The EIA publishes what they call a Drilling Productivity Report in which they claim that each rig is getting more productive, that is each rig produces just a little more oil each month than it did the previous month. But over the long haul, I find that the exact opposite is true. In every place in the world, each rig produces a little less oil every year.
Baker Hughes publishes monthly their International Rig Count where we can find the world rig count back to 1975. However I only looked at the last 15 years and found some surprising results.
The last “Rig Count” data point on all charts below is December 2014. Also, very important, the rig count includes rigs drilling for gas as well as oil since Baker Hughes does not break down international rigs down to either gas or oil. They just give us the total rig count.
The last price collapse we had, in late 2008, the rig count dropped by over 1,570 between September 2008 and May 2009.
1,114 of that 1,570 rig count decline in 2008 and 2009 came from the US alone. That was the number of rigs dropped by the us between September 2008 and June 2009.
Looking at the first graph up top, World Rig Count, you will see a strange saw tooth that bottoms out every April or May. That is entirely due to the Canadian Rig count.
The Canadian Rig Count tops out every February and bottoms out every April and May. The only year in the last 15 years when this did not happen was during the price crash, February 2009, (arrow). I have no idea why the Canadian Rig Count tops out during the dead of winter and bottoms out during the spring thaw, but perhaps that, the thaw, has something to do with it. I hope some kind Canadian will clue us in on why this happens. At any rate, to my knowledge, this is the only country in the world where has this strange oscillation happens.
The Middle East Rig Count has gone from 140 to over 400 in 15 years. About half of this increase has come from Saudi Arabia.
Here I have overlapped the International Rig Count with International Crude + Condensate production. International, in this case, is everywhere except the US and Canada. The point here is that an almost constant increase in the rig count since 2005 has not yielded any increase in production. It is the perfect example of the Red Queen syndrome, it takes more and more wells to stay in the same place.
An overlay of production with rig count however does not give a true comparison between rig count and production. That is because the scales are not equal and therefore no true comparison can be gleaned from such a chart. But they can be compared with simple math. That is you simply divide the average daily production for that year by the average number of rigs for that year.
This is production per rig, not production per well. Basically this chart compares what a rig did for you in 2000 as compared with what a rig is doing for you today. Look at as a worldwide Drilling Productivity Report. The EIA says rigs working in US Tight Oil fields are getting more and more efficient. This is due to longer laterals, more fracking stages , more wells per pad and so on. However rigs, overall, are getting less and less efficient. This is due to the fact that the vast majority of rigs worldwide are simply engaged in infill drilling of old wells. So it is only natural that each well will yield a little less oil than the last one.
Below is the data that produced the chart above. The data is barrels per day per rig.
The USA produces 4,577 barrels per day for every active rig while the Middle Ease produces 59,945 barrels per day per rig, down from 140,144 in 2000. Well the reason is we in the USA just don’t get nearly as much oil per well as they do in the Middle east. In Saudi, for instance, they drill these long horizontal wells in their supergiant fields, many of the wells MRC, Multiple Reservoir Contact or Christmas Tree wells. Then around the periphery of the field, every few hundred feet, they put a water injection well. And they pump millions of barrels of sea water, every day, into the reservoir. The water sweeps the oil to the well lateral and they produce thousands of barrels per day per well.
Recent data on Saudi Arabia is rather hard to come by but in 2010 they had about 3,270 wells, counting half those in the neutral zone, and they produced about 9.5 million barrels of oil per day. That puts Saudi average production at somewhere between 2,800 and 3,000 barrels per day per well.
At about the same period of time, 2010, the US had about 510,000 wells producing an average on 10.5 barrels per day per well. Today about 400,000 of those wells are stripper wells producing an average of 1.8 barrels per day.
You must read this article.
U.S. Shale Boom May Come To Abrupt End
Rig productivity has increased but average well productivity has decreased. Every rig used in pad drilling has approximately three times the impact on the daily production rate as a rig did before pad drilling. At the same time, average well productivity has decreased by about one-third.
This means that production rates will fall at a much higher rate today than during previous periods of falling rig counts.
Well productivity is falling. It has already fell by one third. That is the same thing I have been telling you folks for months now.
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” The Canadian Rig Count tops out every February and bottoms out every April and May.”
The reason is in may (spring time) there are road bans. With road bans you can’t drive on the road with heavy vehicles. In the winter everything is frozen. It is just prohibitively expensive to repair gravel roads.
Exactly. Spring brakeup = mud and trucks (weight restrictions) are banned from many secondary and almost all gravel roads. In fact, owing to unusually mild weather in southern BC, trucks have already been banned from many areas (winter logging is the norm here).
Record cold winter followed by a record warm one in southern BC?
Our daffs and other bulbs up about 6-8″, while I watch unending snowmagedddon back east. Chickens dropping an egg/each every day. We are at 50+ deg. north. On Friday I pick up my new motorcycle. I can hardly sleep I’m so excited. Ski hills are sucking wind, though. Oh well, my family quit skiing about 15 years ago. I remember popping the wallet for about $100 bucks each, and thought as I froze my ass off on a swinging chair lift, “this really isn’t as much fun as it is supposed to be”.
To add to that, even asphalt roads get ruined during spring thaws. As the bed under the roads thaws, it can do so unevenly. Heavy loads compress thawed portions more than frozen portions, causing cracking, and then water flows in, refreezes, cause more cracking, and then it’s pothole city.
The EIA’s Drilling Productivity Report shows (or attempts to show) the new-well productivity per rig.
If I’m understanding things right, your rig productivity measure mixes together the production from old wells and new wells. Is that right?
Yes of course. It’s basically crude oil production per rig in use. All it really shows is that they are taking more and more rigs to produce the same amount of oil. It does not show how many new wells are drilled each month or year. Also, the Baker Hughes international index does not distinguish between rigs drilling for oil from those drilling for gas.
OK, thanks.
The only way I can think of this could not be rock solid evidence of peak oil getting close would be that drilling rigs have been drastically downsized in terms of capacity – which is certainly not the case according to remarks make by the hands on guys in forums such as this one.
They all say that newer rigs are much faster finishing a well than older ones and that there aren’t very many – if any- really old rigs in service anyway.
Somebody who works in the field may know if old rigs from the US and Europe get shipped to places such as Africa where they are put to use. I suppose if you bought one cheap enough you could run it profitably in a low labor cost environment.
The question would then be how much local skilled labor you can get- and use – cheap as opposed to guys working far from home and Momma and kids who expect to get paid their usual rate plus EXTRA for being lonely and MORE EXTRA for maybe getting shot at occasionally.
Old farmer, old rigs get treated the same everywhere. I’ve seen poorly maintained rigs owned by state oil companies. They also tend to lease substandard rigs because their officials can be corrupt.
But overall rig efficiency seems to be lower in some countries due to union practices, high heat and humidity, very low temperatures, or remoteness. Many years ago I worked on a rig located in the middle of nowhere, a truck with critical equipment was re routed at a village bacause the local cops didn’t want it in town, the truck driver got lost, and then spent several days trying to get back to the rig. That doesn’t happen in the USA.
Hi Old Farmer Mac,
We don’t know how many of these rigs are drilling for oil. In the US natural gas is very cheap, but that is not true everywhere in the World. See my comment near the bottom of the post, rig efficiency in terms of energy per rig per year has decreased, but sometimes this occurs as energy prices increase and a lot of rigs get used inefficiently in the chase for cashing in on high energy prices, this also happened in 1981 when international rigs were at their high point of 5600 rigs, since 2000 the highest number of average rigs in a year has been 3600 rigs (and no single month above 3700 rigs since 2000), in 1981 they hit 6000 rigs in the high month.
Dennis, I think in likely that the percentage, worldwide, of oil rigs versus gas rigs, remained pretty much the same over the years. Sure the percentage would change as the price oscillated with the price. But I don’t see any dramatic changes in oil rigs versus gas rigs. But there has been a dramatic change in percentage in the US. The oil rig count has increased dramatically while the gas rig count has dropped, which really makes my case.
If anything I would expect to see the same trend worldwide, but not nearly as dramatic as in the USA.
Click on RalphW’s link below.
“don’t know how many … drilling for oil…” What?
http://www.bakerhughes.com/rig-count
The pretty picture shows oil in blue, gas in red, geothermal in green.
If you download the spreadsheet under “Historical Rig Counts”
if has several sheets.
Current Weekly Summary
US Count by Basin
US L & OS Split by State (land and offshore)
US Oil and Gas Split
US Count by Trajectory (i.e. directional, horizontal, vertical).
…
be sure you look at the right sheet.
Of course “oil well” and “gas well” are somewhat slippery definitions, depending on state rules, etc. , but they should be pretty close.
I think if you look at the last 5 years US only, you will see improvement on a per rig basis in the last few years. This is mostly due to improvements in steering significantly reducing drill time for US horizontals.
I find that hard to square. In 2000 4/5 of all US rigs were drilling for gas. Now at least 3/4 of them are drilling for oil. That is at least a three fold increase. Oil production has not increased threefold.
US rig count split between oil and gas
http://www.euanmearns.com/wp-content/uploads/2015/01/us_rig_count_2jan15.png
Off topic but the only kinds of industrial plant I can think of that MIGHT be getting down scaled workably is nuclear power. A lot of people seem to believe that relatively small modular reactors might be practical and work better than large big ones.
Wind turbines keep getting bigger and scaling down a solar farm would not make it work any better.
Any body know of any other major industries that might be moving to smaller equipment ?
A small gas peaker power plant might be more practical than a bigger plant but it wouldn’t likely burn gas any more efficiently or cost less per kilowatt of capacity.
Maybe somebody builds smaller, lighter oil and SLOWER rigs that work better in remote areas -at least for drilling exploratory wells in places that don’t yet have very much in the line of roads or rail. IF so there would be only a very few of them and this would not change the average output per rig enough to even bother taking it into account.
Small gas power plant. Not more efficient defined as electricity out per unit energy fuel in, but a hell of a lot more USEFUL overall if doing the obvious- take the “waste’ heat and use for something useful.
That’s the whole idea of multiple small power scattered all around to enable greater over-all usefulness. Totally obvious, but as usual around here, not done.
Of course, you can do that with a big power plant too- IF you put it into middle of a city, and not, as we do , out in the boonies where nobody who counts can see, smell or be killed by it.
PS. I am having real fun making a REALLY small power plant that burns trash and runs a Honda. That’ll show, ’em, bygod.
The trash burn part runs great. Now for the Honda. Tough luck, honda. sorry ’bout that.
What do u do with trash ash and what Is your hydrocarbon emissions? What portion of your trash is plastic and what happens to the chlorinated hydrocarbons??
Eventually, same thing that happens to them in the European trash to power plants. They go to the trouble of freighting our trash to their cities. They are happy with the result. Why just them? Better we do it.
Present- I am in the process of finding out. Can’t believe what I leave of the complex molecules at 700C is worse than what happens to them if they leave here as trash.
Lots of ideas for waste heat with this technology: electrical storage,
http://www.isentropic.co.uk/
“Of course, you can do that with a big power plant too- IF you put it into middle of a city, and not, as we do , out in the boonies where nobody who counts can see, smell or be killed by it.”
The problem is cost and access. It can be prohibitively expensive to purchase land to install a plant in a downtown city. Access can be a problem to bring in heavy service equipment because the local gov’t don’t want heavy vehicles moving during business hours, since they can interfere with traffic.
Another issue is that to make use of the waste heat, steam pipes need to be run to connect to all of the buildings, which isn’t cheap.
The best option (in my opinion) is to install small co-generation gas turbines in large buildings. The would produce produce there own power and meet heating and domestic hot water demand. However they are’t terribly useful during the summer which heat isn’t needed.
FYI: Most Gas fired plants are combine cycle, which they gas turbine exhaust is used to produce steam to run steam turbines.
In my opinion using NatGas for baseload generation is folly since NatGas is extremely useful fuel, since it widely used for domestic heating in large commercial buildings. NatGas is also feedstock for agraculture chemicals and a large number of other commercial products, plastics, varnishes, etc. Its a waste to burn for electrical generation.
Better to use windpower for roughly half your power needs, solar for perhaps 10-30% (depending on the optimal cost mix), hydro where possible and natural gas for a relatively small remainder.
What happens when there’s no wind for a week?
What happens when there’s no wind for a week?
Why is this a problem? I am assuming that most places that already have gas or coal-fired power plants will still have them. Whenever you do use wind, that is less gas or coal you will need to burn. Has anyone suggested that wind and solar will totally replace gas, coal, or nuclear power plants?
In that case wind won’t deliver half the power needs.
Realistically, it’s possible to run hydropower as a counterpoint to solar, and gas turbines as counterpoints to wind. But this costs a ton of money. And gas will run out.
I’m trying to figure out what to do when we run out of fossil fuels.
I’m trying to figure out what to do when we run out of fossil fuels.
We will likely cut way back in how we use energy. But by doing that, some alternative energy technologies may be sufficient. There are parts of the world where electricity doesn’t run all the time. They make do.
If European and American cities no longer have reliable electricity all the time, they would adjust.
Batteries and pumped storage would work well to match supply and demand for daily (diurnal) variation, but the sensible storage option for seasonal wind/solar lulls is “wind-gas”.
People get hung up on the capex of batteries and pumped storage, but using those for seasonal storage is like driving a M1 tank to work – they only make sense for diurnal storage where the capex is amortized over thousands of cycles.
Overbuild wind/solar production by, say, 25% above the average demand, and use the excess to electrolize seawater and store the hydrogen underground. http://en.wikipedia.org/wiki/Underground_hydrogen_storage
That makes the storage incredibly cheap, and the conversion efficiency is relatively unimportant because you’ll only need to draw about 5% of consumption from storage*. Higher efficiency is still valuable, but minimizing capex is much more important than maximizing efficiency.
“wind-gas” is the solution, and other forms of storage are just red herrings.
Germany is planning to convert hydrogen to methane (via the Sabatier reaction (CO2 + 4H2 = CH4 + 2H2O)) to take advantage of existing methane-based systems. This may make sense in the short term, but it requires a source of carbon. That raises costs, and in the longterm isn’t necessary (unless we want to invest in pulling CO2 from the atmosphere. That would be a good idea, but it’s a separate project, and it’s significant cost shouldn’t be considered part of the cost of creating a stable, 100% renewable grid). Similarly, if there’s quite a lot of surplus windpower, it might make sense to synthesize hydrocarbons for niche applications like long-distance transportation. But, I suspect that’s far in the future – for quite some time we’ll have enough liquid fuel, as an extended-range electric like the Ampera/Volt reduces the onboard hydrocarbon by 90%.
This is a theoretical exercise. It will be tough to synthesize hydrocarbons more cheaply than finding them in the ground, and it will be a while before we completely eliminate fossil fuels for that last 5% of generation. Why are synthetic liquid fuels expensive?
You’d have to build so much wind that there’s a lot of excess production with zero value. And, there are other costs besides energy:
The NREL study below finds a capital cost of $1.32 per kilo of H2, which is about equivalent to a gallon of diesel. That’s at 97% utilization: if you’re using stranded wind then utilization will depend on the percentage of the year that prices are rock bottom low. It will take a while for that percentage to rise to 20%, and even then synthetic fuel would cost 5x$1.32, or $6.60 (before taxes).
Here’s a reasonably straightforward, simple quantitative analysis, with cost estimates for large-scale electrolysis units, including capital cost and conversion efficiency.
Brief summary of H2 cost from electrolysis (2004); they came up with $1.32/kg capex, $.37/kg for opex, plus electricity ($/kWh x 40kWh/kilo of H2). Assumes 97% utilization, 40 year life for most of system. Target electrolytic efficiency is 78%.
Capital costs costs *highly* dependent on size of unit.
http://www.nrel.gov/docs/fy04osti/36705.pdf
summary for: http://www.nrel.gov/hydrogen/pdfs/36734.pdf
Has anybody seen anything with more recent information on capital costs and efficiency?
*Storage will always be the last resort – many other strategies are much cheaper, and will be exhausted first: supply diversity; long distance transmission; Demand Side Management;, etc, etc. Seasonal storage will only be needed in the distant future when fossil fuels are completely phased out, and in the unusual event that all renewables are low for an extended period in a large geographical area. This might be a 3 week period in January where all supply is 1/3 of demand, so that the equivalent of 2 weeks (4% of annual consumption) is needed.
On the prairie going a week without wind would be like the ocean going a week without waves
Well, yes. Lack of wind shouldn’t be a problem in areas with wind.
I was just pointing out that not having wind 24 hours of the day seems to be a solvable problem. There are backup and dual systems.
1) That’s what the “natural gas for a relatively small remainder” is for.
2) Wind never goes away completely: “no wind for a week” really means, at worst, maybe 5% of faceplate production. Well, that’s 16% of the average production (at 30%), and if you overbuild wind by 50% (the US grid is overbuilt by 250%, right now) then it’s 24% of average expected production. So, wind is down by 74%.
3) If you use wind for 50% of your kWhs, and you lose it for 2% of the year, that’s a base of 1%, and a net loss of .74%. If you supply that with very cheap peaker single cycle gas turbines, that’s mighty cheap.
It’s so easy for the rich. Do you think this proposal will work in Jamaica?
Yes.
It would be far, far cheaper than their current oil generation.
This is why Jamaica will use coal. They can’t afford wind and solar beyond a certain value. Most of what I read about renewables lacks solidity. I’ve had a long career preparing or reviewing project proposals, and I can’t see anything I would approve. And we do see a lot of green Mickey mouse engineering which fails to acknowledge the green opposition to palliatives and solutions. Take pumped storage. Here in Spain they would object to projects, glue themselves to roads as the scream asking for magic solar power solutions. We are dealing with irrational people, some of them are really nuts, it’s a leftist/green version of the Islamic Army. They can’t even sit down to discuss things rationally. And now we got some advocating law breaking behavior.
Well, short term thinking may well prevail in Jamaica.
It’s easy to burn the forests around you, then wake up to deforestation.
It’s easy to burn coal with no pollution controls, and wake up to widespread asthma in your children.
It’s easy to become dependent on expensive fuel imports, and wake up to utilities unable to pay their bills, and requiring state subsides that the state can’t afford.
Oil, gas and coal company investors and employees (and retirees) will fight the transition as long as they can…
US costs
“The United States’ reliance on coal to generate almost half of its electricity, costs the economy about $345 billion a year in hidden expenses not borne by miners or utilities, including health problems in mining communities and pollution around power plants, a study found.
Those costs would effectively triple the price of electricity produced by coal-fired plants, which are prevalent in part due to the their low cost of operation, the study led by a Harvard University researcher found.
“This is not borne by the coal industry, this is borne by us, in our taxes,” said Paul Epstein, a Harvard Medical School instructor and the associate director of its Center for Health and the Global Environment, the study’s lead author.
“The public cost is far greater than the cost of the coal itself. The impacts of this industry go way beyond just lighting our lights.”
Coal-fired plants currently supply about 45 percent of the nation’s electricity, according to U.S. Energy Department data. Accounting for all the ancillary costs associated with burning coal would add about 18 cents per kilowatt hour to the cost of electricity from coal-fired plants, shifting it from one of the cheapest sources of electricity to one of the most expensive.”
“…The estimate of hidden costs takes into account a variety of side-effects of coal production and use. Among them are the cost of treading elevated rates of cancer and other illnesses in coal-mining areas, environmental damage and lost tourism opportunities in coal regions where mountaintop removal is practiced and climate change resulting from elevated emissions of carbon dioxide from burning the coal.
Coal releases more carbon dioxide when burned than does natural gas or oil.
The $345 billion annual cost figure was the study’s best estimate of the costs associated with burning coal. The study said the costs could be as low as $175 billion or as high as $523 billion.
“This is effectively a subsidy borne by asthmatic children and rain-polluted lakes and the climate is another way of looking at it,” said Kert Davies, research director with the environmental activist group Greenpeace. “It’s a tax by the industry on us that we are not seeing in our bills but we are bearing the costs.”
The estimates came in the paper “Full cost accounting for the life cycle of coal,” to be published in the Annals of the New York Academy of Sciences.”
http://uk.reuters.com/article/2011/02/16/us-usa-coal-study-idUKTRE71F4X820110216?rpc=401&feedType=RSS&feedName=environmentNews&rpc=401
I don’t know if anybody is moving to smaller equipment, but in my case I’ve directed project planning teams to break the project down into smaller components. This allowed us to fabricate indoors and truck to site assembled components. In some cases we also consider whether the local labor force can execute better and cheaper if we reduce sizes. There’s also a potential for more bidders in smaller size.
So, in some locations I’m definitely for smaller kits. This is very obvious for some facilities in locations such as Alaska’s North Slope, a South American jungle, or a platform in some offshore locations.
“I don’t know if anybody is moving to smaller equipment”
Smaller equipment will have lower output power. While multiple smaller units can be ganged, the maintenance costs increase with the number of units installed. Efficiency also falls when operating smaller units caused by compounding losses (friction, load transfer/transmission, etc). However, in some cases its just not cost effective to install big units in remote locations, or places with limited space.
I wasn’t referring only to motors. My comment applies to plant kit.
The windmills that I have seen in the Texas Panhandle since the 1930’s were not too large.
For nuclear news 2 to 3 times per week see http://www.hiroshimasyndrome.com/fukushima-accident-updates.html
Depends on what you mean by smaller equipment.
Assembly robots in the electronics industry are getting smaller and smaller because the things they assemble are getting smaller. You need a microscope to see a surface mounting robot at work, but it moves so fast you don’t see much.
There is also a major movement to reduce the total floor space needed in factories for a given process such as the assembly of a certain product. Japanese kaizen practices routinely reduce floor space by 50%-75% when they are first introduced. Part of this is redesigning machines to take up less space. In the car industry it means improving production quality to reduce the space required for rework — repairing cars that were built with incorrectly.
It is also common practice to improve flexibility, meaning reducing the output volume that can be produced economically. For example, print runs of printing presses have fallen dramatically in recent decades. That is “smaller” in another sense.
Hybrid engines are common in large vehicles like trains, ships and hydraulic equipment. Currently they are being adopted in passenger vehicles. That’s an example of similar equipment being downscaled for a different market.
EV motors are a lot smaller than infernal combustion engines – that’s the Tesla has both aback and front trunk (frunk).
Regarding small nuclear designs, I came across a Nuclear 2MW “portable” design, used as power supply for “Project Iceworm” in Greenland in 1960… efficiency of about 20%, not so good. It is a good read. Seems like they gave up trying to build them in 1970.
I have been fooling around with NOT grid solar, PV and thermal…. 24 V PV with pressure water storage and min batteries for well system, homemade 24v dc well pump(refuse to pay $1400 to yuppie scum solar vendors), no inverter…(can still throw a switch to grid for 120V pump that I left in place… cya….lol) and thermal for hot water heat for house… home built and design, still working on bugs and “load management”. So far both systems appear to be cost effective if I don’t consider my time invested.
Gas peakers get less efficient when they get smaller, old FERC PURPA rules a lot of the CoGen’s got a little over 45% with low grade steam from the back end of the steam turbine going to a host. Those were between 50 to 80MW… the little ones didn’t work both efficiency and financially, you couldn’t finance them.
I have been wondering if we will see a increase in smaller farm(ers) and food production as we go down the back side of the peak.
We have a couple of local small scale farms trying to build a go of it right now. They just can’t compete in price with the big markets, although many in our valley are patronizing them to ensure their survival. We now use a local mechanic for the same reason, mainly because I just don’t have the testing equipment to work on our car anymore. Most of us grow, hunt, fish, our own food. The new farms are sustained up by a spouse with a conventional town job. The mechanics wife also works in town.
There are a lot of good reasons to expect small farms to make a comeback on the way down. How many new small farms and where will depend on geography , climate and local economic conditions.
I can see it happening NOW to a small extent where I live. Nobody ever managed to grow potatoes of any sort in this immediate area cheaply enough to compete in trade until the last few years. Folks in other places with land and weather better suited could ship them here cheaper than we could grow them and sell them wholesale. So everybody who farmed small scale and gardened had a potato patch but no body raised more than a few bushels.
In the last few years the cost of trucking has risen fast to the point that local guys can raise potatoes now cheaper than the far off competition can GROW AND SHIP to this area so potato fields are getting to be a common sight.One of my relatives raises a thousand bushels or more to sell at his farm market.
I cannot think of a single SMALL farmer in this neighborhood who has been able to consistently earn a respectable living from his farm. An off farm job is just about an absolute necessity . Folks with capital enough to operate with five or six hired hands on a scale big enough to keep those hands busy year around are making it farming without outside income in a few cases. There are very few of that sort in this area. That much land and machinery puts you well into the millionaire class and getting it farming is out of the question. Marriage and inheritance are the usual means of acquiring so much farm land locally.
A few folks got farm welfare loans at extremely low interest rates many years ago that allowed them to buy large tracts of land. The ones that managed to make the payments did so by working a second or third shift job in town and driving the same old pickup truck for twenty years. They are mostly all millionaires now except for the ones who fell into the booze and younger woman traps.
My richest relative is a multimillionaire several times over as the result of owning a farm purchased this way. He and his wife took turns working in town to make the payments. This farm has probably never generated enough cash for two people to live modestly in any given year but it includes a lot of very scenic ridge top land with dynamite mountain views and town gets a little closer every year.
OFM Wrote:
“There are a lot of good reasons to expect small farms to make a comeback on the way down.”
I am not so sure on that:
1. Gov’t regulations are leaning on small farmers in favor of Big Agra. I see lots of regulations that seem to be intended to drive the small farmer out of business.
2. The Average age of of US farmers is close to 60 years. Young people are leaving farming.
3. Labor saving machinery is best suited to large farming operations as the equipment is usually expensive and the farms need to be large to make full use of the machines capabilities (ie it doesn’t make sense to own a ridable lawn mover with a 240 inch deck to mow a 100 sqft. lawn).
This report pretty much states that smaller farmers are disappearing and the remaining farms are getting bigger.
http://www.agcensus.usda.gov/Publications/2012/Preliminary_Report/Highlights.pdf
FWIW: I think I am part of the 0.001% that is switching from a Tech career to agra. Mostly because I see that the future will be very bleak and I prefer to eat than stave 🙂
Younger farmers are NOT leaving farming. In fact the number of small farms, beginning farmers, and young farmers is growing in many areas. You just won’t see it in your super market. They are doing CSA’s, Farmers Markets, and on Farm sales. One of the mistaken conceptions of beginning farmers today is that they will fail due to an inability to “feed the World”. I doubt that is a goal of most of them. I think an off farm income is fine. It is a statement about the financial world we live in today, not the one we might wish for. To me it makes little comment on one’s contribution to agriculture. If you are farming well, preserving soil, limiting inputs, and making healthy food I hope and believe you will continue to grow in number, and provide food for those around you.
The economies of scale and the burden of compliance with an ever growing number of regulations definitely work against the little guys.
The big boys ”own ” the industry for now and will continue to own it for a while yet.
But when things start falling apart – and things ARE eventually going to get worse instead of better with resources peaking and population still growing- some things will work in favor of little folks.
One of the first ones is that regulations will be increasingly ignored. Anybody who doubts this will change his mind if he spends a few months of his life working and living with the underclass.
Selling a few eggs or a little milk or some home butchered meat or home canned veggies is pretty much against the law.Folks sell these things already as well as barbering and styling hair without a license. I know a dozen people who make part or all of their living doing various sorts of work that can be done legally only with a contractors license which they most assuredly do not have.
A lot of land is going to be available in very small or small tracts that cannot be worked any way at all with large machinery. A field less than ten acres in size is utterly out of the question when it comes to raising grain for instance with large modern equipment. You just can’t move it cheap enough and quick enough from one field to the next especially if it is more than a couple of miles between fields.
Such land will be and is generally available today dirt cheap in terms of rent and millions of people own such tracts of farmable land.
The little guy has it all over on the big fella in one respect. He can efficiently cut out ALL THE MIDDLEMEN and use a large portion of his output to feed his own family and friends without the burden of paying income taxes and bookkeeping and so forth.
A California farmer with a hundred acres of green beans or onions can’t eat even one thousandth of one percent of his output which he has to sell wholesale- meaning he gets if he is lucky maybe on average twenty five percent of retail price.
My Momma used to grow and dry or can enough green beans to last us year in and year out with green beans on the table once or twice every week.She probably sold twenty five additional bushels most years at twice the high volume wholesale price- which was still only half the retail price.
Now here is a KEY point about her market gardening. It was not that she made a lot of money. Far from it. She could have made three or four times as much and more dependably working in a textile mill.
But she made SOME money and between what she MADE and what she SAVED by being a stay at home farm MANAGER wife my parents did about as well or maybe better than if she had taken any outside job she had a shot at.
The savings went WAY beyond just food. She made some of our clothing and patched it all. Never spent a dime on babysitters. Helped with the firewood and cooked on a wood burning range some of the time to save on electricity. Always hung out the laundry. Found a hundred ways to save a dime here and there.
Convenience food to Momma meant a DEAD chicken- we used to raise fifty at a time and drop everything else and kill chickens for a couple of hours and freeze them.
When you are not collecting welfare and aren’t making enough money to live well if you have grit and determination you find ways to spend your time bootstrapping your own living standards.
When a family with access to a few acres of land is unable to find enough paid work to make ends meet they will take up farming to help bring the ends together.However much they make is that much more and if it is only the equivalent of two thirds of minimum wage per hour invested it is still a LOT better than nothing.
The big boys will own the big fields of grain and the big orchards far into the future.I actually expect big time farming to survive as long as industrial civilization lasts.So long as a single man can grow a thousand acres of wheat or corn more or less all alone with the exception of hiring some help during harvest season wheat is always going to be too cheap to bother with raising ten or twenty bushels for family needs unless the family has close to zero cash income with which to buy wheat.
But folks who are willing to work for hard for only a little money can make a few thousand bucks working a few acres of land with old cheap small equipment. Depending on location as little as a couple of acres can be enough to pay a lot of bills. Right now flipping burgers is still a better option for most folks but burger flipping jobs are going to be VERY scarce eventually.
In my opinion there will be tens of millions of people in this country within the next few decades who will gladly take up this lifestyle because a few thousand bucks is a fortune if you are otherwise flat broke and out of work.
And they will find markets for what they produce NOT because it is chi chi for the well of city and surbanite woman or metrosexual to shop for fresh food generally sold at HIGHER prices than supermarkets but RATHER because other people who are not farming will buy in quantity to save money.
As late as fifty to sixty years ago my Mom who was responsible for most of the marketing (another critical job on a small farm) had at least twenty five regular long term customers who came back year after year five or six times a year as the various crops matured and bought in quantity. It was not unusual to see a family car loaded up with as much as a thousand pounds of produce of various sorts dragging it’s bumper leaving our driveway. Guys who ran small stores came with pickup trucks and left with bumpers dragging with fifty bushels of apples in our own custom made ( on the place ) wooden crates and ran specials on apples for canning and storing in cool basements and on back porches.They always brought the boxes back. I still have close to a thousand of them we made in the fifties which have been used several hundred times times each but they are about worn out now.
Those carloads of produce were canned and frozen by the working class women who bought them to feed their own families for the next year.
Women these days have plenty of employment opportunities and can afford to buy at supermarkets and don’t usually want to be bothered with ” tomato canning day” or ”peach canning day”. Anybody with a good job can make more than he or she can save this way by just working more hours.
When people start getting short of money and opportunities to earn money they will rediscover these old survival skills and strategies.
This is why I believe small farms are going to come back. They will come back because they will be one of the best opportunities for a lot of people to maintain a reasonably decent living standard in an economic environment with fewer and fewer employment opportunities.
Peak oil – more generally peak everything – is going to be all about employment problems.
Attractive young women without better options are going to be willing to ” take up ” with old farmers again.
It’s too bad I am already too old to live to see that aspect of the return of the small farm. 😉
I live in an area with lots of small organic farms. They sell to members who get a certain amount of produce and/or milk each week. They sell to local restaurants. In some cases they start restaurants and use their own produce.
Yes, and “locally grown” protects small farmers as well.
The only way out for farmers is to find niches where consumers are willing to spend more. That is why things like “organic” and “locally grown” “no GMO” etc etc should be welcomed with open arms.
It’s basic marketing: Get big, get a niche or get out.
Along with all of these local organic farms is a thriving Farmer’s Market that is held two days a week for about six months of the year.
The foodie culture that is booming among the young professionals and among the affluent is allowing small farms to grow unique products and sell them directly to their customers. Another thing that is part of the mix is farm tourism (e.g., pumpkin patches, summer camps for kids) and hosting dinners at the farm.
”Member ” farm operators in my area have generally found themselves in court for selling milk.
The regulatory authorities rightly look on such ” memberships” as subterfuges intended to get around sanitary regulations. Ditto processed meat.
It behooves anybody planning to operate a membership scheme to get some legal advice.
Not too many small farmers – meaning family operated farms- are going to have the time and money needed to run a market or a restaurant.
The relatively few that I know who make a go of farm markets actually buy most of what they sell from other local farmers or have it shipped in.
Anybody who thinks a couple of people can have ten or twelve different kinds or produce on hand all summer in a farm market without buying most of it has zero experience in actual truck farming.
If you have a couple of people who can STAY in the field you can have a reasonable shot at keeping your store stocked with a few things that grow well in your area for most of the growing season.
Stores on farm or off must do a certain amount of business to be viable. You can only grow crops in certain minimum quantities and succeed commercially.
A casually operated road side stand may do ok with a very limited inventory but a serious farm market needs a substantial volume of produce in order to justify paying somebody to run it.
Unless you have full time employees and a good bit of land you will necessarily buy most of what you sell at a farm market.
If you buy tomatoes in mid June in a Va farm market – and such markets do have tomatoes mid June – then they were shipped in from points south -at least three or four hundred miles south .
Local farm markets have peaches from South Carolina four weeks before our local peaches are ready. But at the tail end of the season sometimes we can send some of ours south since the South Carolina crop is sold out.
All farmers know this but hardly any of their customers know it.
My daughter is good friends with a farmer who does sell milk to members, so I know it is done around here.
Most of the memberships involve produce, though. The members support a local organic farm and get a share of each week’s produce.
As for growing their own products to see or buying them from elsewhere, I have seen both. I drive past the farms daily, so I can see what is in the field. I can also see when lots of pumpkins suddenly turn up for a pumpkin patch that wasn’t a patch before.
At any rate, since I can see from the road what is in the fields, who is working the fields, what signs go up for what is for sale, who sells at the farmer’s market, and so on, I have a pretty good idea of what is growing, who is growing it, and what gets trucked it.
I live in a very affluent area, so the working organic farms do have local people who will support them. Outside the immediate town, there is lots of open space, organic farms, horse ranches, and so on.
Eggs are another popular item you can buy from quite a few local farms. In fact, in some cases, it’s just someone with a big backyard with a bunch of chickens and they sell the extras to people in the neighborhood.
Oh, the peaches. They are trucked in from another part of the state (which is famous for their peaches). Same with cantaloupe. Those come from another part of the state, too. I think in some cases the farmers who grow them in the western or southern parts of the state haul them into our part of the state themselves and then sell them at the Farmers’ Market. In other cases, local farmers who maintain big food stands sell the products. But they don’t claim the peaches and cantaloupes are theirs since people want the peaches and cantaloupes from the parts of the state known for growing them.
At any rate, I wouldn’t say there is much of a con going on where I live. The people who buy these products often go to the farms themselves to see what is there. I live in a place full of food connoisseurs. If you have ever watched the show “Portlandia” (I don’t live Portland, by the way), you see people in restaurants asking the name of the pig they are about to eat and want to know under what conditions the pig lived. 🙂
interesting little thing going on where I live. located in the middle of about 25 producing oil wells.
http://futurefoodsfarms.com/Future_Foods_Farms/Welcome.html
Ron, that’s very insightful. I think we need to separate the rig drilling efficiency and new well productivity. New well productivity is down.
But rig efficiency does in general trend up. Except in times when business is booming, we end up with inexperienced personnel, and this slows down rig operations. I believe this may have been happening, in some operations I can’t mention, in which I’ve noticed unusual mistakes I would say are caused by poor quality engineers and supervisors. I’m free to mention Venezuela, where personnel quality really dropped in 2003. But this also happens elsewhere.
As regards well quality, common sense tells us that if we drill wells in a high price environment we can afford to drill poor wells. However the trend doesn’t exactly follow oil price because industry costs also went up very fast in the last 15 years.
In conclusion, your observation is spot on, and it makes a lot of sense.
“The USA produces 4,577 barrels per day for every active rig while the Middle Ease produces 59,945 barrels per day per rig, down from 140,144 in 2000.”
I read a month or so ago that a very large majority of CAPEX in 2013 went to the American shale oil industry. I can’t remember the exact number and I’m in too big a hurry to search for it, but it was a significant majority of CAPEX going to frack that greasy liquid out of the ground across the great USA.
From my point of view, it is ONLY the 59,945 barrels per day being produced by the ME that keeps this financial freak show we call the “global economy” on the road. And in that freak show, the 4,577 barrels per day produced by the USA is the main attraction — clowns, jugglers, high rope walkers, cannon ball daredevils and ticket scalpers.
Amazing how we have come to this. I don’t see a happy ending to this story, sad to say.
We just need a really popular birth control pill and a cheap battery.
That distills it down to the absolute essence of the problem! Well said.
The Nissan Leaf has the lowest cost to own and operate of any US vehicle.
We already have a cheap solution.
How much cheaper than a Honda Civic, $18490 MSRP – 39 HWY?
Cheap? With or without any consideration of the carbon?
There are two prices for a car- out of pocket to get it, and out of your grandkids’ life to run it.
Which are you counting??
If you don’t count both, you flunk the accounting test.
Why just grandkids? Should the accounting ignore the infinite series of great, great great, great great great … grandchildren. What percent of the world’s billion plus and growing car population will evolve to electric. Will the coal, nuclear, gas. biofuel mix change. Things do change. I recall a controversy about four decades ago about building additional oil storage tanks next to the power plant on the coast near Ventura CA. At that time much of the electricity was generated by burning petroleum
http://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3
Of course you take a stab at ALL the costs, but real soon, you come to the point where you say “we will, for the purpose of this analysis, ignore higher order effects” And then you toss in a guess of how much that was. Like maybe 0.5% of the stuff you have a good handle on?
SOP
Richard Heinberg over on Resiliance, talking about renewable future, says
small car (35 mpg) 138 grams/pkm -mfg+direct fuel+ indirect fuel
electric car (pv) 50g/pkg.
And I got my Leaf and the PV to run it for LESS than the most common vehicle around here- f150 + some fanciness. which, Heinberg numbers say would be around 300 g/pkm.
That’s 6 to 1 in favor of Leaf +pv.
Wimbi wrote:
“Cheap? With or without any consideration of the carbon?”
Leafs are carbon powered since +75% of US power is generated from fossil fuels. Depending on where your power is generated from, you make be burning coal in your leaf. Just because you can’t see it burning carbon doesn’t mean it isn’t.
The Grid can’t tolerate a EV economy. The grid is already struggling to meet demand during the summer months and won’t take too much more during the summer to push it over. That said I very much doubt consumers will be switching over to EV. Perhaps EV owership will increase by few more percent, but that will be it.
I suspect that rolling blackouts will become much more frequent in a few years. The new EPA regulations (forcing the closure of just about all coal fired plants by 2024) is going to make electricity much more expensive so that the decreased production caused by shutdowns can be offset with decreased demand. Coal generation will be largely replaced by NatGas, which will go up in cost do to the increased demand. Better install an extra 15 to 20 KW of panels for your leaf, and find a night-shift job (so you can charge the leaf during the day)
The German grid has become more reliable, even as they added wind and solar power.
They are building 10 new coal plants, and have ended big renewable projects.
http://phys.org/news/2014-01-germany-eyes-swift-renewable-energy.html
http://theenergycollective.com/robertwilson190/328841/why-germanys-nuclear-phase-out-leading-more-coal-burning
Exactly! I keep telling people that nothing will really be done to stop global warming. The welfare of today will always take precedence over the welfare of tomorrow.
It looks like the decision to go with coal plants was made quite awhile go and was made to phase out nuclear rather than renewables. While this still means there are now going to be more coal plants, we should at least keep in mind the reason for them. From the article:
Investment decisions for these power plants were made in 2005-2008. …
In the year 2000 the government of Gerhard Schröder announced that all of Germany’s nuclear power plants must close by 2022, and this was passed into law in 2002.
They…have ended big renewable projects.
Where do you see that in these articles??
The Phys org articles is full of inaccuracies.
Merkel took the surprise decision in 2011 to scrap nuclear power for renewables in the wake of the Fukushima disaster
The decision was made in 2002 or 2003 by the Red/Green coalition. Merkel tried to roll the decision back a few months before Fukushima but it only partly stuck.
Generous state incentives for solar, wind and biogas that have driven up prices, now among Europe’s highest, would be trimmed from this year
This contains several inaccuracies.
Wholesale prices are among the lowest in the world, often negative. Prices to large consumers are also very low.
Only the household prices are high, and this is mostly driven by high taxes. The high prices are not an unintended consequence at all. They are intended to incentivize conservation.
“Trimmed from this year” is nonsense. Subsidies for building solar ended in 2004 (not sure about wind) and the feed in tariff (which began in 1991, not 2011) has been falling steadily since then as well.
Didn’t bother to read your second link but coal consumption fell in Germany in 2014.
There has been a lot of talk about coal plant construction, but total capacity is falling. The decision to phase out older less efficient plants was made in the 90s.
That’s what we call a greenish urban legend. Germans are hooked on coal, and their power grid stability is highly unstable.
The German System Operators disagree.
Do you have a source for that?
Here’s a couple of things to read. When you read the guardian article you will see a quote from Eldrup about Danish wind power. He’s deceitful. The only way they manage grid stability is by exporting.
https://www.allianz.com/v_1339677769000/media/responsibility/documents/position_paper_power_blackout_risks.pdf
http://www.theguardian.com/environment/2012/feb/10/grid-blackout-threat-renewables
Fernando,
If you want to contribute to the general understanding, and advance a productive debate rather than simply appear obstructionist, then it’s desirable to extract quotes from any articles or sources you find, in order to highlight the relevant information. You shouldn’t force readers to dig for the information you’re providing.
The only way they manage grid stability is by exporting
What’s wrong with exporting? The French make their grid “stable” by exporting nuclear power at night, and importing power during the day. It only makes sense to optimize your operations using imports and exports as one very useful tool.
Nick, everybody wants to export surplus wind. I think you just need to do a tabletop exercise and imagine every European nation trying to generate 40 % of the electric load using wind power. The cost to do it and avoid huge blackouts is humongous. I realize to many of you this is a mental exercise, but there are engineers trying to figure this out for real. Thus far, it’s impossible. The EU emissions goals can’t be achieved with current technology. The effort would be so costly it would wreck their economies.
everybody wants to export surplus wind.
Of course – that’s the point. Wind turbines output correlation is very roughly proportional to distance: get far enough away (certainly possible in Europe) and one country’s wind output will be high, and another’s will be low, and vice versa.
One wind turbine has a very high ratio of variance to mean output. A wind farm has a lower ratio. A country’s ratio is substantially lower. A continent: much lower.
The cost to do it and avoid huge blackouts is humongous.
How do you know? I (and many others) have done simulations, using real hourly wind output and grid consumption data, and found the opposite.
http://www.sciencedirect.com/science/article/pii/S0378775312014759
Excerpt from the abstract:
“Our model evaluated over 28 billion combinations of renewables and storage, each tested over 35,040 h (four years) of load and weather data. We find that the least cost solutions yield seemingly-excessive generation capacity—at times, almost three times the electricity needed to meet electrical load. This is because diverse renewable generation and the excess capacity together meet electric load with less storage, lowering total system cost. At 2030 technology costs and with excess electricity displacing natural gas, we find that the electric system can be powered 90%–99.9% of hours entirely on renewable electricity, at costs comparable to today’s—but only if we optimize the mix of generation and storage technologies.”
And from the conclusion:
“At 2008 technology costs, 30% of hours is the lowest-cost mix we evaluated. At expected 2030 technology costs, the cost minimum is 90% of hours met entirely by renewables. And 99.9% of hours, while not the cost-minimum, is lower in cost than today’s total cost of electricity.”
and
“We find that 90% of hours are covered most cost-effectively by a system that generates from renewables 180% the electrical energy needed by load, and 99.9% of hours are covered by generating almost 290% of need. Only 9e72 h of storage were required to cover 99.9% of hours of load over four years. So much excess generation of renewables is a new idea, but it is not problematic or inefficient, any more than it is problematic to build a thermal power plant requiring fuel input at 250% of the electrical output, as we do today.”
Tech Guy, I’ve noticed your coments on this page and you appear to me to be a tad uninformed.
Either yesterday or today someone posted on article on windpower installations in 2014 inceasing by a factor of six.
In 2014, the US had it’s second straight year of record solar PV installations, adding more PV capacity in two years than had previously ever been installed! That’s right, in the last two years, US solar PV capacity has more than doubled!
Utility scale solar PV has quadrupled over the past two years so a sizeable chunk of new solar PV was installed by utilities.
Why? LCOE for new utility scale solar PV is now below Natural Gas peaker plants for the mid day peak demand period.
Between 2013 and 2014 three significant solar thermal (CSP) plants have been commissioned in the desert southwest; The Solana, Ivanpah and Crescent Dunes Plants. IIRC all three are larger than 200MW, with Crescent Dunes and Solana having the ability to store enough heat to operate for at least six hours (IIRC) after cessation of solar input.
Much of your negative comments may have been true three or fur years ago but, things are changing fast, very fast. Who would have thought that utilties would ever choose solar PV over gas peaker plants to satisfy the mid day peak. As it is, this wil work particularly well in the desert southwest, where most of the large scale solar PV action is, when it comes to staisfying the mid day peak with heavy air conditioning loads. The electricity supply/demand situation in the southwest is gonig to be very interesting this summer. I guarantee it.
Background information on all of the above can be found by visiting/searching the following web sites;
Renewables International
solarserver.com Solar Magazine, News
North American Clean Energy Magazine, Soalr News
I’m not saying that any of this is a silver bullet but, things are not nearly as bad as you make them sound. If we can hold things together just a little bit longer, maybe things might actually start looking up , like maybe we might just be able to star thinking about contemplating renewable powered economies.
Alan from the islands
“In 2014, the US had it’s second straight year of record solar PV installations, adding more PV capacity in two years than had previously ever been installed! That’s right, in the last two years, US solar PV capacity has more than doubled!
Utility scale solar PV has quadrupled over the past two years so a sizeable chunk of new solar PV was installed by utilities.”
There are a few very large PV farms that are gov’t essentially gov’t funded. Some utiltities are adding a few megawatts (nameplate cap) , just enough to make friends in gov’t. They have no plans to replace large baseload, fossil plants with PV or Wind. They are also not building large storage systems, which dwarf the costs of PV/Wind farms.
PV installs have slowed considerably:
http://www.greentechmedia.com/articles/read/Five-Things-You-Should-Know-About-the-US-Utility-Scale-PV-Market
Don’t confuse a 1 GW baseload plant with 1 GW of nameplate PV capacity. Most people believe that 1 GW of PV panels can replace a 1 GW coal plant. it can’t even come close.
” That’s right, in the last two years, US solar PV capacity has more than doubled!”
Doubling from one drop to two drops in the bucket isn’t very much. If I have a penny in my pocket and I add a $10 bill, I could say my savings are growing by 1,000% Still that $10.01 bearly buys me lunch.
PV/Wind is just another fade, like the tech stocks in the 1990’s or the housing bubble in 2000’s. With in 5 years it will be end up as another bust.
I warned people in the past about bubbles, the 90’s tech bubble, the housing bubble, and most recently the shale bubble. Everyone keeps on telling me I am wrong and don’t know what I am talking about. Some how, I managed to be right, again and again. Just maybe I’ve done a pretty good job on researching the facts as well as communicating with insiders.
wonder what these guys are thinking…
http://www.buffalonews.com/business/prospectus/solar-energy-building-a-new-industry-in-wny-from-the-ground-up-20150123
I followed yor link and I’m not quite sure it supports your argument. A graphic showing the 2014 Q1 capaciity additions beiing about half of the 2014 Q4 additions with 2013 Q2 being even less, does not tell the whole story. In fact Figure 2.11 further down directly contradicts your assertion that “PV installs have slowed considerably:”.
In the sidebar at the Greentech Media web site was a story that spoke to the three largest utility scale projects in the US, at 550MW, 550MW and 579MW. These must be the “few very large PV farms that are gov’t essentially gov’t funded.” A little tip: don’t link to web sites that are basically green energy news/advocacy sites when trying to put a negative spin on renewables.
As far as “Don’t confuse a 1 GW baseload plant with 1 GW of nameplate PV capacity.” goes, see my comment to the story Was 2014 the turning point for the Energiewende?at renewablesinternational.com, (no 8. at the time of this post) for an explanation of just how clear I am on that point.
As far as your penny analogy goes, if you end up with 100 or even 50 pennies in you pocket because you were collecting pennies and a pick-pocket passes through your group of people and takes everybody’s paper banknotes, guess who just might end up having the most cash in the group?
PV and wind are not fads. They are making an increasinngly relevant contribution to the energy mix of some countries. There are places in the world that will depend entirely on whatever renewable energy capacity they have installed when oil becomes scarce/prohibitively expensive.
I don’t understand you. Are you trolling?
Alan from the islands
PV/Wind is just another fade, like the tech stocks in the 1990’s or the housing bubble in 2000’s. With in 5 years it will be end up as another bust.
Would you be willing to place a wager on that? Just curious, as fossil fuels become more expensive and difficult to extract do you really believe solar and wind will be just a fad?!
Of course, wind and solar will have booms and busts.
Railroads had a boom and bust after the Civil War – it was part of the Long Depression of the 1870’s.
Electrification had a boom and bust after WWI – it contributed to the Great Depression of the 1930’s.
Telecom and Internet had a boom and bust recently.
That didn’t mean they weren’t major, successful industries – they were a victim of their own success!
Alan, it seems you need to mosey over to Germany and spend a couple of weeks talking to people.
I read an incredible amount of nonsense about the German grid, but since I’m in Spain I get a little bit of a local european flavour.
The new EPA regulations (forcing the closure of just about all coal fired plants by 2024) is going to make electricity much more expensive so that the decreased production caused by shutdowns can be offset with decreased demand.
Weren’t the days of coal-fired plants numbered anyway? Seems like the economics of natural gas, plus local communities preferring a cleaner energy source, were going to doom coal fired plants as it became time to replace/upgrade older plants.
The coal plants won’t close. The EPA plan doesn’t really exist. By the time they put states’ input into the mix the EPA will back off. These things run in cycles. By 2020 they’ll realize the USA doesn’t have as much cheap gas as they expected.
The EPA plan doesn’t really exist. By the time they put states’ input into the mix the EPA will back off.
And how do you know this?
Because the EPA plan is now requesting proposals by state governments. These take time. The time schedule will be stretched by lawsuits from all sides. And as we all know a basic premise is to use natural gas as the workhorse. But by 2020 gas prices will be a lot higher.
Fern wrote:
“The coal plants won’t close. The EPA plan doesn’t really exist. By the time they put states’ input into the mix the EPA will back off. ”
This is incorrect. There already have been numerous closures in 2014 and 2015 isn’t much better. Since Demand for electricity is declining, Its just easier to decommission them, then fight to keep them running. The Gov’t, states and the EPA were hoping that power the power companies would build new NatGas Plants or renewables to replace them (ie create jobs, borrow more money). But they are choosing not to. At this time there a very few new plant projects that have been announced. Although six more Nuke plants may be shutdown in 2015 or 2016 (no decisions made yet). The costs to maintain many of the older Nuke plants are just becoming too costly and there is a lack of nuke workers since thousands are beginning to reach retirement age. The Bottom line, the US is rapidly losing plants much faster than new plants are being built. I expect that electricity prices will more than double (nationwide average) in the next 5 to 7 years. Rolling backouts will be increase during the summer months. Power companies use to keep the older plants around for the peak demand months, but since most of them were older coal fired plants, they are dismantling them.
http://www.commdiginews.com/environment/closures-threaten-24-percent-of-us-coal-fired-electric-power-plants-13407/
http://www.sourcewatch.org/index.php/Coal_plant_retirements
http://www.cnsnews.com/news/article/barbara-hollingsworth/lost-electricity-generation-capacity-7x-higher-epa-estimates
http://instituteforenergyresearch.org/topics/policy/power-plant-closures/
“ERC has admitted that, “Since January 2011, the introduction and implementation of several environmental regulations combined with increased natural gas availability has contributed to the closure of nearly 43 GW of baseload capacity.”[8] NERC has shown concern that the closures will cause electricity reliability problems.
According to their 2013 Summer Reliability Assessment, some areas of the country have not been able to build enough generation capacity to meet recent load growth. A major reason for this is uncertainty surrounding environmental regulations.[9] Because of these deficiencies, some areas will see their generation reserve margins fall below target levels that can jeopardize power reliability. According to NERC, “Insufficient reserves during peak hours could lead to increased risk of entering emergency operating conditions, including the possibility of curtailment…and even rotating outages of firm load.”[10]”
“By 2020 they’ll realize the USA doesn’t have as much cheap gas as they expected.”
By then, it will be too late as the US economy collapses. The closures happening now will drive up costs, causing consumers to cut back and industrials to move offshore. This will create a feedback loop as job losses increase. To add insult, they won’t be able to just refire up shutdown plants because the power companies are dismantling the old plants to avoid taxes and regulatory costs to keep them mothballed. The EPA/state/Fed rules are set up in to force the power companies to dismantle the older plants.
On the other side of the World, China and India continue to build new Coal, Nuke and NatGas Plants. Perhaps they are expecting to grab the remaining US industrial production when the US powers down. Law of unintended consequences: Since India and China have almost no regulations on their plants, Global pollution will increase. US production moves overseas and consume power from the dirtiest plants instead of the reasonably clean power plants of the US. Consumption of electricity in the US is far cleaner than it is in China. Bad US regulation has increase global pollution by kickstarting industrial development in Asia.
TechGuy wrote:
The Grid can’t tolerate a EV economy.
Not true. According to this study, the majority of US cars, and light trucks can be charged at night with existing spare capacity.
http://energytech.pnnl.gov/publications/pdf/PHEV_Economic_Analysis_Part2_Final.pdf
Junk & hogwash:
1. The do not discuss the impact of increased grid load (especially during the summer when demand for electricity and gasoline is high).
2. They discuss about building a lot more coal and NatGas plants.
This article is written to target the cost savings and it focus on a couple of small markets, presuming that electrity costs do not rise. The model is based upon that all drivers will need less than 13Kwh per day when in real world its closer to 20 Kwh/d for EVs. It does not provide any simulation or models on how the grid would accommodate the extra demand, especially on a national scale. It just discusses cost savings.
Look, the US consumes about 3/4 of the entire grid in any given day for transportation (29% for transportation, 40% for electricity). So for the US to switch to a pure electric system, the grid will would have grow by more than 50% of current capacity. Two: there is insufficient Lithium for a such a large build out. Well before EV cars become the normal for new car purchases the cost of Lithium will become prohibitively expensive.
And the big conudrum: At night, there is no PV generation. so what is the source to charge them overnight? just wind? The article you posted relies on NatGas, Coal and Nuclear. BTW: The plant they included in the analysis: San Onofre nuclear power plant, is being decommissioned.
None of you guys have any real world analysis and you constantly ignore the details. Bottom line: It “ain’t” happening! Better have Plan B!
So for the US to switch to a pure electric system, the grid will would have grow by more than 50% of current capacity.
But who is suggesting a pure electric system? Seems like most solar/wind people are saying that the more electrical generation that can be done with solar and wind, the less fossil fuels will be needed. Then they have been used where they are truly essential rather than just burned up because no one wants to change anything.
And the more transportation that is switched to electric, the less oil is needed.
I meant to say, “Then they can been used where they are truly essential rather than just burned up because no one wants to change anything.”
The old “Insufficient Lithium” argument.
How do you explain all the Lithium power tools and cell phones? Is that a different kind of Lithium?
And you must think all the auto manufacturers ramping up EV production, are just stupid to have not thought of that first.
EV production is doubling every year.
Doesn’t the Tesla have a 500-600kg (1100lb – 1320lb). That’s gotta contain a heck of a lot more lithium than your average cell phone or laptop battery. Just saying…
*battery weight.
I for one will hazard a guess that the price of entirely non recyclable gasoline and diesel fuel will be a ten times bigger problem than the price of lithium.
Dunno. Check where lithium reserves are found.
It is true that the grid is overloaded at times and at places but in general it is still robust – witness the notable rarity of outages other than ones caused by storms.
I can’t see any reason why the grid will not be upgraded as needed. The upgrades will come after a few repeated large scale outages change peoples minds about paying for the upgrades.
Electric cars are going to rule the road eventually if the economy doesn’t croak first. Batteries are getting cheaper and oil is getting – long term- more expensive.
I am old enough to remember when tv sets and radios and power tools and such were REPAIRED. Not anymore – new ores are so cheap you just junk an old one when it finally dies.
Battery powered cars are going to eventually be so reliable and so cheap to maintain that nobody will want to buy a car powered by gasoline any more except maybe for long trips.No radiator fuel pump cat head gaskets timing belt rod bearings starter motor transmission fuel tank etc etc to give problems.
JUST ONE big old battery to worry about and an electric motor with only three or four NON RECIPROCATING moving parts and a gear reduction to the driving wheels. With a new or refurbished battery there is really no reason for an electric car to EVER wear out.It might rust away.
Why should we assume the grid will not be upgraded to handle charging electric cars by the tens of millions ?
Coal will be cheap for a long time to come and wind and sun will always be free except somebody will undoubtedly figure out a way to tax both.( sarc)
Nukes may make a big comeback as well.
As a matter of fact a grid upgrade will make wonderful sense since most cars will be charged at night and most cars will not even need a full charge every day anyway. Charging at night is going to be a great way to make good use of base load power plants than are other wise idled back due to low nighttime demand.
And the more electric cars the merrier when it comes to making good use of intermittent wind and solar power which can be fed into all those hungry batteries with a smart grid and time of use pricing to encourage the electric vehicle owner to charge as often as possible when wind and solar farms are cranking it out.
Personally I have no problem envisioning ten parking spots in every large parking lot with a 120 volt plug available to put some juice in employee’s cars while they are just sitting there all day.
After the first ten spots are in regular use the second ten spots will get plugs too.This sort of perk will suit a lot of drivers better than a small raise while also being cheaper on the employer.
Even today while gasoline and gasoline cars are still somewhat cheaper to run on average than electrics there are very good reasons other than climate to get away from oil. Burning domestic coal and building wind and solar farms is much better for the economy than buying oil from people who hate our guts and are eventually going to run out of oil to sell anyway.
If I were younger I would install a large solar array and buy an electric car now in the expectation of EVENTUALLY saving enough on gasoline and repairs to make this choice a no brainer.
Here’s what I used to do with my saturday science kids.
I took apart a briggs lawnmower engine– every one of those greasy big, and smelly easy to loose little parts, and spread them out on a 4 by 8 sheet of old plywood. Lots and lots of little parts of unknown function, each one vital or it wouldn’t be there. Briggs did not waste money.
Then I took apart an electric motor from a battery powered lawnmower, and put it out on another sheet of plywood, including of course the battery, wires and charging plug.
then I let the kids just look at the two piles of stuff, and talk about them among themselves. They did.
I said nothing.
Years later they told me that there was no further need whatsoever to convince them that IC engines were way more complex than electric motors, and had countless more ways to crap out and not do their job, whatever that was.
Wimbi,
Yeah, I like the same idea with the ingredients list for butter and margarine.
Large gas turbines are simpler than large SUV gasoline engines. Then we hook them up to generators and voila, electricity!
Hi Robert,
The answer depends on future gasoline prices, nobody knows these, but my guess is that within a year gasoline in the US will be back to $3.50/US gallon and rising. Electricity prices may rise as well, but at a slower rate, those with enough PV to meet their needs will have their electricity rates locked in for 25 years, replacement panels will likely be much cheaper. The Leaf will last much longer than the Civic and if you don’t mind driving an old car will probably still be going in 25 years with one battery replacement after 10 to 15 years, depending on miles driven per year. The electric motor will last, suspension and body may fall apart after 15 years.
For those that own a Leaf, does the car seem to be built to last, does 15 to 20 years with 12k per year sound reasonable based on experience to date?
Often the cheapest car is the one you already own. We have a 2010 Prius and a 2014 Honda Accord. Our experienced mechanic who specializes in Japanese cars claims that the Accord is the most trouble free car in its price range. I would take a huge hit if I traded either car for a Leaf. Currently having usurped our garage space I would need to charge the Leaf outdoors. That would at the least be unsightly. I consider range to be one of the most important attributes of a car.
— Circa late 1970’s I owned a large Ford station wagon which got about 10 mpg overall. During that decade manufactures had major problems adjusting to the removal of tetraethyl lead
Cheapest is always the one you don’t buy at all.
IF you are gonna buy one, of course you get one to satisfy your intended use.
In my world here, I am working to convince people that the cheapest transportation is a transport club, where you don’t own anything, but can get just the one you need at the moment by hitting a few buttons on your phone.
You pay just for what you use. In my case, pretty near nothing.
No new idea, just underutilized.
Much cheaper.
IRS Average New Car Cost per mile: 57.5 cents per mile.
Leaf, without tax credit:
Total Cash Price $32,827
5 Year True Cost to Own: 28,079
Cost per mile: 37.4 cents per mile.
—
Honda Civic Sedan:
Total Cash Price $21,644
5 Year True Cost to Own: 36,154
Cost per mile: 48.2 cents per mile.
http://www.edmunds.com/tco.html
What’s the Leaf range with the AC on?
Probably about 70 miles. 62 miles with the heater on full blast.
Range is between 50 miles (in an 8 hour traffic jam!) to 140 miles with very careful driving.
Of course, the median roundtrip US commute is 20 miles.
And how many recharges before the battery starts loosing range?
Can the battery get recharged every night when it’s at 50 % and maintain capacity?
Rather than just being a contrarian, you might want to do a little reading yourself:
For instance, you can enter “nissan leaf” here:
http://www.wikipedia.org/
I believe the battery has a 5 year warranty. So charging up every night would be about 1,825 cycles. The range probably starts dropping after that.
There is no NiCad memory effect with Lithium batteries.
Here
http://www.mdpi.com/1996-1073/7/8/4895/pdf
I have read similar reports in the past. I’ve noticed both wikipedia and the Internet are full of pretty useless material about subjects like this.
Hi Fernando,
The paper is interesting, but the number of cycles will be higher in the real world, because the battery will not be at 55C and being rapidly charged and discharged.
The accelerated life testing generally yields a design life of 150,000 miles or 15 years at 10k/year.
For an older paper on accelerated life testing (2005) see
http://avt.inel.gov/battery/pdf/tech_life_verification_test_manual_feb_2005.pdf
Charging these batteries every night from a 50% state of charge is not a problem. Excessive use of fast charging (20% to 80% in 1 hour at commercial fast charging stations), rather than nightly charging at home, tends to reduce battery life.
Dennis, I never try to solve this problem using USA conditions. I happen to know batteries have to be kept within a temperature range. X to Y. They can be kept in that range with auxiliary devices. As it turns out in a warming world those EVs won’t be very practical in Dallas. But if Dallas is bad, imagine Baghdad. Maracaibo. Cairo. New Delhi. Those batteries will require a lot of tender loving care or they will have much shorter life spans. That’s all.
The warranty is for 5 years and 75k miles. The replacement costs $5,500.
So, the maximum battery cost after the first five year period is 5.5k/75k = 7 cents per mile. If electricity costs 4 cents per mile, that’s 11 cents per mile, equivalent to $2.20 per gallon in the average US car on the road, and $3.03 per gallon for the average new US car.
So, we’re back to where we started above: “We already have a cheap solution.”.
Peter Bronski at RMI avoids a functional limitation of his vehicle. http://blog.rmi.org/blog_2015_01_29_why_EV_winter_range_loss_is_both_fact_and_fiction
If you want to contribute to the general understanding, and advance a productive debate rather than simply appear obstructionist, then it’s desirable to extract quotes from any articles or sources you find, in order to highlight the relevant information. You shouldn’t force readers to dig for the information you’re providing.
Further, if you select the relevant passages for the reader, you’re forced to actually read the paper and decide if it really relates to the subject at hand, or just wastes everybody’s time.
For instance, the paper you provided here isn’t relevant: it’s about lithium-titanium oxide anode batteries, which the Leaf doesn’t have (it uses graphite).
Hi Fernando,
There very wide ranging conditions within the US, the engineering principles apply worldwide.
Last time we chatted, you were still driving a gasoline burner. Have you bought a Leaf yet?
I “drive” most of my miles on an Electric Vehicle: I take an electric train to work.
I only drive my ICE for about 1,000 miles per year, so I haven’t been able to justify replacing it with anything at all…
I don’t need new (or newer) car yet, so I have kept my old car, but have greatly cut back on driving it. I figure it isn’t so important if my car isn’t that fuel efficient if I don’t drive it. A parked car is very fuel efficient.
“I only drive my ICE for about 1,000 miles per year, so I haven’t been able to justify replacing it with anything at all…”
Wow! Talk about hypocrisy! You tell everyone to go buy a EV, yet you drive an ICE, and it doesn’t matter if you only drive it 1000 miles per year, which I suspect is an understatement. I am sure you make more than one “road” trip in any given year.
I should be shocked, but I am not. I figured you’re pretty much all talk. Do as I say, not as I do!
it doesn’t matter if you only drive it 1000 miles per year
Can you say “embedded energy”?
Really. Could you work out the investment and operating cost of a 50 MW solar plant equipped with a 2000 MWH battery? I just want to see how much it would cost to supply electricity to a small European city in winter time.
FWIW: a 50 MW solar plant can only provide about 8 to 12 MW of baseload power (depending on climate and conversion\storage losses). A small town perhaps. Batteries would be a waste since they are limited to just a few hundred cycles before they are worn out. Pumped water storage is the only practical storage solution at this time. Of course pumped water storage is not viable in flat plain or arid regions that lack sufficient water resources. Its very difficult to find suitable, undevelopement land for large pump water storage systems.
Hi Techguy,
Just use wind and solar over a wide area connected by HVDC transmission. If the Wind capacity is overbuilt by a factor of three over that wide area, there will be very few hours with no wind or solar, some of that can be provided by batteries, vehicle to grid and fuel cells and the rest by natural gas spinning reserve backup. About 90-95% of total power can be provided with the non fossil fuel power with the rest by natural gas. Demand management with peak power pricing can also help smooth demand.
“Just use wind and solar over a wide area connected by HVDC transmission. If the Wind capacity is overbuilt by a factor of three over that wide area”
Unfortunately that solves nothing. And over building gets very expensive. Turbines are high maintenance and need good cash flow to keep them operating. Balancing a group intermittent quickly becomes a 30th order differential equation, about the same complexity as managing the weather. Despite all of the advanced equipment and vast computer power we still can’t accurately predict the weather. Intermittment power system will max out at about 7% of the grid load, according to the grid operators. I don’t they are wrong.
PV and Wind are also very vulnerable to extreme weather conditions. a Hurricane, a tornado, can easy destroy tens of billions in equipment in hours that takes decades to turn a payoff.
“forecasts are helping power companies deal with one of the biggest challenges of wind power: its intermittency. Using small amounts of wind power is no problem for utilities. They are accustomed to dealing with variability—after all, demand for electricity changes from season to season, even from minute to minute. However, a utility that wants to use a lot of wind power needs backup power to protect against a sudden loss of wind. These backup plants, which typically burn fossil fuels, are expensive and dirty. But with more accurate forecasts, utilities can cut the amount of power that needs to be held in reserve, minimizing their role.
Before the forecasts were developed, Xcel Energy, which supplies much of Colorado’s power, ran ads opposing a proposal that it use renewable sources for a modest 10 percent of its power. It mailed flyers to its customers claiming that such a mandate would increase electricity costs by as much as $1.5 billion over 20 years.
But thanks in large part to the improved forecasts, Xcel, one of the country’s largest utilities, has made an about-face.
It has installed more wind power than any other U.S. utility and supports a mandate for utilities to get 30 percent of their energy from renewable sources, saying it can easily handle much more than that.
..forecasts from NCAR are already having a big effect. Last year, on a windy weekend when power demand was low, Xcel set a record: during one hour, 60 percent of its electricity for Colorado was coming from the wind. “That kind of wind penetration would have given dispatchers a heart attack a few years ago,” says Drake Bartlett, who heads renewable-energy integration for Xcel. Back then, he notes, they wouldn’t have known whether they might suddenly lose all that power. “Now we’re taking it in stride,” he says. “And that record is going to fall.””
http://www.technologyreview.com/featuredstory/526541/smart-wind-and-solar-power/
Guys, global warming is a Global Phenomena. A few wind farms and solar panels here in the USA will amount to very little in the global scheme of things.
Coal Plants Lock in 300 Billion Tons of CO2 Emissions
While utilities account for operating costs, few ever calculate how much CO2 those power plants will emit into the atmosphere during their lifespans, according to a new study conducted by Princeton University and University of California-Irvine.
That’s a huge problem for the climate because more new coal-fired power plants have been built worldwide in the past decade than in any previous decade, with no sign of slowing down, the study says.
Those existing coal and other fossil fuel-fired power plants emit billions of tons of CO2 each year and account for about 26 percent of global greenhouse gas emissions — double that of the transportation sector. In the U.S. alone, burning coal emitted 1.87 billion tons of CO2 in 2011, according to the U.S. Energy Information Administration.
And you guys think we are actually doing something to mitigate global warming. Really? Do you also believe in Mother Goose?
I would think blocking coal plants at the local level will have more results than an international initiative. China, for example, has got to address its air pollution situation. And to do that, it needs to be using less coal.
There are pollution and transportation costs in using coal. Seems there are reasons other than GW for countries to move away from coal as soon as they can do so.
Ron, glad to see you won the ‘who takes over from TOD’ contest, I wouldn’t have pegged you as the one, but here you are, so congratulations. And nice work.
Der Spiegel: Green Revolution? German Brown Coal Power Output Hits New High – Jan, 2014
At some point ‘green’ (sic) power proponents need to start addressing reality, not fantasy, otherwise they just sound like any other industrial group that hires shills to do their PR. Germany is the poster child for ‘green’ (sic) power. It’s not about positive or negative thinking, it’s about CO2 released per year, and that number is going up steadily, and nobody is willing to cut their economies down to the levels that renewable power can handle. There’s nothing ‘green’, by the way, about hydro, it’s ecocyde, the entire river system is ruined, from ocean to dam, and what lies behind is likewise ruined, so calling hydro green power is a perversion of language. Germany will not risk it’s export economy to actually do serious cuts in CO2, and if they don’t, and won’t, nobody else will. You start the baseline in TWh per year, say 1970, then look at power supplied by sector, and the truth is clear and obvious, and if that’s too subtle, you look at the Mauna Loa data:
December 2014: 398.78 ppm
December 2013: 396.81 ppm
If there were any actual truth to the green stuff we’d be cutting CO2 production globally now, we aren’t. What renewables basically do is deal with the increase in demand over the last 10-20 years, nothing more, with a few rare exceptions like Icelandic geothermal, or Norwegian hydro.
I wish the green power were green, but the only real green power grows naturally and looks like plants, because it is plants, growing in sunlight.
and nobody is willing to cut their economies down to the levels that renewable power can handle.
I’ll bet that the combination of income inequality, recession, and peak oil will cut economies down to the levels that renewable power can handle.
The output was high because the new plants are so much more efficient. Brown coal consumption was down.
Spiegel is not a reliable source of information. They are too close to the (now dead) FDP.
Hi Ron,
There are two different arguments. One is your argument that nothing will or has been done, that is correct in my view as far as nothing has been done (or very very little to the point that “nothing” is a close enough estimate).
The second is that it is technically impossible or too expensive to replace fossil fuels, I think that this argument is incorrect. Will it be easy to do?
No!
Is it possible? Yes!
High prices for coal, oil, and natural gas will be the reason that these energy sources will be replaced by wind, solar, and nuclear.
Dennis, you are arguing from a technical, economic and “what is in the circle of possibilities” position. I am simply arguing from a “human nature” position.
I have been a student of human nature for over fifty years. And I am still learning new things on the subject. But I know enough to understand that human nature is not going to change.
When I think about it for some time, it seems to me to be hilariously funny that you, or anyone else, thinks they can change the course of human events.
Dennis, we are headed for absolute disaster. And only a tiny few will believe a goddamn word of it until it happens. That is just human nature. It ain’t gonna change.
Hi Ron,
No need to change human nature. Humans will do what they do which is wait for a crisis before doing anything. I don’t think I will change the course of human history, but there have been people that have influenced the course of events, if you do not think so you have not read much history.
When resources become scarce, price increases and humans try to find substitutes. If you think this is not the case, your understanding of human nature is not as good as you think.
Your position seems just as silly from my perspective as mine seems from yours.
I think it is useful to talk about energy alternatives because we do expect oil to become harder to find and more expensive. Will all of these energy alternatives work out? No. Will using energy alternatives involve significant lifestyle and economic changes? Yes.
But as energy options change, there will be changes across the system. I don’t think any of us knows for sure how everything will play out. If world population is lost because the world can’t support so many people, so be it. Then those still left will see what they can do with the resources still left.
I think there will be turmoil, but I don’t think the masses will rise up and kill the rich. I think it is more likely the rich will create enclaves, invite in those people they need to keep going, and then gate themselves off from the problems of the world as much as possible.
The reason I don’t think EVERYONE will turn on the rich is this: Let’s say you have value to that 1% of the population that has amassed farmable land, water, energy resources, and so on. The rich say, “We could use your help. Come live with us and you will be provided for the rest of your life.”
The angry masses may also ask you to join them, but whatever they manage to take from the rich has to be divided amongst all of them. But if, instead, you help out the rich and preserve their lifestyle, whatever they have only has to be shared amongst their smaller group. So do you live with the rich and get something, or do you join the masses and probably get even less?
At any rate, do we have problems and then are have smaller groups who remain standing? Or do you have global problems that devastate everyone equally and no one has much of anything? I think it will be the former. Do I like the idea that the rich are taking everything and leaving not such much for everyone else? No, but that’s what I see happening right now and can’t see much reason for it to change. If anything, lots of people are handing the rich what they want. They aren’t protesting. If they see someone as the enemy, it’s the poor, the people of the world who need our help, the people who are different, and so on. Look at the people who drop in and say climate change is a plot to take their things. They will probably be saying that for the rest of their lives. They will align with those who have “things” and don’t realize their how their own lifestyles will be change for lack of resources, not because of some plot against them. They have a sense that the American Dream is gone, but they blame the wrong reasons.
Okay, now that I think about it. If we are talking about human nature, I see the problem is how easily a large group of people can be duped. It’s not that they can’t change; it’s that they need to follow a certain narrative and that is more important to them than facts. I was going to say, at least until their survival is at stake, but then I think about people in Africa who follow practices that will likely kill them but they still do them.
Okay, this is rambling. But I come back to the idea that the rich will likely make it through at the expense of lots of other people who don’t realize they are enabling the rich to do this.
but there have been people that have influenced the course of events, if you do not think so you have not read much history.
Dennis, I know history, I have read an awful lot of history. Of course people alter events and events alter the course of history. Napoleon, Hitler, Alexander the Great, William the Conqueror, to name a few, have raised armies, won and lost battles that altered the course of history. Also men have made great discoveries, Alexander Fleming, Louis Pasteur and many others, have, via their research and discoveries changed the course of the world.
That is not the same thing as getting on your soap box and telling the world they must make drastic sacrifices are they are doomed! Such a thing has never happened and never will happen. For people to make sacrifices and change their way of living, and more importantly, change their entire world view, takes far more than an argument. It takes disasters that affect them directly to make them make sacrifices and change their worldview. Sorry Dennis but that is just how human nature works.
If you doubt me then just make your argument to one of those right wing political screwballs that believe global warming is a communist plot. Change their minds, change their worldview, and then I will take your argument seriously.
Dennis, I have read perhaps a thousand or more non-fiction books in my day. But one of the very best was this book:
The True Believer: Thoughts on the Nature of Mass Movements
This book will tell you about how people’s worldview works. It is a very short book I read in the early 1960s and have read a few times since. Hoffer was a longshoreman, an ordinary man without much formal education, but he was a genus. Read him and you will know a lot more about human nature than you know now.
Ron,
Let’s frame the problem differently: it’s not a matter of persuading the guy in front of you. He’s not thinking for himself, so his mind can’t be changed. He’s just a follower: if you change the dominant message in his “tribe”, then he’ll follow.
That is not the same thing as getting on your soap box and telling the world they must make drastic sacrifices are they are doomed!
Which is why it’s important to realize that eliminating fossil fuel does not require drastic sacrifices!
The idea that PO or Peak Coal is TEOTWAWKI is a great argument for climate deniers – one of their favorites.
Let’s not give them that ammunition.
“Which is why it’s important to realize that eliminating fossil fuel does not require drastic sacrifices!”
I guess this depends on your definition of drastic. Personally I think that it’s a pretty big claim to suggest a transition wouldn’t involve some serious changes and hardship for many.
I guess this depends on your definition of drastic. Personally I think that it’s a pretty big claim to suggest a transition wouldn’t involve some serious changes and hardship for many.
Our current route will also involve serious changes and hardship for many. Some people in the world are already in it. Others will be facing it but may not realize it yet.
The one group of people I expect to get by pretty well are the extremely wealthy. Now whether they will inherit the Earth, I don’t know, but I expect them to isolate themselves from whatever climate and resource turmoil we face in the future.
Hi Ron,
I have never suggested that people will be talked into changing their behavior by someone on a soapbox.
At some point the average person will recognize that fossil fuels are depleting and some of them may rethink the purchase of the F150 or Ford Expedition, some may move closer to work or to areas where there is better public transportation.
None of this will be done out of altruism or concern for the environment or concern for the health of the planet for children or grandchildren. Human nature is to adapt one’s behavior in order to enhance one’s chance of survival.
You assert that any such changes will be too little, too late.
I assert that when faced with a crisis humans are more adaptable than you believe. In addition, I think that humans may learn from past errors and in making these adaptations may try to deduce future problems that might be caused by the actions taken in the present.
At some point humans will recognize the limits to growth, perhaps before a catastrophic collapse. If nothing else, peak oil in 1 to 5 years will surely get people’s attention.
Dennis, yes it is already too late, way, way too late. The population is way too deep into overshoot to ever recover. We are locked in. We are seeing the first stages of collapse already.
But I don’t blame you for thinking humanity will find a way out without too much pain. That is just human nature. 😉
Dennis, yes it is already too late, way, way too late. The population is way too deep into overshoot to ever recover.
I agree that the world is in energy and resource use overshoot. Most likely population overshoot as well.
But I see the reduction of consumption and the reduction of population as a form of recovery. I don’t think the world’s current lifestyle is sustainable. But I believe there is a sustainable lifestyle in there somewhere and that will be the new “normal.”
Nick G Wrote:
“Which is why it’s important to realize that eliminating fossil fuel does not require drastic sacrifices!”
Spoken by a person that drives a Fossil fueled vehicle and relies on the Grid (~75% Fossil powered). For someone that says we don’t need fossil fuels, you sure consume heck of lot of it!
I wouldn’t call driving 1,000 miles per year a lot.
And, yes, I use the grid. What, you want me to live off-grid? Why??
I think we’re drifting away from the dock, here…
I’ve looked into getting an EV (not good for me since I park in a parking lot without electric outlets) or a Prius (a good choice for me), but decided to keep my old car for as long as possible. Rather than replace, I’ve just tried to minimize using it. I don’t leave town if I don’t have to, and when I am in town, I walk everywhere I need to go.
If you don’t drive your vehicle, then it doesn’t really matter what you own.
And there are used hybrids: the original Honda Insight got 60MPG.
<i.I guess this depends on your definition of drastic. Personally I think that it’s a pretty big claim to suggest a transition wouldn’t involve some serious changes and hardship for many.
Sure. If you’re an investor in fossil fuels, then leaving them in the ground will cost you a lot. If you’re an employee, then the transition may require a new career, and new skills. That can be very, very hard on people.
And, of course, if we don’t transition, then a lot of people will be hurt by very expensive fossil fuels and climate change.
But, we have better and cheaper alternatives to fossil fuels: the faster we transition, the better off *most* of us will be.
Of course a lot of coal generation has been built recently – that’s China, which we all know about.
But, there’s no reason those plants have to be run for their full rated lives: if it becomes clear that their pollution is too costly, they’ll be shut down.
Don’t forget the Bartlett quote about exponential growth (which applies to renewables): it starts deceivingly slowly, than surprises you!
Nick, my favorite wind person!! I always found you very refreshing. I’m glad you brought up exponential resource consumption, which is of course what you’re going to hit as societies start to scale up, then start replacing/redoing, their small renewable power generating systems, none of which of course are made out of renewable metals, concrete, rare earths, etc. Global use of renewables is still too small to expose this issue clearly, it should start to manifest once available resources grow strained in the renewable sector via the Bartlett exponential growth area. So I wouldn’t be too excited to see exponential growth in renewable power production, it means there’s a corresponding exponential growth in the raw materials used to make the solar panels, wind turbines etc. Solar panels are, what, 25 year or so life span? Maybe a bit more if you push them. How often do wind turbines need replacing? On shore, that is, I’m sure the off shore ones are major repair / replacement hogs. Exponential growth is a killer for sure, no doubt about it, doesn’t matter if it’s the rare earths used in high end magnets for turbines, or the various freaky raw materials used in solar panels, or iron, or oil, it’s all raw materials, and the law of exponential growth will get you every time.
Might be a better idea to push for major reduction in raw material use I suspect. Just how much lithium is there out there? Certainly not enough from what I understand to fuel a big country’s car fleets. And those are, what, 500 to 1000 cycles then replace? That pesky exponential growth, glad you brought it up, it’s important to look at that even when talking about ‘green’ (sic) technology, none of the stuff is made from water or air last I checked.
Wind turbines and EVs often use rare earths, but they don’t require them.
Hazardous Materials Used in PV production
Some time back I had the opportunity to work with the full construction specifications of a Chip Fab plant, at which point I lost all my fantasies about the use of the word ‘green’ in conjunction with any chip production. One thing I noted while checking on this was that the renewable energy promoting sites ‘forgot’ to mention all of the toxically non sustainable processes and raw materials required in the manufacturing process for silicon chips, and of course, the surrounding materials used.
I was interested in the question of what is happening with the rare earth turbine / motor situation, this article covers some ongoing research. That is about 1 year old, and they gave a 4 year time line to develop an EV motor that doesn’t depend on rare earths, though it’s also fairly clear that one reason wind is being seen as viable is because of the much greater efficiency of rare earth magnets. This article wasn’t bad because they cover the actual availability of rare earths, and, while repeating the silly meme about rare earths not being rare ‘in the earth’s crust’, they then note that they are in fact rare in economically viable ore, ie, yes, there’s a lot in the crust, just like there’s a lot of gold in sea water. Given the economic importance of rare earths, and that china still controls 95% of that market, it’s hard to really see any situation where they stop being rare in real terms. I don’t know the actual efficiency difference (ie, same basic wind turbine using ferrite or rare earth magnets, mW produced per type).
Not to mention the roughly 1 ton of steel, petroleum pr0ducts used in the end. Why people advocating a ‘green’ future persist in pretending that cars can ever be part of that future is absolutely beyond me, there’s nothing green about a car, never has been, never will be.
Here’s a good article on wind turbines. Not a fluff piece, shows development of turbine systems.
This is what the Bartlett exponential growth model looks like as you get exponential growth in technologies. I would suggest that as you do your job, you resist the urge to cite that particular concept when talking about growth of non sustainable technlogies, since what Bartlett is talking about is how exponential growth in anything is ALWAYS a physical impossibility in a finite system. I say this as someone who has always enjoyed reading your work, and found you more reasonable than most people who do this type of stuff. Keep pushing for renewables, but I think it’s important to not misrepresent what can be done, it is the way forward, but the way forward does NOT include a magical ability to exponentially expand any alternate industrial and highly non sustainable processes without hitting bartlett’s laws of exponential resource consumption.
Oh, I almost forgot, everything suffers from the law of exponential growth/resource extraction, including SAND. Read that article, it will open your eyes to the reality of what that extraction process actually looks like. Sand is the top ingredient for all chips, though the main source of consumption is China’s building boom. I believe China used more sand in the last 10 years than China did in its entire previous history, and that’s what Bartlett is talking about, when you have a doubling of raw material consumption, that means in the doubling period, you then use as much of that raw material set as you did in the entire previous history of that consumption.
renewable energy promoting sites ‘forgot’ to mention all of the toxically non sustainable processes and raw materials required in the manufacturing process for silicon chips
That article is about occupational exposure. There’s a big difference between toxicity to employees, and environmental impacts.
what Bartlett is talking about is how exponential growth in anything is ALWAYS a physical impossibility in a finite system
Actually, the meme is that *infinite* physical growth isn’t possible.
And, of course, that’s true. But, really no one is arguing that it isn’t.
“batteries …. a few hundred cycles”.
Uh, nope.
For example, utility scale sodium-sulfer batteries demonstrate >= 2,500 cycles, NGK says 4,500.
http://www.purdue.edu/discoverypark/energy/assets/pdfs/SUFG/publications/SUFG%20Energy%20Storage%20Report.pdf
Space qualified Na-S more than 6000 cycles.
http://adsabs.harvard.edu/abs/1988poso.symp..563F
Most any battery technology to be competitive has to demonstrate > 2000 cycles. Many are pushing 10,000.
For more on cost/performance, status, etc. of various storage technologies (including pumped hydro and CAES), see the
DOE/Electric Power Research Institute’s 2013 Energy Storage Handbook:
http://www.sandia.gov/ess/publications/SAND2013-5131.pdf
I want a darned battery cost. I know pumped is better.
Now go tell the green brain trust that your design involves a pumped storage damn. Not too long ago, a French green did a head dive onto solid cement as he protested a small damn construction project. I understand he left his brains all over the place.
want a darned battery cost.
You wouldn’t if you really applied your engineering abilities to analyzing the proper way to handle the problem, instead of being a contrarian.
Chemical batteries aren’t the proper solution for seasonal storage. For more detail, see my comment above.
I know batteries aren’t a solution. Pumped storage is much better. But I want the battery advocates to work the problem to see if they get it. We have a real need to stop greens doing crazy suicide jumps at pumped storage construction sites.
1) What does that have to do with EVs being cheap? EVs can run on any kind of electricity source.
2) Are you assuming that the city would charge up the battery in summer, and use it in winter? If so, it’s quite clear why you’ve come to the unrealistic idea that renewables won’t work.
So, there’s a lot to say here, but here’s a few:
a) it makes no sense to run a grid off one power source.
b) solar works in the winter: I’d hazard a while guess that Barcelona’s winter insolation is at least 40% of summer’s levels.
c) seasonal backup requires very cheap storage, and that’s available. The germans are planning to use Wind-Gas: methane and/or hydrogen created during periods of surplus power, stored in conventional nat gas storage. At larger scale, H2 can be stored very cheaply underground.
“) What does that have to do with EVs being cheap? EVs can run on any kind of electricity source.”
Nick, how many people have enough PV panels on their roof to charge their EV cars without using the grid? Do you?
“c) seasonal backup requires very cheap storage, and that’s available. The germans are planning to use Wind-Gas: methane and/or hydrogen created during periods of surplus power, stored in conventional nat gas storage”
So Germany isn’t going to build 1o new coal fired plants?
http://theenergycollective.com/robertwilson190/328841/why-germanys-nuclear-phase-out-leading-more-coal-burning
What you propose “ain’t” happening. The conversion losses are way to high to convert electricity to methane or other combustible fuels. Please go get an electrical engineering and chemical engineering degree. Then it will become all to obvious that the grand plans you read on the “Net” are pure hogwash. This stuff is originating from the same group of people that build over unity electric motors and free vacuum energy systems.
The Germans aren’t going to doing very much soon as they need spend a lot of effort preventing their economy from imploding soon as the EU mess begins to unravel.
“Are you assuming that the city would charge up the battery in summer, and use it in winter? If so, it’s quite clear why you’ve come to the unrealistic idea that renewables won’t work.”
Ugh! there is no battery capable of this! It would be cheaper to build a death star than to build a battery capable of powering a city for an extended period. At best as I discussed it could be done with large scale pumped water systems, but as I also discussed about a hundred times, it “ain’t” happening because of costs, lack of undeveloped land suitable for pumped storage, and lack of water resources.
“solar works in the winter: I’d hazard a while guess that Barcelona’s winter insolation is at least 40% of summer’s levels.”
Yes, but then again you cherry pick with Sunny Spain and not Denmark or Norway, or Canada, etc. Great! lets move the 3+ billion people living in northern regions or unfavorable weather regions to sunny Spain! Problem solved! Thanks Nick, You managed to solve all of the problems in one simple sentence! I’m ready go buy myself a hummer sized EV and fly in an EV powered Private Jet to Spain. The only problem I have is learning Spanish! See you in Spain!
how many people have enough PV panels on their roof to charge their EV cars without using the grid?
I don’t care. It’s a nice idea to charge your car with PV, but it’s not necessary to eliminate oil.
Personally, I think PV will expand dramatically, but most people won’t put it on their roof – and they don’t need to.
So Germany isn’t going to build 1o new coal fired plants?
No, not in the way you’re suggesting. Those are replacements for old plants.
Yes, it would be nice if Germany would keep their nuclear, but Germany is still planning to transition to renewables.
The conversion losses are way to high to convert electricity to methane or other combustible fuels.
I know the numbers better than you do.
Conversion efficiency isn’t the important factor here, it’s reducing the capital cost of storage. If you use cheap surplus power, you can afford to throw away some of it.
It would be cheaper to build a death star
That’s what I was saying.
it could be done with large scale pumped water systems, but as I also discussed about a hundred times, it “ain’t” happening because of costs
Of course. Pumped storage (or chemical batteries) require many hundreds of cycles to amortize their costs. That’s why seasonal backup, that will be used only a handful of times per year, require much lower capital costs.
you cherry pick with Sunny Spain
No, that’s where Fernando lives.
lets move the 3+ billion people living in northern regions or unfavorable weather regions
Or, let’s move them to the Middle East, where the oil is!
The point is, every source has some geographical variation. If Germans were willing to import power, they could import it from Spain or Morocco. But, they’re willing to pay a premium for domestic power.
Germans are willing to import power, but they have the cheapest power in the world — in fact the spot market price is commonly negative. That is why Germany is a net exporter of electricity.
You can go to the Epex spot market website (epexspot.com) and look at the prices yourself. As I write the day ahead wholesale spot prices in France are about €50/MWh and Germany is at about €30/MWh.
Think about that — French electricity is from paid off nuclear plants, but they can’t come close to competing.
And the price keeps falling. That is why the German utilities are abandoning conventional generation.
This thread has a lot of discussion about whether renewables are viable. The counter argument revolves around intermittency. But the big picture hardly matters. The point is that conventional power generation can’t compete against renewables in many markets already, and prices continue to fall. Maybe that will destroy us. But it isn’t going away.
I have the impression that German Solar capacity factor is about 12%, and installation cost about $2/Wp; and that German land-based wind capacity factor is about 18%, and installation cost also about $2/Wp.
Is that about right?
You know, that’s a load of bs. The system is rigged to give wind and solar first rights into the grid. And their prices are subsidized. When the wind blows at optimum speed the wind units deliver excess electricity. This leads to very low wholesale pricing, as the grid tries to export this temporary excess. But the fossil and nuclear baseload can’t shut down. They have to keep burning fuel, ready to take over as soon as the wind stops. What I keep reading here is an incredibly distorted propaganda line. What I see in real life is a high electric bill, cries by solar power generators to get more subsidies. Here in Spain we have a pretty good system, it has some irrationalities, and we get to export to France. But the renewables penetration is topped out. And none of this baloney changes reality.
The high electric bills for consumers are intended, not an error in the system. Look at this image:
http://img.stromvergleich.de/img/stromvergleich/magazin/strompreise/zusammensetzung-strompreis-in-deutschland.jpg
It’s a couple of years old but pretty accurate. 34% is production. 20% is distribution. 14.6% is payment for renewables (EEG Umlage). 16% is VAT. 7% is an additional local tax. 8% is “green” tax, used to fund the public pension system.
Two thirds of the additional costs (31% of the total) are not related to renewables. In 2014 the EEG Umlage peaked and will slowly fall in coming years, but the rest will stay put.
As to Fernando’s remarks on baseload’s lack of flexibility, that is one reason why they need to disappear from the grid, and why coal and nuclear plants are being shut down in Germany. The new coal plants mentioned in this thread are 40%+ efficient and extremely flexible, with single units ramping up a 30MW a minute.
“No, not in the way you’re suggesting. Those are replacements for old plants.”
Oh Come on! If Renewables were cheap and easy they would have canceled these new coal plants, right?
“I know the numbers better than you do.”
Then prove it! Show me the conversion rate and buildout costs for a small 1 TJ system for PV/Wind to Methane conversion.
“Personally, I think PV will expand dramatically, but most people won’t put it on their roof – and they don’t need to.”
Sure, the PV fairy is coming to Earth. Nobody needs to do anything. It will all happen without a single person lifting a finger!
If Renewables were cheap and easy they would have canceled these new coal plants, right?
No, things take a little while to build at scale. A transition from one capital intensive form of production to another can make all the sense in the world, and still take a while. In the meantime, you continue with other things.
Show me the conversion rate and buildout costs
Well, start here:
http://peakoilbarrel.com/rig-count-drilling-less-oil/comment-page-1/#comment-486307
Sure, the PV fairy is coming to Earth. Nobody needs to do anything.
Not in terms of home installations. The grid is still useful, and utility generation still makes sense for most things.
Solar Power has been doubling roughly every 2 years for the past 20 years.
Renewable energy last year reached 21% of total power production worldwide.
Those are the facts.
Most impressive gains, like the overweight hero (of Heroic Materialism fame) trying to work off some excess weight by doubling the number of push-ups they do. Granted, it is perhaps not curious that you omit the fact of the growth in deep fat fried ice cream bar consumption by said hero, given that that consumption is growing faster than renewables.
“I read a month or so ago that a very large majority of CAPEX in 2013 went to the American shale oil industry. I can’t remember the exact number and I’m in too big a hurry to search for it, but it was a significant majority of CAPEX going to frack that greasy liquid out of the ground across the great USA.”
Go find it. That’s important.
Watcher, I tried and failed. Now, back to work. I did find this however:
Table 1 Capex spend and growth rates for major oil projects, 2010-2016E ($MM) – recent growth drivers include US unconventional liquids, ultra-deepwater:
Deepwater 750m – 1500 m: 10% of Total Top 380 2013 projects Capex
Ultra deepwater > 1500 m: 9% of Total Top 380 2013 projects Capex
US Unconventional liquids: 20% of Total Top 380 2013 projects Capex
I may have misspoke when I said a very large majority of CAPEX in 2013 went to American shale. Maybe I should have used “significant percent” instead? Reading all the articles I have while I searched for the ONE that prompted me to repeat that info, I am guessing that maybe American Shale got the largest percent increase in CAPEX in 2013, which I believe is probably true, and maybe that’s what I read…
I’m not big on numbers or details, and need to be called on it when I try to repeat some specific figures that I kind of remember reading somewhere. But it all boils down to the same thing — we are going down fast.
http://www.carbontracker.org/wp-content/uploads/2014/05/Chapter2ETAcapexfinal1.pdf
Good man. I posted as you were posting. We seem to now say the same thing.
I still can’t find the article that made this claim, but I do have a recorded copy of one of my comments on that article. What the article did say is that 20% of global oil production investment went to shale extraction in 2013 and resulted in 4% of global oil supply. Does that sound about right?
That would match the “US Unconventional liquids: 20% of Total Top 380 2013 projects Capex” stat in the Carbontracker PDF posted above.
Not confirming it. Corp profits are around 10% of GDP. So 1.75 trillion. 53% of profits are Capex. So 637 billion.
Shale Capex 2013 82ishB.
Measurements are always shaky, but this don’t look like a majority.
The overall theory that shale is a much bigger % of GDP than was known at the Fed is about the difference between 1% and 8% or something like that. A much bigger %. Not a majority.
Watcher said “Shale Capex 2013 82ishB.”
That is about $56/barrel/year to keep the oil flowing in the shale regions. Scary, considering the price of oil.
Maybe. Doesn’t seem right. $56 way too low. Shale operations would have been underway much earlier in the last decade if that were right.
That is just the cost to increase assets. Add taxes, transport, and maintenance.
U.S. Wind-Power Installations Rose Sixfold in 2014
http://www.bloomberg.com/news/2015-01-22/u-s-wind-power-installations-rose-sixfold-in-2014-bnef.html
Since the Baker Hughes data does not distinguish between oil and gas rigs, oil productivity per rig would be skewed if there were a general switch to or from gas production. Shouldn’t you include gas production as barrel of oil equivalent to get a better picture of energy production per rig? That would not be as accurate as if the rig types were separated, but should be more accurate than just comparing gross number of rigs with oil production. And does Baker Hughes separate out water injection well rigs from production well rigs?
Hi Joe,
There is very little breakdown in the international rig counts. It is broken out by region, that is all.
Regions are Latin America, Africa, Europe, Middle East, Asia Pacific, Canada, and US.
I just realized that there is a breakdown into oil and gas rigs. I used that monthly data with EIA C+C output for the World minus US and Canadian output for the following chart. As rig count has risen, output per rig has fallen proportionately since 2003, keeping output relatively flat.
should have been intl oil rigs in the legend, the rig count on the right axis is international oil rigs (all world oil rigs minus US oil rigs minus Canadian oil rigs).
See my post above – there is the split between oil and gas if you look on the right sheet, but they don’t say anything about injection wells.
http://www.bakerhughes.com/rig-count
There’s nothing in their FAQ about injection, but they do say that “oil vs. gas” is up to the operation company.
http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsfaqs
You could email that question to their FAQ.
A few specialty sites count injection wells in their counts:
http://bakkenshale.com/drilling-rig-count/
Hi Sunnyv,
Yes, I found the excel sheet with the oil/gas break down for international rigs (World minus US rigs minus Canadian rigs) and used the international oil rig count for the chart above (oil rig count on right axis). Thanks.
An injection well might as well be considered an “oil well”. Injection wells are usually intended to improve oil recovery.
Hi Ron,
The only problem with this analysis is that it ignores natural gas. The increase in the number of rigs may be an increase in natural gas rigs rather than oil rigs, there is not any way to tell(for the World), if I read your post correctly.
Perhaps if we combined oil, NGL, and natural gas and reported it in tonnes of oil equivalent, we could get a better handle on energy output per rig per unit time (weeks, months, or years.) Probably the best we can do with the limited Baker Hughes international data. Chart below uses BP data to 2013 for oil and natural gas in millions of tonnes of oil equivalent per year (multiply by 7.3 for barrels of oil equivalent.) Rig efficiency in millions of tonnes of oil equivalent per rig per year on right axis.
One of the things that the Energy per rig graph seems to show (when comparing it to rig counts) is that the energy per rig rises when the rig count falls.
Hi Allan H,
Exactly right. In my chart below rig count is included to make this clearer.
Did you notice the inflection point in 1999? That’s when oil prices began to rise?
Hi Fernando,
Actually prices were very low at that point and the rig count went way down and output per rig spiked. In my chart for international rigs (US and Canada excluded) I included the rig count on the right axis (see comment below.)
Yes. I pointed out the inflection because I remember that year very well. We had lots of standby projects we couldn’t get approved. We high graded individual wells, and the net result was that we landed really good wells. In those days it was also easy to lay people off, so everybody worked really hard. A few years later it had turned around so well we started getting showered with bonuses, and many contractors started demanding a lot more money. Costs climbed so fast we had to do special cost studies for long term projects, and frankly it became like Russian roulette.
For the chart above all world production and rigs are included, I did not subtract US and Canadian Production and rigs as Ron did in his international productivity chart. In the chart below I subtract US and Canadian rigs and energy output.
Just what are you counting here? What kind of energy, all energy? Including coal?
Hi Ron,
Oil production and natural gas production from BP Statistical Review of World Energy in millions of tonnes of oil equivalent per year then converted to barrels of oil equivalent at 7.33 barrels per tonne. Energy is C+C+NGL and natural gas, the stuff we get using oil and gas rigs.
Hi all,
I found international oil rig data. Chart for oil output per rig for world less US and Canada is a few comments up the thread.
” Rig efficiency in millions of tonnes of oil equivalent per rig per year on right axis.”
Just what is on the LEFT axis? this question refers to the chart Dennis posted at three forty five pm in case this comment appears way off down thread someplace.
Hi Old Farmer Mac,
On the left axis the units for oil and natural gas and energy (oil plus natural gas) are given in the legend. Mt/year=millions of tonnes per year(for oil), Mtoe/year= millions of tonnes of oil equivalent per year(for natural gas and energy=oil plus natural gas). Note that there are 7.3 barrels per tonne of oil.
In case this has been missed, I just read this report from John Kemp over on RigZone
http://www.rigzone.com/news/oil_gas/a/136928/Kemp_North_Dakota_Oil_Rigs_Drop_Points_To_US_Output_Decline_After_May
This seems pretty consistent with what I’ve read here at Ron’s World.
A bit too much rig focus. The issue is completion, and it’s expensive and there is a queue.
Odds seem pretty good the lenders are going to pull the plug before May. He’s probably right about reporting delays, but the actual declines will be pre May. It just won’t report til then, presumably. Helms has been known to let loose quotes of results for months later than the next Directors Cut will report..
Opec warns of $200 oil without investment despite recent slump
Speaking to The Telegraph in London, Abdalla Salem el-Badri, secretary general of the Organisation of Petroleum Exporting Countries (Opec), said: “If we cut production then there will be spare capacity and producers will not invest, or postpone projects. The market will rebound back higher that the $147 we saw in 2008.”
If OPEC cut production then OPEC would have spare capacity, meaning they have none now. Well hell, a few of us already knew that but now we have it from the horses mouth. Perhaps a few in the media and at the EIA and IEA will realize that OPEC spare capacity is a myth, unless of course they do cut production. They have in the past and in those times there was OPEC spare capacity. But in other times, such as right now, OPEC nations are producing flat out and there is no such thing as OPEC spare capacity.
There is also something else to be read… between the lines… in this article. That is unless massive investments are made, the bottom will drop out of world oil production, driving the price to $200 a barrel.
As I have periodically noted, condensate and natural gas liquids are byproducts of natural gas production, and if we subtract out some plausible estimates for global condensate production, it’s quite likely that we have not seen a material increase in actual global crude oil production (45 and lower API gravity crude oil) since 2005, even as annual Brent crude oil prices averaged $110 per barrel for 2011 to 2013 (and about $100 for 2014).
And of course the key question is, if four years of approximately $100 or greater annual oil prices only kept us on an “Undulating plateau” in actual crude oil production, after trillions of dollars were spent on upstream capex, what happens to global crude oil production given the current price collapse and resulting (ongoing) decline in upstream capex?
And what will happen to US petroleum product exports?
I have just done this analysis:
27/1/2015
40% of US petroleum exports didn’t grow since 2011
http://crudeoilpeak.info/40-of-us-petroleum-product-exports-didnt-grow-since-2011
Reply to Jeff Browns seven twenty six:
One thing that happens that I have been predicting quite regularly is that electric cars will sell like ice water in hell. 😉
The factories that turn them out will be running twenty four hours because there are only a few factories set up to do electrics – nowhere near enough supply the market for them when oil eventually spikes like a rocket. The battery factories will be running three shifts too..
The REMAINDER of the auto market is going to go to hell in a hand basket because there is going to be a deep and long lasting recession that may very well just get worse and worse.
There won’t be enough people with enough money to support the infernal combustion engine portion of the industry but there will be enough people to support the relatively TINY electric portion of the industry to the point that if you want a Leaf or a Volt or a similar car it will be marked up thousands of dollars above the msrp. Or else they just won’t ship them without adding in a few hundreds of bucks worth of extras and marking up the extras a few thousand.
If I get a good gut feeling for WHEN this will happen I might sell part of the farm and put it in Tesla stock.
There is little doubt in my mind it WILL happen but the magnitude of the price spike and the rate at which the price will go up is something that can only be guessed at in my opinion.
A couple of days ago I compared what will happen when the oil glut clears with production capacity reduced to what happens when you are up front near an accident on the freeway.
Once the wreck is cleared the cars up front in the jam have a wide open road with very sparse traffic and can haul ass for a spell. The guys with oil to sell are going to find themselves in a robust sellers market – how robust depends on how good the economy is and how much capex has been cut back.
If the industry really does cut deep enough NOW to reduce available supply just a couple of million barrels a day next year .. or the year after … whoopee for oil sellers. Unless the economy has pneumonia or something of course.( The spike in oil prices is apt to bring on economic woe but not quick enough to keep Tesla stock from doubling again. )
Momma and Daddy are compelled to buy as much formula as the baby needs regardless of the price.
The guys with the big pickups and the two hundred horsepower bass boats can and will cut WAY BACK immediately but most people will be buying about the same amount of gasoline and diesel as usual —- because they are locked in short to medium term and have no choice.
The grocery fetcher /commuter car MUST be fed.
Longer term Mom and Dad can opt for a more efficient car or a place to live closer to work etc.
My grandparents on both sides of the family made a relative killing one year back in the fifties with their orchards when there was a very short crop nationally due to bad spring . Two nice new brick houses that year.WITH PLUMBING. New cars. New machinery. PAID FOR. ONE Year.
The big freeze missed our community and they had family record busting bumper crops.
It is well worth noting that one reason the national crop was short was that capex on orchards was severely curtailed during the WWII years.The government discouraged farm investments that would not pay IMMEDIATELY and the young men who would have been available to plant and care for new trees were all in uniform.
I t takes about ten years to bring a new orchard into early production using the old type trees and of course mature orchards ”decline” just like oil wells as they get older.
It is interesting to note that the ten years to get a new orchard into production back then is about the roughly the same time frame usually mentioned as needed to get new conventional oil fields into production from scratch.
Nowadays it takes half as long to get an orchard to produce- note the similarity to the speed with which tight oil can be brought on line.
But the old trees my grand parents planted would produce from thirty to fifty years – sometimes longer.Just like old conventional wells.
The new trees we plant these days last less than twenty years. They grow fast but they never produce a whole lot per tree and they die young. Just like a Bakken well.
Since my grand parent were dirt poor Scot Irish bible thumpers with a work ethic that would shame just about alive today they couldn’t even conceive of not being out in the field all day every day no matter what. So they raised enough to eat and sold what they could and kept right on planting new trees right thru the Great Depression.
When you grafted your own trees and did all the work yourself planting an orchard back then didn’t cost peanuts. You needed a mattock and a pocket knife and a scythe if the land was already cleared. If not you needed an axe and matches as well. You can raise apples between stumps. Hillside land around here sold for as little as a dollar an acre unless it had good timber on it.
Those new trees were at their ” Hubbert Peak” in the early fifties.
For once the meek inherited the Earth. Hot economy. Limited production capacity. Depressed production due to bad weather.
If somebody starts a hot little war that closes some critical shipping lanes sometime during the next decade with oil production past peak anyway and with the population still growing the price of the stinky stuff will spike WELL ABOVE two hundred bucks.
I suppose I should also mention that the family mostly went busted in the orchard industry over the next half century due to industry over wide production.
Something tells me overproduction is NOT going to be a big problem in the oil industry for very long.
Trees can be replanted.
“One thing that happens that I have been predicting quite regularly is that electric cars will sell like ice water in hell.”
Very unlikely. For one Lithium will become prohibitively expensive. (its already pretty expensive). The Grid can’t handle a large increase of demand. The production on the grid is falling as older Coal plants and nuclear power plants are being decommissioned. Electricity is going to get a heck of lot more expensive in the years to come.
Economically, the US and the most of the global economy is very weak. Central banks have turned to ZIRP (Zero Interest Rate Policy) just to prevent a immediate collapse into a global depression. It appears that ZIRP is run it course and Central banks are leaning towards NIRP (Negative interest rates) to hold the system for a wee-bit more.
“The grocery fetcher /commuter car MUST be fed.”
As long as the commuters have jobs and the grocery stores have paying customers. The majority of city jobs depend on cheap and abundant Oil.
Sooner or later the bottom of the barrel is going to fall out the the employment rate is going to collapse. When it happens price controls will be enacted the US will go down the same path as Venezuela currently is.
We have had price spikes in the past and it didn’t cause a huge rush to electrics. It will take more than that, but it is coming. Right now electrics because of their limited range are viewed as un-reliable BUT once we have actual fuel shortages then they will be viewed as the more dependable choice.
People will buy one, even if its just a second car – sales will skyrocket.
Especially when they start putting charging stations all over the place- charged by multiples of sources, including PV with its relentlessly dropping prices.
I am real happy with my Leaf and PV, and happy too cooking up a wood fired charger. I have megagobs of wood.
PS- all that chatter above about good and bad re solar is mere idle amusement among people with not much to do.
We are going solar because money people see money in it. Real simple.
The one thing that baffles me most about the people hanging out in a PEAK OIL FORUM who insist that renewables are TOO EXPENSIVE is that they never have anything to say about how high the price of OIL is going to go in a few more years. I remember going with with Daddy when I was a kid to fill a couple of fifty five gallon drums with gasoline at sixteen point nine cents during a local oil price war.
I bought gasoline as a young guy for a quarter to thirty cents. These are gallons prices.
In ten years people with disposable income will be buying gasoline for maybe eight or ten bucks a gallon. People without disposable income to pay it will be walking or whatever.
Anybody who actually tries to seriously think about this stuff has to come to a conclusion ranging somewhere between these two extremes:
The overall economy goes entirely to hell in a hand basket within the lifetimes of just about all of us – graybeards possibly excepted- or there is a major transition to renewable energy and most particularly a major but not total transition AWAY from oil for transportation.
It is NOT GOING TO MATTER to a person with money enough to pay for it how much a TESLA S costs if the choice is between the Tesla and a gasoline ration too small to allow him or her to travel as desired.
Mobility is something that is just about priceless in a country such as the US with our sunk investment in suburbia and country living.
People will gladly cut back on premium beer and ribeye and drink pee water and eat hamburger before they will give up the McMansion for NON EXISTENT desirable urban housing.
Now as it happens I think I can reasonably claim the crown of being our resident CHAMPION ROLLING STONE. Regular work was never my thing and I worked opportunistically at different trades and professions as it suited my whim when it suited me to work.
So I know more than a little about the cost of building. The odds are extremely high that in ten years a Tesla level performing electric car will be affordable to the top fifty percent of us but that desirable downtown housing will be entirely out of reach except to the top five percent or so. Maybe ten percent.Maybe only a couple of percent.
Construction is a thoroughly matured industry and there will be only slow and minor incremental improvements in this industry.
The battery industry is still in short pants. Not much more than out of diapers actually.
ANY engineer must understand this argument implicitly with a few seconds thought once it occurs to him.
Hi Jeff,
Output will decrease a little, then oil prices will increase and output will go back up, possibly back to the previous level, or not it depends upon oil prices in part and on how much oil can be produced at that price level which is unknown.
In 2005, many of us were predicting a decline in C+C rather than an increase, we were wrong. Eventually the peak in C+C will arrive, maybe in 2015 or possibly as late as 2018, trying to measure crude only output is pretty difficult except for OPEC and Texas. We can assume the proportion for the rest of the world is the same as OPEC and Texas, the assumption may not be as reasonable as you assume. Better to focus on C+C in my opinion (one of the areas that Ron might agree with me as he focuses on C+C output.) Probably not 🙂
The 12 month C+C peak will be from September 2014 through August 2015. I am flat out making that prediction. The Total Liquids peak will be not be far behind. However the percentage of NGLs in total liquids will continue to rise after the peak in C+C. However the MSM will, by that time, realize that there is a tremendous difference between gas and oil.
Hi Ron,
I was wondering not if you agreed with a peak between 2015 and 2018, but if you thought a focus on C+C makes more sense than trying to guess at crude only output. Your prediction for peak in 2014 to 2015 will not be correct if oil prices rise back to $90/b by Jan 2016. This would be about a 5% increase in real oil prices per month.
If we think in terms of the 4% window around a plateau suggested by Hirsch, then from Jan 2010 to Sept 2014 we have average C+C output at about 75.5 million bpd, the current 12 month average is about 77 million bpd (mbpd) and if we think of the undulating plateau as being between 74 mbpd and 77 mbpd, then for 12 month average output this C+C plateau began in early 2010. The peak may be in the 12 months you predict, but C+C output may not fall below 74 mbpd before 2019 to 2022. Chart below with C+C less extra heavy URR=2200 Gb and 2500 Gb and extra heavy URR=500 Gb.
I am expecting prices to rise to $90 a barrel or more by the end of the year. And I am still calling September 2014 thru August 2015 as the all time peak.
I would say its a coin flip that you will be correct.
If I thought it was only a 50-50 chance we are at peak oil I would have never made that call.
You know, you will have to get into refinery gain. That’s an odd area. I looked into it when we were looking at heavy oil integrated projects. There are technologies which use something quite different from a Coker unit. They hydrogenate the hell out of a 4 degree API still bottoms.
When the price gets high enough we will be turning asphalt and hydrogen from natural gas into syncrude. How are you going to handle that?
With gravel roads?
Old farmer, I meant in the peak oil accounting. We can use cement if asphalt runs out.
Hi Fernando,
I am not sure if you are asking Ron or me that question. I think we are both looking at C+C as an input into the refinery process.
If I understand your point correctly, you are saying that refinery gains may increase as the percentage of extra heavy crude input to the refinery increases. I agree. I would also assume that these increases are not unlimited and are unlikely to amount to that much.
One very simplistic way to look at this is to assume that 50% of present refinery gains are entirely from extra heavy oil (1200 kb/d). The peak in extra heavy oil is likely to be about 5 times higher than present levels so this would result in an increase in refinery gains of about 5 mboe/d. This would help the decline somewhat and is not accounted for by my model which is not complex enough to account for all possibilities.
I was asking both of you. Refinery gain comes from addition of hydrogen to the mix (I’m keeping this simple). I suspect that as oil prices increase we will see a shift from Coker units to hydrogenation of really heavy molecules.
To clarify: a Coker unit yields broken hydrocarbon molecules, these are hydrogenated to make stabilized fuels. The process creates coke, a carbon like solid, which has to be drilled from the Coker drum.
But there are processes which convert those super heavies into lighter fuels. These require hydrogen, and it creates volume. There’s one process I know about which can take 4 degree API asphaltic material and make a very pure synthetic diesel and other products. But it sure costs money.
Of course, what we focus on does not alter the objective reality, to-wit, that it is quite likely that we have not seen a material increase in actual global crude oil production (45 and lower API gravity crude oil) since 2005–as annual Brent crude oil prices were at or above about $100 per barrel for four straight years (2011 to 2014).
Or let me put it this way, if global crude oil production virtually stopped increasing in 2005, or started falling, but if global natural gas production and associated liquids–condensate and NGL–continued to increase, what would global natural gas and petroleum liquids data look like, something like the following chart showing normalized global gas, global NGL and global C+C for 2002 to 2012?
Also, we have this fundamental disconnect between price and supply numbers.
As I have noted before, when you ask for the price of oil, you get the price of 45 or lower API gravity crude oil, but when you ask for volumes, you get some combination of crude + condensate + NGL + biofuels + refinery gains.
Hi Jeff,
If we look at the EIA or JODI data as Ron and I do, then we get C+C output, we do not know what crude only output is, we can estimate, but better to just look at the C+C data, anything else will be ignored.
EIA C+C data below
I agree that a lot of people want to ignore the probable peak in global crude oil production.
I don’t think we know if there has been a peak in crude oil production, it depends on if your assumptions are valid, we just don’t know. You can say we do, I do not agree.
We don’t know if a meteor might strike and destroy the world or not. But there are some things we can make an educated guess about.
But there is a few things we do know for sure. We know that oil will peak. We know that that is not a theory because the amount of oil in the ground is finite.
We do know that we are closer to the peak today than we were yesterday. That is, the longer we go without hitting the peak the more likely it is we will hit the peak soon.
I am saying we are at the peak right now. I know that this is not certain, but that is my call and I am sticking to it. We art 5 months into the one year peak of world oil production.
Hi Ron,
Jeff is saying crude only peaked in 2005, all of the extra 3 mbpd increase since that time has been condensate, perhaps you agree. I do not agree with Jeff, I think we should just watch C+C output which we have better data on.
Of course oil will peak and every day we get one day closer to the peak, I believe our disagreement is about the timing of that peak, you think it will be 2015 (or sooner), I think 2017/2018, reality may be between these dates or we are both wrong and it will be after 2018. Around the time of the next large meteor strike 🙂
Dennis, we don’t have to disagree with Jeff to just watch C+C. I think he is likely correct that crude only did peak around 2005. And I also agree with you that we should just watch C+C because that is the only really good data we have. The two points are not incompatible.
Hi Ron,
Fair enough. I just think it is a distraction to look at crude only, especially when we can only guess how much condensate is produced. I will not bother to comment on it in the future.
Oil analysts contemplate the meaning of a 22% to 23% increase in global natural gas and NGL production in eight years (2005 to 2013), versus a 3% increase in global crude + condensate production in eight years. What could it possibly mean?
At the same time, by the way, that the Texas Condensate to C+C Ratio increased from 11.2% in late 2005 to 14.7% in late 2013, and that the OPEC Condensate to C+C Ratio increased from 3.8% in late 2005 to 6.3% in late 2013.
(RRC, OPEC & EIA data)
Hi Jeff,
Texas and OPEC account for 43% of World C+C output. Is it possible that in the other 57% of the world that the condensate output remained the same or decreased? We don’t know. The important metric is energy and energy output should be reported in GJ not by the barrel or by the tonne. Though mass is probably tracks a little closer to energy content than volume.
I do not dispute that there will be a peak and that we are getting closer to it. I disagree that we can determine the peak of crude only output and think the 2014/2015 call on peak oil is too early I think 2017/2018 is more likely and we won’t fall below 74 mbpd before 2020, I also think it unlikely that the 12 month average C+C output for the world will rise above 79 mbpd (we are at 77 mbpd now). As always, time will answer these questions.
Not “other 57% of the world.” I should have said, “the rest of the world that produces the other 57% of C+C output.”
This is PRECISELY the way things are in a zillion different aspects of society. You Have To Read Between The Lines. The direct quotes are at a minimum deceptive, and more probably outright lies.
Like “Many proposed shale wells are profitable at $30/barrel Bakken sweet.” Ya, quantify “many”. Show the lenders what “many” is. Show them that 1% of the wells they’re being asked to fund are going to pay them back at that price.
This was also so of Opec or KSA back in 2008 when the famous quote was “we have no reason to increase production. We fill all the orders we get.” Ya, because the orders don’t get placed at $147.
Hi Ron,
I think his point is a good one. OPEC cutting back would reduce the incentive to spend CAPEX in OPEC countries and existing capacity could not be maintained. The unrestrained drilling in the US is a real problem for the oil industry. It would probably be better if the US had oil output quotas the way Texas did in the 50s and 60s, the boom bust cycles of the free market are not good for the industry and some government regulation of output might be a good thing.
It would be interesting to hear ManBearPig’s and Mike’s assessment of a proposal that puts the EIA in charge of US oil output, the way the Railroad Commission of Texas used to control oil output in Texas.
Also in the article there is this:
According to El-Badri, Opec has not increased its 30m barrel per day (bpd) production capacity for the last decade…
So this further confirms that OPEC is producing flat out and that OPEC spare capacity is zero at present, which you have been saying for a year or two.
Dennis, it depends on how one defines spare capacity. I think they can collectively bump up production to 33 mmbopd. But that would only be effective for say 6 to 12 months.
OPEC countries have pretty unwieldy oil company structures. I have a friend who told me he could increase production by 18000 BOPD with equipment he could purchase and fly in using a cargo 747, but the bureaucracy wouldn’t touch it.
Hi Fernando,
I am thinking more of spare capacity that could be maintained for 18 months or more without damaging the field due to overproduction. I certainly could be wrong, output from OPEC has been pretty stable lately (except Libya), I think Ron’s estimation that OPEC is producing at their maximum sustainable capacity is correct (though it may not be sustained for more than 24 months.) Time will tell, so you think their is 3 mmbopd of OPEC spare capacity? You would likely know more than me through your contacts in the industry. Very interesting, thank you.
Dennis, I assume we agree there’s nothing sustainable without additional investment. So the question becomes, how much standby capacity would you keep if you were running the show? I would keep enough to allow me to mobilize rigs and start drilling infills to cover the gap while I move on to develop marginal fields (because oil prices would rise if it’s so close).
As far as I can tell sustainable is an arbitrary definition.
Hi Fernando,
Yes “sustainable” is not really a good term. I mean that capacity that can be sustained with investment. Again I do not have any expertise in the oil industry, I am basing my opinion on the level of OPEC output in the past, this can change over time.
At some point further increases in investment will not be profitable and the OPEC nations will peak and decline, perhaps within 5 or 10 years for OPEC output as a whole, I really don’t know.
I think they will scratch like crazy to hold production at quota, just for pride. Then they’ll start declining. Then they’ll start asking for help from private oil companies. You know, offer blocks with marginal fields.
I think it would do a better job of stabilizing price then simply drilling as fast as you can until a crash happens. I think the culture has changed since the 50s though, and land owners/operators wont be content with reduced production on their leases. Might be a hard sell to a lot of people, even if it had a net benefit in the long run.
I think it would do a better job of stabilizing price then simply drilling as fast as you can until a crash happens.
I would think it would be better for the industry as a whole. And also better for communities which are pressured into allowing drilling even if the long-term results don’t justify it.
However, I can see it being a political football. A government agency controlling price would be an easy target to blame, even if it wasn’t at fault for whatever problems would arise in the oil industry.
A government agency controlling price would be an easy target to blame, even if it wasn’t at fault for whatever problems would arise in the oil industry.
I didn’t think there was any such government agency. Just how would a government agency control the price? During WW2 we had rationing and associated price controls. You can control the price if you ration. But outside that there is just no way, or no way that I am familiar with.
Some countries have tried to control the price of certain commodities or goods. But when that happens a black market inevitably develops to ruin the government’s best laid plans.
Okay. I didn’t actually mean controlling the price. I was responding to this comment:
It would be interesting to hear ManBearPig’s and Mike’s assessment of a proposal that puts the EIA in charge of US oil output, the way the Railroad Commission of Texas used to control oil output in Texas.
I meant controlling price by controlling output. Sounds like the Railroad Commission did it and we’ve long done it with agriculture.
Correct, in the 1950s the TRC controlled about 40% of US crude production and apparently it served as a model in the creation of OPEC. So I guess this was controlling price in a way. Certainly farm marketing boards in Canada effectively controlled prices of milk, eggs, etc by limiting production to members which created a lot of lovers and haters depending on the side of the fence where you sat. You probably know all this, sorry.
Hi Doug,
One thing you never need apologize for is pointing out stuff that might or might not be well known.
You can bet your life that fifty percent of the people in this country do not know that government issued production licenses and quotas have long been and are still used to control the production of certain agricultural commodities.
I will hazard a bet that most of the regulars who comment here are no more than vaguely aware that in the US we have sugar plutocracy that is in mostly responsible for the explosion in the use of HFCS.
It is not ONLY that high fructose syrup is so cheap but rather than ordinary cane sugar is excessively expensive due to this government sanctioned producers cartel which is protected from imports by way of owning a few key congress critters .
It is just about impossible to over estimate the ignorance of the general public. Ask any teacher.
This is why I go into elementary detail so often. The people that know can skip over such details.
Some unknown number of kids and adults who know little or nothing about most of what we talk about are reading it tonight and others will be reading it for countless nights to come.
Hi Dennis,
Putting the cap in oil output will never happen. The reason why everyone from government to the landowner, lender, to the hydrowac guy, GPS person, truck driver wants their money NOW is due to artificial scarcity of the money in this debt based monetary system everyone. If you want to get rid of boom/bust you have to change how monetary system works. Capping the output, now, when we are in the terminal oil decline is not going to change anything.
Hi Ves,
It has happened in the past in Texas, but you are likely correct that it will not happen again.
Hi Dennis,
I am not familiar with Texas Railroad commission at all. It could be that there were other underlying reasons to do that at that time other then controlling the price. But as I said I don’t know anything about.
TRC has the legal power to limit production. It made sense in the past from a technical standpoint, but their procedures were a bit primitive.
Hi Ves,
We could probably use a history lesson here. and I am not a historian.
My understanding is that the Texas railroad commission controlled oil output in Texas and as Doug said, it was the basic model for OPEC.
The reason for this was that without this government control over output, the oil producers tended to overproduce oil to the point that oil prices would fall to unprofitable levels. It was decided by the Texas state government that the free market outcome of cyclical booms and busts was sub-optimal and the Texas Railroad Commission was given the responsibility of regulating oil output. Prices were not controlled, just output, but clearly output levels will influence oil prices.
As Ron pointed out there is no government agency at the Federal level which has this responsibility, but it could be given to the EIA, so that future overproduction from LTO plays would not occur.
By the time any legislation could be passed to accomplish this, LTO will be in decline anyway. Maybe the NDIC and Texas Railroad Commission could form a cartel and regulate North Dakota and Texas output, they would have to keep it quiet because it is probably illegal for them to cooperate 🙂
Hi Dennis,
Here is what I am speculating about that Texas Railroad commission. But as I said that was long time ago before I was born so I don’t know much.
When people say the reason “to control the price”. But the price is just symptom. The reason could be that after one of these “price bust” starting production would be way more expensive. So since as Doug said they controlled 40% of the US production they could smooth the price fluctuations with limiting the output. But main motive is not the price. It is the costs of starting production and investments after one of these cyclical “price bust”. So that’s why I did not agree with some comments that if Bakken gets shut down it would be easy to start the production as soon oil gets to $100 again. No, it will never happen.
Why there is no Fed agency to have this responsibility as you are wondering? There is no need in the decline of conventional oil production. They don’t have the purpose. Consider Bakken as one shot Wall Street gambling through of dices.
While I have no expertise in the technical end of oil I am an avid armchair historian and since I have been hooked on peak oil for the last few years I have read up on the history of oil in Texas.
There is no question whatsoever than the Texas oil industry wanted the TRC and that the reason they wanted it was the same reason that non brain dead people want cops on the road – to protect themselves from each other.
The whole entire point of the TRC up until the historic day it said everybody could just go ahead and forget their quota was to control production for the PURPOSE of maintaining prices at profitable levels by PREVENTING over production..
The world has not had an overproduction problem since then that has not shortly cured itself and anyway with Texas now being a MUCH smaller producer relative to the overall industry a Texas quota would not be effective in controlling prices.
So far as I know it still has the power to impose production quotas on Texas producers but has not done so for the last thirty or forty years. Somebody can look up the date.
DC,
I believe Fernando points this out below: The TRRC has the power to set quotas for oil production in Texas. They do.
It has been noted that Texas alone could remove the “surplus” we keep hearing about that is causing the drop in the price of crude: The TRRC need only reduce the quota by 80%.
Hi Synapsid,
Yes you are correct, of course. I doubt that the RRC would do this unless the NDIC had the power to do the same, then there would need to be some tacit cooperation between the NDIC (if it had the power to regulate oil output in North Dakota) and the RRC of Texas on output levels.
In the past this was not a problem because OPEC controlled prices, in the face of OPEC’s failure to act, something else needs to take its place or oil prices will be very volatile going forward.
It is very unlikely that the RRC of Texas would act on its own.
Hey maybe the US can join OPEC 🙂
Anyone else notice Obama’s recent announcement about ANWR? The refuge has been out of the news for a long time, would be interesting to get feedback as to why it’s been put back into the spotlight.
maybe a parting gift for Podesta?
http://www.whitehouse.gov/blog/2015/01/25/president-obama-calls-congress-protect-arctic-refuge-wilderness
“The refuge has been out of the news for a long time….” Depends what you mean by “in the news”. The debate on drilling in the Arctic National Wildlife Refuge has been an ongoing controversy in the US for almost 40 years, since 1977. As I recall, a bill permitting drilling in the reserve was sailing through your Senate in ’89 when the Exxon Valdez spill derailed the process: Twas good or bad timing depending on your perspective.
Timing is everything. Easy to rule against when no one would contemplate drilling there in today’s market. However, a change in circumstance and Govt might reverse today’s decision..
A large company would consider drilling there in today’s market. A project to drill the ANWR would probably take 4 years before drilling can take place. Production would take at the very least another 4 years (that’s very optimistic). So in the very best case the new production would be peaking in 10 to 15 years. The problem I see is the Alyeska pipeline, it may not be working by then.
So in the very best case the new production would be peaking in 10 to 15 years. The problem I see is the Alyeska pipeline, it may not be working by then.
I’ve been glad that drilling in the ANWR has been blocked all these years. Not only do I feel it is an area worth preserving for environmental/animal/tourism reasons, I also feel that we waste so much oil that whatever we can keep in the ground for as long as possible makes strategic/economic sense.
I’m not confident that the area will be preserved forever, but dragging out the process so long that it becomes apparent that drilling there won’t save the Alaskan oil industry would be a good thing, in my mind. Maybe then people will realize they’ve got to accept that Alaska can’t plan its future on oil and start thinking about what to do as an alternative.
Most people in Alaska seem to realize they’ve got to accept that they can’t plan their future on oil and many now seem to be thinking that natural gas is the logical alternative. Perhaps this will materialize but since they didn’t use oil revenue as seed money it would be a difficult transition. There is a lot of gas in Alaska and no guarantee ANWR contains major reserves of oil.
It doesn’t realy matter. As Doug wrote we don’t even know if there’s oil worth producing. I don’t see too many tourists going there. Have you been in a tundra in summer time? It’s full of mosquitoes and bugs. And you can’t really that much. The helicopter drops are scary. I’d rather go to the Malvinas/Falklands.
Oh yea. Loads of tourism on those northern Tundra plains with mosquitoes the size of robins.
I’ve actually been up there, Point Barrow and south and let me tell you. There is no tourism going there.
I haven’t been, but it sounds like there is tourism linked to the ANWR.
http://juneauempire.com/stories/051001/Loc_ANWR.html
From 2001: ANCHORAGE – The debate over oil drilling in the Arctic National Wildlife Refuge is fueling a surge in tourism to the northern Alaska wilderness area this summer.
http://www.visitwildalaska.com/National_Wildlife_Refuge
Tell you what. Find me a tourist photograph from one of those ANWR tours, and I’ll send you an a “I watched a dog poo at the Iditarod” Sweat shirt.
I don’t want your sweatshirt, but here:
https://www.google.com/search?q=tourism+anwr&num=100&newwindow=1&source=lnms&tbm=isch&sa=X&ei=TEXJVI_IN5KzoQTizYCIBA&ved=0CAkQ_AUoAg
You seem to be tossing out all sorts of claims today. Get up on the wrong side of the bed?
Dude, I want a tourist shot. You know,a couple of guys posing in front of some local wildlife. I’ve been there, so I can figure out the real shots. I think you’ll see there’s almost nothing. Do you realize what a civilian needs to do to get there? They don’t allow you to take a four wheel drive. And it’s dangerous even if you are prepared.
Nick Hail,
The joke when I was up there, in the 1980s, is that the way to tell an Alaskan mosquito from a Minnesota mosquito was the two-inch white spot between the eyes.
Cutter’s kept them off, but you had to spray your Levi’s as well as your skin.
My solution was to use cream. This allows protecting your private parts if you have to use the tundra for relief. Going up there was like a trip to the moon. You should have seen my boss crossing and uncrossing his legs because he had to pee and he was wearing padded Arctic overalls and a pair of those nice silk ski pants under his jeans. He just wore too much stuff and almost peed himself.
Fernando,
We used cream for face, neck, and hands. We had to spray our hair and clothes. Bear bells, a boat horn, and a Remington 12-gauge added to the fun.
I will never work on tussock tundra again. Never.
forget the tourism thing. really the point is to preserve places with the minimum amount of people stomping about so as to preserve the ecosystem.
Given that the pipeline has already been built and has long since been paid for I find it hard to believe that it can’t be modified so as to work properly at low volumes.
I would think that it is possible to insert a smaller diameter pipe inside a larger one with insulation between the two for instance . There ought to be a way to burn some oil and gas coming down the line in order to keep the oil hot enough to flow properly.
I don’t know how much of the line is under ground but a lot of it is for sure above ground and adding another layer of insulation above ground should be pretty cheap in comparison to the value of all that otherwise stranded oil.
No doubt this would run into a lot of money … but on the other hand the oil is WORTH A LOT of money at the southern end but WORTHLESS at the northern end of the pipeline unless I am mistaken.
There has been a proposal to replace the 48″ pipeline from Prudhoe Bay to Fairbanks with a 20″ pipeline and use rail the rest of the way, which would allow as little as 45,000 bbd. But you’re right, it won’t necessarily be cheep but oil will flow. The REAL problem is depletion (and current low oil prices are a total disaster for state finances). I can remember when the “pay zone” at Prudhoe Bay was 600 feet thick: A couple of years ago it had reached 60 feet. You don’t have to be an oil man to see the significance of that.
Doug,
If they build a smaller pipeline for oil, is it possible to use the 48″ ex-oil pipeline for Nat Gas? Certainly no problems with freezing methane.
Toolpush,
Doubt it but don’t really know: Gas pipelines are mostly constructed of carbon steel but I expect you know that. Don’t give me credit for special knowledge. I started of with a degree in Eng. Ph. (’67) and went on to Geology then Geophysics which doesn’t mean I really know piss all about oil business: Did a lot of seismic (worldwide) and rubbed shoulders with REAL oil guys but that’s it. I follow Ron’s Blog, talk to my Norway Petroleum-Girl Niece regularly and a few oil guys from the Old Days). But that’s it! And I do appreciate you frequent intelligent comments here.
Doug,
Thanks for your honest reply.
I am also no expert, but the pressure rating should be about the same. I don’t think the gas would have any significant difference in Sulfur content, so I can’t see too much difference in the metallurgy. I would have thought a few simple mods as in compressors and the like, would be all that was required.
Hopefully someone else will know the answer to what me appears a simple question, that probably has a sting in the tail.
Another option that I had heard was adding sea water to the oil stream to increase the total volume in the pipe to a volume to allow flow. I don’t know the logistics of this, but it was an idea that I had heard.
This is confusing. It seems to be an attempt to increase the area off limits to drilling. But the nomenclature remains ANWR?? Then there is the old mystery well with associated seismic. http://www.gasandoil.com/news/n_america/3b38b087544a39c7dad052b6e7fd8d7f
I have a question for the group. I have seen in numerous articles claiming the service companies are going to get killed in the second quarter by demands in price reduction from the drillers or E&P’s. That makes ZERO sense to me. What choices do these companies have? It’s not like they can start their own in a quarter. No one else is beating their doors down to undercut either. How could that claim be true?
They compete against each other. And an oil company can lay the cards on the table and tell all contractors it requires a 20 % price cut to proceed. Thus they face pressure from within their sector and also from customers.
Well, that’s the theory. OTOH, loss of economies of scale should increase prices to E&P.
There seems to be this notion that in a world post 2008 that there is still some sort of industry loyalty — that if you go to companies and say “we must have this 20% cut for the industry to survive” that the companies (the service companies) will say “Oh! Heavens! We must have the industry survive so I’ll take a huge paycut and watch divorces sweep my employees (and myself) so that you can continue to pay your bankers their loan payments. Why, btw, don’t you ask the bankers/lenders to show some industry loyalty?”
Answer: because you’d get laughed out of the office.
Austerity for lenders 🙂 never heard that one yet 🙂
not true, Tspiras did mention something along those lines 🙂
No austerity for lenders in the sense that the owners of banks suffer much. But there are numerous reports of large scale layoffs at banks and other lending institutions to be found in the news from time to time.
It’s not theory. I’ve been in these conditions in the past, and I observed how it was done by my superiors. I learned from guys who had a lot of mileage. Sometimes real life works this way.
Well, I have seen these same people tell the drillers they demand price cuts to be shown the door and told good luck casing that well yourself.
So the other company gets the job at this 20% discount and it doesn’t cover costs. Their costs are fixed. You think the concrete guys dropped their price 20% and the frac sand guys dropped theirs in the take or pay contracts? You think the HCL for the acidizers just up and decided to take a loss on the 12MM gallons of hcl they already paid for? Do you think the RR just agreed to a 20% discount? buwahahahaha
They may get a one or 2 deal but not across the board.
I only worked for large companies, consulted for medium sized ones to large ones. I have been to meetings where all contractors and suppliers were brought in, the figures were put on the table, and they were told they had x days to make bids at lower prices. We also called in government reps, union reps, and told them to cooperate. When it came to the government they could take their sweet time. But they do cut taxes. I guess it depends on how you frame it. I would get a lawyer and push to the limit to become a monopsony. But get legal advice on whether its legal in your case.
I have never seen the RR’s give an inch. Taxes are no go, states are stressed already.
That is my point. The only place I see any room is the actual frac sand markup by the bigger service companies.
You think Lewis energy can go drop the prices to themselves? they already vertically integrated.
Any concessions given will only give the ones left a slightly longer time to plan exit. The exit will still happen. thus decressing supply thus pushing prices back up.
You can bet your last can of beans that everybody in every phase of big industries cuts their prices when they absolutely have to do so- meaning when they are compelled to by competition.
It is one thing to insist on getting your usual money when you know the customer absolutely has to have your service and will pay the price.
But when there are ten guys performing a service and the demand falls off ten percent -well there are ten suppliers of that service and only work enough for nine of them.
They start competing on price because the alternative is to quit altogether. Everybody finds ways to cut expenses from the bonus the ceo gets to the bennies package the lowest paid janitor gets.
The alternative is to close up shop and fire all your employees and sell out at fire sale prices.
The choice is always to hang in and hope a few competitors go broke and that you can buy THEIR equipment and get their best men at firesale prices while at the same time being able to raise your own price back up.
This is the way it works in just about any competitive industry. I can’t see any reason why it would be any different in oil.
Rail roads are in a unique position in that they generally have no viable competition for long distance hauling of heavy low value bulk goods such as sand and gravel.
You can bet that wherever the sand is coming from that if there are more than two or three producers and the sale of sand starts dropping off the price of sand will come down.
Taxes are very negotiable. The USA isn’t the only oil producing country. The typical approach is for companies to create a study using the national oil producers’ association. The study is given to a consultancy, and if the companies are smart they invite government ministries to chair the study steering group. The study simply considers the amount of activity, production, company revenue, employment, and tax revenue. Most countries decide to repeat and use a separate study. Sometimes countries share information and discuss the issue with the World Bank, IMF, and their financial advisors. So this takes time. But eventually most of them cut taxes. We just work things out to make sure we stay alive when they raises taxes again. This is a world most of you never encountered. I was privileged to participate only because I’m bilingual, so they trained me to sit at these meetings in some cases.
CA regs for oil/gas well stimulation including fracking are done and go into effect in July…..
“Senate Bill 4 (Pavley, Chapter 313, Statutes of 2013) was signed by Governor Brown
on September 20, 2013. The intent of SB 4 is to provide a comprehensive regulatory
framework for well stimulation treatments in California. SB 4 requires a permit from the
Division of Oil, Gas and Geothermal Resources to conduct well stimulation. The permit
application must include detailed information about the fluids to be used, a ground water
monitoring plan, and a water management plan. Copies of an approved permit must be
sent to neighboring property owners and tenants, and water well testing must be
provided upon request. SB 4 requires the Division to prepare regulations to ensure that
well stimulation is done safely and to require detailed public disclosure about the well
stimulation. The Division must develop an internet website to facilitate public disclosure
of well stimulation information, and the website must allow the public to easily search
and aggregate the information.
SB 4 requires the Division to prepare an environmental impact report, consistent with
the California Environmental Quality Act, addressing the practice of well stimulation in
California. Additionally, SB 4 requires the Natural Resources Agency to complete an
independent scientific study on well stimulation treatments, and the State Water
Resources Control Board to develop groundwater modeling criteria and implement
groundwater monitoring programs.
Well stimulation is a short term and non-continual process designed to enhance oil and
gas production or recovery. Initially, the Department’s rulemaking effort had focused on
one specific form of well stimulation: hydraulic fracturing. Hydraulic fracturing is the
high-pressure injection of a mix of fluids and proppants into an oil or gas reservoir. The
mix, injected under pressure, fractures the reservoir rock. When the fluids are removed,
the proppants keep open the cracks left by the fracturing, allowing oil or natural gas to
flow back to the well. Fracturing the rock is necessary to extract oil or natural gas from formations in which the pore space in the rock making up the oil or natural gas reservoir
is too tight to allow the flow of fluids or gasses to the well.
With the increased use of the practice in other parts of the country, public scrutiny of
hydraulic fracturing has become as common as the practice itself. Public concern over a
perceived lack of regulation has become widespread, highlighted by various
documentaries, studies, reports, and proposed legislation, at both the federal and state
level.
SB 4 began as a bill to regulate hydraulic fracturing, but was expanded to include all
forms of well stimulation due in part to lack of public information about these procedures
and new information about oil reserve estimates in areas of the state not previously
subject to widespread oil recovery activity, such as the Monterey Shale. ”
http://www.conservation.ca.gov/index/Pages/prpsregs1.aspx
So they plan to regulate scale and paraffin control treatments as well?
Yes, they have already forced the removal of bulk tanks for many types of parrafin treatments. this is resulting in weekly trips to refill versus multiple month trips. Everything appears to be designed to do nothing but increase the costs of production.
The Kern county supervisors declared a fiscal emergency yesterday, a procedural step prior to declaring a Chapter 9 bankruptcy. Kern county is the site of the major portion of California’s oil production.
Well Coffee,
I have been totally off the the mark. I thought the oil companies were the ones who were going to go broke.
I never thought the counties would go broke first? lol
There was a very large drop in the California rig count a few weeks ago, then there were stories about, there had be a large number of drilling contracts being terminated, now this!
There is certainly something going on over that way?
Push, I don’t follow the Cali stuff too closely, but somewhat recently there has been a rising fuss that the anti-frac’ing regs put into effect last year that were intended to target the high volume, shale targeted production, but the wording will prohibit virtually all the 500/yr or so maintenance fracs that have routinely been done like forever. (Few years back, it was estimated that 300 acre/ft of water was used in the state for ALL the frac jobs – bout 500. Average Cali golf course uses about 350 acre ft/yr. There are over 1,000 golf courses in the state.).
When will the de-forestation of Alaska begin to burn wood in power plants to generate electricity? Probably what will happen, humanity doesn’t have a lick of sense.
Remember when you would take a magnifying glass and focus the sun’s rays onto the surface of a piece of paper and start it on fire? Combustion spontaneously happens due to nature’s tricks and are plenty of fun. The sun’s energy concentrated on one tiny spot here on earth, you can write in braille with a magnifying glass and some of the energy from the sun. Less than two percent of the sun’s energy reaches the earth’s surface. I doubt that it will improve much more, does no good to complain. What the sun does for the earth now is plenty good enough.
Oil in Japan is at 37,370 yen per tonne.
37,370/118=316 usd per tonne, if the yen were at 88 like it was in January of 2013, the price would be 58 dollars per barrel in Japan.
316/7.3 barrels per tonne=43.38 per barrel in Japan today.
Don’t expect price increases to happen anytime soon, Japan’s imports have been decreasing.
Bakken oil was 3 dollars less per barrel when Japan began to import Bakken oil instead of oil from the Middle East. Purdy much the rub there-in, the beginning of the price decrease. Why should Japan pay a higher price for oil from the Middle East when it can buy oil from the US at a cost savings? They’re saving some dough, if you can spend less for just as much, it is what you do. Buy Bakken oil, you’re going to save some yen, pay less for oil, not use as much of it, greater cost saving, more efficiency, less dependency on oil, can’t go wrong buying a million barrels per day and save three million dollars, it’s the no brainer stop what you’re doing and do it a little different scenario. Japan finally got what it wished for, a low price for a barrel of oil. Makes the most sense of all.
Bakken oil a rip-off back in September of last year:
http://www.japantimes.co.jp/opinion/2014/09/21/commentary/japan-commentary/rather-than-boon-for-japan-u-s-shale-oil-is-still-rip-off/#.VMdXp2h4qqk
From the article:
Japan hopes to be able to import low-priced oil as a result of the slackening of the demand-supply ratio in the oil market caused by the shale gas revolution.
http://www.japantimes.co.jp/opinion/2014/09/21/commentary/japan-commentary/rather-than-boon-for-japan-u-s-shale-oil-is-still-rip-off/#.VMdXp2h4qqk
Kind of explains what’s going on, the market reacted.
At 43 dollars, Japan is saved from the never ending astronomical costs of using oil.
100 dollar oil is unsustainable, economies go to pieces.
The real answer is solar power, the wise use of oil and coal to achieve a solar based energy grid is really a solution, not wholly, but its sum will reduce the consumption of oil and coal in the future.
The sun shines in Australia, all of Asia, in India, Africa, Europe, North America, South America, on the Pacific, the Atlantic, the Indian oceans, all of the islands in the world, on the North Pole 24/7 for a couple of months in the summer, the same for the South Pole, the sun shines everywhere you go, no matter where you are. Might be behind some clouds now and then, but it’s always there.
Nobody can start wars from lack of the sunshine, nobody can change what it does and the sun does it all of the time, never takes a day off, always shining and doing its best, come what may, comets, asteroids, it’s keeps on truckin’.
If energy from the sun can produce electricity right where you’re at, you have a solution.
There are in existence solar powered battery systems that will start a combine in below zero cold weather. You’re cookin’ with gas when you have a solar powered battery that can do something like that.
The technology is there and can replace a lot of what oil does, but not everything.
Harnessing the power from the sun, achieve productivity in the form of usable energy, electricity, is a reasonable goal, not pie in the sky.
Humanity will be doing itself a huge favor by developing more solar power, active and passive.
A good place to start to end the over-indulgent dependence on oil and coal. Probably a necessity now, right now.
There is no pipeline to the space station.
Great “Must Read” article over on Oilprice.com.
U.S. Shale Boom May Come To Abrupt End
Rig productivity has increased but average well productivity has decreased. Every rig used in pad drilling has approximately three times the impact on the daily production rate as a rig did before pad drilling. At the same time, average well productivity has decreased by about one-third.
This means that production rates will fall at a much higher rate today than during previous periods of falling rig counts.
Well productivity is falling. It has already fell by one third. That is the same thing I have been telling you folks for months now.
This could also mean they have to learn to space pad wells a little better. Pad and well layout requires common sense, experience, and a tight well integrated team.
For example, check the initial pad and horizontal well layout used by Total in their heavy oil development in Venezuela. The used a crazy scheme with wells located as if they were spokes in a wheel. This caused a lot of problems later.
I have also seen horizontal wells drilled while ignoring the local stress field. This can lead to very poor quality wells because the fractures end up twisting and turning as they try to follow the path of least resistance.
This could also mean they have to learn to space pad wells a little better.
This could also mean that the sweet spots are just petering out.
Average well productivity falls due to high decline rates of legacy wells. Average well productivity is different from average new well productivity.
Yes. It’s reasonable to expect sweet spots to get drilled. Sometimes we find a “new sweet spot” we didn’t know about, but that just puts a wiggle on a curve of ever declining quality.
In one case I know about the higher prices coupled to fracturing in vertical wells actually raised production to a higher plateau, but that required tripling the rig count and fracturing wells like crazy.
However, don’t underestimate the fact that many engineers just don’t know how to lay out horizontal well pads. I bet they are learning quite a bit as they go along.
Hi Fernando,
They have been doing this since 2008 in the Bakken and since 2010 in the Eagle Ford, horizontal wells with fracturing, that is. How long is the typical learning curve? I would think they have got it down at this point.
On an unrelated point, we had a brief conversation about C+C URR for the World and you thought around 3000 Gb made sense. Did the 3000 Gb include extra heavy(XH) oil or was 3000 Gb C+C less extra heavy oil? I assume about 500 Gb of extra heavy URR from Orinoco and Canadian tar sands combined and my high estimate for World C+C-XH is about 2800 Gb.
It’s different for every field and there are even variation within the field.
It’s not a fixed target.
The 3000 was everything. The learning curve depends on how much they share, and as Nick explained it depends on homogeneity. I bet the Three Forks is different from the Middle Bakken.
When I was worrying about this issue I focused on the artificial lift. It’s easy to drill a well to a given target. But to drill it without kinks and with the right hole shape for a pump is a bit more difficult. To drill a horizontal well fit for a large ESP takes a certain skill.
Hi Fernando,
They have drilled about 9000 wells in the Bakken/Three Forks so perhaps they have figured this out, perhaps not.
I am a little surprised you expect only 2500 Gb URR for C+C less extra heavy. For year end 2010 Jean Laherrere has estimated that C+C les extra heavy proved plus probable reserves plus cumulative production was about 2000 Gb. So a 2500 Gb estimate implies reserve growth plus discoveries of only 500 Gb from 2010 to 2100.
The USGS estimate is 3000 Gb for the World URR of C+C less extra heavy (it is actually slightly less because LTO is not included in the 3000 Gb estimate by the USGS). I think the USGS is too optimistic, but would put C+C less extra heavy at 2800 Gb. Thanks for the input, I had misinterpreted your earlier comment, thinking that you thought 2900 Gb for C+C less extra heavy was a reasonable estimate.
One final note. Using EIA proved reserve data and cumulative C+C output and deducting 230 Gb for Orinoco reserves and 170 Gb for Canadian tar sands we get about 2500 Gb. Then we need to deduct 300 Gb from OPEC overstated reserves (following Jean Laherrere’s estimate) for a 2200 Gb total at the end of 2013 for C+C less extra heavy oil. If this is an accurate estimate of 2P reserves plus cumulative C+C output, it would imply only 300 Gb of future discoveries plus reserve growth. Does that seems rather low, an increase of less than 14% (300/2200)?
Dennis, as you know most companies book proved reserves using rather conservative asumptions. This has allowed reserves to be moved from probable to proved over the years. But what I observed over the last 15 years was increased bookings due to higher oil prices. In other words, that free ride we used to have started running out of steam. I should also point out I’m seeing some outfits mixing gas as BOE, adding NGL as if they were real condensate, and other tricks to their public releases. Their 10ks and sec filings are honest, but they try to sweet talk the public. Let me ask you: what’s the largest oil discovery in each of the last 20 years? How much is it supposed to produce when it reaches the field plateau? Does that trend look like it will lead to 200 GB of new reserves?
Hi Fernando,
First, please don’t take my questions on the oil industry as anything but trying to learn from a pro. I do not know specifically what discoveries have been or how much they will produce, I have pulled the data from charts in papers by Jean Laherrere. Based on his data (which ends in 2011) there were about 240 Gb of discoveries plus reserve growth in 2P reserves from 1991 to 2011. That is all I have for data, so an average over those years of 12 Gb/year. Jean Laherrere is quite conservative in his estimates and I believe these are C+C discoveries only.
The EIA proved reserve data is probably based on SEC filings rather than investor presentations and I believe that for most countries besides the US this is 2P data rather than 1P.
The answer to your last question is that I expect oil prices will increase over time and that possible reserves are continually being moved to probable and then to proved as more wells are drilled, technology improves and prices increase.
You have already said you thought 2500 Gb was a reasonable estimate for Crude less extra heavy so 300 Gb of discoveries plus reserve growth are already built into that estimate. So the answer is that I see 600 Gb being added to the URR of C+C less extra heavy from current 2P reserves plus cumulative output of 2200 Gb to an ultimate of 2800 Gb. Ten years ago there were a number of people estimating 2000 Gb for a C+C ultimate for C+C less extra heavy, Laherrere now estimates 2200 Gb, Hubbert Linearization points to 2500 Gb in my view and tends to underestimate eventual output (it pointed to 2000 Gb in 2005). It could be that reality will be 2650 Gb or between 2500 and 2800 Gb.
I see where your question leads, I think.
If we break it up into 20 year periods, discoveries from 1971 to 1991 are about 500 Gb, so the next 20 years may only result in 125 Gb and the 20 years after that 62.5 Gb, this would only suggest 240 Gb by 2111. It is possible such an estimate will be correct, but high oil prices may change things. If I understand where you were trying to point me, I think I understand your reasoning and it seems very reasonable.
Dennis, I think the reserve additions from performance are drying out. I will search for discoveries only. I can tell you that, under prices prevailing in the early 1990’s, ALL EXPLORATION efforts yielded a negative return since around 1979. That’s a hard point, but I can’t give you a source. This tells me ALL exploration in the 1990s was probably a wasted effort. Deep water, Light tight oil and extra heavy oil emerged because we had better technology AND much higher prices. But conventional exploration needs a lot of high grading. It’s not really competitive with technologies such as coal to liquids.
Hi Fernando,
Thanks for your response. Prices were pretty low in the 1986 to 1990 period, but I would think at $80-$100 per barrel there would be more projects that are profitable. At some point coal to liquids might be viable, but the cost of coal can rise as well.
Also we have very different perspectives on climate change, I think it is better to leave coal in the ground, just in case all those climate scientists know what they are doing. Out of curiosity, what do you think of David Rutledge’s estimate for World Coal URR?
I don’t know much about coal reserves. I do know a lot of it is found around the Fairbanks area. Also I understand the chinese coal has been peaking?
I struggle to understand the daily production per rig chart. If I understand it correctly, daily production is a cumulative value for all previously drilled wells. And rig count is a value that influences future production. What might be a meaning of such a relation?
E.g. if we stop all the drilling at once that is the number of rigs becomes zero, the production will remain almost the same for a while. Thus production / #rigs ratio instantly jumps to infinity.
Mathematically, if we consider r(t) is the number of rigs as a function of time, and p(r, t) as production of wells drilled with r rigs over time, then the total production would be something like this:
P(t) = ∫ p(r(t), t) dt
As far as I see P(t) / r(t) relation is of somewhat dubious value. It would be more useful to fund a derivative production function P'(t). Then having at hand the equation
P'(t) = p(r(t), t)
and taking a wild assumption that p(r(t), t) is approximately proportional to r(t) thus it could be factored out like this:
p(1, t) ≈ p(r(t), t) / r(t)
we could try to find p(1, t) like this:
p(1, t) ≈ P'(t) / r(t)
This would give us an estimation of an average single rig productivity over time. All in all the relation P'(t) / r(t) would be something with a clear meaning unlike the relation P(t) / r(t).
Aleksey, you are making it a lot more complicated than it really is. The number of rigs a country has is simply that, the number of rigs they currently have drilling. It is meant to indicate the number of rigs required to keep their production flat, or whichever way it happens to be moving at the time.
My post was only meant to show that it now takes a lot more rigs to keep production flat than it did in 2000.
Ron, yes, I understand it. And thank you very much for your work. It is simply great and on all important issue of peak oil that for some reason is ignored by most of the public.
My comment was not actually about your main post but was triggered by the add-on chart “Eagle Ford Shale Daily Production Per Well & Per Rig”. I found the per rig curve there of a dubious value. And I was thinking what would be a more mathematically correct data representation for analysis of rig efficiency.
Of course that wasn’t my chart. The chart came from here:
U.S. Shale Boom May Come To Abrupt End
The charts on that page were Art Berman’s, not mine and all points made were his also.
As for rig efficiency, that is already being done by the EIA:
Drilling Productivity Report
Most of us here found the EIA’s Drilling Productivity Report less than useful but you can make of it what you may.
That chart, and its companion chart for the Bakken is not only highly informative, it tells the tale of those two formations these past 7/8 years.
After holding at bout 50 rigs – and dropping a bit with the economic contraction in 2009, the rig number started to rise in 2010 along with the oil output. This coincided with EOG and a few other companies showing success with the horizontal/frac’ing process that had somewhat limited success with oil prior to this. (The gas production in other formations had shown success for a half dozen years due, along with other factors, the gas molecule being much smaller than oil).
The furious “land grab” phase ensued the next couple of years as the operators needed to produce hydrocarbons to protect their lease agreements. The 200+ rigs in the Bakken in 2012 will forevermore be the highwater mark for rigs there.
The above chart clearly shows the increasing output from new wells and they have surpassed 500 bbl/d.
The Bakken chart – while similar to the EF chart – shows the oil output increase in new wells less pronounced in 2011, 2012, to mid 2013 as the efficiency took a back seat to the need to simply produce some hydrocarbons to hold leased acreage. (The well output actually declined in the Bak for 2 years – mid 2009 to early 2011 as the operators were furiously drilling to hold their acreage in the expectation of higher returns as their experience/expertise increased, which has shown to be the case as per the chart.
Maybe the Eagle Ford was primarily a gas play, and then the drilling shifted to the gas/condensate window. I understand the EF has variable rock properties as well. And then there’s the learning curve in drlling and completion.
But what I really would like to have a full component analysis over time. I bet that’s got NGL mixed to some extent in the “oil” numbers.
Hi Fernando,
The Eagle Ford started as a condensate play with about 50% of output as condensate in 2011, more recently the condensate is down to about 20% of output based on RRC data.
What’s the output unit, energy in btu?
Hi Fernando,
Not sure I understand the question, the output is crude plus condensate on left vertical axis in kilobarrels per day, right axis is the percentage of crude in the crude plus condensate total.
As far as the actual BTUs per barrel of crude or crude plus condensate, I have no idea. Someone may have that data, but not me.
Aleksey,
You are correct.
I would restate it by leaving out the calculus, which makes most people’s eyes glaze over.
Let’s use algebra and I will substitute “d” for the greek letter “delta” which in algebra means “change in”.
So you would like to see dP/r, where dP is the change in monthly output in month x and r is the number of rigs in month x minus 1?
If I interpret your comment correctly, that would make a lot of sense. The problem is that the change in international output (World minus US minus Canadian output) has been close to zero since 2004 (or negative) so dP/r is either zero or negative for international rigs. We do not have good international data for the number of wells or the number of wells drilled per rig.
Ron’s basic observation is correct. Today for C+C output in the World less US less Canada (international C+C output) it requires about 61% more international oil rigs to produce 60 mbopd as it did in 2005 (650 oil rigs in Jan 2005 and 1050 oil rigs in June 2014.)
What does it mean to: “to fund a derivative production function” ? My math skills stop at the Riemann zeta function so maybe this is beyond my depth. Or perhaps we should just leave the BS behind and move on?
I meant derivative function of oil production over time. As in integral-differential calculus. Simply put acceleration is a derivative function of speed. In turn speed is a derivative function of travel distance.
If we interpret oil production as the speed of oil resources depletion then its derivative function would be acceleration/deceleration of this process. If there are many rigs operating then the production must be accelerating. If there are not so many rigs operating then the production must be decelerating.
“Simply put acceleration is a derivative function of speed.” No, actually acceleration is the rate of change of velocity as a function of time: It is a vector. “Speed” is distance traveled divided by time of travel: High school stuff.
“If we interpret oil production as the speed of oil resources depletion…” SPEED? By “speed of oil resources depletion” presumably you mean “rate” of depletion. Leave bullshit pseudo-analysis where it belongs or at least use accepted nomenclature.
Interesting, in my native language there is no distinction between speed and velocity. Even in high school. But your comment left it unclear what is actual distinction between speed and velocity. Is it vector vs scalar or function vs its average value?
If it is vector vs scalar, then for single-dimensioned space there should not be any difference, right?
“Interesting, in my native language there is no distinction between speed and velocity.”Aleksey, sorry math/physics definitions are not language dependent and yes a line or curve is one-dimensional so, in a way, what you’re saying is true. It’s also true that the simplest operation that can be performed on a vector is to multiply it by a scalar but you cannot just exchange vectors and scalars (in general) and expect to be taken seriously. Just accept what Dennis and Ron said, PLEASE.
Of course, math & physics are language independent. There is no question on this.
But really weird stuff for me is how do they teach them English-speaking students. Why on Earth there is a need to borrow a word from Latin with the same basic meaning to tell a scalar value from a vector value.
Is this pattern extended to every physical value? Are there separate words for acceleration as absolute value and acceleration as a vector, distance as absolute value and distance as a vector in certain coordinate system? Or does it apply only to speed?
If it applies only to speed then I have to conclude that this is just an idiosyncrasy of English language. There is no math, no physics, and no logic whatsoever behind it.
When I think about it I just think about scalar speed and vector speed. This is how I’ve been trained, and how it would sound in a language with coherent “orthogonal” basis for definitions.
Now, thank you for pointing me out this particular feature of English. English is full of funny exceptions, it never ends. I’ll try to remember this one from now on.
Then again, I haven’t exchanged vectors and scalars. Vectors in this particular context were of very little use. But you brought them up. Apparently you have great sensitivity to usage of accepted nomenclature. This is good. However sometimes getting the context right might be even better.
As for Ron and Dennis, their comments were absolutely to the point and I don’t intend to argue with them.
Aleksey,
Yes, I can be a pain in the ass. And no, don’t expect a lot of logic in the English language. When I was a student we were expected to know Latin, and in my wife’s case, ancient Greek as well; then we were forced to do two Romance languages. In mid-life I wasted years learning to read, write, and speak Japanese and, finally, Vietnamese. The Japanese meant I could (sort of) read Chinese while working there.
So all that wasted time shows what an idiot I am. But I’m not so sure the Latin base for scientific nomenclature is such a bad idea. It does help to semi-standardize terms in various fields: Biology, geology, etc.
Cool. I envy you. Me, empty-headed ignoramus, only bothered to learn English as poorly as it gets.
In English speed is the raw delta distance over delta time value. Velocity is speed plus the vector or direction component. Thus I can say “that pie is moving at 10 meters per second”, and that’s speed. We nerds say “that pie is moving at 10 meters per second, in a fully horizontal and directly South direction towards Fernando’s face”.
I don’t want to get into the details of the frame of reference issues, and we can neglect relativistic effects.
From a purely nerdtropic point of view I loved Aleksey’s analysis. And I think this type of work should be encouraged.
Hi Fernando,
I agree, lots of people are uncomfortable with calculus so I try to avoid it. Haven’t used it much in years so I am quite rusty as well. Trying to use the symbols is also a pain on a blog. I tend to stick with area under the curve for integration and the slope of the curve for derivative to keep it simple.
Aleksey is right here, even if he expresses it oddly. He is using a sort of Heaviside formulation, where integrals and derivatives are viewed as operators that convert one function into another.
Rate is fine but what do you call the rate at which a rate changes? He is using acceleration for this. The point is you have a rate at which oil is being produced and two operators that take that rate as an input, the first giving you the cumulative quantity that is produced over a given time period at that rate of production and the second that gives you a function stating how the rate changes in time. The two operators are inverses of each other.
Your distinction between speed and velocity is a non-sequitur in this context.
Bullshit. Heaviside formulation refers to four re-formulated Maxwell equations. How does describing static and moving electric charges (and magnetic dipoles) relate to anything being discussed here? Besides, Heaviside was criticized over his use of poorly defined operators. That poorly defined part would fit my argument perfectly.
A Heaviside function is also known as a step function, and is often used in calculus to model a step response in an integral formulation.
http://www.wolframalpha.com/input/?i=heaviside%28t-10%29
You are digging a hole here I am afraid.
Aleksey, Ilambiquated, and DC are just applying basic calculus.
Hi Paul,
I am trying to do calculus algebraically, but not succeeding all that well. I am not familiar with Heaviside functions. Out of my depth.
Heaviside formulation is a general way of looking at calculus. He applied it to Maxwell’s equations, but it is a calculus idea, not an electricity idea.
One of the beautiful things about math is that it exists independently from the physical phenomena it describes.
And heaven knows one cannot possibly understand what Peak Oil is all about unless they understand Maxwell’s equations, calculus and geometry.
However if you really want to understand Peak Oil you need to be well versed in quantum mechanics, otherwise you are a hopeless cause.
Hi Ron,
Well that explains a lot. I am lousy at quantum mechanics 🙂
People from the oil patch tend to be antagonistic toward math types.
I think the reason many of them got into the business is that they wanted to be outdoors and not cooped up behind a desk all day. The decision was made early in their careers that field work was more satisfying.
What you see with these comments is that bias played out. Lots of folk wisdom and tribal knowledge at the expense of logical statistical reasoning.
That’s just the way it is. If this was a different technical field, you would see a bias that was more conducive to math exploration.
But in the end what matters is compiled numbers, and you won’t generate the end-result statistics if you can’t do the math. Heaviside functions and Dirac delta functions are building blocks that allow an analyst to generate formal algorithms that can then be transferred to computer code. That’s what allows us to do projections of flow rates given the historical data.
And “fund” is a typo for “find”. Sorry about that.
Keep at it. And don’t worry about the typos. Eta bwila ochin kharasho.
Thanks, Fernando.
The English language is the result of mixing anglosaxon with French and Latin. Native speakers tend to be unaware, but the darned language has TWO words for everything. Forest-woods, velocity-speed, and so on.
And each and every profession other than the pure hard sciences using English common words uses a different precise technical definition of half of these words – the result being to sow endless confusion among people trying to understand the basics of one when trained in another.
I learned a long time ago to keep my mouth shut in respect to the precise definition of specific terms in various instructional settings. It pisses off a nursing professor no end to remind her that what she calls a calorie is a kilocalorie according to everybody outside the nutritional sciences field.
But we do have this thing called free speech here and we should never forget the unforgettable words of Humpty Dumpty. HD sez words mean what HE says no more and no less. 😉
Besides which – without this grist the legal mills would have to operate at less than full capacity some days.
Can’t have lawyers sitting around without work no siree!!!
We use the number 8-10 million per fracked well. Are wells from multi-well pads much cheaper?
Of course production*price / Total costs per well is year is a key metric.
A multiple well pad can save money. The savings come from reductions in well pad, road, flowline, power line, and telemetry…and of course in well costs if the pad layout is done right. The rig move cost is much lower. And if the directional plan is sensible the wells cost less. But this is subtle. A pad with too many wells will have the outer two wells drilled with a tighter turn. This can add to costs.
It is quite likely that drilling multiple wells from the same pad would reduce drilling cost slightly. You would save time and money by not having to tear down the rig, move it, and then rig it up again. That would be where the savings would come from. One million dollars? Perhaps.
The last figures I saw about Bakken cost were 4 million to drill and 5 million to frack. I don’s see how multi-well pads would save much on fracking cost.
Assuming oil prices head back up later this year, wonder if shale drillers will have access to enough capital to drill like they did in 2013-2014?
They’re going to be paying at least twice what they were for money. Oil bonds never should have been going for <6%, that's stupid.
There was that picture of the well pad up on the artificial hill with created road going to it. Probably most aren’t like that, but if you only build one hill for 4 wells vs 4 hills for 4 wells . . . . .
Hi Ron,
You said,
Well productivity is falling. It has already fell by one third. That is the same thing I have been telling you folks for months now.
The charts you posted are for the Eagle Ford. For the Bakken well productivity is not falling based on 3 month well output, in fact well productivity seems to be rising. I don’t have data for the Eagle Ford, but drilling info just uses Texas RRC data and does not account for the incomplete data from the RRC of Texas, so the apparent fall in well productivity may be a data artifact. In fact for my Eagle Ford model I have to increase the average well profile in order for the output of the model to match the estimate of Eagle Ford output using the number of wells reported by the RRC of Texas for the Eagle Ford.
In Art Berman’s article he talks about well productivity of all wells. This is very different from the average productivity of new wells. The average productivity of the average producing well has decreased, this is expected due to the high decline rate of LTO wells. The average new well productivity has been increasing in the Eagle Ford, in order to match the model to the data, new well productivity needed to be raised by 23% from Jan 2014 to Sept 2014, the model is still a little lower than estimated Eagle Ford C+C output.
Chart with Eagle Ford Model and data below, including average well output on right axis (C+C/well).
I am puzzled by one bit of current wisdom. I have seen it written that oil companies will now pull rigs from less optimal plays and drill their best options. Another way of saying this is that companies were deliberately not drilling their best prospective wells and instead focusing on worse prospects. Do people believe this?
No, that is not what we are saying. There are many companies drilling. Some still have sweet spots to drill as well as spots that are not so sweet. They will continue to drill their acreage that is located in the sweet spots but will cease to drill their acreage that is not in the sweet spots. Companies that have no sweet spot acreage will cease to drill altogether.
I would guess that this has been covered already. So apologize for asking – Ron, based upon the latest year of drilling records, what would be your definition of a “sweet spot” Bakken well? That is, in terms of the first years’ annual production, such as any well over 200,000 bbls, or whatever. Then, based on that #, what % of Bakken wells actually achieved that in the last year for which there are records? I guess that would be wells drilled in 2013, most of which now have an initial 12 month record.
I think that because a high stock price is paramount, for the most part, drillers of 2013 wells “tried” to drill their best prospects, taking into account cost and logistical considerations.
The sweet spots would simply be the place or places that yield the most oil per day per well. Right now a sweet would yield perhaps 500 barrels per day the first full month of production. As the spot gets “less sweet” the yield goes down. A spot that yields less than 300 barrels per day the first full month of operation would not be very sweet.
Of course that is just my estimation. I am sure someone who is closer to the operation in the Bakken could give you a far better answer than that.
A well that yields 200,000 barrels the first year would be a super, super sweet spot well. That would be about 550 barrels per day average for the entire year. That would mean that it would yield about 1,200 barrels the first full month. There are just not too many wells in the Bakken that can do that.
“The sweet spots would simply be the place or places that yield the most oil per day per well.”
. . . for an equivalent number of frack stages.
Hi Ron,
For well that started producing between Dec 2013 and Jul 2014 about 35% meet that “sweet” point of 500 b/d in the second month of production (about 1200 wells in the sample). Probably the best metric for this is the cumulative 6 month output(as suggested by David Hughes in the past), a lot of wells have missing months of data for the first couple of months so this helps with that a bit.
I don’t buy that reasoning. Its kind like saying between low paying job and high paying job I will first take low paying job? It’s all greek to me. 🙂
Quote from the Greek FinMin:
“How can you demand that we repay loans to the ECB when they just announced they are going to print 1 Trillion Euros from thin air? How can it be moral to demand Greece impoverish its people to send something to Brussels that is created from nothingness and with no effort?”
Which is why oil’s peak is looking more and more weird. Money is deciding a lot of things over the next few months as lenders pull the plug, but money has no particular meaning.
They can print drachmas or use wooden nickels, or use euros. These guys are linked to Iglesias, a communist who is using populism here in Spain. And we know the Iglesias organization had been getting money from Venezuela. If I were in Greece I would check very carefully the Tziritzas funding. I bet they got venezuelan petrodollars in their early days.
The populism is necesary for to win elections. Is not populist Esperanza Aguirre in Spain? The change is posible in Spain. The oligarquy or “casta” must to be expulsed of the country. The Spain’s pain is a public debt created for corrupts goberments. The public debt is really private debt of banks. Iglesias want don’t pay this debt that the people did not created.
so poor, toilet paperless Venecuela is doing successful regime change in Europe country after country? well that is conspiracy to me.
Venezuela’s dictatorship shipped the cash in prior years. There are ongoing investigations, but the press reports one method they used was to give communist professors juicy contracts to “consult” for venezuela. Right now shipping a few million is feasible, but venezuela is indeed in dire straits. Those communist dictatorships do wreck economies. And they do get a lot of people murdered.
Hi Ves,
I think most people would take the higher paying job if all else is equal (which is never the case). So Ron is exactly right, the more profitable wells will be drilled, the less productive areas will not be drilled until prices rise. For this reason it is likely that the average new well productivity will increase because only the more productive wells will be drilled and fracked, unless they run out of locations to drill in the sweet spots.
If they do, average new well productivity will decrease.
I agree with Ron. I was answering to Gerd that that reasoning “drill sweet spots later” is bogus.
How much sweet spots are left at $45? That is the question that I would like to know.
“Many”. That’s how much. “Many.” Or “some”.
“many”=more than 1 less than infinity 🙂
Here are the sweet spots of Mountrail
Hi Ves,
I do not have an answer. The best I could do is look at what percentage of wells produce enough oil to earn and IRR of 10% at $45/b.
If we assume oil prices rise starting in 6 months at a 7% annual rate then a Bakken well with 100 kb in the first 12 months will meet the 10% IRR threshold (assumes 3% inflation and a real rate of return of 7%). Of the 5500 Bakken/Three Forks wells which have 12 months of output data which started producing after Dec 2009 about 38% of the wells meet the threshold and would be marginally profitable.
Note that these oil price assumptions are quite conservative, I would expect prices in the near term will rise by much more than a 7% annual rate. A more realistic oil price scenario would possibly put the figure at 50%.
The thing we don’t know is how many “sweet” drilling locations remain, just because 38% of 2010 to 2013 wells would be profitable does not mean this will be true for future wells drilled. Perhaps an oil man could make a better guess.
The question is whether all of these wells jump the hurdle if you cut well price by say 15 %. If you wait to drill the well in 2016 I bet they’ll do fine if they are tough on costs and prices hover around 80 when the well starts producing.
Hi Fernando,
The calculation I am doing includes OPEX of $7/b, other costs of $4/b, transport costs of $12/b and royalties and taxes of 26.5% and a well cost of $8 million, real discount rate is 7%. Why would we drop the price 15% below $45 ($38/b)? Would oil companies use a number that low in these circumstances? There are about $3 of natural gas sales for each barrel of oil produced (on average) so if we assume these are used to offset some of the OPEX we get net revenue of $11/b at an oil price of $38/b at the refinery gate. Not many wells will pay out at that price.
I meant the well cost. I think a hard nosed operator can cut well cost to $6 million.
Ya I don’t know how a question that started “how many of these are such and such at $45” became “if we have a price rise of blah blah blah”.
There was no price rise in the question. A nice semi conservative lender is interested in NOW. What do the numbers look like NOW. The price could be $30 this year. A lender won’t presume up or down. What do the numbers look like at $45, so we know how many plugs to pull.
Watcher. The energy lending I am aware of will look at what price can oil produced in the future be hedged now. Lending that relies on something other than the current NYMEX strip is something I am unfamiliar with.
Hi Watcher,
I am looking at this as an oil producer who is self financing, Fernando is probably right that such a decision would look at a lower starting price than $45/b.
Perhaps the oilmen could comment, do you expect that oil prices will be $30-$45/b long term?
No one really ever knows the future of oil prices. That is why banks insist that producers hedge. That is why I do not think there will be $ lent by banks to drill wells until oil prices rise quite a bit or producers have cash or other solid assets which could be taken as collateral.
Hi Shallow Sands,
A lot of the financing is with bonds. I imagine the rates on any new issues will be much higher. Possibly there will be no takers at any rate of interest.
Sorry about the confusion. I don’t think the price will go below $40 WTI. I’m getting too many comments from guys I know who say they will start shutting in and wait for the price to rise.
Hi Watcher,
A financial analysis has to make an estimate of future prices. The well produces oil for 20 years or more.
One can assume the real oil price will be $45/b for the next 20 years, but it would be a very bad estimate, we could use the futures strip for a few years and then assume prices continue to rise at that level. Note that the futures strip shows Brent increasing at 7.7% per year through 2021, very similar to what I assumed.
This is how it is done. Nobody who understands finance would use $45/b forever.
Hi Ves,
Sorry I didn’t realize your response was to Gerd.
http://headlines.ransquawk.com/headlines/a-senior-us-official-said-the-saudi-line-in-meetings-with-us-president-obama-was-one-of-continuity-in-which-they-said-they-are-to-make-sure-the-oil-markets-are-supplied-with-enough-oil-27-01-2015
tra la tra la
http://headlines.ransquawk.com/headlines/barclays-says-the-prospect-of-boj-introducing-a-negative-interest-rate-can-longer-be-dismissed-as-unrealistic-28-01-2015
I never know when to insert things like this as I often find them outside the current thread here, but I thought some people here might find it interesting.
“Climate change is a complex and intimidating threat. You can’t see it when you look out your bedroom window. Its impacts are often not immediately noticeable, nor are the benefits of acting against it.
Luckily there are a large group of passionate individuals who have dedicated their lives to studying climate change. These people write complex research papers, unpacking every aspect of climate change, analysing it thoroughly and clinically. They understand the numbers, the facts and the figures. They know what is causing it, what the impacts will be and how we can minimize these impacts.
But they’re not robots. These scientists are mothers, fathers, grandparents, daughters. They are real people. And they’re concerned.”
“What follows are the words of real scientists. Researchers that understand climate change.”
http://isthishowyoufeel.weebly.com/
Oh and that 97%..
“We analyze the evolution of the scientific consensus on anthropogenic global warming (AGW) in the peer-reviewed scientific literature, examining 11 944 climate abstracts from 1991–2011 matching the topics ‘global climate change’ or ‘global warming’. We find that 66.4% of abstracts expressed no position on AGW, 32.6% endorsed AGW, 0.7% rejected AGW and 0.3% were uncertain about the cause of global warming. Among abstracts expressing a position on AGW, 97.1% endorsed the consensus position that humans are causing global warming. In a second phase of this study, we invited authors to rate their own papers. Compared to abstract ratings, a smaller percentage of self-rated papers expressed no position on AGW (35.5%). Among self-rated papers expressing a position on AGW, 97.2% endorsed the consensus. For both abstract ratings and authors’ self-ratings, the percentage of endorsements among papers expressing a position on AGW marginally increased over time. Our analysis indicates that the number of papers rejecting the consensus on AGW is a vanishingly small proportion of the published research.”
http://iopscience.iop.org/1748-9326/8/2/024024/article
I’ll bet there are some folks who would want to see that on global warming blogs.
That 97 % paper is poppycock. Go tell Dana I said so.
You’re an idiot!
That 97% number is a hoax. You’re obviously a consumer of the Communist Media.
well, there is def more pirates
less I mean!
I wonder how many of the 97% “agree” on a specific number for climate sensitivity?
Hi JohnB,
There is consensus that there is more to learn and that the range of plausible equilibrium climate sensitivities to a doubling of CO2 equivalent is in the range of 1 to 4.5 C with 3C as the best guess. Probably 95% of climate scientists would say the range is 2 to 4C or possibly 2.5 to 4C.
CO2 level is fast becoming a minor player in global warming.
At this point in your discussion, it is useful be mindful of the 40-year old history of UN-led climate science. It started in the 1970’s by the announcement of the coming “New Ice Age” (which had a remedy = our unilateral disarmament). The big guru of Global warming theory is Dr. Hansen who started his young career by that New Ice Age proclamation; when the panic generated from that petered out in the 1990’s (after Reagan destroyed the Soviet Union) it continued by the announcement of the man-made catastrophic “Global Warming” (which had a remedy = UN-sponsored world socialist government to “spread the wealth around” and “reduce” the world population from the existing 6.5 billion down to the “sustainable” level of 1.5 billion); after a decade of no noticeable temperature increase the panic generated from “Global Warming” was replaced by the theory of “Climate Change” (which had a remedy = whatever happens with our climate, we must do “something” drastic to reduce our standards of living) and now by the “Cap & Trade” power grab with the purpose of nationalizing our energy companies. Whatever that coterie of government-paid drones controlled by the far-left UN Panel “specialists” is cooking up by means of massaged data, reverse graphs (another guru, Dr. Mann, “confused” cause and effect in his revealing “hockey stick” graphs), and erroneous calculations – the final aim is to empower a new UN-sponsored world socialist government authorized to “spread the wealth around” and so save the planet from a sure annihilation caused by “the rapacious and irresponsible capitalists”.
By now it is possible to fill entire libraries (plural) with verified literature debunking the entire “Climate change” story. Some of the best investigative reporters and politicians whose works could fill these libraries include Christopher Horner, Robert Carter, Senator James Inhofe, Rupert Darwall, AW Montford, and David Archibald among others. They all are able to expertly describe the lies, fakes, phony data, opposite conclusions, redactions, reverse graphs, destruction of unwelcome data, etc., that have exposed this far-left propaganda cooked up by the UN-hacks in painful but intricate detail. Also, the Oregon Petition (see Internet) signed by 31,487 independent US scientists (including 9,029 with PhD degrees), disputes the “science” of the UN panel and its “scientists”. Yes several Eco-terrorists submitted false names and credentials in an attempt to compromise that effort started by the Nobel Prize in Physics Edward Teller (now deceased, R.I.P.); it took a lot of private free-enterprise money to clean up the list. To prevent further attempts at sabotage the petition was closed out in the late 1990’s. Another such document named The Manhattan Declaration lists some 720 scientists, including 120 pure climatologists, and states the same. We can’t help but note that the name was changed to “Climate Change” – because after 17 years of no global temperature increases (and some times even decreases, see the massive unexplained increases in Antarctic ice) it is just too hard for any of these people to keep saying “Global Warming” and keep a straight face.
In short, the science under the new name “Climate Change” is nothing but another left-wing money grab. It’s pure left-wing politics, nothing more. Fortunately about 33% of Americans are already aware of this, with more and more coming to the same conclusion every day.
In short, the science under the new name “Climate Change” is nothing but another left-wing money grab. It’s pure left-wing politics, nothing more. Fortunately about 33% of Americans are already aware of this, with more and more coming to the same conclusion every day.
And half the world’s wealth being held by 1% of the world’s population is a right wing money grab.
Now it’s more than 33%
Now that’s science, just take an opinion poll. In the 16th century the earth was flat and in 1960 cigarettes were good for you.
REALITY is the conjectured state of things as they actually exist, rather than as they may appear or might be imagined…
As sure as the sun rises there will be another ice age. Nice to see that you and your heroic band of truthers are doing their best to hold it off.
See definition of reality.
Hi DrkHorse,
You do realize that you have to be a card carrying member of the Communist party in order to be a climate scientist. 🙂
I keep wondering who these “Communists” are. Didn’t Reagan get rid of them in the Soviet Union, and hasn’t America bought them out in China?
Really, what Communists?
But I hear Satan has signed up lots of scientists.
People across this country have to feed their families. You may be a typical liberal/progressive who doesn’t like certain fossil fuel industries, but we aren’t walking a mile in that man’s shoes. Moral superiority is such a self satisfying feeling until one deals with karma. It helps none of us to put down other people.
Hi Laura,
Yes people need to feed their families. Does it help for people to put their heads in the sand? Oil, natural gas, and coal will deplete over time, it took millions of years for these resources to be created and we are using them over hundreds of years.
We use up the resources that are easiest to produce first and over time the resources become more and more difficult to produce which increases their cost.
There is no conspiracy, this is basic economics. Prices of oil, natural gas, and coal will increase over time, technology can help keep costs down, but it is not magic, there are limits to what technology can accomplish.
Many who post here are fully aware of this story, perhaps you are not. When prices of energy rise, it is not because of the liberals and communists, it is just the way it is. People will have to realize that fossil fuel energy will get more expensive until people move to substitutes, such as EVs, public transportation, wind, solar, and nuclear energy.
You may be a typical liberal/progressive who doesn’t like certain fossil fuel industries, but we aren’t walking a mile in that man’s shoes
Do you realize where you are posting? This is a PEAK OIL forum. They are saying here that the oil is getting harder to find. And it will get more expensive. It has nothing to do with Communists. We’ve been using up oil like it will never run out, but it is.
Go sell your ideas elsewhere.
Chinese commies are very practical sorts and long ago one of them in a position of great power posed the question thus- what matters the color of the cat so long as it catches the mice?
The commies are alive and well in China and they are buying US out rather than the other way around.
Maybe they will lose control one of these days but for now their power is secure. They have simply learned how to make use of some of capitalism’s more attractive qualities. Of course these better qualities come with strings attached such as unbreathable air.
Drk Horse,
“The Carbon Dioxide Theory of Climate Change”, Gilbert Plass, Tellus, May 1956.
The journal “Climate Change” was started in 1977; still publishing, last I looked.
Hello Mr. Horse,
“Climate Change” aside, the air pollution problem has to be fixed.
http://www.theguardian.com/world/gallery/2014/feb/25/air-pollution-in-china-in-pictures
On a regular basis we get the climate change skeptics jumping in here, but it’s a waste of their energy. Aside from the fact that nothing they post will be accepted at face value, everything here has to do with the future of oil and the energy alternatives available as oil becomes harder to get and more expensive.
Oil is getting harder to find and get out of the ground. Natural gas is cheap right now, but may not remain so. Coal is dirty and the plants that run on it contribute heavily to local air pollution unless effort is made to burn it cleanly. Nuclear is good if you are concerned about CO2, but economic issues make a quick ramp up unlikely even if everyone okays nuclear expansion.
People can scream “Communists” all they want, but they are butting up against economic and resource realities. But, as I said before, I guess we can always blame Satan. If you don’t the news blame someone.
Yes, they do show up on a regular basis, and on a regular basis I put them on the ban list. People who’s argument is “communist conspiracy” or “left wing power grab” are not making a logical argument but just spouting bullshit that they know nothing about. I just don’t want to hear it here.
I will allow them their one moment upon this stage then they are gone forever.
a poor player
That struts and frets his hour upon the stage
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing
Thank you for doing that.
That really is a great strategy.
We can read these ill-informed memes (mostly originating in the U.S. sadly) once then be bothered by them no more.
“The big guru of Global warming theory is Dr. Hansen who started his young career by that New Ice Age proclamation”
No, he didn’t. He started his career by being trolled by deniers.
Please Talk with Your Grandfather
Two topics, one old and bedraggled, one important:
1. Swift-Boating In 1976, with four colleagues, I wrote my first paper on climate (Science, 194, 685-690, 1976). Based on the suggestion of Yuk Yung, one of the co-authors, we examined, for the first time, whether several human-made trace gases might have an important greenhouse effect (until then, only carbon dioxide and chlorofluorocarbons had been considered). We found that methane and nitrous oxide were likely to be important, though measurements of how these gases might be changing were not yet available. Starting then I became interested, very interested, in the Earth’s climate; indeed, two years later I resigned as Principal Investigator of an experiment on its way to Venus so that I could devote full time to studies of the Earth’s climate. So it was a bit of a surprise when I began to be inundated a few days ago with reports that I had issued proclamations five years earlier, in 1971, that the Earth was headed into an ice age. Here is how this swift-boating works. First on 19 September 2007 a Washington Times article by John McCaslin reported that a 9 July 1971 article by Victor Cohn in the Washington Post had been discovered with the title “U.S. Scientist Sees New Ice Age Coming”. The scientist, S.I. Rasool, is reported as saying that the world “could be as little as 50 or 60 years away from a disastrous new ice age”. This is an old story: Rasool and (Steve) Schneider published a paper in Science on that day noting that if human-made aerosols (small particles in the air) increased by a factor of four, other things being equal, they could cause massive global cooling. At Steve’s 60th birthday celebration I argued that the Rasool and Schneider paper was a useful scientific paper, an example of hypothesis testing, in the spirit of good science. But what is the news today? Mr. McCaslin reported that Rasool and Hansen were colleagues at NASA and “Mr. Rasool came to his chilling conclusions by resorting in part to a new computer program developed by Mr. Hansen that studied clouds above Venus.” What was that program? It was a ‘Mie scattering’ code I had written to calculate light scattering by spherical particles. Indeed, it was useful for Venus studies, as it helped determine the size and refractive index of the particles in the clouds that veil the surface of Venus. I was glad to let Rasool and Schneider use that program to calculate scattering by aerosols. But Mie scattering functions, although more complex, are like sine and cosine mathematical functions, simply a useful tool for many problems. Allowing this scattering function to be used by other people does not in any way make me responsible for a climate theory.
Yet as this story passes from one swift boater to another it gets juicier and juicier, e.g.: Global Warming Scientist Once Warned of ‘Ice Age’ By Doug Ware – KUTV.com WASHINGTON – A NASA scientist, who is now sounding the alarm over global warming’s threat to the planet, once believed that pumping too many greenhouse gases into the air would have the opposite effect – a modern day ice age. James Hansen is currently among scientists who believe that carbon dioxide emissions are warming the planet’s atmosphere – posing a grave threat to the environment and humans’
ability to adapt to it. Many others – like public preachers Al Gore and Leonardo DiCaprio – share the same view in what seems to be the “hot button” issue of the moment. But 36 years ago, it appears, Hansen had a completely different warning – in what may be the scientific equivalent of a grandiose political ‘flip-flop’. In a Washington Post story dated July 9, 1971, Hansen – then a research associate at Columbia University – warned of a modern day ice age, which would cause the planet’s temperature to plummet as many as six degrees. The reason, he said then, was a fine dust emitted into the air via carbon dioxide pollution that would eventually become so dense that it would block sunlight and result in cooler temperatures – a scenario exactly the opposite of what leading climatologists say is happening now, that greenhouse gases are trapping heat inside the Earth’s atmosphere. Hansen and one of his research partners believed that the problem was so severe that the “ice age” could happen between five and ten years after the report – putting the prediction for extreme global cooling between about 1976 and 1981. It didn’t happen. Now a scientist for NASA, Hansen is facing criticism by some for an immense change of heart. How could he have predicted something so importunate at the time – only to make a 180- degree turn 35 years later, and completely head in the opposite direction? In fact the 1971 report even claims that Hansen and his associate dismissed the idea of global warming. “They found no need to worry about the carbon dioxide that fuel-burning puts in the atmosphere,” the Washington Post report said. It is little wonder that I have been getting nasty e-mails the past several days. But enough of swift-boating….
Jim Hansen
columbia.edu
I am neither a historian or an oil man but I have been interested in population and resources since the late 50’s. I was born in Amarillo, Texas in 1930. My father and mother had moved there from Waco and Missouri respectively as the 1920’s Texas Panhandle oil boom made jobs available. Amarillo had many oil millionaires even before Boone Pickens, including the late Stanley Marsh 3 of Cadillac Ranch fame and disastrous scandals. During the 30’s as the depression worsened and the East Texas Field (the largest ever found in the lower 48) began producing, the price of oil fell to the neighborhood of 10 cents a barrel. There were riots in the oil producing regions of Oklahoma. This is said to be the genesis of The Texas Railroad Commission restrictions. As Texas peaked control passed to OPEC. Below is one of many relevant links. https://www.tshaonline.org/handbook/online/articles/doogz
so how much oil/gas is off the coast of the mid-Atlantic?
http://www.doi.gov/news/pressreleases/interior-department-announces-draft-strategy-for-offshore-oil-and-gas-leasing.cfm
Very little. You’ll be able to tell because the bids will be peanuts.
Not much, and if it’s there the announcement has so many caveats in it and mechanisms for cancellation that it’s not at all clear why the announcement was even made. Maybe to anger enviro donors who might fund Hillary. He’s never liked Hillary.
nope 5 yr plans. this was going to happen back in 2010, but something happened in the GOM
Look at the graphic on the 2nd page of this:
Good Luck, Bad Luck, Mukluk
http://www.evworld.com/article.cfm?storyid=1523
3.8 Bbl UTTR (Undiscovered Technically Recoverable Resources) assessment in 2008.
(compare to Gulf of Mexico at 40.9 Bbo UTTR).
In 2014, they bumped up the mean estimate to 4.72 Bbo UTTR since the 2011 assessment of 3.3 Bbo.
http://www.boem.gov/Assessment-of-Oil-and-Gas-Resources-2014-Update/
But check out where the ECONOMICALLY recoverable number from the 2011 assessment is:
http://www.boem.gov/uploadedfiles/2011_national_assessment_factsheet.pdf
At 60$/bbl, the whole Atlantic OCS is only 1.88 Bbo.
No mention of economics in the 2014 update…. hmmm, and BTW, what’s the price of oil now???
Wouldn’t be surprising if they did NOT get any bids on some of the Atlantic area,
given that drilling has to be 50+ miles offshore. No infrastructure (workboats, vendors, pipelines, …) like in Texas/Louisiana, water will be getting pretty deep (== more expensive), stormier, colder, …
Hi sunnyv,
From your last link, at $30/b the ERR for the Gulf of Mexico is 33 Gb. I wonder what the oil guys think of such an estimate. These would be new resources added to the cumulative production and 2P reserves that we already know about (24 Gb) and 9 Gb of expected reserve growth for a total Gulf of Mexico URR of 66 Gb, seems a little high to me. About 16 Gb have been produced already, about 8 Gb of 2P reserves and 9 Gb of reserve growth, maybe another 10 Gb of discoveries, but not likely at $30/b in my view, maybe at $60/b.
Are you talking about just the US side of the GOM?
Hi MBP,
Yes, the estimate comes from the BOEM (Bureau of Ocean Energy Management, I think) for the US Gulf of Mexico.
It does seem a little high, but the subsalt stuff in the Wilcox seems to be quite prolific, so who knows. Similar to discussions on how the Mexican side of the Eagle Ford will perform, I am interested to see what exists in the Mexican side of the GOM. Pemex has done, as far as I can tell, no deepwater subsalt drilling. I assume there could be some big discoveries in the southern GOM, assuming Pemex plays ball with the majors.
ezryder,
In the last year or so there were actually blocks offered in the eastern Gulf of Mexico, over towards Florida, and there were no bids. I’m expecting that you won’t see many off the Atlantic coast either.
The same thing happened under Reagan, off Oregon–oil companies looked at the seismics (I don’t know if they had geochem) and walked away.
could be. I don’t know. Seems like I do remember that there was some controversy over allowing seismics due to concern about interfering with cetaceans.
Maybe they really don’t have enough data
US energy boost – Jamaica to benefit from US$90m clean-power project
“The White House yesterday announced that the US Overseas Private Investment Corporation (OPIC) would intensify its focus on developing green-energy projects in the Caribbean and that Jamaica is to be the largest beneficiary.
The US Department of the Interior and the Department of State are working with Jamaica to facilitate commercial renewable energy on public lands.”
This largely deals with the funding of a portion of 78MW of renewable energy additions to the grid that were accepted by the regulators last year. OPIC wil be financing a 34MW wind farm and there is also a 20MW solar farm that may be eligable for OPIC funding. The other 24MW is an expansion of an existing wind farm that has turned out to be very profitable and was able to arrange financing very easily. Apparently their revenues to date are about US$4.5 million short of the total amount invested to set up the 38.7MW, installed in two phases in 2004 and 2010. This is already the largest wind energy facility in the English-speaking Caribbean. See story here. The solar farm when completed will also be the largest in the English speaking Caribbean.
Small but IMO very important and positive steps in the right direction. If TechGuy is true to form, I’m sure he will be able to put a negative spin on this! Of interest to members of this forum is a comment by some person, calling themself “Peak Oiler”, trying to figure out a motive for this generosity on the part of the US and introducing readers to the concept of Available Net Exports.
Alan from the islands
Hey there Alan, sounds like great news to me!
Cheers,
Fred
UPDATE 2-Saudi Aramco to renegotiate some contracts on low oil price -CEO
Now even the Saudis are trying to cut costs.
Ooooh. Jeffrey!!
“The math will tell you that our exports… are gradually declining. So the reason for the imbalance in the market absolutely has nothing to do with Saudi Arabia.”
Good catch. I posted the article on Peakoil.com.
SmartGrid.gov is the gateway to information on federal initiatives that support the development of the technologies and policies transforming the electric power industry. This site is supported by the Office of Electricity Delivery & Energy Reliability within the U.S. Department of Energy.
https://www.smartgrid.gov/
from IRENA…
Energy storage capabilities are crucial for the integration of high levels variable renewable sources, such as solar and wind energy, onto the power grid. This report shows that battery storage technologies for renewable energy are already cost-competitive for island and rural applications. Furthermore, the market for battery storage systems coupled with rooftop solar panels has started growing rapidly.
http://www.irena.org/DocumentDownloads/Publications/IRENA_Battery_Storage_report_2015.pdf
Don’t have to earn to much to be 1% in America?
I was talking about the world’s 1%. And do you realize that if one doesn’t have to earn much to be in the 1%, the rest of the 99% earns even less.
Again, half of the wealth in the world is owned by 1% of the world’s population.
The top 1% of the people own 50% of the world. 99% share the other 50% of the world’s wealth.
In Belgium, in terms of salary, the top 1% earns more than $150 000. The total earnings of the top 1% is equivalent to the lower 30% of the population.
To compare with other data in the paper, in 2012, the top 1% US earned 22.5% of the total revenues. In Belgium, in 2012, the top 1% earned “only” 7.5% of the total revenues. Belgium is considered as one of the less unequal states.
North Dakota nearly beat New York. Amazing what the oil boom can do. But I guess 2015 figures will look quite different…
” low prices into early 2016 ”
http://www.wsj.com/articles/oil-resumes-slide-as-u-s-supply-seen-rising-again-1422425342
BUYERS here in the states are still finding places to stash another million plus barrels per day.
Everybody producing with positive cash flow will keep on producing until there finally is not anyplace at all left to store more oil….THEN SOMEBODY SOMEWHERE will have to shut in enough production to match daily consumption to daily production.
If some previously posted links are accurate there may be another two hundred million plus barrels worth of storage available just here in the states- maybe more.
I wonder how fast the Chinese are stocking up.
Does anybody know how much it cost per barrel to move a tanker load from say Venezuela to China? I bet the Chinese are building tank farms right and left twenty four seven in hopes of filling them before the price goes back up.
They have the steel and the concrete and government agencies willing to issue permits in a big hurry and cheap labor and money out the ying yang.
Now I actually don’t have even a foggy idea JUST how much it would cost to build a large tank in China but with oil to be had at fifty bucks and likely to go back to a hundred or so imo within the very easily foreseeable future….
Nuts ‘n bolts , welding electrode , steel and concrete are cheaper in China than anywhere else in the world and the government there has shown great determination to keep on building stuff even when there is no immediate use or purpose for it other than to keep people busy. Witness the empty new houses by the countless thousands.
The capacity of a tank goes up by the square of the radius while the cost of the iron work is pretty much proportional to the circumference.I bet they are building big ones and cheap enough to pay for them if they can be filled at fifty bucks and emptied at ninety in two years.
Even if they don’t ” come out” financially near term on the investment they will still have the tanks which are valuable strategic assets -just as valuable as ocean going tankers and destroyers to escort them in time of war or great unrest in oil exporting countries when production and deliveries may be interrupted.This consideration will not have escaped notice by Chinese authorities.
AFAIK, the oil stockpiling in China is done mostly by the big boys, as part of a coordinated drive to increase the national strategic oil reserve. I believe they did a lot of stocking up throughout Q4 after the price started falling. Not sure to what extent they are still increasing their stocks as of now.
4th Quarter earnings reporting for the operators heavily invested in the Bakken and/or Eagle Ford has kicked off with Hess. Just announced, before market open.
Oil company Hess Corp. (HES) reported on Wednesday an adjusted profit of $53 million, or $0.18 a share, down from $319 million, or $0.96 it reported in the year-earlier period, and below the FactSet consensus analyst estimate of 26 cents a share. On an unadjusted basis, which includes non-recurring items, the company reported a net loss of $8 million, compared to earnings of $1,925 million in the prior year quarter. Revenue fell to $2.53 billion from $3.11 billion, while oil and gas production for the company increased to 362,000 barrels of oil equivalent per day versus 307,000. The stock fell 0.9% in premarket trade. It has lost 13% over the past three months through Tuesday, while the S&P 500 has gained 2.2%.
Reg,
Thanks for posting the up to date news. Now the real story can begin to be told.
adjusted profit of $53 million, or $0.18 a share, down from $319 million, or $0.96
The oil price took most of its dip during Dec and Jan, and Jan was a lot lower than Dec. It will hard to see them staying in the black next quarter. Is Hess a big hedger? By the look of the numbers, there doesn’t seem to be too much hedging involved?
I like their maths, 16% drop in Capex, but rig count down to 9.5 from 17
However, the rise in production volumes was offset by a steep fall in prices. Hess said its average worldwide crude oil selling price, including the effect of hedging, fell 24 percent to $74.97 per barrel in the quarter. http://www.rigzone.com/news/oil_gas/a/136967/Hess_Profit_Misses_Estimate_As_Oil_Prices_Slump#sthash.nX8l3ipN.dpuf
So if they had such a large drop in revenue, even though they were hedged at $74.97, what will the numbers like at below $50?
Simple answer: Their report says that without hedging, their average selling price would have been 68$, so hedging provided a temporary uplift of 7$ in the quarter.
Toolpush: There is such a lag time. The fourth quarter was not bad at all from our standpoint. Only oil sold in November that was paid in December was substantially lower, and it was still a full $30 per barrel HIGHER than today. They many account for oil sales differently, but as far as when they were actually paid:
September sales paid in October – average WTI price $93.21
October sales paid in November – average WTI price $84.40
November sales paid in December – average WTI price $75.79
WTI as I post this $44.89!! IT IS TIME FOR THE BS THAT ALL IS WELL IN THE SHALE FIELDS TO STOP!!
If these guys have bad numbers for the fourth quarter, just wait till April and May of this year. We still made good $ in the fourth quarter, and now we are just trying to survive, and we have NO DEBT payments.
I still think the idea these companies are ok at the current price, or even $20 higher, is a myth they have spun. The numbers now are a precursor to the numbers at the end of the first quarter of 2015, which will be really bad IMO
Duh.
I don’t know Watcher, I hear a lot of 10% IRR at $28-33 per bbl. Most of the talking heads are believing it. I’m not too bright so maybe I am wrong and they are right.
We all hear a lot of that. And you know what. They’re right.
There is one, maybe two wells that can be drilled and have a shot at profit at the 10% IRR level at $30.
The 8500 other wells? No.
shallow sand,
besides quick dip in 2008 when was oil at $45? Maybe 10 years ago. Just counting inflation, and not more expensive production methods, wells are uneconomical at these prices.
The last time the monthly average WTI price for crude oil was below $45 was 12/04.
OPEX has at least doubled since then.
I’m telling y’all, all these plans and budgets for 2015 start out with oil at $95 by June and up from there.
If that don’t happen, the guys who kept their salaries flowing six more months by saying it would happen will suffer no consequences.
If you’re a lender, you can make more money in 10 yr Treasuries (yes at 1.7%, but falling and thus the price rises) than on HY oil paper.
Pull the plug. Orrrrr, start lobbying for bailout of the industry.
A stealth bailout would be offshore Fed funded accounts trading up WTI. Ron’s old co-workers can collect commissions!
Of course other than the 2008-2009 crash, which also was no fun.
A stealth bailout would be offshore Fed funded accounts trading up WTI.
Watcher, do you really believe half the crap you write or are you just having fun making up really insane scenarios and pretending they could possibly happen?
The BOJ trades commodities. Not too insane.
Well, I’ll take that back. They are.
BTW which half?
Okay, I misspoke. Do you believe any of the crap you write?
shallow,
Yeah for sure OPEX at least doubled.
I went and dig quickbooks from 10-11 years ago. Person doing soil samples and water analysis from spill had $12 an hour. Today is $35. Unless we all start working by bartering for food something has to give.
And now for the bad news. The last time (1980’s) that crude came off a high price for a while it took about 16 years to start a good run up again.
Just imagine the results if the price wobbles between $35 and $60 bbl for a few years.
Hi Allen H,
The last time oil prices crashed was 2008/2009 and they recovered pretty quickly. The 1980/81 price spike was the combination of the Iranian revolution in 1979 and the Iran/Iraq war from 1980 to 1986, where output from Iran and Iraq combined dropped by 6 mbopd in 2 years (1979 to 1981) a 10% drop in overall World C+C output. Saudi Arabia, Alaska, and the North Sea cranked up output as fast as possible, but it took 6 years to get back to the previous peak, a very different scenario than today.
Hi Dennis
Too high a price and some demand is destroyed permanently. If too high a price continues, further demand destruction occurs and recession can be forced. Of course high oil prices stimulate further oil exploration and development thus lowering price as this comes on line. Too low of a price for a period of time will cause lowered future production and higher prices.
In the background is permanent demand destruction as high prices and recessions force societal changes along with shifts in both the economy and type of fuel used in transport.
Since society is not a “smart society”. it will not plan ahead very well and the plateau and descent of oil will be a very bumpy ride. The eventual outcome is for lower oil demand overall. How long and how many price roller coaster rides we will have to endure is for the future to determine.
Best to force your own demand destruction and not be as affected by it, if possible.
Hi Allen,
The price volatility is a real problem, that’s why OPEC was a good idea, when it controlled output.
We will see prices gradually rise from here probably at 5 to 10% per year or perhaps higher rates until we get to $75/b, hard to predict how fast oil prices might rise, it depends how far the CAPEX is trimmed.
Well, they write that they plan to bring 210 wells online (down from 238 in 2014), which squares with the moderate reduction in capex. Strange thing is the lower number of rigs. I guess they are switching to rigs that can drill more holes simultaneously, which seems to allow lower rig count but doesn’t translate to lower capex?
Or maybe this simply reflects the large backlog of uncompleted wells? They aren’t doing too much new drilling, but have lots of started wells to work on…
Hess will cut spending but keep drilling in Bakken
By Amy Dalrymple on Jan 27, 2015 at 8:10 p.m.
Email News Alerts
WILLISTON, N.D. – Hess Corp., one of North Dakota’s largest oil and gas producers, will cut spending and operate fewer rigs in the Bakken this year, but plans to drill almost as many wells as last year.
Hess plans to operate an average of 9.5 rigs in North Dakota in 2015 and bring an additional 210 oil and gas wells online, the company announced this week.
In 2014, Hess operated 17 rigs in the Bakken and added 238 new wells.
http://www.grandforksherald.com/news/business/3665628-hess-will-cut-spending-keep-drilling-bakken
It looks like they are aiming for 22 wells per rig per year, 16.5 days per well. We will see how they do? The wells are either getting shorter, or drilling has made some good break throughs. I know they will have less moving time, due to concentrating of pad drilling.
All these plans will have some bizarre oil price rise for Q2, 3, 4 in them. They are trying not to panic the lenders.
They will fail.
I listened to their conference call. they are planning to drill 180 wells and complete 210, so they be lowering the back log of pre-drilled wells.
They said they were drilling the core of the core.
Will be drilling 13 wells per DSU, and running 3 pilots of 17 wells per DSU. They will be down to 8 rigs in the second half, so that will be more than a 50% cut in the rig count.
Of course they said they had years of drilling ahead. Not sure how many wells in the core of the core of the core, but then at 13 or 17 wells per DSU, that is nearly a years drilling for a rig per DSU.
Hey Push, the 16 to 20 day time frame is becoming the norm for 9/10 thousand vertical depth wells with 9/10 thousand foot laterals in ND. (Seven thousand foot VD with 5/6 thousand foot laterals in the Niobrara are regularly being drilled /cased in less than 14 days. In the Marcellus, drilling/completing is down to 1.5 million bucks with the fracturing approaching 5 mil per.
One reason Hess and others are able to drill so many wells/rig on these pads is that they actually drill multiple wells simultaneously. That is, they may have several (4/6-more) drilled/cased down to 3/7k with a smaller rig before bringing in the bigger iron.
The big rigs will drill several thousand feet, walk about 40/60 feet, and drill the next well. Bigtime efficiency there. The same general principal holds when several of these wells will be fractured within a few days with one frac spread.
A somewhat surprising – to many, perhaps – production trend is developing. These past 2/3 months, an increasing number of wells are being choked backed dramatically after initial production flows. The unsaid, but strongly suspected, motivation is to hold production off the market till better pricing appears.
Hess has been in North Dakota for decades and is considered by many to have amongst the best as well as largest land holdings in the Bakken.
Coffee,
Thanks for colouring the details. Hess stated in the call, that their standard pad was now 13 wells, and they intend to extend this to 3 pilots of 17 wells per pad.
Do know if they drill all the 13 or 17 at the same time, followed by fraccing the lot. Or do they drill 3 or 4, produce, and allow the flow to drop and come back to drill another 3 or 4.
I can see arguments for both ways. If you drill the lot in one go, you save rig up, rig down cost. Where as, if you only drill a few at a time, then the size of production facilities can be minimized and used over a over a longer period of time.
Any ideas?
Push, good questions that I do not know but will find out. Other operators have done 12/14 well pads (Continental’s Hawkinson, Rollefstad, Transgrud come to mind), and Continental is touting new, large Batteries for storage that serve multiple pads.
These large pad developments are just now starting to get more and more underway in all the shales, whereas prior to now there seem to be mostly 3 or 4 wells drilled at one time. In the Bakken, the multi well drilling was frequently accompanied by slight variations in completion structure, and/or targeting different benches in the ongoing ‘learning’ process.
Last December, 2013, I believe, in the Marcellus, Range did their first 10 well pad with the average 30 day IP averaging 16.7 million cu. ft/day per well. Heckuva lotta marshmallow toasting fuel there.
Coffee,
Thanks for the input, I will be interested to hear what you come back with.
As for your 16 mmcfpd, I realize it must be a good well for land, but after working on wells with 9 5/8 tubing, not casing but tubing, and producing 350 mmcfpd, everything else seems so small. smiles
It seems that this little price drop is pushing the oil companies into their longer term , “full production” mode a little quicker than they planned. I will be interesting to see how it all turns out.
The optimum solution is probably to put a manifold and a test separator in a multiwell pad (12 wells sounds about right). The production can be gathered at a central plant to handle 9 pads drilled in sequence to keep production from being too peaky. But that’s big company style. It takes holding the acreage and having the patience to work it more like a fast food shop.
On the Hawkinson, I did a chart showing how these well profiles looked. The economics are probably not very good on these closely spaced wells, especially at $45/b.
Only the wells above 100 kb at 12 months are likely to pay out at $8 million per well.
This is about as good as it gets in the core of the core, though if they can get well costs down to $7 million per well it might work
It may be worth noting that a quarterly net profit of 53 mn $ is equal to less than 1 % annual return on equity, as they seem to have about 24 bn $ in net equity…
Yo Thomas, Hess’s Financials: http://www.google.com/finance?q=NYSE%3AHES&fstype=ii&ei=4xnJVODHMeauiAKzx4HwAQ
I’m seeing 6 B in debt. Total liabs of 16 B. Assets at 40B (priced to oil at who knows, probably 75, (haha maybe mark to market will be abrogated for oil (as was done for real estate) as part of the bailout)).
Shares outstanding falling. Imagine that. Gotta be buybacks in their repertoire. But this means EPS should be ignored.
I just checked the North Dakota Active Drilling Rig List. There are currently 148 active rigs. This number goes up and down during the day. So it may tick up a couple from here or down a couple but the trend is definitely down. This is the first time it has been this low in several years, before the shale boom began.
And 10 rigs are MIRU, which Baker Hughes does not count, so Friday afternoon, BH may have 138 actively drilling, plus 4 of those are going to stack after the current well.
As Ron says, the trend is definitely down.
Only four say they are going to be stacked. Most of the others say “Undetermined”. It is quite likely that a lot of those will be stacked as well.
I read a quote from a local (ND) service co. owner who had been in business since 1979 in ND. He estimated count would be down to 50 by end of June. That may be an accurate prediction.
There is one possibility that might account for some companies such as Hess continuing to drill in the Bakken even in the face of current prices.
Maybe they will be able to get the wells drilled CHEAP ENOUGH NOW to make it advantageous to do so and then just delay the fracking on most or nearly all of them until prices go back up.
Consider – Maybe Hess can get money for five percent for the next twelve months. Maybe they ALREADY HAVE five percent money for the next year. So – with work slow for the rig owners and operators maybe they can negotiate enough cheaper price on drilling to make it worthwhile to drill NOW or over the next few months. The prices of some very expensive in puts such as pipe and sand may be down enough NOW compared to expectations of the prices next year to make it worthwhile to stockpiles these materials.
Of course this is a gamble of sorts but apparently not TOO much of a gamble since virtually everybody seems to think prices WILL be up again within eighteen to twenty four months and most people in the industry expect prices to recover sooner.
My understanding is that delaying fracking does not harm a well.
Of course Hess might need to frack a few wells in order to comply with the terms of some of their leases. Even so the company might be able to choke the well back substantially and thus delay most of the big first year production into next year gambling on better prices.
Maybe somebody with actual field experience in tight oil will have something go say about how choking a tight oil well affects it’s long term production.
This brings up another question. I seldom or never hear any mention of oil companies actually buying land as opposed to just mineral rights.
Is there some particular reason for this other than conserving capital?
The actual price of land minus mineral rights is only a minor fraction of the prices paid for mineral rights only in some cases unless I am mistaken.
Paying another five hundred or a thousand bucks more per acre for outright ownership INCLUDING mineral rights would appear to me to be a no brainer in some cases at least.Even the best farmland is seldom worth more than mid to high four figures at the very top of fickle farmland markets in the heartland.If grain prices stay low consistently for a few years such land will be selling again for a couple of thousand an acre.
Some land that has oil under it is probably worth next to nothing as farmland given it has little or no topsoil, lots of rock outcroppings, inadequate rainfall etc.
146 as of 2:04 CST
Anybody here have any knowledge of the process of converting coal to gas through integrated gasification combined cycle? as proposed in the letter
LETTER OF THE DAY – Don’t close mind to coal
“The world is also exploring hydrogen-based energy systems, in which hydrogen is used to produce electricity from gas turbines and fuel cells. Fuel cells use electrochemical reactions between hydrogen and oxygen instead of a combustion process to produce electricity. Hydrogen does not occur naturally in usable quantities, but we can use fossil fuels to manufacture it.
Coal, with the biggest and most widespread reserves of any fossil fuel, is a primary candidate to provide hydrogen, and through coal gasification, this process can generate the increasing global demand of electricity.
Europe, Japan, the USA and New Zealand all have active hydrogen programmes and are considering coal as an option to produce hydrogen.
Energy is vital to our national development. Let’s consider coal with an open mind!”
This newspaper loves coal and obviously thinks this island should have switched to coal fired electricity long ago. They are still favour of coal so, anything touting coal is welcome on their pages hence, this gets “letter of the day”!
Grid tied solar PV is already comptitive with retail electricity here so anybody who has high electricity usee that coincides with the solar peak can save a bundle, if they can finance solar PV. In this island environment, based on current trends, supported by the IRENA report ezrydermike linked to in a comment up thread, any new electricity generating plant that, does not use renewable resources (local) is an extremely risky investment IMO. For all I know, the writer of this letter might have some “skin in the game”.
Everytime I see a letter like this, advocating something to extend BAU, without needing any lifestyle changes or sacrifice, I feel like I’m in the twilight zone and think back to Jason Bradford’s interview in the documentary “Blind Spot”, where he talks about looking at our current civilisation and thinking “this is crazy” while people look back at you and say “no, you’re crazy”.
Alan from the islands
Coal to gas is a very old technology. So is coal to oil. The energy balance and cost make a clean supercritical coal plant a better solution. If you are that worried and can risk the technology exposure use a coal gasifier to generate electricity. Capture the CO2 and pump it down into deep water in the Cayman trench. It will stay down for a while.
SPRs. The babble going forth right now is 1-2 million bpd “oversupply”. It’s been 220+ days since the June start of the price crash. That’s 220-440 million barrels of oil stored.
The US SPR is 721 million barrels. Dec 2014 amount on hand is listed as 695 million barrels (and amusing tidbit, apparently all of the 695 is not recoverable haha, in fact that may be 700+ with the recovery problem taking it down to 695).
Chinese SPR is less than 300 million barrels. 220 as of now with more planned but not underway. Ditto the US, more planned but not underway. No data on extent filled, but this has been their capacity for many years and they didn’t let it sit unfilled for decades.
In other words, the US has/had a total of maybe 20 million barrels of available storage. The Chinese, no way to know, but no reason to think they would be less than the US 95% plus filled.
The total of all SPRs, plus tankers, plus Cushing, plus Cushing equivalents elsewhere plus pipelines everywhere is quoted at 4 billion barrels.
Cushing is almost completely full per recent inventory data. Pipelines obviously are full or they could not flow.
Sorry sportsfans, the oversupply narrative is bumping up against more and more adverse probability to go with outright facts.
Hi Watcher,
There are lots of storage facilities besides the SPR, all over the World. There is not very good data on this. In the US alone there is capacity for 438 million barrels according to the EIA as of Sept 2014, this figure does not include the SPR. In October these tanks were about 1/3 full, let’s assume all of the excess oil output is in the US and can only be stored here ( a silly example, but let’s go with it). There would be enough space for 145 days of output at 2 mbopd. or 4.8 months. If there is no increase in demand at these low prices, the storage would be full in February. That will only be true if there is no storage capacity anywhere else in the World, an unlikely scenario.
“The total of all SPRs, plus tankers, plus Cushing, plus Cushing equivalents elsewhere plus pipelines everywhere is quoted at 4 billion barrels.
Cushing is almost completely full per recent inventory data. Pipelines obviously are full or they could not flow.”
So you’re saying Cushing was 2/3 empty in September and filled it all up as of Dec.
Read it. Know it. Live it.
You know what. That is even more bizarre.
The US ***IMPORTS*** 8 mbpd or whatever. Who the hell would import oil in order to store it?
This oversupply silliness is pumping oil and not just putting it in a tank. It’s pumping oil, shipping it around the world and then putting it in a tank?
This is credible?
I read somewhere recently, can’t remember exactly where, that you could buy oil now and sell a future for a $7 profit. You just had to store it for the six months or so and Cushing is a delivery point for futures settlement. I believe that is why imports are up, it’s arbitrage.
Watcher,
The US does import a lot of oil. It’s refined, much of it, and the refined products exported. Money-maker for refineries.
The US also imports refined products.
Y’all do realize we’re talking about storage outside the US? All those importers? They are importing oil in Japan to put into a tank?
New investor class, Oil bugs – dig from the ground and then store somwhere in the ground 🙂
If Watcher doesn’t get it that you can store oil NOW and lock in a profit by doing so ………… .
Or maybe he just needs to think about the fact that sarcasm just doesn’t come across in print in a technical discussion.
The Japanese have to import almost every drop of oil they use.
They are NOT broke.
With oil prices at the lowest point in years the question is not why they would be storing oil but why they would FAIL to be storing oil.
It is too expensive to built storage for the purpose “ìf price of oil goes down”. Every storage has purpose. SPR has a purpose. Temporary storage at the refinery has a purpose and so on
That would be because there’s nowhere to put it.
Note btw that if there were somewhere to put it, the sum of all those places would be monitored and would direct trading and there would never be any surprises in price and no one would every make or lose money — if price is truly supply and demand dictated.
Warren talks about that with gold.
Something like this:
“Pay to dig it up. Pay to ship it to you. Pay to put it in a vault, maybe underground. Pay to insure it against theft. Collect no dividends or interest.”
you forgot fondle it
And watching it’s dollar price increase from $50 to $1000+ (even more in other paper currencies), while remembering that it has retained some degree of value since being mentioned in the bible.
Hi Watcher,
Cushing is not the only place besides the SPR that oil can be stored in the US.
The key piece of missing information is how full is the 4 billion of storage, if it is 75% full and there is excess supply of 2 mbopd. That would be enough for 5.5 years at 2 mbpd. That sounds like too much, let’s say 90% full, that would bring it down to 6.5 months of storage capacity at 2 million barrels per day.
The key point, how much space is there at present to store oil?
Answer, we don’t really know.
There’s significant amounts. And for many reasons. For example, take oil terminal x, which used to load 650,000 BPD, but it’s down to 250,000 BPD. The tank farm is usually going to have enough volume for one tanker load of clean oil, one tanker load of bad oil, and several days’ spare. The “several days” depend on philosophy and location. But we do have many terminals shipping less oil. And many of those tanks are available. So suddenly the shipping terminal can start to store oil by reducing the number of tankers it fills.
http://headlines.ransquawk.com/headlines/mexican-energy-minister-says-there-has-not-yet-been-any-confirmed-plans-to-meet-with-officials-from-saudi-arabia-russia-venezuela-mexico-regarding-oil-production-28-01-2015
Oh, look! Juicy doom and gloom in the markets. Oil south of $45.
You know, I’ll bet there are some wells out there that can be drilled profitably. I think I suggested 4% of them.
Make that 3%. We should start a bailout clock. It will maybe align with the Greeks, for news coverage shielding. Schedule it with some big Greek event.
Meanwhile in Belgium: Our national natural gas transporter is investing in a Europe wide network of pipelines. They are now partner in the Trans-Adriatic Pipeline, meant to deliver natural gas to Switzerland, Germany and France by AD 2018. The next step is delivering gas to the Netherlands and the UK. -> The North Sea area is running out of gas really fast. Peak Gas might turn out to become be a bigger surprise to mankind than Peak Oil.
Keep pumping that oil down into those abandoned salt mines.
Tokyo Electric Power, 9501:JP at 505 yen
505/118=4.27 per share. A bargain at today’s prices, they have a few problems with a nuclear power plant, but those can be resolved over an extended time. A small amount of radioactive releases into the Pacific will heal all wounds and grow salmons that glow in the dark. Nothing to worry about.
With the price of oil in the low 40’s, Tokyo Electric will have better chances of making some profit and the price will probably increase because of the bonus windfall for Japan buying oil at low prices.
Gaining in price on a down day. It was about 180 yen, maybe down to 132 when the earthquake hit, but it is still hanging in there. The yen was at 76, so it was still a buck sixty right after the quake. Wholesale cost of electricity must be lower too. A bonus for the Japanese. It has been a tough row to hoe for the poor souls. Mother Nature can be so unkind. Then man made accidents waiting to happen only magnify the tragedy.
Tokyo Electric probably won’t go belly up. It might be a buy. Steady stream of revenue, customers remain satisfied, they have built four new coal fired power plants, they’ll probably pull themselves out of the muck. You have to do something after those nuclear power plants fail.
1.91 billion dollar coal power plant in Japan:
http://www.powerengineeringint.com/articles/2014/08/1-91bn-coal-fired-power-plant-for-tokyo.html
Dood, the BOJ is explicitly authorized to trade stocks. And TEPCO is a regulated company.
Why are you interested?
How Sustainable is Canadian Oil & Gas at $50 Oil?
According to this report:
Less than 20% of leading Canadian oil and gas companies will be able to sustain their operations long-term in a prolonged period of low oil prices.
I wonder what US production levels will be if price stays in 50s or below for several years? Say average WTI is 50 from 2015-2020? I don’t foresee this but didn’t foresee current situation either.
I guess Hamm told the WSJ in an interview that shale producers need to slow down? I do not have a subscription. Is that correct?
Sort of like the constituent parts of OPEC, it needs to slow down, as long as it’s not him that does so.
Shallow,
http://www.wsj.com/articles/harold-hamm-says-u-s-oil-firms-can-help-right-the-market-1422489582
Put the above link into google and you will be able to access it from there. That is an old Ron trick.
Quite a good article. The reporter went out of her way to note right after his quote “we don’t think this is going to last two years” that he said two months ago there would be a quick rebound in price, and it’s down 40% from that prediction date.
Shallow,
After listening to the Hess conference call, I would say they are hiding behind their hedge position. Once these hedges run out, then the fun really begins if the oil price doesn’t rise before hand.
Would it be correct to say, that a lender, bank/junk bonds, would require the equivalent amount of money being borrowed to be hedged? Just to guarantee payment?
And even if you are hedged, what is the incentive to actually product the oil? Save the Capex, cash in the hedge, quids in front?
This is the stuff of protective covenants for sure, but it’s so much easier to raise the interest rate or insist on price independent collateral (that should be fun) than to demand that a borrower essentially become a trader.
The other newly traditional way to protect the loan you made would be to swap it, of course. Though traditional and HY swaps do not go hand in hand.
And there is an even better path. Don’t lend the money.
To not require the company which borrows the money to hedge out their commodity exposure would be an exception. It is standard operating procedure to do so. And usually the lender tells the borrower through whom / with whom to hedge (usually one of their subsidiaries) because of the counterparty risk.
Rgds
WP
From the Wall Street Journal article:
Mr. Hamm predicted a quick rebound for oil prices two months ago, but that didn’t pan out. In early November, Continental Resources announced it had unhedged virtually all of its oil output, taking away contracts it had in place that guaranteed it relatively high oil prices this year. At the time, crude was trading just under $79 a barrel and Mr. Hamm predicted oil would rebound to between $85 to $90 a barrel in short order.
Hamm was betting $79 was the bottom so he did not hedge. He was wrong.
The Brent Futures out to 2021 show about a 6.9% annual rise in oil prices from $48/b in March 2015. Not necessarily correct, but I doubt oil prices will be below $76 in Dec 2021.
See link below for Brent Futures strip
http://quotes.tradingcharts.com/futures/quotes/sc.html
The shape of future strips doesn’t necessarily mean that people think the price will go up or down. forward pricing is primarily a function of financing and storage costs (carry). Google backwardation and contango.
Rgds
WP
Here’s another piece on how hard it will be to switch to energy systems that use less carbon.
http://dotearth.blogs.nytimes.com/2015/01/27/a-climate-hawk-separates-energy-thought-experiments-from-road-maps/?partner=rss&emc=rss
I continue to think economics (lowering the demand side) will do some of the work for us. As people have less money, there is less growth, which means less consumption. Some of you call this a collapse. I don’t know that I would call it that. I’d say it’s more a right-sizing of energy use and resources, painful though it will be for many people.
Boomer – “I continue to think economics (lowering the demand side) will do some of the work for us.” I agree with you but make no mistake It is called No Money = You Die!
Nothing Darwinian about.
I guess I don’t understand why people keep saying what can’t be done. For me it’s a matter of what will have to be done.
So alternative energy technology can’t provide us with our current lifestyle. So what?
It’s like people saying that if I can’t have 2000-3000 calories a day, I’ll die. I’m guessing that if you only get 500-1000 calories, you’ll live on what you get until it doesn’t keep you alive any longer.
Some people might choose suicide rather than to live with less, but I’m assuming people will live with less if that’s all that’s available.
1. I don’t think we need to eliminate all fossil fuels right now. Adding alternative energy as we can is better than giving up on them entirely because we can’t eliminate all fossil fuels immediately.
2. Saying that because alternative energy can’t now provide us with a comparable lifestyle as we have now is no reason to not use them where we can. Plus we can also accept that maybe we don’t need a comparable lifestyle. At a very minimum, there’s a lot of waste that can be eliminated.
3. We should be factoring in more costs when it comes to evaluating fossil fuels. Getting rid of more pollution in exchange for less energy use is a reasonable tradeoff in many cases.
Hey Boomer I have the same problem as you trying to understand this as well.
So alternative energy technology can’t provide us with our current lifestyle. So what?
EXACTLY
I guess people just have to start wrapping their heads around the concept of an alternative lifestyle. If you are one of those people that doesn’t like change, tough! You can always leave the planet out the exit in the back and don’t let the door slam you in the ass. Those of us who stay will not miss you.
And would the folks who think change can’t or won’t happen at least puleeze stop with this idiotic BS of trying to frame this discussion in terms of reactionary ideology and politics. This isn’t about being green or communist or whatever name you want to call those of us who are realists.
I’m pretty sure that the new paradigm, whatever it is will not be framed in such terms.
Cheers!
BTW, minor quibble, we need between 1200 to 1500 calories to survive.
Hi Fred and Boomer II,
Agree with you both. On the calories, I think most Americans would be healthier on 1200 to 1500 Calories (dietary) and for many, 1000 Calories might get them down to a healthier weight, though a little walking (because they can’t afford fuel) wouldn’t hurt either.
That makes at least four of us. If, as most of us here seem to agree, oil is a finite resource, the production of which is destined to start declining in the next X number of months/years, then anything that can substitute will be welcome when the decline starts, especially stuff that can be made to work in the abscence of the grid. (some innteresting products on the market in that respect).
I take the same approach to people who make a big fuss about all the limitations of the curent crop of EVs. Wait until the next time something happens to cause a rush on gas stations. If there are enough EVs on the roads at that time for the drivers of “gassers”to notice people ignoring the gas lines and driving right past them, they will sudenly become acutely aware of some of the benefits of driving an EV, despite their drawbacks. Just wait and see.
Incidentaly just read a while ago on insideevs.com how Tesla motors might be preparing a software upgrade for the latest incarnation of their product to improve their “insane mode” acceleration from a 0-60 time from 3.2 to a time of 2.8 seconds! Apart from the cost I just can’t imagine many aspects of that car that could be considerd a drawback.
Alan from the islands
Five actually. Doomerism is largely a lack of imagination. The idea starts with the almost certainly correct observation that the future can’t be like this, but then concludes that therefore there can only be no society at all (almost certainly incorrect). History (my first major) tells us that change is indeed the only constant, Doom is simply a simplistic and extreme idea of change, as monotonal as the equally unlikely idea of no change. Both of these states are much less likely than incremental unexpected shifts in hard to pick directions, interspersed with sudden lurches in totally unheralded directions.
Prognosticators in the west suffer a great deal from binary fear based panic. For example the MSM alternates articles about China that either claim it is so successful it’s going to take us over or so failing that it’s going to take us down.
It has hitherto done neither of these things in now multiple decades of revival.
Tomorrow, paraphrasing Heraclitus, will be the same but not as this.
. Doomerism is a form of Millenarianism, it seems we are predisposed to extremes when thinking about the future, especially for society as a whole: Either like Pollyanna or all doom and gloom.
This forum is a brilliant, unrivalled in my view, site for following the fact of our departure from the oil and auto age, but not so interesting as a discussion point for the future away from its core business. Nevermind; we can all pick and choose what to read. Love your work Ron, DC, and many others….absolutely fascinating time to be alive.
A great comment.
And it is something I have had trouble understanding when it comes to peak oil. There are people who believe that when the oil runs out, all of the world’s civilization will collapse. If business as usual can’t continue, then the alternative is total collapse and chaos.
Similarly, alternative energy ideas can’t possibly work because it wouldn’t allow the world to continue on its current path, as if that is something we necessarily want.
Now, science fiction writers have often speculated about inventions that haven’t come to pass, but the idea that as the world as we know it changes, there can be no liveable alternative, doesn’t seem to be likely either, considering most of human civilization existed in a pre-oil world.
As oil disappears, something will happen. We will adjust. It could be hard, but we will adjust.
Yes, I intentionally set the calorie level low. I was ready some of the comments on the New York Times piece about someone suggested we all try to survive on a very low energy amount coming into our houses. So I decided to use an equally drastic calorie amount. I figure people who have survived prison of war camps have had those minimal calorie amounts. I’m not saying we could live long term on minimal calories, but if a crisis forces us to eat less, most of us are going to hang on as long as possible. We won’t be bitching about how we’re no longer getting as much food as we got in the past. We’ll eat what we have and hang on as long as we can.
I meant to say I was “reading” some of the comments on the New York Times piece.
http://dotearth.blogs.nytimes.com/2015/01/27/a-climate-hawk-separates-energy-thought-experiments-from-road-maps/?partner=rss&emc=rss&_r=0
This comment: Any one here who would like to be a “negawatter” can just replace the main circuit breaker on the utility feed box with a 50 amp unit. That will move you back into the 1940/50s. Automatically limits your household usage to 50 amps.
So to go along with that, I intentionally set a low calorie amount, too.
Singapore has oil down a few pennies after the post FOMC fireworks today. Dollar flattish.
SHELL RESUMES ARCTIC DRILLING BUT CUTS $15BN FROM GLOBAL INVESTMENT
http://www.bbc.com/news/business-31034870
“The Anglo-Dutch giant’s chief executive Ben van Beurden accepted that Arctic drilling “divides society”, but said the world needs new sources of oil.”
“But the impact of the low oil price is clearly biting. The company announced that it would be cutting investment over the next three years in new exploration and the development of oil and gas fields, a move that will raise fresh concerns about its business in the North Sea.”
So not throwing in the towel on that money pit just yet, huh?
$43.xx.
But you know, there are some wells in shale that can be drilled profitably at this price, that is surely going to 95 soon because the phantom storage that no one monitors is full.
Or lots of them. Maybe even many. Because they are going to the sweetspots now. No more drilling in low value areas!
Oil Patch Hotline currently reports spot price of $28.29/bbl for ND light sweet. For those who are un-hedged, how sweet does a spot have to be to make prices in this range pencil out?
You can get any answer you want by presuming a future price to be whatever supports comfy BAU.
Hi Watcher,
For Bakken LTO the price to pay attention to is the Brent price, you have heard of the futures market I imagine. Brent in Dec 2021 is at $76/b, in real terms at an assumed 3% inflation rate that is only $62/b, so roughly a 3.7% annual increase in real oil prices. A few wells may be profitable at $48/b if futures markets are correct on future oil prices probably around 15%, if real oil prices rise at about a 5.5% per year this % would rise to about 30% if the future well productivity distribution is similar to 2010 to 2014. That would put real Brent oil prices at roughly $70/b in Dec 2021 in 2014$.
Looking at the Brent chart it looks like the bottom will be about $48/b. Bakken wells that produce 100k in the first 12 months will have a nominal IRR of 10% if oil prices rise by 5.5% per year or more from $48/b for Brent crude.
About 9000 wells have been drilled in the Bakken/Three Forks, of the 7000 wells drilled between Jan 2010 and July 2014 about 30% would be profitable under the price assumptions above. There are probably about 30,000 drilling locations left in the Bakken/Three Forks, only about 1600 wells need to be completed for the next year to keep output flat, if 10% of all drilling locations are in the sweet spots that would be about 4000 wells, only about 1600 wells so far have been “sweet” in the sense that they have produced more than 100k in the first 12 months, this leaves a potential 2400 such wells left to drill if the 10% of 40,000 well approximation is correct. These assumptions seem conservative to me, but others are more pessimistic.
“Looking at the Brent chart it looks like the bottom will be about $48/b.”
Ron,
Can you just nuke the climate-denier garbage? It has nothing to do with this blog, has no scientific merit, and makes threads almost impossible to read?
Hi Anon,
That only works if nobody responds to trolls, otherwise the entire thread gets messed up and all new comments just go to the bottom.
If everyone just agreed to ignore the climate trolls that come here and tell us about the communist plot that is climate science, then Ron could delete the offending comment. If we respond, then he cannot do it.
Personally I find it amusing to read such comments and making a response to them. It doesn’t hurt the blog much imo to have a few such ignorant comments in it especially if Ron blocks the registrations of these folks after one or two appearances.
We NEED to be reminded just why the climate is very likely to go to hell in a hand basket , the question being when rather than if so far as I am concerned. I am hoping the when is at least a few decades down the road in terms of things getting REALLY messed up. A few super duper storms and droughts and floods will serve as Pearl Harbor wake up calls in the meantime rather than killing us off on the grand scale.
The climate is not going to hell because we are burning fossil fuels but rather because we are too stupid collectively to cut back on them as fast as we can.
For every man or woman on the street who has a serious grasp of our future physical reality there are at least a thousand that haven’t a clue.
If we were to get ENOUGH Pearl Harbor wake ups we might have a modest chance of reaching a consensus to change our ways. Unfortunately I am afraid the chance of getting enough of them is close to zero.Some societies – western Eurupean societies- might do what is necessary on their own domestically – even the USA might change it’s ways.
But to expect the rest of the world collectively to voluntarily cut back on fossil fuels is naive in the extreme..
The one bright spot in the future climate picture is that peak oil might mean the end of business as usual. We could suffer such a hard crash that the world economy would not recover for a century and then not back to what it is now.
Two quick comments before I fall into my nightly coma.
Wasn’t it a long-ago agreement that we didn’t respond at all, except every now and then with a very brief reference to the ton of solid info in refutation, so honest ignorants could be enlightened?
And, far more important, my standard Q for this bunch.
Right, but do we need yet another screed on gruesome details of why we are goingtohellinhandbasket, instead of thought out moves on how we can gotoheaveninasolarchariot ?
Or, maybe I too am misplaced here. Maybe this site IS the goingtohelloil site, and I oughta go seek salvation elsewhere.
like in my workshop.
Really? If that is the case, I definitely won’t respond. I just figured that if Ron nuked the skeptic statement, the replies attached to it would also disappear, but no problem with that. Nuke the original, take the replies out, too, and the entire conversation goes away. No problem.
The traditional definition of “troll” is someone who arrives to be deliberately disruptive, start angry arguments, etc. That’s why the “don’t feed the trolls” approach developed.
OTOH, if you don’t take the bait, but calmly explain the science, it’s a teaching opportunity. As long as you don’t let such people overwhelm the blog with aggressive posts, I think it works just fine. Which, I think, means that Ron’s approach of allowing one comment and then blocking that commenter works well.
I don’t block them if they at least make an attempt to make a scientific argument. But when they say it’s a communist plot, or a left wing power grab, or the Democrats trying to do this or that, well that shit I am not going to put up with. They can do it once then they are gone.
The reason you use “deniers” is to parallel these Biblical quotes from the King James translation:
“If We Deny Him, He Also Will Deny Us (2 Timothy 2:12)”
“But whosoever shall deny me before men, him will I also deny before my Father which is in heaven.(Matthew 10:33)”
You call us “deniers” because we refuse to believe in what you seem to consider the “One true faith” – Catastrophic Anthropological Global Warming.
There is always the outrageous choice not to post climate change pontification, pro or con, on an oil production blog.
While this is a certainly a blog about WORLD OIL PRODUCTION, it is also about much much more… it is, also about topics that interest our host such as: ENERGY, FOSSIL FUELS, PEAK OIL, HUMAN EVOLUTION and HUMAN DESTINY, ETC… so it is certainly appropriate to make occasional comments about climate as they might relate to any of those topics.
Personally I think Peak Oil and Climate Change will be equally responsible for the paradigm change that is already upon us. If someone doesn’t accept the fact that burning fossil fuels is a major driver behind climate change, that is certainly their perrogative. However that would put them at odds with the current scientific consensus amongst the vast majority of climate scientists.
As for the consequences of climate change to the biosphere on which the survival of humanity depends please consult the scientific literature dealing with ecology and climate change.
Granted it is possible that all biologists/ecologists are also communists and are in cahoots with the unethical, greedy, money hungry climate scientists in an even vaster conspiracy than any previously imagined by anyone…
Out of curiosity, are you paid to scan news and blogs and comment?
sorry, not you watcher, but SS
I’m betting there is some sort of funding coming from fossil fuel companies. Think about it, climate change is threatening the wealthiest industry in the world, they are not going to go quietly into the night.
Hence the mass spamming of any blog with climate buzz words. Got to keep the profits flowing!
I think it is from Heartland Institute
Yes, on the New York Times piece someone was giving the “CO2 doesn’t cause global warming” drill and another person responded that his explanation was straight out of the Heartland Institute database.
Hi SS,
I come to this site to learn about the social, financial, and geological aspects of petroleum. I have yet to find a better site on the net. I fully understand that oil is the blood of the global economy and has made it possible for the world to support (more or less) 7 billion of us.
But I do take exception with:
“You call us “deniers” because we refuse to believe in what you seem to consider the “One true faith” – Catastrophic Anthropological Global Warming.”
It has nothing to do with faith. Let’s say that you have the best healthcare policy in the world. You discover a lump on your neck and because you have this great healthcare plan and want to be certain, you consult 100 oncologists. 97 say it’s cancer and should be removed. Three say it’s not and you can ignore it. Your logic would be to say, “Great, it’s not cancer because those three guys said so” rather than it’s damn near certain that it is cancer and it’s going to kill you. I think you get my drift.
You need to note where almost all the push back on climate change is coming from. Last year there was some climate/astrophysicist guy on Fox saying that humans had nothing to do with climate change and he had the data to prove it. Maybe so but I googled his name and found out that his financial support came from big oil, the coal industry, and the Kochs…
…Hey, I’m not saying that he’s wrong but seeing who pays his rent made me a little skeptical (and Fox didn’t mention where his funding came from).
But as the boss man says around here, it doesn’t matter what either you or I think as we aren’t going to do anything about it until the surf is kicking up on our door mats. I’m glad I live nearly 1000 feet about sea level. And since I spend time kayaking, rising sea levels are a win for me:)
Any legitimacy the climate change science had was thrown straight out the window once Al Gore got involved. Then the whole thing morphed from being a scientific pursuit to a political pursuit pitting conservatives against progressives. The lines were drawn in an “us vs. them” mentality. I am a true conservative and patriot who believes in the power of the free-enterprise entrepreneurial spirit that has made the United States into the freest country in world history. I and people like myself know that progressive movements always ultimately end up taking away people’s freedoms. The last thing we would want to do is just stand around while that happens, so we are doing what we can to try and change as many minds as possible. The progressives do the exact same thing but have a much easier time of it because they get help from the mainstream media and near complete infiltration into so many of our cultural and social institutions. The publicly funded educational system is one of the most prominent areas where you see radical left-wing viewpoints coming from that run completely opposite to the freedom-loving desires which The Founders had.
I do not work for any institute or get paid to express my feelings. But let me tell you about how my own worldview regarding the phoniness of climate science came about. I’m old enough to remember how global cooling was being touted as a big threat in the 1970’s. The cooling was supposed to occur due to man made changes in the upper atmosphere arising from the release of chemicals and pollution. Of course nowadays popular reports in the news have swung around to mentioning and/or blaming global warming, with the explanations inevitably coming back to how “the models tell us so.” However, most of these scientists’ current models do not predict into the future with any accuracy at all. They fail to realize the sun’s energy output and magnetic fields have much more to do with climate than atmospheric conditions.
When I visited Exit Glacier, near Seward, Alaska, a few years ago I learned that the glacier has been receding since 1815. Park Service had discovered evidence of a buried forest dating back to at least 1170 AD near the current glacier’s edge. So at a much lower level of CO2, it was warmer near Seward in 1170 than it is now. I know I was surprised to hear this because I don’t think the subsequent cooling of the Little Ice Age between 1300 and 1870 had much to do with increased use of fossil fuels, since humans didn’t use fossil fuels at that time.
Basing predictions of weather trends over geologic time scales using the last 150 years of data (and even saying we have 150 years of data is being incredibly generous in most cases) is ridiculous, statistically. Running society based on a political dogma that mandates a rigid belief in global warming without leaving room for any questioning of the science involved is only going to harm the poor and middle class by making them lose the freedoms and prosperity that made the USA unique in the first place.
For all:
Dunning-Kruger alert
The idea that Al Gore polarized the discussion is interesting.
I think it’s badly exaggerated: the Koch brothers were spreading misinformation long before Gore started to talk about Climate Change, but it certainly would have helped to have had John McCain take to the lecture circuit, and make a movie about it, instead
Kind’ve like a Nixon to China moment…
I don’t usually engage in ad hominem attacks, but for you, I’ll make an exception.
With statements like these:
“I am a true conservative and patriot who believes in the power of the free-enterprise entrepreneurial spirit that has made the United States into the freest country in world history.”
and
“Running society based on a political dogma that mandates a rigid belief in global warming without leaving room for any questioning of the science involved is only going to harm the poor and middle class by making them lose the freedoms and prosperity that made the USA unique in the first place. (oh the irony!)”
All you’ve demonstrated is that you’re an idiot.
Go away.
Stink up some other place on the internet with your idiocy. I come here to get away from people like you.
Begone!
“(Reuters) – Royal Dutch Shell (RDSa.L) signed a deal with Iraq on Wednesday worth $11 billion to build a petrochemicals plant in the southern oil hub of Basra, boosting the country’s aim to become a major regional energy player and diversify its income.”
So Shell must feel that southern Iraq is stable enough.
Will this mean that Iraq will have less net available oil for export?
Products? Cracker implies gasoline/diesel. Will this compete with US refiners for EU product market?
http://www.reuters.com/article/2015/01/28/us-iraq-shell-petrochemicals-idUSKBN0L10SQ20150128
Will this mean that Iraq will have less net available oil for export?
But does it matter much, where the oil is refined? I think Jeffrey Brown usually counts refined products in his analyses.