loadings from ClipperData, Morgan Stanley Research.
    Chart direct link, https://pbs.twimg.com/media/C-5bX0tW0AArhnQ.jpg

    But a fall in imports might take longer? Due to imports from floating inventory? (& due to timing of shipments?)
    https://pbs.twimg.com/media/C-5bYlMXsAAlDA6.jpg

    From this Reuters tweet, https://twitter.com/chris1reuters/status/859726034639486976

    • Energy News says:

      FT – May 3rd 2017 – Opec oil exports under scrutiny as crude price sags
      Analysts at Energy Aspects say tanker tracking data suggests Opec’s exports have fallen by as little as 800,000 b/d so far in 2017 as some members have supplanted oil lost to production cutbacks with crude from storage, or have freed up barrels for export as they carry out maintenance at domestic refineries.
      (one free) https://www.ft.com/content/d7f94324-3008-11e7-9555-23ef563ecf9a

      • clueless says:

        I thought that was the idea – start drawing down from the storage glut??

        • Energy News says:

          This is one of the many things that I’m still trying to find out myself.

          It’s difficult to know what’s actually happening especially as there can be a big differences in the export estimates given by different tanker trackers.

          Now that Iran and U.A.E. have both sold most of their floating storage at least their exports should decrease.

          I guess that this year, since the cuts started, continued high exports have equalled surplus oil on the markets.

          As you know demand usually increases at this time of year and so I’m just going to wait and see what happens.

          • Jeff says:

            The main issue is the difference between transparent inventory levels (mainly OECD) and the rest that is either not publicly known or not updated as frequently. There is also a time lag between a change in production and a change in inventory (assuming demand stays approx. the same).

            It seems as those that speculate/trade oil assumed that US/OCED inventory would start to fall in late Q1-early Q2 and when this did not materialise the price dropped. It can go fast when everyone is running for the same exit, short term movements are a result of psychology/group thinking. Traders are not patient and their job is to turn volatility into a profit.

            Oil inventories outside OECD have probably fallen but by how much is not known. If these are starting to come down a lot then OECD inventories will follow suit – assuming demand does not tank, OPEC extends their cut and LTO output does not grow too much. These factors are, off course, also unknown.

          • Energy News says:

            Bloomberg is reporting that Brazil’s crude oil exports have fallen back down to 2016 levels. This does seem to confirm that they were exporting from inventories in Jan & Feb 2017.

            As a reminder a prior chart for Jan & Feb exports:
            https://s13.postimg.org/a43f4pyh3/2017-04-25_Brazil_Crude_Oil_Exports_JODI_ANP.png

            This news story from March was a bit misleading
            http://www.reuters.com/article/us-brazil-oil-exports-analysis-idUSKBN1722IW

  16. Energy News says:

    Washington, 2 May (Argus) — The US Defense Department wants to prolong a drilling ban in the eastern part of the US Gulf of Mexico, an area the oil industry is lobbying President Donald Trump’s administration to open for leasing.

    The area is estimated to contain 3.6bn bl of technically recoverable oil and 11.5 Tcf of natural gas but is largely off-limits to drilling until 2022. Existing infrastructure like pipelines from development elsewhere in the Gulf makes the region particularly attractive to oil and gas producers, but military officials worry that drilling and production activity could impede use of the area for training and testing.
    (free) http://www.argusmedia.com/pages/NewsBody.aspx?frame=yes&id=1452583&menu=yes

    • Watcher says:

      Those areas are instrumented ranges for Eglin AFB and Pensacola for the Navy. Maybe not surprising.

      • Cracker says:

        The sonic booms we hear on the west coast of Florida at night indicate the range is well used. Commercial aviation traffic has to go around the area when the military is using it, so we hear more airliners overhead, too. Not many training areas left, so DOD should be expected to fight hard to keep the GOM range. Greed may prevail, however.

        Jim

        • Boomer II says:

          If Trump has to choose between the military and gas and oil, seems like politically he is going to go with the military. It’s a group he appears to be willing to give quite a bit of control.

          • Longtimber says:

            Should co-exists fine. Rig workers would love the thrill. Storm hardy GOM rigs are not fragile targets . Public resistance likely to prevent till we have lines at the Pump or AC cost sykrocket. How else one get to see Mickey? Appears there lots of offshore NG, Florida imports 99%+ of it’s energy.

  17. Energy News says:

    Some shale economics in the WSJ – By Bradley Olson. Updated May 3, 2017
    A group of almost 50 exploration and production companies, the primary engines of the boom, are set up to outspend their cash flow by about $4 billion this year if oil prices average about $55 a barrel. That is down from about $15 billion in 2016, according to a study last month by energy analysts at Tudor Pickering Holt & Co.
    (I read it but usually there is a pay wall) https://www.wsj.com/articles/rising-interest-rates-may-trip-oil-companies-1493803802

    • Boomer II says:

      Not a very good article.

      “Electricity is a specialty product. It’s not appropriate for transportation.”

      Electricity has long been used for transportation.

    • Longtimber says:

      An ICE converts 20-30 percent of the energy in gasoline into motion.
      Nice. So 7.5 of every 10 units of fuel you buy is lost forever out the radiator. Modern fuels are taken for granted.

    • sunnnv says:

      “An electric automobile will convert 5-10 percent of the energy in natural gas into motion. A normal vehicle will convert 20-30 percent of the energy in gasoline into motion.”

      What a crock – see the wiki article on miles per gallon gasoline equivalent,
      most EVs are 100+ MPGe,
      the highest mileage gasoline car (for 2017) is the Hyundai Ioniq Blue hybrid at 58 mpg.

      https://en.wikipedia.org/wiki/Miles_per_gallon_gasoline_equivalent
      https://www.fueleconomy.gov/feg/best/bestworstNF.shtml

      A more fact-based discussion of energy efficiency of cars is at:
      https://matter2energy.wordpress.com/2013/02/22/wells-to-wheels-electric-car-efficiency/

    • Watcher says:

      Hmmm. On tablet. Will look into power plant efficiency converting natgas to electricity later That is the core point. It might be compelling.

      Just did. Typical power plant efficiency 35ish%. That looks like the ball game.

      • coffeeguyzz says:

        Watcher
        That is the typical natgas fueled power plant.
        The Combined Cycle Gas Turbines – CCGT – are in the 60% efficiency range with the newest iteration said to capture 62/63% .

        This is one reason why there has been a surge in building new plants, especially in Ohio and Pennsylvania as the cost of producing electricity will be very cheap.

  18. Enno Peters says:

    I just published an update on the Permian, available here.

    • Eulenspiegel says:

      Thank you.

      It seems Permian wells are getting rapidly better – whats the limit here? Or are the 400kb wells for everyone real in Permian?

      • Enno Peters says:

        Thank you Eulenspiegel,

        An issue is that the well behavior has changed in the Permian, and that we don’t have data on how this new behavior holds up over a period of say 5 years. Therefore, I think it’s too early to tell, although based on the ultimate recovery profiles I belief it is possible to make reasonable estimate ranges.

        • clueless says:

          The wells drilled during 2015 were producing and average of 230 BOPD during January 2016. One year later, they were producing an average of 103 BOPD – a decline of over 55%. Seems like a fairly high decline rate to me. It is safe to say that almost none of the wells drilled in 2015 will acheive 400kb – which would require an average production of 136 BOPD for 8 years.
          I will be interested to see the figures for January 2018 for the wells drilled in 2016. It would also be interesting to compare the costs of such wells, since my understanding is that the laterals are longer, and the sand and water used is multiples greater.

          • shallow sand says:

            I read in Concho’s (CXO) conference call that the model in the Permian is to spend hundreds of millions of dollars per “section” which I assumes means 640 acres for one mile lateral wells and 1,280 acres for two mile laterals, with over 30 wells in each.

  19. Russian C+C production through April 2017 using 7.3 barrels per ton. April production stood at 10,950,000 barrels per day, down 234,000 bpd since the peak in October.

     photo Russia_zpsf7tigmno.png

  20. AlexS says:

    The EIA projections of the U.S. Southwest crude oil production by type (from the Annual Energy Outlook 2015):

    “Virtually all oil production in the Southwest region comes from the Permian basin. Permian oil
    production averaged 1.3 million bbl/d in 2013, compared with 100,000 bbl/d from the rest of the
    Southwest region. Production by crude type has changed rapidly, as new drilling in the Southwest region
    increasingly targets the various stacked tight oil formations, rather than the conventional oil formations
    which have been developed for decades.
    EIA expects this trend to continue through 2025, as Southwest crude oil production is projected to
    increase from an annual average of 1.4 million bbl/d in 2013 to 2.4 million bbl/d in the Reference case
    and 2.1 million bbl/d in the Low Oil Price case in 2025 (Figure 5). In the High Oil and Gas Resource and
    High Oil Price cases, the projected growth in Southwest production is roughly double that of the
    Reference case, with production reaching over 3.0 million bbl/d in 2025. Production of sweet crude oil
    with an API gravity between 40 and 45 maintains it share of close to 35% of total Southwest crude oil
    production in all four cases through 2025.”

    https://www.eia.gov/analysis/petroleum/crudetypes/pdf/crudetypes.pdf

  21. George Kaplan says:

    Mexico C&C for March dropped very slightly (about 1000 bpd), crude was up, condensate down. KMZ production increased so maybe it isn’t quite off plateau yet. Numbers in brackets show y-o-y decline. They added a couple of rigs last month which might be helping. They are 85,000 down from October, and they promised 100,000 by natural decline for the NOPEC cuts, so doing a bit better so far, but is their decline likely to stop when they get to 100 kbpd?

  22. Watcher says:

    BTW, good thing US shale is profitable at $15 as we nudge down to $45 today.

    • George Kaplan says:

      Bloomberg said the drop was due to lower than expected increase in US inventories. They always have to come up with something, and looking at stock levels if something happens on Thursday is easier than doing any actual work (in fact it might be programmed into the reporting bots). I think it is more to do with Libya production increase and possibly the expected rate rise in USA – normally that would increase the dollar value and drop oil, but these days not everything follows like that. The prices quoted are some kind of futures option (maybe one month?) rather than what’s paid today, which has already been agreed.

      • Dennis Coyne says:

        Hi George,

        The WTI spot price an be seen at the link below.

        http://www.pmbull.com/oil-price/

        At $46.08/b last I checked, it updates continually.

        On interest rate rises in the US, we don’t know in advance when those will occur, my guess would be September, but it will depend on the economic outlook at the time, always a big unknown.

        The API reported a 4.2 Mb drop in oil stocks on Tuesday so the market was disappointed when the EIA reported only a 0.9 Mb drop, though if the SPR is included the drop was 2.4 Mb in total US crude oil stocks for the week ending April 28, 2017. In the past 4 weeks US crude stocks have dropped by 10.57 Mb.

        In the spreadsheet at the link below (from the EIA)

        http://ir.eia.gov/wpsr/psw01.xls

        If we look at the Data 2 tab and columns K and N which are the “crude oil stock change” and the “unaccounted for crude oil” respectively and sum from Jan 3, 2014 to April 28, 2017 in each column and then multiply by 7 (days per week) we find the cumulative stock increase was 192 Mb and the unaccounted for crude oil was 200 Mb over the same period.

        As I have mentioned before the weekly storage data is not very good, all of the increase seems to be a statistical artifact.

      • George Kaplan says:

        I should have said fall not increase, I think the other way around would suggest lower than expected supply and a price rise. I don’t know what any of the other stuff has to do with my comment, Goldman Sachs reported a 70% chance of June raise (now 90%) – speculators respond to that sort of thing.

        • Dennis Coyne says:

          Hi George,

          Your comment started with

          Bloomberg said the drop was due to lower than expected increase in US inventories.

          Most of the comment was about inventories and whether the estimates are accurate.

          I had not seen the Goldman Sachs guess, you are right that the speculators pay attention to every bit of news no matter whether it is speculation on potential changes of US interest rates, forecasts of future output or unreliable data reported by the EIA (storage levels that may be incorrect by as much as 200 million barrels).

          • George Kaplan says:

            Yeah, my mistake, I didn’t check – I assume nobody is going to read my comments so why should I. I don’t get where 200 mmbbls error is coming from or why it is all that important. If there is that sort of error then it is likely a bias, not noise, and therefore the trend would be unaffected.

            • Survivalist says:

              Art B has written his thoughts on the price move.

              http://www.artberman.com/oil-prices-plunge/

            • Dennis Coyne says:

              Hi George,

              The EIA has a category called “unaccounted for oil” that makes the US output plus net imports of crude match the net refinery and blender inputs of crude oil. Over the past 3 years the “unaccounted for oil” has equalled the rise in stocks.

              The question is we would expect if this were a random reporting error that over 3 years the “unaccounted for oil” should be close to zero as positive errors should roughly match negative errors.

              There seems to be serious problems with the data and I question if we have accurate storage data.

              In any case the traders focus way too much on the changes in stock levels.

              Art Berman and Matt Mushalik did a piece on this a while ago.

              http://www.artberman.com/u-s-storage-filling-up-with-unaccounted-for-oil/

              • George Kaplan says:

                I wrote a long answer to that piece by Berman at the time. He is almost certainly wrong in his understanding of the issues in my opinion. Levels in tanks are known fairly well, they are measured by instruments (often two – one for control and one for safety) but also have outside gauges that operators can see. What can’t be measured exactly is flow – it has to be inferred from it’s effect on an instrument, often non-linear (pressure drop, magnetic field, coriolis force etc) and influenced by other parameters (density and water cut are the most important). There is always an error. It can be made small, and for fiscal meters there are legal requirements to how small it must be, but it’s never zero. However a small error on a large number (integrated flow over a year say) is a large absolute number. The inflow and outflow errors do not cancel – statistically I seem to remember you have to use root mean square calculation to find a new relative error. When you take one large number from another to get a small number the relative error becomes huge. Every single tank farm in the world has a correction factor to compensate – they assume levels are correct, flows have errors but it’s not known where, so they just compensate. It is not a big deal, certainly not worth writing an article about. In some cases operators will deliberately use the allowed margin in measurements to bias measurements to their advantage (e.g. appear to be buying less and selling more). The rise in the correction factor in USA has coincided with rise in LTO production, somebody who replied to my comment had a good possible explanation for this which I’ve forgotten, might have been to do with increased rail car transport, or possibly lighter oils in the flowmeters. Therefore the error is actually in either the EIA production or refinery figures, and against those totals it is tiny and swamped by assumptions about average densities for example.

  23. Ian Sharpe says:

    So the oil price is tanking and all I am hearing about is increased rig counts and a rise US oil production. Is anyone concerned that the industry could be in for another round of layoffs?

    • Watcher says:

      No reason any of that needs to be relevant. We’ve seen lotsa quoted effectiveness of the OPEC and NOPEC agreement. And next month BP’s Stat review will say what it says about consumption (likely up).

      Imagine that. Reduced production, increased demand, lower price.

      • Dennis Coyne says:

        Hi Watcher,

        This is in part due to the focus on US storage levels, that data is not very good, but it drives oil prices anyway. The IEA says World output is down.

        See

        https://www.iea.org/oilmarketreport/omrpublic/

        World oil supply fell by 755 kb/d in March as OPEC and non-OPEC producers pumped less and improved compliance with the output reduction pact. Total non-OPEC output is set to rise again, however, with growth of 485 kb/d expected in 2017, recovering from a decline of 790 kb/d last year.

        Note that the 485 kb/d rise in non-OPEC output does not offset the cut of 1.8 Mb/d which is expected to be extended through Dec 2017, also demand is expected to grow by 1.3 Mb/d. By Sept 2017 oil prices will have started to rise from present levels.

        All the talk of LTO being profitable at $45/b is bunk. Maybe 10% or less of all LTO wells drilled will be profitable at $45/b.

        • Watcher says:

          blah blah

          • Caelan MacIntyre says:

            Will a particular high price capsize government?

          • shallow sand says:

            I think the traders were trying to push the price lower to see how far it could go, and likely the price will push back up into the low $50s. Traders need a wider price band than $5.

            As for shale, the US in general is pushing very hard the idea that shale is the “swing” producer, that shale is “low cost” and that “technology” will further drive the US towards oil independence. Those are huge geopolitical matters, and whether the wells actually payout is of little significance in relation.

            I think 2016 showed that US needs $45-55 WTI to be able to continue to push those geopolitical themes. I was hoping the number would be $55-65, but can live with $45-55.

            • coffeeguyzz says:

              Shallow
              Re the geopolitical situation …
              Article over at oilprice talking about internal political dissension in Saudi.

              As much as American O&G, and others, are continuing to reel from this disruptive unconventional development, the entire middle east is entering unknown territory with inadequate finances to maintain the status quo.

              Huge danger ahead at 50 bucks WTI.

              • shallow sand says:

                coffee. I assume the possibility of an oil shock is the primary reason for high valuations in shale.

                I think it would have to occur in Saudi Arabia or Iraq to have meaningful impact. Maybe another GCC member.

            • Dennis Coyne says:

              Hi shallow sand,

              The IEA expects about a 500 kb/d increase in non-OPEC output in 2017 (that sounds like a reasonable guess at $55/b Brent), OPEC plus select non-OPEC nations have targeted a cut of 1.8 Mb/d which is likely to continue through the end of 2017 (based on the latest reporting), in addition the IEA expects demand will increase by 1.3 Mb/d in 2017. The net effect of all three of these predictions (if they prove correct) would be 0.5-1.8-1.3=2.6 Mb/d less oil supply than demand. Even if non-OPEC output increases by 1 Mb/d (optimistic in my view) and OPEC and non-OPEC cuts end up being 1 Mb/d, this still leaves the 1.3 Mb/d of demand increase not covered.

              It is for this reason that I expect your hope that oil will get to $60/b+/-$5/b is likely to be fulfilled. Probably by August 2017.

      • Caelan MacIntyre says:

        Hi guys, I just noticed that oil prices are ‘lolling’ again…

        Imagine that. Reduced production, increased demand, lower price.” ~ Watcher

        Ok, but what does this mean? What’s your angle?

        “…when an unstable vessel heels over towards a progressively increasing angle of heel, at a certain angle of heel, the center of buoyancy (B) may fall vertically below the center of gravity (G). Angle of list should not be confused with angle of loll. Angle of list is caused by unequal loading on either side of center line of vessel.

        Although a vessel at angle of loll does display features of stable equilibrium, this is a dangerous situation and rapid remedial action is required to prevent the vessel from capsizing.” ~ Wikipedia

        • Watcher says:

          If you import every drop, there is likely a price that can’t be paid. Since this means rapid starvation of the populace, war is the correct solution.

          It probably is not always going to be pursued. Greece imports every drop and at 2014’s $110 they could not pay. So they embraced the novel approach of borrowing the money, buying oil, and never repaying — which will cause no particular problem since the ECB creates those Euros from nothingness anyway.

          • Caelan MacIntyre says:

            Ok, so if we run that process/game over time, and with increasing players, what do you think may be the, or some, results along the way and toward the ends, and what might be some timelines in these regards?

            • Watcher says:

              Ahh the unified field theory of oil.

              You have to have it. You die without it. That compels extreme response to scarcity.

              One such response is central bank cooperation to ensure a major country that imports every drop can QE the money to pay for it and not have currency dislocation that would functionally obstruct that process. Japan. They import 4 million bpd and have QE’ed trillions upon trillions of yen and had no currency collapse as the ECB, Fed, SNB, PBC and BOJ all have directly intervened to prevent any such thing, because of global systemic risk.

              You have to have oil to live. You can live okay without iPhones. The facade of normalcy can obfuscate the raw basics with talk of broader economic themes, and there is a willing embrace of this because people want to think past their next meal, but in the end, it’s only calories going into a stomach that society HAS to have.

              So what we observe is the overt departure from normalcy, but markets remain in place because those are industries unto themselves and essentially systemic themselves and the facade of normalcy depends on universal counterparty confidence. QE is aggressively considered something obscure and deserving of dismissal, but of course it actually addresses the absolute definition of money and reveals the power of central banks to dictate more or less everything.

              Timeframe . . . keep spare batteries handy for your watch.

              • Caelan MacIntyre says:

                Thanks, Watcher…

                I don’t own a watch, but we have you… What do you eat?

                My sentiment sort of used to be more along the lines of, “Oh goody, a society I’ve never liked is finally about to decline.”, but the mood seems to be changing as we slowly enter something of a reality that requires increasing nerves of steel…

                Here’s a comment from under Gail’s blog’s most recent article:

                “I’m sure that most find the thought of declining oil price as a result of limits very hard to accept because it’s counter intuitive…

                People are convinced that supply and demand fix prices. Under this false notion prices will rise to meet demand. This creates a false sense of security. The reality is the cost of production creates markets and sets the price of production…

                From a macro view we start to get the sense that the global economic system is vastly interdependent and will resist any specific sector failure buy absorbing surpluses until we reach neutrality.

                This is demonstrated by the high risk unconventional oil investment by pension systems. It is a subsidized industry to maintain BAU. The same as the Oil Majors stock buyback and debt growth. All surpluses will be consumed eventually all equity will be pure speculation. I.e. Tesla, Uber, Amazon etc.

                We’re likely in full contraction now. For example retailers are announcing record store closures and their stock prices still rise. This illustrates a complete disconnect with fundamentals. Instead everyone is chasing stock value increases regardless of sales price ratios. The climate since 2000 has created an acceptance of losses as standard business models. Contraction is now being rewarded chasing speculative valuations. This is completely absurd from any rationale.

                How long can it last? Likely until all equity is consumed at that point only debt will remain without leverage meaning there is no real valuations no security.

                This is happening socially. A crises is forming from all the kids who moved back home living with their parents because of the inability to provide for themselves. As the parents die off the children are left with no means of life because the equity has been consumed. In a macro level this is happening globally.”

                • Watcher says:

                  There’s some hand waving and vagueness in that, and God knows how he connects adult offspring living at home to a unified field theory of oil, but philosophically he’s embracing a rejection of narratives and that’s somewhat the core requirement to understanding things post 2008.

                  Shale is a subsidized industry . . . yeah, pretty much. Loan covenant change, extensions, workouts. There isn’t anyone reading this on this blog who doesn’t know there’s no profit in those fields, but they keep drilling and flowing. What else can that be but some form of subsidy?

                  Re-iteration — QE changes everything. If CBs can create money and hand it out then systemic financial failure will not be allowed to outright kill people. Only oil scarcity is beyond CB control, and they are resisting even that via the subsidy noted above.

                  • Puffalar (Your Five-Alarm Puff) says:

                    The Dieting Puffy Economy

                    Is QE a kind of economic cannibalism, part of it? If so, that would seem to make sense…
                    Meanwhile, people still go to work and the grocery store in one person per car over here in the traffic and everything, like it’s 1999.
                    I guess it truly is about the last person with the last chair when the music stops.
                    And then maybe that person gets up, folds the chair, licks the buffet trays clean, closes the lights, and heads off to the nearest ecovillage, post anorexia…
                    But until then, maybe there’s still fat (surplus?) that needs to be trimmed, like more pensions and market cannibalization. Interest has already been liposucked…

                • HuntingtonBeach says:

                  Stupid is what Tverberg writes:

                  “People are convinced that supply and demand fix prices. Under this false notion prices will rise to meet demand. This creates a false sense of security. The reality is the cost of production creates markets and sets the price of production…

                  • Caelan MacIntyre says:

                    Only it wasn’t Tverberg who wrote that, ironically for you perhaps.

                  • HuntingtonBeach says:

                    Just because she conned you into doomers gardening doesn’t mean we all fell for it.

                  • Caelan MacIntyre says:

                    Gail has a shipload of credibility.
                    When one does their homework, that does factor in.
                    Maybe if you had a site, with good articles thereon with explanations, references and comments; a pic; a real name; related work in the field; invites for speaking engagements; etc., you might be a little more convincing.
                    Give it a try.

                  • HuntingtonBeach says:

                    Caelan MacIntyre says:

                    I wish I could say that “I’m just a simple gardener.”, but that is expected to come with time. 😉

                    I’m currently surveying various systems, including this one, and will return periodically for updates.

                    The systems I am interested in (and have widely-varying degrees of theoretical, virtual and/or practical knowledge/experience in) include;

                    – Politics (“Hyperdemocracy”)
                    – Sustainable (Wooden) Seaworthy Classic Sailboats
                    – Natural Building
                    – Gardening
                    – Surveying/Land-design
                    – Ecovillages/Intentional Communities
                    – Philosophy, Psychology, Writing
                    – Ethical/Sustainable/Reasonably Self-sufficient Lifestyle
                    – The Transition Movement
                    – Knitting– just completed first sweater:

                    https://permacultureglobal.org/users/235-caelan-macintyre

                    Caelan, I think your were born 200 years after you time

  24. Watcher says:

    https://phys.org/news/2017-05-discovery-ibm-enable-efficient-oil.html

    IBM scientists recently discovered that a drop of oil doesn’t look like a drop at all if it is small, to the scale of one billionth of a billionth of a liter, or attoliter. Rather, a nanoscale oil droplet looks more like a flat film against a solid surface. This discovery reveals that the simulation tools and techniques commonly employed by the oil industry do not take into account the increased energy required to extract these oil molecules. And it results in 60 percent or more of a well’s oil being left behind, for example, in the nanoscale capillaries of shale reservoirs. In response, IBM Research-Brazil is developing nanoscience-enhanced oil flow simulations that could better-predict oil extraction from a reservoir.

    Brazil?

  25. George Kaplan says:

    Baker Hughes international rig count for April is out: oil up one, gas up thirteen. There might be more in reality as Argentina lost oil ten rigs, which might just be a recording anomaly. Offshore gained four rigs and land based nine. Biggest increase was in Africa. Latin America dropped three offshore, I don’t know how much delays in new Brazil drill rigs might be having an impact.

    http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsintl

  26. George Kaplan says:

    Oil prices might go up today, maybe OPEC are trying a new tactic:
    IRAN MINISTER WARNS SAUDI ARABIA AFTER ‘BATTLE’ COMMENTS: TASNIM

    Iran will hit back at most of Saudi Arabia with the exception of Islam’s holiest places if the kingdom does anything “ignorant”, Tehran’s defense minister was quoted as saying on Sunday after a Saudi prince threatened to move the “battle” to Iran.

    http://www.reuters.com/article/us-iran-saudi-minister-idUSKBN1830Y7

  27. Enno Peters says:

    I have a new post on tight oil & gas production through January, covering 8 US states, which you’ll find here.

  28. Boomer II says:

    I just saw this today.

    I believe oil demand will drop because of declining incomes. While India and China might make up the difference, they are also in a position to leapfrog over dependence on ICE vehicles and build more of their economies on alternative forms of transportation. It is one area where they can be dominant in the world.

    Researchers have answered a big question about the decline of the middle class – The Washington Post

  29. George Kaplan says:

    I updated the chart showing production from GoM leases for recent start ups (but doesn’t include Thunder Horse South or Jack phase II). Son of Bluto 2 is back on line. I’d say the Stones start up isn’t going very well: it went off line in February and has only achieved about 25% of nameplate so far. It, along with Heidelberg, Coelacanth and Julia still have some way to go to get to nameplate, I think Heidelberg has a phase II set of wells to get there planned for next year, but overall it looks like decline in older fields, and now in some of these new ones, is likely to win over new production.

  30. Doug Leighton says:

    IRAN PLANS TO RAISE CRUDE OIL PRODUCTION CAPACITY BY 3 MILLION BPD

    “Speaking on the sidelines of an oil industry conference in Iran, Gholam-Reza Manouchehri, Deputy Head of the National Iranian Oil Company (NIOC) for Engineering and Development, did not provide specific timeframe for Iran reaching that increase, which Platts is calculating at about an 80-percent capacity boost.”

    https://ca.finance.yahoo.com/news/iran-plans-raise-crude-oil-172300269.html

    • Watcher says:

      They do give a timeframe for something in there:

      Nonetheless, Iran is looking beyond the OPEC deal, and has said that it wants to increase its production to 5 million bpd by 2021.

  31. Boomer II says:

    More effects from the house blast in Colorado. The event has been a tipping point. There will be more monitoring of the industry now.

    After house blast in nearby Firestone, Thornton to put inspection data from oil and gas wells online – The Denver Post

  32. TechGuy says:

    Art Berman: Don’t Get Used To Today’s Low Oil Prices
    https://www.youtube.com/watch?v=I7kgD0s2zaY

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