Texas RRC October Oil & Gas Report

The Texas Railroad Comission has updated their Oil & Gas Production Data Query to include the production numbers for October. The Texas data is always incomplete so the charts all look like there is a big decline in the last few months. This is not the case, the charts only reflect the data that has been received and the production numbers will look a lot more positive after several months.

That being said there is something that can be gleaned from these numbers. Even though the data is incomplete, if production is increasing then last months incomplete numbers should be higher than this months incomplete numbers. Using that logic, there seems to have been a strong slowdown in Texas oil and gas production.

All the last data points are October and is in barrels per day.

Texas Crude Only

In June and July there was a strong increase in production reported to the Tesas RRC by the oil companies. But in August, September and October things slowed down considerably.

Texas Condensate

Texas condensate production has slowed down a lot more than crude. Most Texas condensate comes from their natural gas wells but there are a some wells in the Eagle Ford that produces mostly just condensate.

Texas C+C

Combining the two we get what the EIA reports as C+C. I have posted the EIA’s estimate of what the final Texas production numbers will look like when all the data comes in. The EIA data is only through September. The EIA changes their estimate every month. They ate getting slightly more realistic than they were last month. They used to just add about 50,000 barrels per day to the numbers but now appear to be making an honest effort to make a pretty good guess. Here is the EIA’s estimate of Texas increase in production so far in 2014:

Jan. up 94,000 bpd
Feb. up 64,000 bpd
Mar. up 59,000 bpd
Apr. up 61,000 bpd
June up 86,000 bpd
July up 20,000 bpd
July up 81,000 bpd
Aug. up 65,000 bpd
Sep. up 9,000 bpd

I, for one, just don’t think that is very accurate. I don’t believe Texas went from increasing production by 94,000 bpd in January to up only 9,000 bpd in September. Since December 2013 the EIA says US production is up 1,051,000 barrels per day. Slightly more than half that, 537,000 barrels per day, has been from Texas.

Texas Gas Well Gas

All Charts are in MCF per day. Most of Texas’ gas comes from pure gas wells. Texas gas well gas peaked back in January 2009 at just over 20 million MCF per day.

Texas Associated Gas

Texas associated gas, or what they call casinghead gas, took off with the shale boom and is still increasing. Their associated gas will likely largely follow shale oil. It will continue to increase is shale oil production increases but will likely see a definite slow down or decline next year as shale drilling is cut back due to low oil prices.

Texas Gas Well Gas

Combining the two we get Texas total gas production. It is still increasing but will likely see a slow down or more likely a decline in 2015 as shale oil production drops off.

Other News: From Forbes: Oil Price Forecast: 2015-2016

My price forecast is that today’s $60 price is likely to be the high end for the coming two years. There may be temporary market volatility higher, but don’t expect a higher price to be sustained. At the low end, $50 seems like a floor absent a global recession.

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350 Responses to Texas RRC October Oil & Gas Report

  1. Sam Taylor says:

    You know, that Forbes piece might be the single least satisfying, detail lite, price forecast article I’ve yet read. Which probably means it’ll turn out to be right.

    • oldfarmermac says:

      Pundits and prognisticators and even old farmers often have their heads up their asses so far they will never see daylight ever again in respect to one issue or another.

      But when it comes to the prices of commodities it is not easy to fool an old farmer who has been in the market for a lifetime-a market where prices swing wildly almost EVERY YEAR .

      I have said it before and I will say it again. The price of oil has damned near NOTHING to do with whatever the xxxxxxxxxx traders may think is going to happen next year or five years from now. The price of oil is set by the place the demand curve intersects the supply curve and the price is the result of that intersection.TODAY.

      TODAY’s price is todays price because -excepting the relatively very small portion of the oil that is sold today that goes into long term storage- all the rest is used up as it is bought. The amount that is BOUGHT is determined absolutely NOT by traders expectations of what is going to happen next year or five years from now.It is determined by todays consumers- todays end users who buy as much as they want and NO MORE at the current price.

      The demand for oil is highly inelastic. I am going to stick by my baby and cat analogy the way Jeff B sticks by his export land model. You will buy as much formula for the baby as needed- up to the limits of your ability to pay or borrow- but no more than the baby wants- not unless you can buy it cheap enough to feed it to the cat.

      The price has fallen to todays level for two reasons that go together to make the above basic reason true. One is that demand is anemic , given the sorry state of the economy all around world , and the other is that newer cars and trucks and planes are far more fuel efficient than older ones. It is the newer ones than are in heavy use.Hardly any body buys a new car and keeps on driving his old clunker while the time limit runs out on the warranty on the new car.

      DEMAND (simplest and usual day to day conversational definition) IS HOW MUCH END USERS WILL BUY TODAY AT TODAY”S PRICE .

      Today’s consumer is for the most part also going to be next years consumer it is true and there are reasons he may buy a little more gasoline or other oil product today if he thinks it will be cheap next year. A young man with the bucks or credit to afford a v8 Camaro as opposed to a v6 Camaro might buy the v8 by rationalizing gas will be cheap next year and the year after. So that one consumer might use a little more today based on his expectation of next years prices than other wise- but very little and there won’t be than many MORE v8 Camaros sold.Not enough to really matter TODAY. Not enough to change the price TODAY.

      Now of course there ARE people out there who can and will buy huge amounts of gasoline and diesel and other oil products based on their expectations of FUTURE ECONOMIC CONDITIONS overall rather than just the future price of oil.

      These people are the people who actually BUILD stuff rather than swap paper and electrons. People who make a buck BUILDING rather than speculating and running high speed trading programs. These BUILDER types put the dump trucks on the road and carpenters and iron workers to work and interrupt the bulldozers long and extended recent bulldozing nap and put the dozers back to work too.But the price of oil is not their key indicator- their key indicator is their overall belief about the economy for the next few years .And anyway- they would be buying TODAY at todays price.They could mostly care less about next years price unless the thought of it scares them in which case they would either hedge or just not start back to work.

      It seems to have escaped the attention of the pundits that a hell of a lot of bulldozers are dozing away burning not one drop of diesel a day. I bought my backhoe when things crashed the last time around. If things were hopping in construction that one relatively small machine would be burning forty gallons a day, day in and day out. A dump truck typically uses from forty to eighty gallons a day.A medium sized dozer eighty to a hundred gallons a day.

      THE FLIP SIDE of this giant oil coin is that suppliers sell into todays market for whatever the end users are willing to pay FOR THE QUANTITY DELIVERED- forward contracted or hedged sales excepted of course.They have no choice..They must have that MONEY!!

      There are extremely few buyers willing and able to buy oil today and put it into long term storage. Storage is expensive and capital intensive and nobody KNOWS how long it will take the price to go up again- not even the old farmer, lol.The price may NEVER go up again. The odds of that are pretty slim but not zero by any means.So hardly anybody – a non entity such as myself excepted – is putting oil into storage. I can only store about twenty barrels total but otoh there are a lot of little fellas like me who would like to fill up all their tanks if they had the cash available.I am filling up mine because I think it is a very good bet that diesel will be up a good bit within a year and the bank is only paying one percent to borrow my money from me.

      Most farmers my size have only three to five hundred gallons of on farm storage. I have more because I have gambled on buying a couple of storage tanks at fire sale prices expecting to earn a good return by using them. I would not be surprised to hear that some big boys flush with cash who farm a thousand acres or more have ten or twenty thousand gallons on hand more than usual just because they think it will cost more next year.

      But only a few of them because most of them don’t have a place to put very much extra above what they will need for a month or so at a time.

      So why are sellers willing to sell so cheap?Because they need the money, mostly , no more and no less.

      Why are some of them without a doubt selling some or all of their production at a loss?

      That is pretty simple too. For one sometimes selling at a loss -running a business at a loss- means less loss than shutting it down altogether.

      IF you have a restaurant that is losing a hundred dollars a day with six months to go on the lease it is cheaper to run it that last six months than to shut it down today if the rent is MORE than a hundred dollars a day because you will have to pay the rent ANYWAY.IF the rent is three hundred bucks a day you are two hundred bucks better off to stay open.

      We farming types sell our crops a lot of years for less than our all in total costs. I can sell an average sized apple crop for eight bucks and make a little over my variable expenses for the year and having grown those apples I must sell them for WHATEVER I CAN GET. But if I thought eight bucks would be the going price for years to come I would never plant another tree. I wouldn’t buy any new equipment. I would just squeeze the last few bucks out of the orchard and shut it down.(Incidentally just to be clear I have shut it down due to retiring and due to being too small to compete in todays market.)

      But that orchard and that equipment are sunk costs. I can’t get anything beyond firewood and scrap metal prices for the trees and the equipment if nobody wants it.The very fastest that I can adjust MY PRODUCTION to market conditions is ONE FULL YEAR.

      The people who sell oil have a time frame problem just like mine. The business of producing oil is like the business of driving a fast express freight train. It takes miles and miles of track and fifteen minutes or more to stop a fast freight without doing the train and the tracks some serious damage.A full on emergency stop takes a mile or more.Then the wheels all have to be taken off and run thru the machine shop one at a time at enormous expense.

      Demand has fallen off and supply has held up or grown a little, especially considering the addition of biofuels and other liquids than can be substituted to some extent for conventional crude. So the price has crashed. It is as simple as that. Nothing more . NOTHING LESS.

      It will take the oil industry a while – anywhere from a few months to a few years – to quit producing oil at an overall loss. In the meantime the producers need the money. They are mostly in a very bad bind for cash and gotta have that cash income.They will take what the market offers. The little guys who are running at loss will be sold out on the courthouse steps starting pretty soon. The big guys with staying power are already cutting back big time on new production capacity.

      The amount of oil coming to market at sixty dollars or thereabouts will start to fall off sometime within the next six months to a year or so and it will continue to fall off until nobody is left who is selling at a long term loss.How long that will take is anybody’s guess but it won’t be forever and it won’t be ten years.

      Every million barrels off the market , every thing else held equal, will result in the price going up a few bucks. My guess is that if just three million barrels of production were to somehow mysteriously might vanish overnight by some means the price would go back up to eighty to a hundred bucks within a matter of weeks.( OF course that rise would destroy even more current day demand.)

      The Saudis could cut back that much if they really wanted to. So could the Russians. Both countries have really good reasons not to do so.

      The realities of costs versus revenues will probably take a million barrels off of US domestic production within two or three years if prices stay around sixty bucks. Maybe more and maybe sooner.My guess is sooner.And given the decline rates of tight oil wells , also MORE decline but I am not able to compute how long it will take for production to fall off.

      But if the number of new tight oil wells drilled and completed falls off by a third then it is almost a sure thing that production will begin to decline within a few months.

      Nobody knows how many new tight oil wells will be drilled at sixty bucks. But my guess is not very many compared to last year.

      • Boomer II says:

        The average person in the US isn’t flush with cash. Cheap oil won’t encourage people to go out and use a lot more of it because even if they have a little extra money from it now, their long-term futures aren’t secure.

        http://www.nytimes.com/2014/12/18/business/economy/us-wealth-gap-widest-in-at-least-30-years-pew-study-says.html?partner=rss&emc=rss

        • Philip Backus says:

          Wow Boomer, I feel that you and mac have like me hit the nail on the head concerning a few things. Petroleum is worth what the customer WILL pay today and people by and large are BROKE or at least feel it prudent to save what they do have for what looks to be a very uncertain if not downright lousy future. No conspiracy theories are needed here, it’s just a mix of plain human economics and psychology at play.

      • Shuffling Along says:

        OFM,

        Your logic, in a vacuum, seems sounds (“…nothing more…”).

        The thing I have difficulty believing is that demand has fallen off that dramatically in the last year…

        Once again…Econ 101…Demand=Supply (except for tiny amount of Long Term storage)….

        So…if oil Demand has fallen significantly, it should follow that oil SUPPLY must also have fallen just as significantly during the same period…does the oil supply data bear that out? For that matter, does the oil demand data bear this out?

        ?

        • oldfarmermac says:

          The problem here is one that is very common in English as a language which is the pros say one of the worlds hardest languages. DEMAND is a weasel word or a word with three or four different definitions depending on CONTEXT.

          It would take me a LONG time to go thru the meanings of this word as it is used PROPERLY and the ways it is used IMPROPERLY by laymen and professionals alike.Some of the improper use is probably considered proper by English teachers IN CONTEXT given that so many words have conflicting meaning.

          I am guilty MYSELF.

          Here goes. I recommend finding an intro level text to really get this which will have diagrams and put a couple of chapters into it.

          Properly and technically speaking DEMAND is a mathematical abstraction that can be graphed as a function of price and quantity.

          What this means – snapshot fashion, theory fashion, is that under any given set of circumstances, everything else held equal, the consumer will buy MORE of a given good or service if it is offered for sale at a given LOW price and LESS of it if it is offered for sale at a HIGHER PRICE.

          I have never heard of anybody disputing this . I would give up hamburger altogether and eat ribeye all the time if it were cheap enough. But even if it were only two dollars a pound I would eat only so much and treat my friends to only so much. But if the price went down to fifty cents I would also feed it to my cats and my coon hound.Conversely at ten bucks since I have only a little money I don’t eat it as often as I would like- once a month maybe. At fifteen bucks I would eat it once a year and at forty bucks probably never again.

          This above paragraph is the technically correct description of the word DEMAND. Demand so defined is a set of points on a line on a graph. When you read the graph you will see that at any given price a certain amount will sell.

          Quantity is on the vertical axis and price on the horizontal and with prices near zero the quantity will be very high. But as you move to the right the higher the price you see that the lower the quantity.If diamonds were a dollar a pound they would be used by the tens of millions of pounds for various industrial purposes and demand would be out of sight up the vertical axis.

          But with diamonds actually selling for a million bucks a pound the quantity sold is actually physically trivial, a literal suitcase or two a day of the nice ones.

          So – A year ago oil was ( roughly ) a hundred bucks because the consumers of the world were willing to pay a hundred bucks for ( roughly) ninety million barrels a day. WITH DEMAND PROPERLY DEFINED having declined consumers will STILL BUY that same ninety million barrels- BUT ONLY IF THE PRICE FALLS TO THE POINT THEY ARE SATISFIED to buy it. This is actually very simple. You personally and everybody else will use more of almost anything if it is cheap enough- even when you are in a bind for money.

          My grandparents never turned off the kitchen faucet. My lawyer religiously turns off his faucets. This situation is explained by the fact that my grandparents had free gravity fed spring water that once piped to the house cost them nothing whatsoever. My lawyer pays a hundred bucks a month or more for his domestic water. Leaving it on at Granny’s house meant it was cold when you wanted a drink.

          In day to day usage the word demand is used in forgive my french goddamned any way it pleases the person using it, Humpty Dumpty fashion.

          So trucking companies talk about an ( unmet ) DEMAND for another million drivers – meaning they would hire them at minimum wage. In actual fact the drivers market is in pretty much perfect balance with price and supply.

          The trucking companies have as many drivers as they are willing to pay for. They could have AS MANY MORE as they wanted if they were willing to PAY MORE.

          Pundits who talk about demand and supply generally do not know the proper definitions needed to use these terms correctly.Or else they don’t give a damn knowing that their readers don’t know the difference themselves. Hardly anybody uses these terms correctly – I admit my own guilt but at least I get it right in context. Most of us don’t.

          Now – if the oil companies are still delivering ( roughly ) ninety million barrels a day with price way down why are they not responding to the demand and supply definition as it applies to SUPPLIERS rather than customers?

          (Allow me to digress a moment and say that the price and supply graph runs UPHILL to the right in the case of supply. In other words the higher the price the more suppliers will bring to market.This makes perfect sense too. My local friends can supply the local market for fresh green beans in the summer for a buck a pound wholesale very easily. In the winter fresh green beans are hauled in from Mexico for two bucks or three bucks but the quantity sold is less. People substitute other cheaper veggies such as onions and cabbage to some extent.Fresh green beans are air freighted to London supermarkets in winter where they sell for astronomical prices- but only in small quantities.)

          IN THE TEXT BOOKS BOTH THE DEMAND CURVE AND THE SUPPLY CURSE ARE GENERALLY PRINTED ON THE SAME GRAPH. PRICE IS DETERMINED AT THE INTERSECTION OF THE TWO LINES.

          If there was a market for a huge quantity of fresh locally grown green beans at say twenty bucks a pound I would build a green house and start growing them myself.High prices bring high supplies into the market.

          So- understanding these terms properly- and the theoretical relationship which is a real relationship – between price and demand then it is obvious that if the SUPPLY of oil has remained at ninety million barrels but demand has fallen off then the end users will only continue to buy ninety million barrels if the price declines.

          The price HAS declined and end users HAVE continued to buy the offered ninety million barrels. There is nothing wrong with the theory of supply and demand in principle or in fact- so long as you remember it is an ABSTRACTION – a rule that exists in our heads to help us understand the world.

          IN THE REAL WORLD TODAY the end users will buy all the oil offered for sale because the price has fallen low enough they still want it all even though they are strapped for cash.I am strapped for cash but if heating oil gets cheaper I am going to burn more and get out of bed less often in the middle of the night to put wood in the stove.

          In the real world things are NEVER OTHERWISE EQUAL for more than an instant.So you have to make allowances for real world circumstances.

          In the real world oil producers cannot change their behavior in an instant. Nor can old farmers. It takes me about seven years on average to bring a new apple tree from transplant to break-even. ONCE I am committed for a given year and start spending money I am IN FOR THE YEAR regardless of the price .

          It is December and we are pruning and fertilizing and putting out rat poison and repairing the equipment for next falls crop already.But I have no idea what the price will be – it could be anywhere from four bucks -less than harvest and shipping costs which means zero sales income and a huge cash loss for me- to fifteen bucks which would make me feel like a country clubber.

          The oil suppliers are locked in by circumstances and must continue to supply oil for some time yet before they can start cutting back on production with only a few exceptions. Saudi Arabia could cut production having money in the bank and thus being able to do without the current income.

          ALMOST every producer MUST continue to produce to pay the bills that roll in every month.Even a producer who is losing his ass on a day to day basis may very well lose EVEN MORE by just shutting down immediately.

          Slowing down the oil industry wide fast freight train is going to take a while in the real world. The amount of oil offered for sale at sixty bucks is going to start declining pretty soon. New deep water oil for instance is out of the question at sixty bucks.Half or more of YANKEE tight oil production is probably unprofitable at sixty meaning the drilling of new tight oil wells will soon fall off a cliff. With the decline rate of tight oil production being what it is you can expect tight oil production to start declining within a year or so and maybe sooner-if the price stays at sixty or less. Sooner is my guess.

          A week is an eye blink in the oil industry and a month is a yawn. Three or four months from now current oil field employees are going to be looking for work by the tens of thousands.

          In economic theory in is impossible for demand and supply to be out of balance in theoretical terms. USING the definitions CORRECTLY it is also impossible in the real world. Whatever demand is – and whatever supply is- the two interact to determine the price.

          The theory could not give a goddamn less about what the price is . Only real suppliers and real consumers care about price. The theory is only a theory but it is very well proven and universally accepted except by nut cases of various sorts.

          Now a real economist IN CONTEXT will talk about demand and supply being out of balance – with the obvious implication that one or both of these is has changed and that further changes can be expected. All real economists would agree in contextual speech that demand and supply in oil are out of balance today with the expected result being that both price and supply will be changing as real world circumstances permit until ” balance” is restored.

          This balance is in fact a moving target and price, supply, and demand will all three always circle around this balance point like three moths circling a light getting close to it at times and farther away at other times.In the real world the light itself is actually moving too- but not so fast the moths can’t stick to their orbits around it.

          • Ilambiquated says:

            If you look at the demand curve more closely you’ll see it is the trajectory of the upper righthand corner of a rectangle.

            http://i.investopedia.com/inv/tutorials/site/economics/economics8.gif

            that rectangle is quantity x price, or demand.

            This is a bit confusing because the demand curve isn’t a really a function where one of the variables is dependent on another. It shows how price and quantity relate when demand is driven by other factors not in the chart.

            • oldfarmermac says:

              ”that rectangle is quantity x price, or demand.”

              Quantity times price would be gross sales. This is useful information no doubt but in is simply not the definition of demand unless the whole apple cart of definitions has been upended KAFKA style since I last checked.

              Ignorance is not strength except when it keeps the ignorant on the job.

              This is a BULLSHIT redefinition of a term that has a long settled and long honored definition in the economics profession. I don’t know how you arrived at it or give a damn where you found it.

              Humpty Dumpty can change definitions to suit himself.. I call bullshit on every body else.

              The accepted definition of demand is the quantity that will be bought at any given moment of any given product or service at a given price. Economists and students of demand understand that this is an abstraction in that no two moments are ever the same. Conditions change continuously. Everybody who knows do do from apple butter about basic economic theory understands this and that therefore the definition is an abstraction.All economists understand this.

              Only people who don’t understand the basics -generally due to failure to have ever taken the basic course in the field – misunderstand demand, supply, and price as a combined three element descriptive theory.

              Other factors have absolutely nothing to do with the DEFINITION of demand.

              Other factors certainly do CHANGE demand from second to second to year to year to century to century.

              • Ilambiquated says:

                Demand is how much quantity a buyer (or the aggregate of all buyers) is willing to take at a price (or vice versa). Multiply the connected numbers together and you gain insight into the amount of money he (or they) has in his pocket, and the total expected sales revenue for the product.

                The interesting thing, as I already explained, is that the demand curve expresses a relationship between unit price and unit sales as some other variable changes. It shows how the rectangle changes shape.

                The demand curve is a vector function of some value or values not on the chart that maps to a two dimensional vector (units and price). It’s not a number at all.

                • Ilambiquated says:

                  They value units * price is the square of length of the vector.

                • Dennis Coyne says:

                  Hi Illambiquated,

                  The demand curve is a quantity as a function of price with all other variables assumed constant (which tends to be true of functions in a single variable), the quantity demanded depends on price for any fixed (ceteris paribus) demand function. As I pointed out earlier an influential economist decided to put the independent variable on the vertical axis (which is unconventional) and economists decided to just leave it that way (for reasons that were never clear to me.)

                  • Ilambiquated says:

                    the quantity demanded depends on price

                    I’m specifically disagreeing with you on this point, and backing the economists who are happy with an ole configuration of the axes.

                    I am saying it is equally valid to say the price determines the quantity purchased or the quantity purchased determines the price.

                    The reason the demand curve has the shape it does is based on factors not on the well-known chart itself. The shape is product dependent and this, that and the other. Call them hidden parameters, pace A. Einstein.

                    The market model says “given this supply curve and this demand curve x happens”. It doesn’t address why the curves have the shapes the do, it just tells us what happens when they have given shapes.

                    The why happens offstage when the hidden parameters map to the shape of the curve. What (vector) function you choose is up to you, as long as the output is a (units,price) vector.

                    The resulting demand “curve” is best viewed as a curve-like subset of the vector domain of the function, and the order of the vector dimensions is arbitrary.

                    Makes you wonder why that subset just happens to be curvelike, but I don’t know how curvelike it necessarily has to be.

                  • Dennis Coyne says:

                    Hi Ilambiquated,

                    You seem to be familiar with economics.

                    In the typical model of a perfectly competitive market (say the market for corn), consumers and producers take the market price as a given and make consumption and production decisions based on the market price, it is the independent variable in their decision making process, each consumer and producer is too small relative to the entire market to have a meaningful impact on price. So your contention that quantity can be thought of as the independent variable in a perfectly competitive market is incorrect in my view.

                    There is a theory for how the demand curve (from consumer preferences) and the supply curve ( from the theory of the firm) are determined. I agree that these underlying theories are problematic, particularly on the consumer preference side for some products (perfume and many other consumer product preferences are influenced by advertising).

                    The oil market, when OPEC is producing at capacity and is unwilling to cut output, can be modelled very well with the perfectly competitive market model.

                    Even when OPEC acts to control prices, for all non-OPEC producers, they take the oil price as a given determined by OPEC output decisions and do not think that their output decisions will affect the market price significantly, this also applies to consumers of oil.

            • Dennis Coyne says:

              Hi Ilambiquated,

              One area of confusion is that demand has many different meanings as Old Farmer Mac pointed out.

              In terms of economics, people often conflate the demand curve with the quantity demanded, and you are also correct that the demand in dollars would be quantity times price, I tend to think more in unit terms when doing a microeconomic demand analysis, so I often will use demand and quantity demanded interchangeably, but I try not to and specify demand curve or quantity demanded.

              I think when people say oil demand has decreased they usually mean the number of barrels that are purchased rather than the dollars used to purchase those barrels.

              Otherwise if 80 million barrels per day are being purchased and the price drops by 10% with no change in the number of barrels purchased, you would say demand has dropped by 10%, while I would say that the quantity of oil purchased is unchanged and thus the quantity demanded is unchanged.

              • Ilambiquated says:

                Yes, I agree there is some confusion in the terms.

                My favorite example of this is “normal” check out what Wikipedia has to say.

                http://en.wikipedia.org/wiki/Normal

                I tried to explain the “demand” as in the demand curve in mathematical terms above. It isn’t a number at all.

        • Dennis Coyne says:

          Hi Shuffling Along,

          To add to what Mac wrote. In the short term, both the supply curve and demand curve are relatively steep. Mac got the Price and Quantity axes reversed, economists put Price on the vertical axis and quantity on the horizontal axis. This always seems strange to other scientists because economists consider price as the independent variable given by the action of “the market” and that individual consumers and businesses adjust the quantity that they demand (consumers) or supply (businesses) in response.

          So in the short term if we imagine both a demand and supply curve that are nearly vertical, a small shift of either curve will cause a large change in price.
          Supply has grown by a small amount over the last 6 months (as Libyan oil has come back on line and LTO output has continued to grow) oil demand has grown by a smaller amount due to slow growth of the World economy. This can be thought of as a small shift of the demand curve to the left and the steepness of the supply and demand curve in the short term has caused a big change in prices. Economists call these steep curves relatively inelastic, if a 1% change in price causes more than a 1% change in quantity supplied or quantity demanded, if the curves are vertical, they are called perfectly inelastic, that is the quantity is unchanged regardless of price. In this case, over the short term the World supply curve looks like it is very inelastic, where a 1 to 2% decrease in demand results in a 30 to 40% decrease in the oil price.

          See chart below for brent oil price in Euros. (Price has decreased by about 38%.)

          • oldfarmermac says:

            Thank you Dennis I am getting more scatterbrained year by year and made a point of advising a reader to check a basic text book for a more understandable explanation.. So I overlooked the axis reversal. comes from hurrying up rather than composing and letting it sit and proofreading.

            It has been fifty years since I studied econ but I have been doing some physical science ever since and I guess I should be more careful about old dusty memories of which way graphs were oriented in my textbooks.

            Sorry about that folks but nobody is paying me to post. I would not be except I am stuck in the house with an invalid and tired of talking to myself and bored.

            Dennis is on the money. I guess I ought to learn how to post graphs and such copied from other sites or old books.

      • Ilambiquated says:

        And as the following link shows, prices can even be negative — for example, wholesale electricity prices are commonly negative in Germany due to the swings in out put of renewables and the relative inflexibility of older “baseload” power plants.

        http://www.epexspot.com/en/company-info/basics_of_the_power_market/negative_prices

        In fact the day ahead prices have been hovering around zero and will soon drop to about -€20 per megawatt hour/hour (one megawatt hour delivered in the course of an hour) as I write.

        http://www.epexspot.com/en/market-data/dayaheadauction/chart/auction-chart/2014-12-21/DE

        Sellers have to pay buyers about $25 and give them a megawatt hour. Tough market.

  2. Watcher says:

    This was at the end of the last thread. Some brits posting recently, so a repeat:

    “It’s A Huge Crisis” – The UK Oil Industry Is “Close To Collapse, People Are Being Laid Off”

    http://www.zerohedge.com/news/2014-12-18/its-huge-crisis-uk-oil-industry-close-collapse-people-are-being-laid

  3. Ronald Walter says:

    If you had nine million barrels of oil, would you sell it for one hundred dollars per barrel? You’ll have nine hundred million dollars.

    If you have nine million barrels of oil the next day, will you sell it all for 100 dollars per barrel or let it go for 95? You’ll still have 855 million dollars.

    The next day after that, you’ll have another nine million barrels of oil for sale. Might want to ask for a 105 dollars and settle for 99.50.

    If it goes on for three years, you’re talking some money. Might even get 125 for those nine million barrels. It is madness out there from time to time, wars, subterfuge, trillions of dollars being frittered out the window at all times, pure chaos.

    You’ll be able to sell the nine million barrels for 80 dollars and still have 720 million dollars, day after day, for three years or more.

    A thousand days, let’s say 800 million per day, nothing wrong with that. Eight hundred billion dollars in one thousand days.

    A thousand days of 55 dollar oil will still be 495 billion dollars for the nine million barrels each day they have that market share.

    Two thousand days, you’ll have 1.295 trillion dollars, all from oil. That’s just six year’s worth of sales, delivered.

    When oil was 10 dollars per barrel back in 1986, Saudi Arabia was producing less than four million barrels per day. The trough is massive.

    http://www.indexmundi.com/energy.aspx?country=sa&product=oil&graph=production

    If the price is a measly ten dollars per barrel, it is better to decrease the production and wait for the price to improve, simply because the production decreased by 2/3, then the incremental increases of production produced an incremental increase in price, stabilized the price with stabilized production, milk it all dry, then watch the money roll in even more. Feign a collapse in oil reserves, ramp up production, gain market share, continue to produce with reckless abandon at high prices, drive the price down if need be to re-capture market share, make it all look like a oil crisis, create the crisis, peak oil craze begins, the price of oil reflects the mania, like the old tulip mania craze, oil becomes abundant, everybody and their brother is looking for oil in every nook and cranny on the face of the earth to get the money at a hundred bucks, the price crashes even if it is increasing in demand, the oil mania has driven it to distraction, the financial markets roil, the oil flows like water over Niagara falls, the wine flows, yachts, jets, super tankers, oil mania.

    Tulip mania ended, oil mania must end too.

    Energy mania is out of control. Lotta sly dogs out there crazy as a fox.

    • nNgass says:

      Again you careless produced an uttering that make no sense: “Tulip mania ended, oil mania must end too.” It is nonsense to connect one mania with another because each one has a different initial condition and a different set of criteria in its development to a mania. What have the tulips to do with crude oil? The tulip mania was a local Holland affair and had no influence on the daily life of people in the US, for example. Tulips are not essential for daily life support. My wife only buys them to decorate a dinner table.

      • Nick G says:

        Oil consumption is certainly a bubble.

        100 years from now people look back in amazement that we made it a central part of our economy.

        Oil is expensive, dirty and risky. It’s time to kick the habit ASAP.

        • Ilambiquated says:

          Like sugar in the 18th century. The French traded Canada for Guadaloupe. Seems insane today.

          • Boomer II says:

            The analogy that always struck me the most was the idea that pioneers used to burn beautiful hardwoods for fuel. Now they are saved for furniture.

            • oldfarmermac says:

              The reason that quantity times price is not a good definition is that other quantities and other prices can result in the same gross sales.

              The price of apples can be used to illustrate this definition.

              When the supply is really limited – which used to happen occasionally in regional markets due to bad weather- the price of apples in say 1960 might have averaged three dollars a bushel wholesale in the south east due to a bumper crop. In 1961 the crop might have been half the size of the previous years but the price could have been double- yielding exactly the same gross sales figure.

              In actual fact the wholesale price has dropped all the way to ZERO a few times in our area. Basically this meant that only the juice house a hundred miles away would buy our fruit at ANY price at all – and the price they offered was less than it cost to haul them there. So we dumped them in a gully and fed some to the pigs and cows and gave away as many as we could.

              A couple of times the price went so high my grandparents- all four of them dirt farmers and one of them illiterate- made enough money to live like lawyers. Those two years put them in new brick houses-PAID FOR new houses and PAID FOR new pickup trucks and all us grandkids got stuff we hardly dared dream about at Christmas – baseball gloves, bicycles, dolls that had eyes that opened and shut with pretty dresses. A twenty two for me and a prom dress for my sisters.

              I am the only one left who is not well off. My surviving siblings are one per centers now and have been for at least the last ten or fifteen years. I had my chances but steady hard work was not for me. I made plenty at times and took it easy until it was gone and made more and took it easy again several times over.The puritan work ethic my parents taught us used to really pay off- for the ones that listened.

              In recent times with shipping easier the price seldom swings so wildly because apples can now be shipped cross country and around the world if there is a profit involved in doing so. Shipping was not so easy back then since there were fewer and smaller and less capable shippers.

  4. aws. says:

    Bankers See $1 Trillion of Zombie Investments Stranded in the Oil Fields

    By Tom Randall, Bloomberg, Dec 18, 2014 12:52 AM ET

    In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world’s largest new oil and gas fields — excluding U.S. shale — and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over yet, but zombies are beginning to crash it.

    The chart below shows the break-even points for the top 400 new fields and how much future oil production they represent. Less than a third of projects are still profitable with oil at $70. If the unprofitable projects were scuttled, it would mean a loss of 7.5 million barrels per day of production in 2025, equivalent to 8 percent of current global demand.

    • Watcher says:

      This guy is off the plunging breakeven reservation. He has Eagle Ford breakeven above $80 and Bakken over $70.

      We won’t be hearing from him again.

  5. aws. says:

    Oil sands cost inflation coming back to bite us now

    Rising oil prices since the early 2000s have hidden a lot of sins in the oil sands

    Andrew Leach, Macleans, December 17, 2014

    Perhaps the current price shock will give us pause – pause to consider what an Alberta with more control on the pace of development and without the inflationary impacts which come with open-access development would look like. Had we been able to maintain costs at even double those considered by the National Energy Board, we’d have seen substantially higher taxes, royalties, and profits per barrel, although of course on fewer barrels, and we’d find ourselves much better-positioned to weather the downturns in oil prices which inevitably come. Perhaps it’s time for the Alberta government to acknowledge that it’s not optimal to simply leave the market to decide the pace of oil sands development: the government is and must be a key part of the market as the representative of the owners of the resource, the regulator of extraction and the construction of new projects, and the administrator of the royalty regime. Rising oil prices since the early 2000s have hidden a lot of sins in the oil sands, and some of those sins are going to cause a lot more pain in Alberta than need be the case for as long as this most recent drop in prices last. Perhaps, this time, we’ll learn from our mistakes.

    • Boomer II says:

      It’s nice to know that the first item on the agenda when the Republicans take over the Senate is approving the Keystone XL pipeline. They have their priorities straight.

      • oldfarmermac says:

        I still think of myself as a conservative but will whip anybody’s butt that calls me a republican if he is no more than half my size and on crutches.

        The republicans are wrong about more than the democrats by a wide margin but they are right about one thing-the Keystone. The advantages associated with having that oil flow thru the US in terms of economics and security dwarf the environmental risks involved.

        And while I do understand that tar sands oil is nasty oil I also understand it will get to market NO MATTER WHAT. Stopping the Keystone might possibly slow it down a little but that is all.

        This issue is another one of the ones where the liberal wing and environmental establishment have worked together to shoot off twenty community toes and a substantial part of the reason why the repugnance now own both the Senate and the House and have a ninety percent plus ( my guess ) shot at taking back the White House next election barring possible unforeseen events tilting the odds back in favor of the democrats.

        Stopping the Keystone has been a pyhrric victory for environmentalists that will result in far more ecological damage than will ever result from the pipeline.The increased total damage will come about because with repuglithans in control new environmental initiatives will be stalled and existing regulations weakened and in some cases actually repealed.

        Paint me a realist with a fairly comprehensive knowledge of American politics and a brain that is at least semi functional. 😉

        • The republicans are wrong about more than the democrats by a wide margin but they are right about one thing-the Keystone. The advantages associated with having that oil flow thru the US in terms of economics and security dwarf the environmental risks involved.

          I agree 100 percent. What opponents of the Keystone fail to realize is the choice is almost never between good and bad, it is usually between what is bad and what is worse. The keystone may be bad but moving oil by railroad tanker cars is far worse.

        • Boomer II says:

          What I was making reference to is that they consider Keystone their main priority even though the economics of oil aren’t particularly good right now.

          They are going to declare victory over an issue that isn’t the biggest one the country faces.

          • Boomer II says:

            I was just noting that at the same time that the economics of oil sands look bad, the Republicans are touting how the first thing on their agenda is the Keystone Pipeline.

            I wasn’t talking about the issue from an environmental point of view.

      • Ronald Walter says:

        The Keystone Pipeline exists now. The BNSF is shipping Bakken oil east to Pennsylvania, looks like they’ll have to keep it that way, the BNSF could care less about that Keystone XL.

        The Keystone begins in Alberta, traverses southern Canada, takes a right turn and makes a beeline directly to Cushing, Oklahoma is OK.

        The Keystone XL will extend to Houston, Texas via Cushing.

        The pipeline will be 1179 miles long, three feet in diameter.

        How much oil can fill the pipeline?

        1179×5280=6,225,120 feet

        pi times the radius squared times the height is the volume of a cylinder.

        The pipeline, when full, will have 7.75 million barrels of oil flowing from Canada to the Gulf of Mexico.

        http://thebottomline.as.ucsb.edu/2013/04/keystone-xl-pipeline-construction-back-on-the-drawing-board-states-review-pros-and-cons

        • Synapsid says:

          Ronald,

          Keystone XL South already extends from Cushing to Houston. It’s been carrying oil since January.

    • Watcher says:

      What exactly does that mean? Pump less oil and therefore have fewer pensions and teachers and whatever else the taxes pay for? And all this is to keep costs low — which btw preclude increased taxes per barrel?

      • It means pacing development to optimize resources. That happens to be something I know a little about. My analysis coincides, Alberta could have done a much better job with the development pace.

  6. aws. says:

    Falling Oil Prices Could Rock Canada’s Politics: Expert

    A Tyee interview with Terry Lynn Karl, who wrote the book on petro states.

    By Andrew Nikiforuk, Today, TheTyee.ca

    Will oil prices stay low for a while?

    “Uncertainty is the name of the game now. The price of oil is more volatile than ever before. Oil is linked to finance more than ever before. And the economies of producing and consuming countries are more intertwined than ever before.

    “Predicting prices is a fool’s errand. Oil prices could stay down in 2015. There is a lot of supply and little demand right now. But what happens if unrest increases inside some oil-exporters because their regimes are forced to cut back on their extensive food and oil subsidies? What happens if conflict disrupts supply in Libya, Venezuela, Nigeria, Iraq or Iran? The price of oil could soar overnight.

    “I don’t know how things will play out. But there is the tightest of links not only between the global economy and finance but also energy producers, environmental damage and the speed up in climate change. We are in a situation where oil supply limits can cause recessions and oil supply gluts can cause stock market failures.

    “We urgently must wean ourselves from fossil fuels. All we are doing now is moving costs and benefits around in a highly volatile system. Few win, and most people lose. But I am not optimistic that this will happen before the consequences are catastrophic. There is just too much money in oil. As long as these extraordinarily high profits exist, oil will be extracted and politics will be petrolized to prohibit better alternatives.”

    • oldfarmermac says:

      I must say that Nickiforuk knows a few things but his agenda shines thru like the noonday sun in thin clouds.

      He fails to mention the elephant in the room- that for now and for a substantial number of years to come we are not going to be burning oil because we won’t listen to him.

      We are going to be burning it because we have two choices . Burn it or die.

      • Nick G says:

        We have better and cheaper alternatives, right now.

        We’d be far better off if we accelerated EVs, fuel efficiency, etc. We’d have more money, have fewer recessions, and have fewer soldiers coming home with brain injuries.

        • What’s an EV? a battery powered car? They are too expensive and have short range.

          • Nick G says:

            Yes, an EV is an Electric Vehicle. It includes hybrid-electrics, plug-in electrics (like the Prius plug-in), Extended Range EVs like the Chevy Volt, and pure EVs like the Nissan Leaf and Tesla.

            The Leaf is cheaper (Total Cost of Ownershipover the first five years, per Edmunds.com) than any other vehicle on the road. The Volt is cheaper than most, and has no range limits. The Tesla is far cheaper than it’s comparable competitors, and has not much of a range issue.

            • How much subsidy do these vehicles get where you live? I live in Europe. Here we have very high electricity prices. And if they keep adding subsidized renewables they’ll be higher. I’m guessing that many of you are in the USA. But the U.S. isn’t India or China. I wonder if they do subsidize electric vehicles? I don’t consider a Prius an electric vehicle , but I suppose it may compete. I have a 5 speed diesel and I get almost the same economy as a Prius, but it does look competitive.

              • Nick G says:

                I was referring to prices excluding tax credits (aka subsidies).

                Hybrids don’t get credits in the US. Plug-ins, including pure EVs, do.

                A Nissan Leaf is the cheapest thing on the road without credits – with credits they’re insanely cheap.

                Europe has different problems: the average European uses only 18% as much fuel as the average American. Europe’s main problem with oil is freight – there are way too many trucks, and too few freight trains. Europe needs to standardize and expand their freight trains.

                • So are these Nissan leaf the best selling vehicle in the USA? Do they have heating and air conditioning?

                  • Nick G says:

                    Do they have heating and air conditioning?

                    Sure. They’re pretty efficient, so they don’t reduce range a lot.

                    So are these Nissan leaf the best selling vehicle in the USA?

                    You’d think so, wouldn’t you. The reality: people take a while to get used to new things!

                    For example, a company called Webvan tried to build enormous automated warehouse for home grocery delivery. It was a great idea, and they invested $1B to make it happen. Sadly, it required a fast acceptance by consumers to cover those large fixed expenses, and that didn’t happen.

                    On the other hand, a company called Peapod made the same concept work, except that they built gradually, starting out of existing supermarkets.

                    People take a while to get used to new things, even when they’re clearly better…

                  • Dennis Coyne says:

                    Fernando,
                    No, not best selling car (not even close). Yes it has heating, air conditioning, etc, it is similar in class to a Toyota Corolla or Nissan Versa.

                  • Then it has something wrong. Maybe the battery is expensive to replace. Ope the battery doesn’t really carry full charge. Most of these technologies have been hyped by marketeers.

                  • Nick G says:

                    “Why do some nations, such as the United States, become wealthy and powerful, while others remain stuck in poverty? And why do some of those powers, from ancient Rome to the modern Soviet Union, expand and then collapse?

                    … Countries that have what they call “inclusive” political governments — those extending political and property rights as broadly as possible, while enforcing laws and providing some public infrastructure — experience the greatest growth over the long run. By contrast, Acemoglu and Robinson assert, countries with “extractive” political systems — in which power is wielded by a small elite — either fail to grow broadly or wither away after short bursts of economic expansion.

                    Elites resist innovation because they have a vested interest in resisting change — and new technologies that create growth can alter the balance of economic or political assets in a country.

                    “Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people,” Acemoglu and Robinson write. Yet when elites temporarily preserve power by preventing innovation, they ultimately impoverish their own states.

                    … “Most consequential ‘policy mistakes’ are by design,” Acemoglu says. “These leaders are choosing policies that don’t maximize economic prosperity, because their objective is different: to hold onto power or simply enrich themselves.”

                    http://web.mit.edu/newsoffice/2012/why-nations-fail-0323.html

                    A case in point: Fox News is doing it’s best to kill the Chevy Volt in it’s cradle with relentless attacks, filled with misinformation and cues to it’s followers that “we” don’t drive EVs.

                    This despite the fact that Fox News pretends to be patriotic, and the Chevy Volt has a dramatic potential to help the US car industry and reduce US dependence on oil imports.

                    A wealthy elite is willing to hurt the economy and forego general growth (by preventing a transition away from Fossil Fuels) to preserve it’s privileges.

          • John B says:

            And there numbers are doubling every year. It’s that pesky exponential growth thing again. Do the math.

        • oldfarmermac says:

          I must agree that we have alternatives available now- but Nick cannot possibly deny that it will take a long damned time to scale those alternatives up to the point we could get by with only a little oil.

          By damned long time I mean at least ten to twenty years plus.Even on a do or die wartime footing we couldn’t get away from oil any sooner.

          So we ARE going to be burning oil a long damned time because the choice in the near to medium term IS to burn it or die.

          • We will stop burning oil when the price is so high people cannot afford it and not one day before.

            Or:

            We will stop burning oil when the world economy crashes and burns and not one day before.

            Whichever comes first.

            • Dennis Coyne says:

              Hi Ron,

              It will not be a step function where we stop consuming oil all at once. As oil depletes it will become more expensive, people will move to alternatives as it makes economic sense to do so, the higher oil prices go the greater incentive there will be to switch to alternatives. This could potentially happen over 20 years or so, but it will not be easy.

              Human nature does not have to change, oil prices need to increase, then people will make different choices. Also normal economies of scale will make the alternatives cheaper than at present (in inflation adjusted dollars) which will also aid in the transition. Better public policy (carbon taxes) would help to speed the transition, but unfortunately conservatives generally (with the exception of Mac) don’t believe in peak fossil fuels or climate change and they seem to control the debate in the US.

          • Nick G says:

            Well, sure. But, that doesn’t matter.

            The US could eliminate imports overnight, on a war footing. That’s enough.

            Alternatively, it could ramp up EV’s (and other things) in a 20 year period, and reduce consumption by 80%. That’s far more than enough.

            • The US could eliminate imports overnight, on a war footing. That’s enough.

              No that is not enough. What we could do if everyone would just behave in a certain manner amounts to nothing but daydreaming. Example: We could eliminate all police forces if everyone were to be honest and obey all laws. But people are not like that. People will continue to behave exactly as they have always behaved.

              Why that is so hard for most people to understand is beyond me.

              Nick, you continue to theorize about what we could do if only… if only… But it just ain’t gonna happen. People will always take the path of least resistance today, even if it will lead to harder times tomorrow. But just try telling them that. They will say “no, no, the good times will continue, don’t come to me with that silly shit about hard times down the road.”

              But we do enjoy your conjuring of a better world tomorrow Nick. So keep those dreamworld scenarios coming.

              • Nick G says:

                It’s a social decision, that would be implemented by public policy. There are many examples.

                The U.S. doubled light vehicle MPG over the last 30 years via regulation.

                The U.S. eliminated lead from paint and gasoline: peak lead.

                The world eliminated HFCs.

                The U.S. eliminated mercury from many things: peak mercury.

                The EU eliminated lead from solder.

                The list of successful public policies of this sort is endless.

                The U.S. could implement a phased in, revenue neutral carbon tax – it would make the U.S. more prosperous and safe. Double the price of fuel and watch how quickly its phased out.

              • PeterEV says:

                I did a post a few topics ago where I did a back of the envelope calculation that showed that by investing in PV we could produce enough electricity to power enough EVs that we could truly be energy independent. There was enough solar input throughout the USA in January (or was it December. The amount was the amount we had invested in the Iraq War. I think it was a trillion dollars.

                Given Mr. Nikiforuk articulate reply, my question to you all is this: “At what price do we have economic stability?” Isn’t that what we are shooting for?

                If it is $3/gallon, then an EV in my neck of the woods, pays me $2 for every 30 miles I drive. The maintenance I save will currently pay for the battery pack or there abouts. It makes sense for me to drive an EV **if I can do it.** If I try to commute 80 miles and my range is 60 miles, the last 20 miles will be on the back of a tow truck. If my commute is 35 miles or less as it is for 95% of Americans, and my car range is 50 miles in winter, owning an EV makes it a potentially viable option.

                The other thing is that we have to leave oil before oil leaves us. Mr. Nikiforuk phrased it differently but the sentiment is very similar. Our marching orders are to leave oil before the consequences are direly negative.

                By buying an EV (when you can), you are saying that I want the alternative energy scene to succeed and not leave me and my family stranded. The multi-trillion dollar question is will it????

                The more EVs that are around will leave gasoline (and Diesel) cheap enough for food to be transported to market. It may be cheap enough for trades people to survive while battery scientists try to get more energy per kilogram (or liter).

                The theoretical maximum for Lithium based batteries is between 1500 and 3000 watt hours per kilogram. The tZero (think of a Miata sized kit car) was able to go 302 miles on a pack with around 150 watt hours per kilogram battery pack; a factor or 10 to 20 more miles. That’s enough to theoretically go across the USA to maybe back on one charge. But that is a theoretical maximum.

                The Tesla has a range of 265 miles. There are batteries in the labs right now with about 3 times as much energy. **IF** they come into production (and I think they eventually will), that’s almost 800 miles per charge.

                There are PV arrays with 45% efficiency in the labs. It they become cheap enough, I can power most of my home through out the year. December and January maybe a bit of a stretch but the addition of solar thermal floor heating, PV farms, and conservation might make it doable to heat and power my home and vehicle throughout the year. At that point, we will mine, farm, live with respect to the sun. Too many cloudy days and we will have to cut back on usage or pay a price.

                I think the bottom line is that we have to embrace “leaving oil” while embracing “accepting alternatives” with an eye on keeping our economies stable. For instance, if gasoline at $4/gallon is the tipping point from decent economic functioning to recession/depression, then we have to promote the use of EVs, mass transit, biking, walking, and other high miles per unit of energy, etc. to kepp the price of gasoline at or under $4/gallon.

                I think also we need to turn off mentally the “Saudi-America” “Drill, Baby, Drill” media sources and face the reality of what is behind these manta$$$. We will never be Saudi-America unless a number of us convert to EVs and embrace alternatives including riding the bus, biking, walking etc. We still import 5 million barrels a day.

                “Drill, Baby, Drill” means drilling in the Arctic, Deep Water, converting Kerogen to oil (at very high $$/barrel), etc. Stepping back and seeing where these sources are located and what it means to work a rig at -40 degrees Fahrenheit in 45 mph winds gusting to 60- mph; assembling pipe that is 3 miles long before it touches the sea bed; or trying to convert a waxy substance to oil that Shell has been trying to do unsuccessfully for 30 years, will increase CAPEX at a faster rate than normal wages. Eventually, oil will be too expensive and oil will leave us.

                Nick is not daydreaming in some dream world. He, I, OFM, and others see a night mare developing and we want to head it off.

                Ron, the service you are providing us as an opportunity to discuss our situation is priceless. We want to wish you the best in this holiday season. Thank you sir.

                • wimbi says:

                  thanks for that. You said what I would have except
                  too lazy.

                  My leaf works beautifully. and is fueled by the sun.
                  and lots of people here are admiring my low fuel/maintenance costs.

                  I was forced to spend 3 goodays in a city. The amount of utterly useless activity was revolting.

                  I was in a hospital room which generated in that time far more fuel than my whole house and more.

                • Techsan says:

                  Right now, with current technology and current prices, the cost of 3 years’ gasoline for a gasoline car will buy solar panels to power a Leaf for the same number of miles per year for the rest of your life.

                  We have had the Leaf, and the solar panels, for more than 3 years now. The Leaf is a great car. Ignore the naysayers who don’t have one, and pay attention to those who actually have a Leaf and know what they are talking about.

                  • Dennis Coyne says:

                    Can you guys give me an estimate of the range for the Leaf at 10 F? Assume that I will use the heater and defroster, but drive conservatively (60 on the highway, no hard acceleration and gentle braking). Thanks.

                • Boomer II says:

                  Ultimately our neurological bugginess could serve an adaptive function, which is preventing us from becoming so depressed about the impending apocalypse that we can’t get out of bed in the morning.

                  And this is entirely the point. If you keep telling people the end is coming and there is nothing they can do, then they might not take steps to push the end farther out. Conserving oil and limiting CO2 are reasonable steps even if there is an end point at some point. In fact, we know that there is an END point, just not predicted in our lifestyles. So we have time to make some adjustments.

            • Ilambiquated says:

              I think it is a bit of a mistake to argue too energetically about the which promising technology is likely to replace oil burning.

              If the decision is made that we need to move along , the best bet would be just to tax the hell out of it and see what happens. It can be done in a way that is neutral to any economic parameter that you are worried about. If the decision is a good one (the idea of an imminent peak supports it) then the sooner the better.

              High prices encourage savings but also premature production of marginal resources. Low prices encourage waste. Neither is really satisfactory. high taxes encourage savings without encouraging marginal production.

              What solutions are found would then be determined by the market. Conservation is the cheapest.

              • Nick G says:

                I agree with all that.

                That said, I think our alternatives are reasonably clear: biofuels are fine but not scalable, and H2 isn’t good for transport (though it may be good for central seasonal utility backup).

                EVs are our main ticket.

                • Patrick R says:

                  Yeah EVs, but also and even more economically simply organising your life, and in particular where you live, so driving just becomes way less necessary. I’ve done this so effectively that I can’t justify buying any kind of new car on efficiency grounds. My old Volvo drinks fuel enthusiastically but because she’s now mostly parked I won’t save much even if I bought a full EV, so the capital cost just can’t be justified.
                  I am spending a little on bike maintenance and more on Transit, but it’s all cheaper than gas and much much more rewarding.
                  Additionally I now find I resent every wasted minute of my life sitting at traffic lights, looking for a park or stuck on the highway… On the bus or train I can check Ron’s site, and walking or riding I feel alive and engaged with the city.
                  Driving is for losers, it increasingly feels. Of course I still do it when it is the best option, but previously I did it unthinkingly for every journey. It took a change of mindset and some practical changes to alter this suburban bred boy’s habit of a lifetime (esp. Moving to a walkable, connected, and Transit richer, older more inner part of town). But the pay-off is great; it’s hugely liberating.

                  • Nick G says:

                    I agree – I’ve done the same thing. Life is better, and I rarely drive. Taking the electric train to work is a pleasure.

                    But…I can’t argue that it’s cheaper. Dense urban living also involves housing that is far more expensive per square foot.

                  • Boomer II says:

                    Yeah EVs, but also and even more economically simply organising your life, and in particular where you live, so driving just becomes way less necessary. I’ve done this so effectively that I can’t justify buying any kind of new car on efficiency grounds.

                    Same here. I have an older car, but I mostly just leave it parked and walk everywhere I need to go. I figured a old car not driven was still cheaper than a newer car not driven.

                  • Patrick R says:

                    Nick but by spending more on property and less on cars and fuel at least your wealth is going into an asset not simply a depreciating machine and running costs. Of course how that works out depends on where you are, what price you entered and all the usual variables…. And while cities like mine may well prove to be currently running up a property bubble certain functions of property have solid and enduring value that will remain proportional: Locational ones in particular, the power of proximity. Ex-urban residential property lost value most in the previous burst. And those conditions are likely to hold in the future; ie high oil and therefore transport costs.

                  • Raja Bob says:

                    Likewise. My 20 year old car is mostly parked. I typically ride my bike, which I will electrify soon. That will extend my car free range considerably.

                    But, professionally, there are times when I simply must drive, and for those times, I am going to buy an Nissan LEAF when my existing car finally dies. They are pretty cheap on the used car market, and the lease price on a new one is only $200./month.

                    I will concurrently buy the solar PV to ‘fuel’ it. For my needs, that will be 1kW capacity, but I’ll install 2kW so I’m not burning coal to chill my beer any more.

                    I do have to admit though, that once I have the LEAF, and the free, carbon free PV power, I’ll probably go on pleasure drives again. As things are now. I can take no pleasure from driving at all.

                    Tonight was meant to be spent with friends, celebrating the holidays, forty miles North of where I sit. My car pool arrangements fell through due to sick kids, and the word came in too late for me to take the train.

                    To have been a fifth passenger in a car that would be going regardless is tolerable, but as much as I would love to be singing carols with those I love right now, I just can’t bring myself to burn three gallons of gasoline to move three tons of steel and twelve stone of human there and back again.

                    Not that I think those three gallons of fuel – or any other amount that I could personally burn – will make a lick of difference to the outcome of the world’s fate, but I just can’t do it. Our collective actions are the problem, and our consumer choices are really the only vote that we can cast that has any power whatsoever.

                    If I’d had a fully solar charged EV in the driveway though, I’d be with my friends now. Single occupant vehicle be damned, and I’d feel better about it than using the diesel powered train.

                  • wimbi says:

                    We should not under estimate the power of a living example. Seeing that leaf in place of her honda hae lots of her friends start to think about EV’s. when they never had before.

                  • Nick G says:

                    Oh, I wouldn’t rule either of them out, but they both have big limitations.

                    US ethanol is at the equivalent of about .9M bpd of oil (5% of consumption), while using 40% of the corn crop. It’s hard to see how ethanol production could go above 2-3M bpd BOE.

                    Hydrogen in an H2 car costs about $.16 per mile, vs $.04 per mile for an EV, while the vehicles still cost in the range of $100k to produce. There’s no infrastructure, public H2 stations cost 10x as much as electric stations (around $.13M), and H2 from renewable electricity would be about 25% as efficient in an EV.

                    I expect extended range EVs to dominate, and the extender could be either H2 or petroleum – but petrol is likely to be much cheaper for along time.

                  • Nick G says:

                    Clarification – H2 stations cost about $1.3M. As a result, very, very few exist.

              • ezrydermike says:

                solutions / alternatives are popping up all over the place…

                “A new study examines the cost-effectiveness of electric school buses that discharge their batteries into the electrical grid when not in use and get paid for the service. The technology, called vehicle-to-grid (V2G), was pioneered at UD and is being tested with electric cars in a pilot project.”

                http://www.udel.edu/udaily/2014/may/electric-school-bus-052814.html

        • Ilambiquated says:

          We also have streetcars. Not a new technology at all.

          In fact, all America needs to do is stop punishing people for living in cities and rewarding them for moving as far away as possible from where the work, shop and socialize, and gas consumption would start falling.

          Now would be the perfect time for America to add $0.50 or so a gallon to the federal gas tax.

  7. aws. says:

    From the gas section of David Hughes’ Drilling Deeper report.

    If the associated gas from the Eagle Ford (and Bakken) led to the drop in NG prices, then what will the stacking of rigs in those plays do to the price.

  8. Watcher says:

    To avoid broken record syndrome, I’ll embellish.

    Supply and demand do not have to mean anything. KSA and Russia can see clearly that shale is being destroyed. If price rises, that would be undone. So why let them rise? If demand outstrips supply and buyers offer higher prices, tell them no need for that and sell the oil at $54. They have an opportunity to put a gun to the head of shale and blow its skull to splinters. Why in hell would they let that go? Especially for a lousy $20/barrel more.

    They are 25ish% of global production, between the two of them. They can do this. Other producers want more price, nut with them accepting $55 those other producers will not have customers unless they lower.

    Correct procedure is obliterate shale, watch the US have to start importing that 3.5 mbpd again and endure the crushing of the energy independence narrative. Let the price trickle up, and maybe suck in some more HY lenders, then smash them again. Make damn sure no one with money will ever risk it again on shale. Then you can elevate the price a bit more.

    Whatever it takes to drain money from the enemy.

    • John B says:

      KSA and Russia are major oil exporters, the US isn’t. So the low prices are hurting them, more than it’s hurting the US. No one in OPEC is willing to cut production, because that will lower their total revenue. It’s the exporters that are in the catch 22.

      A lower oil price is good news for most of the US economy. Maybe bad news for the fracking operations, but good news for everyone else.

      • Heinrich Leopold says:

        The US economy is far better off than Russia, yet China and India, which have virtually no fracking operations, are far better off than the US economy. Shanghai and Mumbai stock markets are already outperforming the DOW by a wide margin. This is an indicator where the smart money flows. What counts in a worldwide financial network is relative performance.

        • John B says:

          And that’s mainly because China and India both have 3 times the population of the US. China and India both have more honor students, than the US has students. I know some consider human beings to be “useless eaters”, I would disagree.

          Also, I would argue that China and India have better leadership than the current US Admin. Certainly more pro-business leadership.

          Democracy doesn’t always produce the best leaders.

      • Ilambiquated says:

        Yees, the US is an importer. That is the basic reason I think low oil prices will be good for the US economy, even if it kills the shale business.

        By analogy, building a bridge across a rive is good for the economy, business, even if it puts the ferrymen out of a job.

        • Watcher says:

          This isn’t that world.

          Most of all job gains have been in shale states. Beyond that, in general the idea would be that shale’s recency has escaped traditional economic measure. They still list the category as “mining”. Conventional oil wells don’t require 2000 (that’s the semi official figure) truck trips to get the well going.

          Loss of the shale industry may be far more serious a slam to the US than putting Russia and KSA back to earning what they did 10 years ago for oil.

          • Boomer II says:

            Most of all job gains have been in shale states. Beyond that, in general the idea would be that shale’s recency has escaped traditional economic measure. They still list the category as “mining”. Conventional oil wells don’t require 2000 (that’s the semi official figure) truck trips to get the well going.

            It seems like the ripple effect from shale jobs wouldn’t be that great. While it would be a boost for oil industry jobs and transportation, for the people employed on site in places like North Dakota, their money seems to be going into local businesses that can charge much more for rent, etc. Seems like the jobs just lead to a spike in inflation in there, but not necessarily a nationwide boost to the economy.

            • John B says:

              There does seem to be a lot of money being thrown around in the shale business. There may be some room for cutting some expenses, and keeping some operations going.

        • TechGuy says:

          “Yes, the US is an importer. That is the basic reason I think low oil prices will be good for the US economy, even if it kills the shale business.”

          Low Oil prices are not going to last. The lower prices will have a very short economic gain at a long term damage to oil production. Oil producers will be very reluctant to spend billions on long term projects if volatility is high. Either 2014 or 2015 will be the Peak Oil forever.

          Years ago I wrote on the Oildrum that large price swings will become the norm. As oil prices rise it causes demand destruction as people consume less and as the economy declines. This causes oil prices to suddenly plunge as demand falls below production. Then over a period (excluding geopolitical events) the prices start to rise again because consumers start consuming more. Eventually the prices rise too high, tripping another demand destruction reset. All through out these cycles production falls and the bottoms of prices declines rise. I very much doubt we will ever see prices reach $30 bbl

          It appears we are approaching the bottom of the second cycle. The First cycle was the 2005-2008 boom/bust. the price swung from about $140 (high) to $30 (low). This second cycle is probably about $110 (excluding geopolitical spikes) to a probable low of about $44-$52 (guessimate). That said I doubt this will follow a trend were the price swings follow a narrowing window. I think the period of cycles will get shorter in the future. from 5 to 7 years to probably 2 or 5 or less. At some point these cycles will end and production and the economy will begin collapsing as there won’t be enough resources to keep the global economy running.

          Either there will be another World war, the war to end all wars (very likely) or Roman type of collapse were nations and empires fall apart. I think as the economy gets worse, nations will select more charismatic leaders that make grand promises that lead to fascism and militarism to achieve those promises. The USA is clearly following this path and I am sure other nations will follow. Only a very few number of humans understand energy significance to the economy and they are easily overspoken and must complete with Kardashians for attention. Leaders will point fingers at boogeymen and the majority of ignorant voters choose which group of boogeymen the gov’t should attack, instead of working on any realistic long term solutions to energy and resource depletion.

          It appears that it doesn’t take much to send oil prices tumbling. Perhaps a global consumption cut of 500 Kbpd to 1 Mbpd, is sufficient to trigger a big price slide. I think this might be because all oil producers must paddle as fast as they can to keep afloat. In the case of OPEC, they need to provide lots of public expenditures to meet public obligations to prevent thier populations from revolting. In the West, they need to support high debt loads as drillers must borrow heavily to pay for the enormous Capital expendures to bring new oil to market. When prices start failing, no one has any breathing room to cut production because they all have huge obligations to meet.

          These large price dips may become very dangerous for the world. If exporter nations cannot fulfill there public obligation they are in danger of revolts. Do we really want to see a nuclear armed Russia experience another collapse? Perhaps Russia will be replaced with a much more militant gov’t or some of its stockpile is will fall into the hands of extremists. In the case of the Middle East, its already a basket case. This plunge increases the odds of another round of revolts and civil wars that spread to the Europe and Asia very easily. Never forget about the law of unforeseen consequences.

          • oldfarmermac says:

            Tech guy is a guy worth reading very carefully and twice over at least. He has a very good grasp of what is going on.

          • Watcher says:

            “If exporter nations cannot fulfill there public obligation they are in danger of revolts. Do we really want to see a nuclear armed Russia experience another collapse?”

            No, they aren’t.

            If you have to spend more than you are generating, that is called a “deficit”. There are some prior examples of such. Check the US budget for about the past 15 yrs.

            • TechGuy says:

              Watcher wrote:
              “If you have to spend more than you are generating, that is called a “deficit”. There are some prior examples of such. Check the US budget for about the past 15 yrs.”

              What just happen to the Russian Ruble in a matter of just a few weeks? The Ruble is close to collapsing again and it only took about two weeks to go from stable to utter chaos. If Russia is unsuccessful in stabilizing its currency, its govt could be toppled in a matter of just a few weeks.

              Countries like Iran, Pakistan (not an exporter but at risk) and other exporters are locked out of the global debt market. They can’t borrow money to run deficits because no one is willing to loan them money and their own currencies aren’t broadly traded. These countries must acquire foreign currencies in order to import the goods and services needed to keep stable. They do this by selling Oil in Dollars (or Euros) and using their foreign currency reserves to import critical goods and services (parts, medicine, food) If they try to print, they’ll cause high inflation, which is already happening in Iran.

              Even big players like KSA, Kuwait are at risk of closed debt markets. The Bond investors will not bother trying to catch a falling knife (falling oil prices) and will either demand risk premium (ie much higher yield),choose to sit this out and wait for a bottom or both. Especially since ISIS is right next door to them and could easily target Oil infrastructure causing problems for exports.

              The US is a different position because the US dollar is the World reserve currency and the top traded currency in the world (for now) The US also has strong influence over most of Europe and parts of Asia (Japan). To some degree, the US can dictate or manipulate foreign gov’ts to help prop up the dollar.

              The Collapsing Oil prices risk causing a shutdown of the global debt market. If losses start piling up it could lead to liquidity freezes in the broad debt markets. For instance if bank or two fails because they went “all in” into the energy markets everyone will become concerned who else is might be exposed. We could have another Lehman movement all over again as investors liquidate and buy gov’t debt in fear over contagion.

    • Dennis Coyne says:

      Hi Watcher,

      You seem to be forgetting that low oil prices tend to increase the quantity of oil consumed because the quantity of oil demanded will increase when oil prices are low. You assume that if LTO output decreases (along with offshore oil) due to low oil prices, that Russia and OPEC can increase output to make up the difference. If not, how do oil prices stay low? Is there any evidence that Russia and OPEC have a lot of spare capacity to increase output? (I have not seen any.) So if there is not enough oil supply to meet the demand for oil, what do you think will happen to oil prices?

      Now if there is a lot of spare capacity in OPEC countries and Russia to fill in the declining output from LTO, oil sands, and offshore oil as well as the increased demand due to low oil prices, then oil prices may remain low for a long time (2 years or more).

      I am very skeptical that prices will remain low beyond July 2015 (low= less than $70/b). When oil prices rise the drilling rates in the LTO plays and elsewhere will increase. I have been wrong before on oil prices, but I think I have this one right, time will tell.

      • oldfarmermac says:

        I have been following Watcher’s comments closely for a while. The only conclusion I can come to is that while he is a very smart guy and obviously knows a lot about financial markets he nevertheless is possessed of a RELIGIOUS conviction that financial monkey shine tricks pulled by bankers and big biz and big government are the controlling factors when it comes to oil markets and that fundamentals hardly even need be mentioned except to laugh at them.

        Sometimes I think we even speak different languages since the same words seem to mean almost the opposite to me that they do to him.

        Lines such as ” Supply and demand do not have to mean anything ” and ” a lousy twenty dollars a barrel” are hard to reconcile even in context.

        Then he correctly mentions that if Russia and Saudi Arabia sell for fifty five bucks then everybody else will have to do the same-but this is true only if as Dennis points out that the Saudis and the Russians are ABLE AND WILLING to sell enough and to continue to sell enough at fifty five to KEEP the price there. This argument implicitly acknowledges the reality of both SUPPLY and DEMAND together determining PRICE.

        Supply and demand NECESSARILY mean something.

        It could be that I am all mixed up but I don’t think so.

        • Ilambiquated says:

          Market theory is very useful, but it is also a great simplification of how people really act.

          One of the things I do (when I am not hanging around here being annoying) is help retailers develop price optimization strategies. This is a Big Data application where you sift through huge numbers of receipts looking for patterns.

          Sometimes there is no price elasticity because consumers can’t change their behavior, but sometimes the majority simply does not care what the price is. When retailers identify these products, they raise prices. This makes price optimization a huge business.

          BTW, some products are also bought because they are expensive.

          I think American consumers did not downsize cars without government pressure when it was $100+ because they just don’t care. Sure there is a lot of complaining going on, but people seem resigned to the idea of putting $4 gas in a hopelessly inefficient clunker. I think their reasons are largely related to fashion, identity politics, fatalism etc. Look at the opinions in those “leaf blower” rants in the last thread.

          Another example of this is solar. Given the current subsidies and costs, Americans should be piling into solar much faster than they are now. Instead, they seem to be waiting for their neighbors to do so.

          http://www.washingtonpost.com/blogs/wonkblog/wp/2014/10/23/study-solar-energy-isnt-just-for-rich-liberals-any-more/

          This is not rational behavior as defined by market economics. There are many examples of this.

          That is the reason I believe that given the huge gap between what producer costs are and what consumers are willing to pay, prices are more or less random.

          • ezrydermike says:

            see lot’s of this type of stuff in restaurant pricing and higher end clothing.

            try to get you head around prewashed, raggedy jeans selling for over $150.

            • Ilambiquated says:

              You see this in a lot of products. A retailer can easily have 100,000 different products and 10,000 stores.

              They collect all their receipts electronically and match them with the advertising campaigns, zip code and other personal data and third party market data like Nielsen.

              There is a whole (strictly proprietary) science of getting more money out of consumers by exploiting their irrationality. That’s how retailers make money. It applies to all product groups.

          • D Coyne says:

            This does not apply to oil.

            • ezrydermike says:

              well, perhaps indirectly it does. couple of memes winding through the various threads including what US consumers might do with the extra cash they have on hand due to lower gasoline expenditures (short term) and what the current price decline in oil might mean to alternate energy development as well as EVs and higher mpg cars, mass transit, etc. (long term)

              • ezrydermike says:

                oh and the irrational behavior of some purchasing decisions that appear to be completely unrelated or at least minimally related to prices

            • Nick G says:

              For example: many buyers of expensive, low-MPG vehicles are buying them precisely because they are expensive – conspicuous consumption.

              Many owners of low-MPG vehicles value non-cost items more: perceived safety, status, conformance with their tribe, etc., etc.

              If everyone valued cost most, they’d be driving a Prius C or a Nissan Leaf.

              • ezrydermike says:

                well I agree with you on that

              • toolpush says:

                “Many owners of low-MPG vehicles value non-cost items more: perceived safety,”

                Yep, people have the blind belief in buying large cars for safety, yet 55% of people killed in US car accidents are not wearing a seat belt???
                So much for their belief in safety???

                • Ilambiquated says:

                  SUVs are like the stone washed pre-torn jeans ezrydermike was talking about. They don’t make any sense to the “rational” consumer, and they are very profitable for manufacturers.

                  Safety is just one excuse. My sister drove an SUV in suburban NJ for 15 years in case she might have to “pull a stump” one day. Never happened.

                  This “irrationality” is caused by people not really caring about what they are “supposed to” care about when they buy things. The explanations are usually ex post facto rationalizations.

              • oldfarmermac says:

                People who really put costs at the top of the list of considerations involved in driving drive used cars. I have two sisters who are staunch repuglithans who are one per centers (and who do not believe in the war on women lol) who both drive used cars. One drives a very very nice five year old Mercedes that is indistinguishable from new to look at it but it still cost her about half or so what a new one cost her- with her itch for status well scratched since only car nuts can tell it ISN’T new.

                The other sister drives a used four year old Mini and a ninety six Camry.She has a substantial portfolio and five paid for rental houses. She paid a thousand for the Camry.

                I am over towards the opposite end of the income scale .

                I drive a ninety nine ESCORT worth about a thousand bucks. There is no way in hell a Leaf or Volt owner can match my per mile cost of driving even without considering the opportunity cost involved.

                For what it is worth I do not believe that a Volt or Leaf owner can drive ten or twelve thousand miles a year for seven or eight years for as little money as they could in the comparable gasoline powered car. NOT YET.

                The average car NEW will need only ONE tuneup in that time frame and imo ninety percent of all new NISSANs will make the first hundred thousand miles without an expensive out of warranty drive train failure.. Oil chances don’t cost that much. Taxes and insurance are a wash mostly.

                But as soon as battery prices come down a little more …. yes electrics will eventually be cheaper than conventional cars. The five year LEAF example is probably true for people who hire out everything and pay dealer ship prices for every thing. But take into account interest and extra insurance and the higher payment and the savings on gasoline are just about wiped out or MORE than wiped out.

                Almost everybody who owns a home or a business in my own opinion has a good solid opportunity to earn an effective ten percent rate on any available money. Installing a new heat pump and replacing old single or double glazed windows is apt to pay a ten percent return in energy costs alone in a lot of houses- not to mention increasing the value of the house substantially.

                The windows will be there after the car is long traded off.

                • Nick G says:

                  That’s an excellent point: a used car is always the cheapest option. If you drive a lot of miles, the savings from lower fuel and mainteance costs will add up, but you can get a used hybrid, like a Honda Insight or Prius for not that much money. Once there are older used plug-ins on the road, they’ll be the cheapest option.

                  As for new Leaf’s vs the competition: have you looked at Edmunds.com’s 5 year Total Cost of Ownership? Project that out for 20 years!

                  Taxi drivers (both fleet owners and drivers) swear by hybrids: you couldn’t pry them out of them with a shotgun. They love the lower fuel costs. The brakes last three times as long.

                  • toolpush says:

                    “The brakes last three times as long.”

                    I know taxi drivers are hard on their brakes, but I would have thought, the regenerative braking would have taken more than 2/3 of the braking load.
                    As I said taxi drivers are hard on brakes, but I always imagined with a sensible driver a hybrid would be able to spend its life with out a brake change during its entire life.

                  • Nick G says:

                    Good point.

                    On the one hand, taxis do a lot more hard braking- over a certain limit the brakes are called on.

                    OTOH, I think I’ll ask for more quantitative detail in my next few cabby interviews.

                  • Ilambiquated says:

                    Currently the batteries also have the problem that they don’t last and need replacing after a 5 or 6 years.

                    I think the car companies are planning to sell used batteries in a secondary market for grid storage though.

                  • Nick G says:

                    All EV batteries are warranteed for 8 years, per CARB rules.

                    Volt batteries are very likely to last the life of the car, based on the design.

                    Leaf batteries will depend on temps and driving style – replacement is $5,500.

                  • Ilambiquated says:

                    The 8 years for defects/failure, but they are only guaranteed to maintain over 70% of capacity for 5 years.

                    But to complete my very short and obscure posting, if the 69% functional batteries have a resale value in the grid storage business (or somewhere), it will be a lot cheaper for owners to get a replacement.

                • Dennis Coyne says:

                  Hi Mac,

                  I checked out Edmunds prices for a 2011 Toyota Corolla and a 2011 Nissan Leaf, they are about the same price (11,500 dollars). At $3/gallon and 10k miles per year the gas will cost $1000/year for the Corolla. The cost of electricity to run the Leaf 10k miles is about $544 (34 kw-hr per 100 miles) at 16 cents per kw-hr, so you would save $456 per year if maintenance costs were the same (I think the Leaf will require less maintenance.) Insurance and registration and excise taxes should be the same.

                  There are no 99 Leafs (Leaves?) so your Escort will beat the Leaf, but when the Escort dies, prices of the 2011 leaf will be lower, so it might be worth looking into. I used Edmunds for pricing.

                  • Nick G says:

                    FWIW, the average price in the US is .12 per kWh, and leaf drivers are reporting 3.0 kWhs per mile.

                    And, utilities are now required to provide time-of-day pricing, so if you charge at night it’ll be less.

                  • Nick G says:

                    oops: .30 kWh per mile.

                  • Watcher says:

                    Wait, what?

                    “I checked out Edmunds prices for a 2011 Toyota Corolla and a 2011 Nissan Leaf, they are about the same price (11,500 dollars). ”

                    A new Corolla is about $17K. A new Leaf seems to be well north of $30K and that’s likely with a bunch of subsidies the GOP will erase ASAP.

                    So the Corolla lost about 30% of its value in 3 yrs. And Leaf 60%? hahaha

                  • Nick G says:

                    The real price of a Leaf is net the $7,500 tax credit. The list is around $28k, so the net is about $20.5k. Add to that state tax credits, and it’s lower.

                    Think about it – are you going to buy a used Leaf for more than the net price of a new one, after tax credits??

                    So, the price of used Leafs is a little more complex than it looks at first blush.

                  • Techsan says:

                    We get 4 miles/KWH (0.25 KWH/mile), which is 3 cents per mile and 12 cents/KWH.

                  • Dennis Coyne says:

                    Hi Nick,

                    I was using the price I pay for electricity, which is about 16 cents per kW-hr and I would need to use much more electricity where I live (such as electric resistance heating, for time of use to make sense), so at the EPA estimate it would be 5 cents per mile for an EV where I live for the leaf versus about 6 cents per mile for a Prius at $3/gallon and 50 MPG(US gallons).

                    Comparing the Leaf to the Prius (non-plug in) that is a savings of $200 per year. For many people, the range limitations my not be enough to make the jump. Now if gasoline were $9/gallon (and electricity prices remain at 16 cents/kw-hr) then 20k miles is bumped up to a $600/year savings for the Leaf over the Prius, but it will be 5 to 10 years(if ever, before we see gasoline at $9/gallon in the US).

            • Dennis Coyne says:

              Hi Ilambiquated,

              There are some markets that may be manipulated to some extent, the World oil market at present is behaving like a perfectly competitive market, because OPEC failed to step in to keep prices high. In fact part of the problem may be that the market did not expect that OPEC would not cut back output.

              So leading up to the Nov OPEC meeting the LTO producers were keeping the pedal to the metal thinking that OPEC would cut and oil prices would go up.

              At this point (December to February) the LTO players will finish up wells which they have started, but expect they will be cutting way back on their capital expenditures until oil prices recover.

              I expect in the North Dakota Bakken/Three Forks completions will go down to 100/month or so and in the Eagle Ford they may decrease to about 110/month. Then the wells added will increase to about 150 new wells per month if prices rise from $68/b in mid 2015 by about 2.4%/year (prices stay under $96/b through 2029). Chart below with new wells per month on right axis.

              • this model can be used to guesstimate future oil prices. Just figure out what it takes to keep production dropping at 2 % per year after 2020, keep the oil price rising until it hits $150 per barrel in today’s dollars. That should happen around 2034 (that’s a sheer guess). After that we are in trouble.

                • Dennis Coyne says:

                  Hi Fernando,

                  In my price scenario, real oil prices in 2014$ are $123/b in 2040 for the chart above, so it its a fairly conservative price scenario, relative to one that reaches $150/b in 2034 (about a 4% annual increase compared to my 2.4% annual increase).

                  • A higher price should encourage more production. But I dont see Greeks or Indians paying $150 and keeping demand as high. I think we are in peak oil territory. Could this be driving the government global warming mania?

              • Ilambiquated says:

                I agree with Ferdnando, this is a really important chart.

          • oldfarmermac says:

            ”Sometimes there is no price elasticity because consumers can’t change their behavior”

            I don’t think there is any such thing as ” no price elasticity.” Price elasticity is a mathematical relationship that describes the RATE AT WHICH CONSUMERS respond to changes in prices. It is closely related to supply and demand but not at all the same thing. Only if there is no consumption and thus no price could there be ” no elasticity”.

            Price inelasticity exists because people are either unable or unwilling to change their behavior very much in terms of consuming some certain amount. Beyond that essential amount they will consume very little or none because of price inelasticity.

            My neighbor who uses grid juice to run a pump on his truck farm will pay just about any amount for enough juice to run that pump. Beyond that since there is nothing there to consume any electricity he will pay nothing all for more electricity. His electricity demand at his truck farm is extremely inelastic because the cost of electricity to run an irrigation pump is trivial in relation to the extra income resulting from his irrigating his pepper and green bean crop.

            ( I should point out that his house is elsewhere, separately metered and his domestic consumption is highly elastic. If electricity were cheap enough he would never turn off his air conditioning and he would leave the lights on in his shop all the time.He would use electric heat instead of cutting firewood and an electric dryer rather than hanging his clothes out side to dry. )

            Some products may have no significant market beyond a certain level of consumption. Gravel might be such a product. Once the amount needed for concrete and road building is supplied nobody will buy significant additional quantities of gravel because other wise it is just about useless. A little may go into landscaping and a little into aquariums – maybe a few other trivial amounts might be sold.

            Sand is valuable in the right place. But in the EMPTY Quarter it is laying around every where sometimes a thousand feet deep and has no market value at all because shipping it to anybody who needs it costs too much.

            Gravel likewise has a limited market and beyond a certain amount in any given locality it is essentially worthless and cannot be sold for any price unless shipped away. People do occasionally actually pay to have it hauled away.

            • Nick G says:

              Has your neighbor considered a PV installation to power his irrigation? If the daily power variation isn’t a problem, he’ll find it a lot cheaper…

      • Ves says:

        I think all revolves around credit. If credit is shut off or even reduced the terms “high” and “low” oil prices does not mean much. The only thing what is important is can you make money producing oil at the current price.
        Let’s say 50 mil people are on food stamps. How much credit these people can get? Not much for any discretionary spending. So oil can be “cheap” ($50) but it will not generate increase in demand.

        • Dennis Coyne says:

          Hi Ves,

          Lower oil prices means even the poor (who drive cars) have more money in their pocket after buying gas and this means there is more demand for other stuff. This stimulates the economy, increases income and increases demand for oil.

          Pretty basic economics. Old Farmer Mac has nailed this (as he usually does.)

          • Ves says:

            Hi Dennis,
            I understand your logic but you have to try to look why that logic does not apply anymore. In debt based economy everything runs on credit. And that credit was extended so much in the last 30 years that we are all into debt up to the eyeballs. These 50 mil people on the food stamps are basically shut off from the credit. 10 mil of Greeks are shut off from the credit. and so on and so on. People with no credit CAN NOT stimulate economy no matter how low the price of oil. This is pretty basic economics.

            • Watcher says:

              That’s all correct and a good rebuttal, but y’all are still thinking old normal thoughts.

              Russia has been branded The Enemy. There is not reason for them not to retaliate.

              If lower price stimulates people to want to burn oil, they can try but they will have trouble doing so if it does not exist. Their desire to burn exceeds supply and in the old normal this might mean only those willing to pay more will get oil — but there’s no law of nature that says this must be so.

              The price need not move. KSA and the Russians can see this extra demand and know they can increase price, but simply decide that keeping the shale industry obliterated is more favorable an option and tell those willing to pay more that they need not. You can have oil at $55 and need not pay more, even if you’re willing to.

              There would be quite the queue at their purchase desk at that price. Other exporters probably have to meet that price to compete. If KSA and Russia were smaller they could be overwhelmed by demand, but 25% of global production is probably enough to bring the UAE and Kuwait in line. Where it gets interesting is when the US has to ask to make purchases and isn’t allowed to bid up.

              • Watcher says:

                Y’all do realize there is a lot of precedent for this.

                This is what “anti dumping” legislation is about. There will be the US, forced to add to the price of oil to prevent its dumping.

              • Watcher says:

                haha another amusing moment. When the US contacts those exporters willing to raise their price and offers above market prices for oil — like to Iran.

                • Ves says:

                  Iran could even get invitation to join NATO 🙂 I mean look this thing with Cuba. Who would thought that this is possible?

                  • Watcher says:

                    I’m not sure the Cuba announcement is anything but an announcement. Requires Congressional approval.

                  • Ves says:

                    of course, but it is trial balloon announcement. For Tango you need always two. Will see what will the response be from Cuba. But anything is possible.

              • Neither Russia nor Saudi arabia have as much power as you are theorizing.

            • Dennis Coyne says:

              Hi Ves,

              When people buy stuff it stimulates the economy. They do not have to buy on credit. Now the income inequality will tend to have the effect you cite, I agree there. The rich people have plenty of money and access to credit. but they cannot stimulate the economy on their own (or choose not too.) The lower gas prices do not affect the wealthy much, but the lower classes have more money to spend when oil prices go down, don’t you think?
              They may choose to save this money, but I doubt it, they will spend all they can.

              • Ves says:

                ” but the lower classes have more money to spend when oil prices go down, don’t you think?”

                Well yes, BUT unfortunately lower classes (read 99%) are given MORE DEBT and LESS MONEY. So that SAVINGS on that MONEY part (due to oil prices being down) is VERY VERY insignificant. Just compare those savings of let’s say $1000 a year on lower gas bills to outstanding DEBT in mortgages, student loans, medical bills, lines of credit…

            • oldfarmermac says:

              I know many poor people who still manage to own a car and drive to work. I live in the backwoods of Appalachia. These people would be even poorer if they didn’t have a car and a job to drive it too. I can absolutely assure you and anybody else that poor people spend whatever they can earn on a daily or weekly basis. If they save twenty bucks on gasoline they without any doubt whatsoever spend it on food, clothing, medical care, utilities, cigarettes , alcohol or whatever else is the most pressing need or want at the moment.

              That adds up.

              And such people are not altogether frozen out of credit markets.. They can usually or at least often borrow small sums at finance companies or from relatives . Beyond that they can buy all sorts of stuff from toys to appliances at stores that specialize in selling to them ” rent to own”. I know a dozen people on food stamps that drive much nicer cars than my own and that have much nicer tv sets than the one in my house.

              Besides being the one and only professionally trained farmer in this forum I am apparently the only well educated person who has lived in many places and made a lot of money who currently lives in close daily contact with lots of poor and lots of working class Americans.A supervisor at a computer outfit may SUPERVISE a few menials such as janitors and delivery people but he doesn’t actually know shit from apple butter about them because he never sees them except at work.You can bet your ass they seldom ever say anything about what they really think or believe where it might get back to him- never mind saying it to his FACE.

              I visit with the janitors. They visit me. I hunt and fish with them and they help me out with my problems such as getting in fire wood and I help them with theirs such as fixing the lawnmower or welding up a hole in the exhaust pipe so the car will pass inspection. My farm help comes in and eats dinner with me at the family table. My one remaining part time helper knows that my Daddy spent many a day doing exactly what I hire him to do- right along side me.

              Dinner is lunch to you over educated elitists. 😉

              For what it is worth I have yet to meet anybody with real money who knows do do from apple butter about poor people.

              I have never yet met a social worker who REALLY knows do do about poor people. The power relationship and the social barrier prevent their really knowing anything. They inhabit two different worlds. Chimps in cages and people who study chimps in cages.

              I am sure there must be some social workers out there who grew up dirt poor- but I haven’t gotten acquainted with any of them personally.That sort of social worker could be expected to know the reality of being poor and the reality of community life among poor people.

              Even the rare person who grew up poor but with parents determined to teach him or her optimism and belief in a bright future never really understands poverty from the poor persons vantage point..

              Ya see that optimism is not usually present. So the average poor kid does NOT believe he can grow up to be president or even a crooked lawyer.

              The average poor kid with a brain also understands that he cannot grow up to be a professional athlete and doesn’t piss his youth away playing ball unless just for the fun of it.

              • Ves says:

                “I know many poor people who still manage to own a car and drive to work. I live in the backwoods of Appalachia. These people would be even poorer if they didn’t have a car and a job to drive it too.”

                Mac, that is past. That is how it worked last 40-50 years. This the last gasps of BAU.
                You just have to look at data. There was a post from Watcher that stated that 1.3 mil new jobs were created in Texas and 700.000 in all 49 states. He did not leave a link. This data will tell you everything that you need to know. Only jobs where you can extract the value were created in resource rich state. The rest they just pretend they work. Once paycheck is stopped that car is gone, that TV that poor people are having that you are talking about are gone. You are given food stamps and some small welfare or disability cheque just to survive and your energy foot print on this planet is gone. And just look at data on number people on food stamps, disability cheques or some gov assistance in the last 10 years. You can’t argue with the trend.

                • oldfarmermac says:

                  I will not argue with the trend .

                  But the reality is that most poor people do still work . The reality in rural areas and small towns is that most poor people do still have cars and drive.

                  Having a job and a car in the household is not a bar to collecting some welfare. I know lots of people who have cars and jobs and also collect some welfare. Some do it entirely within the rules and some bend the rules quite a bit.

                  I think other than in the big cities most poor people are going to continue to drive for the easily foreseeable future. Poor people change their behavior fast as circumstances force the changes. Five years ago I didn’t know any adults who rode fifty cc motor scooters. Now I know five or six. These scooters require next to nothing in terms of tags and taxes and insurance and they get you to work. AND they get over a hundred mpg.

                  You can buy new one for a thousand bucks and a used one for four hundred most days around here. But the better deal is to pay eight hundred for a well used Japanese make than a plastic wrapped new Chinese make.

          • Kam says:

            Lower oil price also means that currencies of oil exporting countries are weaker, so they import less stuff from oil importing countries. Also oil industry in oil importing countries is hurt.
            World economic growth needs oil, and low oil price means less oil.

            • Watcher says:

              And as you just said, less economic activity, which btw suppresses oil consumption.

            • D Coyne says:

              Hi Kam,

              Think in terms of the World economy.

              Unless we export to other planets the effect you mentioned has no net effect on the world economy.

          • Ilambiquated says:

            Of course, that will only help the economy if the things the poor buy are sourced domestically. assume half the oil money flows overseas. If half or more of what they buy is imported, it won’t help the economy.

            • Dennis Coyne says:

              Illambiquated,

              Think in terms of World economy, in that case the exports and imports are of little importance, there are poor people throughout the World.

              • Ilambiquated says:

                Dennis,
                Yes, I meant the US economy which as you know is a large net importer. In world terms you are right. The loser are oil producers, the winners consumers.

                Also there will be a large investment shift away from producing and conserving oil, but you need special arguments why that should not be net zero.

                • Dennis Coyne says:

                  Hi Ilambiquated,

                  There are plenty of places where oil is subsidized (OPEC countries mostly), buy selling refined products at prices much lower than average world prices. In those places the GDP produced per barrel of oil consumed is much lower than the World average, so from the perspective of the World economy, lower income for oil exporters has a much lower impact on World GDP.

    • HouseBent says:

      Watcher,

      Suppose that shale is destroyed. Suppose then, that demand spikes, and KSA cannot produce enough oil to match that demand. Practically, this would mean that, regardless of price, there isn’t enough oil. Who gets what there is, and who does without? Who gets real mad? However that scenario shakes out, it is extremely unstable. In a stable world, based on fossil fuel energy, KSA is king of the hill. This is true whether oil prices are high or low, as long as there is enough.

      Now, I see no reason to expect a huge demand spike for oil, but take shale off the market, and a smaller spike could cause the same scenario. My perspective is that of a peak oiler, an imminent peak oiler. Most of us here are peak oilers. What most of us here fear is the unpredictable reactions to that moment when the realization hits that supply cannot keep up with demand. Ron believes that KSA (and everyone else) has been producing flat out. KSA denies and scoffs at that. Why would they lie? Well, if they are lying, the likely reason is that the Saud family also fears that moment of realization. They go to some trouble to insist they can meet any demand that comes along, because they do not know what will happen if/when it becomes clear they cannot.

      All of this is to say that unless KSA is telling the truth about their production capacity, they are playing an insanely dangerous game. For the life of me, I cannot figure out why (if indeed they are running out) they would sell that invaluable oil they have left at ridiculously low prices, for the exact purpose of destroying some other productive capacity, all of which pulls forward the peak oil moment
      What do you think happens to KSA if/when there is not enough oil to go around?

      • This is only a short time effect. A warning not to keep on drilling expensive marginal wells. They don’t want to lose their ability to produce their share. And opec us very keen on keeping the 30 mmbopd cut they are getting. They want their share respected, that’s about it.

        • Synapsid says:

          Hi FL.

          Along with “That’s about it”, which I agree with, I’d add Iran. OPEC is the Gulf states in my opinion and they’re the ones who voted against a production cut. A map shows that each of them is looking right at Iran, which is Shiite and big and militarily powerful (compared to the Gulf states’ own militaries); Iran is draining itself supporting Hezbollah and Hamas and its Syrian favorites, and I expect that seeing the price of oil down looks good to the Gulf OPEC for the effect it’s having on Iran.

          Another topic: Where in Spain are you? I was stationed at Rota in 1968 and 1969 (Franco was in power) and wandered between San Lucar and Granada and Cordoba when I could. I loved it there–the food! the people! the food!

          • Nick G says:

            Don’t forget Syria’s major sponsor, Russia.

            I suspect the main reason Saudi Arabia didn’t support oil prices was simply that they felt that they couldn’t.

            But, I imagine they’re delighted with the effect it’s having on both Russia and Iran

          • I’m in eastern Spain, facing Ibiza. I lived in Madrid just before you were in rota. Ran away from the communist party Komisars.

      • Ron believes that KSA (and everyone else) has been producing flat out. KSA denies and scoffs at that. Why would they lie?

        HB, I find this really frustrating. That is talking to people who have no idea of how the Middle East Arab culture works. They don’t lie, they exaggerate. And they are quite proud of this particular quirk in their language. Having lived for five years in Saudi Arabia, I fully understand it. But it is extremely hard to explain it to someone who has no experience with this particular phenomenon. There are dozens of articles on line that try to explain it away:

        Arab World Proves That All Exaggeration Is Circular

        Exaggerate everything; progress not at all. “Exaggeration is a widespread epidemic in ‘our country,'” writes Syrian director Haitham Hakki on his Facebook. I intentionally put “our country” in quotations, as I believe his reference goes beyond the national borders of Syria. I agree with Hakki and believe that exaggeration has infected the Arab world, including my home country, Lebanon, which is branded with all sorts of embellishments from the Land of the Alphabet to the “Paris” and “Switzerland” of the Middle East. The dismissal of these exaggerations is not meant to belittle my home country; my love for Lebanon runs deep. Yet this pride does not authorize me to endorse such exaggerations.

        So the question is: Why do they exaggerate? Because…. that’s just what they do. It is simply part of their culture.

        • Paulo says:

          That is ‘The Mother of All Explanations’, Ron. (Sorry, I couldn’t resist.)

        • It’s not exaggeration. God willing it will come to pass. If it doesn’t it’s God’s will. But you infidels don’t get it.

        • Watcher says:

          The Arabic word is mugbalagha.

          A cultural tendency towards exaggeration, but my understanding of the nuance is that it only is prevalent in oration. Big speeches mean big claims.

      • TechGuy says:

        HouseBent wrote:
        “For the life of me, I cannot figure out why (if indeed they are running out) they would sell that invaluable oil they have left at ridiculously low prices, for the exact purpose of destroying some other productive capacity, all of which pulls forward the peak oil moment”

        1. KSA has a soaring population. Most of the young have little economically productive skills and are completely dependant of subsidies and public programs to get by. Unfortunely most of KSA’s population have devolted themselves to religous studies and have no useful skills. KSA relies almost completely on foriegn workers to produce the good and services needed. If KSA began husbanding its remaining Oil, its would have to make significant spending cuts that risk revolts, and perhaps many of the foriegn workers would leave.

        2. If KSA didn’t inflate its oil reserves its in danger that Oil interests (such as the USA protection pack) would turn away for KSA. The KSA gov’t may also believe that the public would turn on them since they would know when the problems would begin might pull forward revolts and civil unrest.

        3. KSA make worry that its foriegn adversaries (ie Iran) to use this to undermine their power in order to triggler civil unrest or some way to dethrown them.

        4. Banks and other business would be reluctant to loan money or engage in long term projects if they knew that KSA is going to be facing some serious challenges.

        Bottom line is there are many reason not disclosure information that can be used against them. Just like Shale drillers never fully explain the risks of shale drilling (ie plunging oil prices) to their investors.

        • Anonymous says:

          First, I am in agreement with the opinion that they do lie about their production capacity.
          Ron’s explanation that it is simply a cultural tendency toward exaggeration may be correct. But, I am more in tune with Techguy, in that they have compelling, practical reasons to lie. It has to do with stability, maintaining status quo. If I were a ranking member of Saud family, I would pretty much want the world to remain just as it is for the rest of my life–oil dependent, relatively stable, a playground for a king like me.
          Peak oil will ruin that for me, so I tell everyone not to worry about it, I got it under control. Everybody stay calm, let my party continue. But, its a lie, remember.
          Rationally, to extend the lie as long as I can, I should want to product the least amount necessary to meet demand, cut back production whenever possible, maintain stability for as long as possible. I should want other producers to produce all they possibly can, so that I can postpone the moment when demand can no longer be met. That moment is the end of stability. Probably, that is the end of me. Everyone hates my ass. My religion is odiously extreme at one pole, my lifestyle is odiously extreme at the opposite pole. The only reason I am tolerated is that I have demonstrated that I can keep the black gold flowing without problem or interruption, and I KEEP PROMISING THAT I CAN CONTINUE. So, long term (relatively), if crazy low oil prices cause Canada to shut down, US LTO to shut down, Venezuela to come unglued, Russia to be unable to finance new production, etc. and then I cannot actually produce enough to meet demand, what happens to me? If there is not enough oil to go around, someone else is going to want to decide who gets what there is. I am evicted. Short term, these crazy low oil prices are simply de-stabilizing. No one can truly predict consequences. The world today is my playground, why mess with it?

          This is why I don’t understand what they are doing. Hell, they can stop marginal oil and punish anyone they want to punish at $75/barrel.
          Of course, all this is from the viewpoint of relatively imminent peak oil (mine). Absent the specter of peak oil, market economics, market share, market strategies, politics…these arguments make sense. But if anyone knows whether peak oil is imminent or not, it would have to be KSA. And if it is, and they do know it, they are doing the direct opposite of what makes sense to me.

    • ezrydermike says:

      it’s hard to follow all of your comments on all of the different postings and threads, but it seems that now you are saying that Russia and KSA are working TOGETHER to destroy the US LTO industry. I can understand KSA taking advantage of the situation and keeping production up for market share, but I don’t understand why they would ne working with Russia. It appears that Russia is getting hammered and that they are more of a competitor with KSA as opposed to a partner.

      And KSA is our enemy?

      • John B says:

        Overall, the lower oil price is beneficial to the US.

        It’s Russia AND Iran that are getting hammered. It’s Russia and Iran that have been supporting Assad against the KSA’s wishes.

        • oldfarmermac says:

          Why should the Saudis LIE? AND why should they sell their oil cheap ? And whose friend are they?

          They lie because it is part of their culture of exaggeration no doubt as Ron explains it and a lie to us is not the same thing as a lie to them. But beyond this their internal domestic situation is that the country is a powder keg with lots of people running around waving matches.They have to lie to keep the country from exploding into civil war.

          And they do know- the smarter ones of the royal family at least do know what they are going to have to do when the oil runs short.

          They are going to have to flee for their lives and knowing some history they are reluctant to become the new Jews of the world so long as they can avoid doing so.Most of the royal family is probably totally oblivious to peak oil- just as most rich kids are oblivious to Daddy’ s money troubles until the day his check to the private school bounces and the dean calls them in to explain they have to leave and the tow truck picks up the Corvette while they are packing their bags.

          Now whose FRIEND are they ? Nobody’s at all.
          Anybody who truly understands history and great power politics understands that while friendships among individuals can be real friendships among countries are in the end always temporary matters of convenience and shared interests.England and France have been at each others throats more years than they have been friends.It is very likely that sooner or later if both countries survive long enough they will be enemies again.

          The Saudis have plenty of reasons to hate our guts and they DESPISE our culture BUT they are our ALLIES and they have cut a defacto deal with the US and our other allies and we have kept them on the throne.

          We have formal treaties with countries such as GB and France that commit us to go to war on their side if they are attacked. We have a DEFACTO treaty to the same effect with the House of Saud- the Saudi royal family which is the defacto government of the country.We honored that treaty and kicked Saddam Husseins ass all the way back home in no small part because of that defacto agreement.If the Saudis are attacked we WILL send troops the day they ask for them.

          Their end of the deal is to do what UNCLE SAM WANTS when it comes to oil markets. They mostly keep up their end of the deal ok. Right now they are doing what UNCLE wants.

          Our federal government really does not give a damn in terms of the BIG PICTURE what happens to the tight oil industry SHORT TERM. Uncle is busy fighting fires right and left and tight oil is a nuisance level problem compared to Russia and the overall state of the economy.

          Uncle will find time to worry a little about tight oil later on when tight oil is a big enough problem to force itself onto the big picture agenda. NEXT year maybe. Tight oil ain’t gonna get on that agenda for a while yet.It is way down the list of troubles that assistants to big boys are keeping watch on. The assistants are sending reports to their bosses for now.

          When the production starts falling and the layoffs are numerous enough tight oil will get a hearing in the figurative smoky back rooms where the leaders of this country make day to day decisions about economic policy.

      • Watcher says:

        The issue doesn’t require any secretive phone calls. It merely requires acting in one’s own self interest. Russia isn’t going to starve. They run very little deficit and what there will be can be funded comfortably by the big currency swap deal with the Chinese. They eat and ship their own food. They sell oil for fewer pieces of paper? So what? Russians can’t watch big screen TVs.

        The Saudis aren’t going to be hurting at all. Can you think of a single bank that would not lend to them to fund a deficit?

        In contrast, the big jobs analysis of the past 24-48 hrs showing that pretty much everything in the pseudo recovery from 2007 has come from Texas. Take those 1.2 million jobs away and you don’t think you’ll see American regime change? Hell, it just started 6 wks ago.

        • Dennis Coyne says:

          Hi Watcher,

          Over the 2011 to 2013 period employment grew by 6% in Texas and North Dakota and by 3% in the rest of the country. Those two states account for about 8% of the employed population in the US and if Texas and North Dakota had only grown employment at the 3% rate there would have been 335 thousand fewer jobs created out of a 4550 thousand total US employment increase or 7% fewer jobs, and the US unemployment rate would be 14%. This would be a huge problem, but my guess is that the US legislature would behave differently if the national unemployment rate was 14% rather than 6%.

  9. Dean says:

    Using the latest RRC data up to T and the previous data up to T-1, I computed the amount of corrections that each month should undergo to be close to the real data. In doing this, I consider only the last 24 months (older months have only negligible corrections): what I did was to sum for each month the corrections which took place in the previous “h” months, where I put h=24 for computational simplicity.
    For example, the correction for the last month (which is one subject to the highest degree of corrections over time) were equal to 530063 bbl/day (only oil , no condensate).
    By doing this for all the past 24 months, I reconstructed the supposed “real” Texas oil production data. The result is the figure attached to this comment.

    • Dean says:

      the updated condensate is reported below:

      • Dean says:

        the updated corrected natural gas data are reported below

        • Dean says:

          Finally the comparison with EIA C+C data is reported below. Brief comments: after a stop in September, Texas oil production increased in October and similarly the condensate. Natural gas continues to increase but a slower pace.

          • toolpush says:

            Thanks Dean,
            I always wait with baited breath, for your translations to come out. I know smarter people than me can read the original graphs, but I never quite sure if I have them the correct way up or not.

            But at the end of the day where are all these “huge” increases in oil production that is suppose to be coming out of the USA, coming from? The two largest Tx. & ND. are both flat to down, and with drilling about to fall off a cliff? well I am scathing my head?

            • Dennis Coyne says:

              Hi Toolpush,

              The EIA lags behind the North Dakota and Texas state agencies by at least a month, so far for the Bakken and Eagle Ford only October has been flat and soon output will likely be lower, or it might continue on a plateau, it depends on how long prices stay low and whether the average well productivity (new well EUR) goes up as oil companies focus on the sweet spots and by how much it increases.

              • Mike says:

                Good morning from the dog house on a cold, wet Friday in S. Texas, Dennis: activity at report time, 3954′, circulating, WOO; mud was 9.6, visc. 43, WL 8.0 cc. I am a fixin’ to undo the WOO.

                I am below 50 dollars this morning after severance taxes which means most folks are as well, unless hedged. The mood out here is bleak and a lot of hands are being told rigs will be stacked by February in very significant numbers. So goes the drilling part of it all, goes all other oilfield services and it is not good. People are very worried. It is very sad. My industry has spent the past 7 years coaching a new team of qualified personal to develop these stupid shale plays, now I am afraid that we might lose a lot of those men and women next year. I hope not forever. Over a million jobs have been created by the shale oil industry; you gotta be dumb as a box of ball bearings to not understand the significance of that. And you have to be as uncaring as a cedar fence post to not care.

                Permits are way down in S. Texas and only the biggest of the biggest of shale operators are still permitting. Vertical work is falling off the cliff; I might be the only dumb ass in all of Texas drilling a well right now. I note on shale permits, however that almost every one of the W-1’s I see are for wells 8H, or 11H, even higher, that sort of thing. My take on that is that the sweetest of the sweet spots are all that is going to get drilled going forward. These sweet spots have been getting hammered all along, obviously. I therefore do not believe that estimated UR’s will go up on a per well basis. On the contrary I think they will be going down.

                Dean, thank you for your good work.

                Mr. Patterson, thank you for your good work. It is possible that in spite of declining well reproduction in the EF we might begin to see “associated” gas flatten out in Texas as all these shale wells begin to decline and GOR goes up, as Mr. Likvern has suggested.

                Have a good day.

                Mike

                • Dean says:

                  Dear Mike

                  thanks for the interesting information (definitely tough for all of us directly or indirectly working in the oil industry) .

                  Dean

                • Jeffrey J. Brown says:

                  The Haynesville Shale Gas Play is illustrative, in regard to the production response to declining activity. As overall activity in the play declined, operators were presumably focusing on the sweet spots.

                  However, the net decline in Louisiana’s marketed natural gas production from 2012 to 2013 was 20%. This was the net decline, after new wells were added statewide. The gross decline, from existing wells in 2012, would be even higher. Note that Louisiana’s marketed natural gas production is down by one-third from September, 2012 to September, 2014.

                • Lloyd says:

                  Hi Mike.
                  I just looked through Wikipedia’s list of Oil Industry Acronyms and can’t find WOO.

                  Inside joke? Or just very technical?
                  -Lloyd

                  • Mike says:

                    Waiting on Orders, Lloyd; just trying to put some reality into all the speculating about what might happen. It’s already happening.

                    Thanks.

                    Mike

                  • toolpush says:

                    As long as they don’t pick up “somebody”, with “something”?

                  • toolpush says:

                    Strike out that previous comment as it was meant for elsewhere.

                    But on the point of WOO, at my very first well control school, and old shell company man got up and gave us young ones some career advise. The bit I remember, never write WOO on your report. The reason being, it reflects bad on the people that are paying you, and they can reflect real bad on you. Of course this was at a time when there were no hold ups at all allowed. The industry is a bit more civilized now.

                  • This is why I timed wiper trips and circulating instructions to the nearest half hour. The idea is to get the loggers to log at night, lay down logging crew, PU CO assembly GIH and clean the hole, but take your time while we turkeys look at the data. It’s basic. I forbade staying in place, it’s safer to run up and down reaming and circulating. It made us look better.

                  • Mike says:

                    This well is a heads up well, all on me, so there is nobody to impress except myself. I try and do that as often as I can. So WOO is pretty normal for me; it gives me time to go behind the mud pumps and sit on a empty 5 gallon bucket and figure out what the hell just happened. When I sort it out, I undo the WOO and off we go again. Circulating often uncomplicates complex problems, at least for the moment.

                    Sort of like how running an impression block always gives you time to figure out what to do next and not look like you don’t have a clue.

                    I guess I should create a WTHOM for waiting the hell on Mike.

                    Hey, it’s hard enough anyway, try paying all the bills too. Makes you wanna get in the lawn mowing business.

                    Mike

                  • toolpush says:

                    Mike
                    As the old adage goes, “When in doubt circulate”, and then you are not Code 21 WOO, you are Code 5 Circ & condition mud.
                    It is all in how you write the report.
                    Us drillers know how to make the “Mike’s” of the world look good.
                    And if you look good and happy enough, there may not be as much Code 8 (down time) to go around. lol

                  • Mike says:

                    Brothers in crime, we are; thanks, Push. I go back in old well files looking at my own reports from 30 years ago and just roll my eyes sometimes. I was sleep deprived a lot in those days.

                    Coots always told me to “just report like you saw it, and if you don’t know what the hell you were looking at, say it; them girls in the front office won’t care, one way or another.”

                    Keep a bind on it.

                    Mike

                • Dennis Coyne says:

                  Hi Mike,

                  I for one do not take lightly the effects of the low oil price on the industry, I hope what I said was not offensive (it was certainly not intended), if it was, I apologize.

                  I hope, despite the tough times, that you and your family have a nice holiday.

                  I think you may be right about well productivity not increasing (you would have a much better feel for this than me), but at minimum a slow down in the rate of well completion might slow the rate that well productivity decreases. My thinking here is that if completion rate falls from 200 wells/month to 100 wells/month that we would run out of locations in the sweet spots more slowly so the well productivity might decrease more slowly.

                  No doubt it is way more complex than that, but I am trying to simplify.

                  • shallow sand says:

                    I think that many companies have went into “survival mode” and the one’s with significant debt are in distress already, unless good hedging program.

                    Also, I think even if hedged, many used three-way collars, and price had dropped $20 or so below the “minimum”, so still not out of the woods.

                    IMO, prices stay here or go lower and persist into fall of 2015, will be massive issues in US oil industry outside of the integrated majors. However, it appears US production growth may very well have tanked by then, if it hasn’t already, and maybe will put upward pressure on the price

                  • Mike says:

                    You didn’t say anything offensive, Dennis; you seem to have a handle on reality and I was just letting you know, from the front lines, thing are starting to change, a lot. Because of the maturity of sweet spots I just can’t imagine EUR’s going up.

                    At the moment it is taking about 480,000 BO, not BOE, to pay a $10,000,000 Bakken well out. There’s not a lot more that needs to be said about that, is there?

                    Mike

                  • Mike says:

                    Shallow, I hope someone will query you on collared hedging; its interesting and might help people understand that perhaps things aren’t quite as “peachy-because-of hedging” stuff still floating around.

                    Mike

                  • Watcher says:

                    Sooo you gonna take a bailout if it’s offered?

                    Actually not a provocative question. You have no choice. Your competitors will. Then if you don’t, you can’t compete.

                • Watcher says:

                  A million is a lota paychex and a lota tax revenue.

                  Janet is going to hunker down and hope for a price increase. For now.

                  Best possible excuse for a bailout is “influence on the price of oil by hostile foreign powers”.

                  That’s the one I’d try.

                  • Mike says:

                    No. I have never been “bailed out” in 50 plus years; I don’t need to be bailed out now. I’m not in the shale business. Oil companies do not compete with each other; its not the panty hose business. The shale oil business won’t get bailed out.

                    Lets see, Democrat, has a basement, so must live in cold country, loathes the oil industry, worried about bailouts, pro labor unions….Ed, Ed Markey, is that you??!!

                    Check this out and tell me “automated” you can make the oilfield workforce:

                    http://www.bing.com/videos/search?q=time+lapse+video+of+shale+oil+drilling&FORM=VIRE1#view=detail&mid=3A124419C2C885B48D753A124419C2C885B48D75

                    Mike

                  • Watcher says:

                    Now could nobody be any of those things.

                    Not a Dem. Big house with lots of land but no basement. No interest in labor unions or oil companies.

                    You got any guns or food supply stored?

                  • Watcher says:

                    Mike re automation. Don’t whistle past the graveyard. If you can automate driving, you can automate drilling.

                    Next time you’re in McDs look at the variety of tasks performed. Ditto a pizza place. They do many different things. Don’t matter. They would be roboticized if they were paid more. If the human robot is almost free, no reason to invest the money.

                    It’s when the human machines become expensive that you get rid of them.

                  • Watcher says:

                    Oh and what’s the deal with all this whining. I remember back in the day it was one riot one ranger. Now we get some numbers change on a screen and hands they start a wavin’.

                  • clueless says:

                    Reply to Mike on Collars
                    Many companies put in place a two way collar. Say they locked in $100 bbl for the highest they would receive and $90 for the least they would receive. But, that has a cash cost to put in place. So they looked at what they thought was a worst case, let’s say $75. So they sold a put for $75, for which they received cash to somewhat offset the cost of the collar. Now they have a 3-way collar, the effect of which is below $75 they are not hedged.

                • MBP (ManBearPig) says:

                  We just had to re-calculate our price deck and increase our useable DPI with the reduced prices. Some stuff I wanted to get done got canned. Not fun. Was at the bar last night and there was a noticeable change in the mood there. Usually the field hands and service crews are spending wildly in an attempt to pick up something to take home. Was just people quietly watching the game last night instead. Times are a changing.

          • Dennis Coyne says:

            Hi Dean,

            Thanks. I may have missed comments on this, but there was a big change in the EIA estimate for Texas. A few months back the EIA had Texas output increasing by about 48 kb/month from March 2013 to May 2014.

            Now the EIA estimate looks more realistic, though your analysis suggests that the EIA estimate may be a little on the high side over the last few months. Could you present the C+C chart from Jan 2012 to the present and make the vertical axis start at 1700 kb/d so we can see the difference between the EIA estimate and yours more clearly, and maybe add some minor horizontal gridlines? Thanks.

            • Dean says:

              Dear Dennis

              find below the same figure, but starting from September 2012 and the vertical axis starting at 2000 kb/day. I hope this can help.

              Dean

      • Jeffrey J. Brown says:

        It would appear that estimated Texas condensate production rose by about 0.28 mbpd from the fourth quarter of 2010 to the fourth quarter of 2014. And it appears that Texas C+C production accounts for about 4% of global C+C. The EIA is showing that global C+C increased from about 75 mbpd in the fourth quarter of 2010 to about 77 mbpd, based on most recent monthly data, which would be an increase of about 2.0 mbpd, from late 201o to later 2014.

        Note that just the estimated increase in Texas condensate production from late 2010 to late 2014 would account for about 14% of the increase in global C+C production.

        • Dennis Coyne says:

          Hi Jeff,

          Interestingly, the increase in Texas C+C output was about the same as the World C+C increase over the 2011 to 2014 period.

          Your estimate of crude vs. condensate for the World depends on the assumption that Texas plus OPEC condensate to crude ratios are representative of the rest of the World. This assumption is difficult to test, but it does seem reasonable to assume that condensate output has increased because natural gas output has increased Worldwide. One way to do this would be to look at condensate to natural gas ratios in Texas and OPEC and then assume these ratios apply to all World natural gas output (this might already be how you do it I am not sure). If you don’t do it this way already it might give you an alternative estimate, but the bottom line is that we don’t really know what World condensate output levels are.

          • Jeffrey J. Brown says:

            The following graph shows my assumptions. Basically, I assume that the Global Condensate to C+C Ratio increased from about 10% in 2005 to about 12% in 2012. In any case, as noted above it seems significant that just the estimated increase in Texas condensate production from late 2010 to late 2014 would account for about 14% of the increase in Global C+C production over the same time period.

            And regardless of what assumptions one uses, I think that the inescapable conclusion is that we have seen little, if any, increase in actual global crude oil production since 2005 (45 and lower API gravity crude oil).

  10. Dean says:

    With regard to EIA data (see also the previous thread), I want to tell you that I noticed with my great surprise (and pleasure) that they changed considerably their estimates for Texas C+C (Ron also noted as well in the post). I report in the Figure below,
    – my corrected data and EIA data for September 2014
    – my corrected data and EIA data for October 2014
    Do you notice something interesting? Their latest estimates are much closer to my corrected estimates and it may be the case that they used (at least partially) my idea. In any case, I am very happy ^_^

    • Dennis Coyne says:

      Hi Dean,

      For some reason Ron does not like the new EIA estimates, the fact that they agree with your method, might be coincidence, but I think it indicates that you are on the right track.

      • For some reason…???

        Not for some reason Dennis, I clearly gave my reason: I don’t believe Texas went from increasing production by 94,000 bpd in January to up only 9,000 bpd in September.

        The unexplained variation from month is just too great. Unfortunately I cannot tell whether Dean’s chart agrees with me or not. His scale is too large. That is why I seldom zero base my graph and cut the time frame as short as possible. I want to amplify any and all month to month changes.

        But Dean’s chart does show some variation from the EIA. I think I would probably agree with his assessment if I had a better view of what his data shows.

        Looking closer at Dean’s chart it is likely I do agree with his data. I just don’t see those huge increases in Texas’ production that the EIA shows for a couple of months.

        • Dean says:

          Dear Dennis and Ron

          find below the same figure, but starting from September 2012 and the vertical axis starting at 2000 kb/day. I hope this can help.

          Dean

        • Dennis Coyne says:

          Hi Ron,

          Why don’t you think there would be month to month variation in output?

          I think the EIA estimate is probably pretty good, Dean’s may be better, an interesting chart would be the changes is Dean’s C+C estimate over the last 6 months. We may find that over time that Dean’s estimate rises to reach the current (Dec 19, 2014) EIA estimate.

          • Why don’t you think there would be month to month variation in output?

            Oh good grief Charlie Brown. That was not what I said nor was that even implied. There are always month to month variations. Always, always, always. But when the variation is extremely great there has to be a cause. In the Bakken it is usually a snowstorm or some other, usually weather related, reason. And we read about it. If, in Texas we have an extreme variation but find nothing to cause it, then perhaps the data is in error.

            • Dean says:

              Hi Dennis, Ron

              find below the Texas C+C (kb/day) monthly change using the latest data.

              Dean

              • D Coyne says:

                Not sure Ron would like those big changes, but it looks like statistical noise. Your methodlooks good. Do you have some of your previous estimates together on one chart? Maybe 6 months.

  11. SRSrocco says:

    YES….THIS RELATES TO THE OIL MARKET:

    There was an article yesterday by SocGen that Russia was selling some of its gold reserves to stem the fall in the price of oil and the Ruble. We in the precious metal community are used to this sort of rhetoric when it comes to the banks putting out propaganda.

    Anyhow, a new report just came out today and not only did the Russian Govt NOT SELL ANY GOLD, they actually increased their reserves by adding another 600,000 oz.

    Russia Busts “Gold-Selling” Rumors, Reports It Bought Another 600,000 Ounces Taking Gold Holdings To New Record High

    http://www.zerohedge.com/news/2014-12-19/russia-busts-gold-selling-rumors-reports-it-bought-another-600000-ounces-taking-gold
    ————-
    In another article by Koos Jansen he states, the Russians actually don’t mind the west manipulating the price of gold lower. Why? Because as the price of oil heads lower, so has the price of gold. So, it doesn’t matter to the Russian Govt if both the price of oil and gold head lower because they can still purchase a lot of gold–it’s a zero sum game.

    Furthermore, according to the TIC data (Treasury International Capital), the Russians and Chinese are dumping U.S. Treasuries. In October China sold $14 billion and Russia $10 billion.

    At some point in time, the world will no longer be at the MERCY of the FED’s printing press. Americans will finally find out what it feels like to live in a BANANA REPUBLIC.

    steve

    • oldfarmermac says:

      I am most assuredly not a gold bug but I do believe that our resident gold bug steve is right about the printing of Yankee dollars eventually becoming irrelevant.

      Russia can swap her out put of oil for almost anything she needs with any country not under Uncle Sam’s thumb.

      Regulations as marine insurance policies and port entry regulations will be blown aside like empty food wrappers on the interstate when it really matters.

      Nobody in their right mind- and Obama is in his right mind- is going to intercept a ship on the high seas on its way to or from Russia more than once. The second time such a ship will be escorted by a Russian guided missile destroyer and stopping such a ship is going to mean sinking that guided missile destroyer first.Any idiot should be able to see that such an action could easily be the opening shots of WWIII.

      The same considerations apply even more so to China as well although China does not yet have a blue water navy comparable to the Russian navy.China now has the industrial clout to supply anything whatsoever except food and energy to anybody in the world. She needs to import energy and some raw materials such as lumber and a few critical minerals but hardly anything else.

      China and Venezuela or China and Canada do not really need dollars to conduct trade.

      The Chinese and the Canadians can if they wish to do so work out how many Chinese washing machines will be exchanged for a load of Canadian oil and the purchase and distribution on each end managed in local currencies thru ordinary distribution channels. A Canadian citizen will not have to meet with his share of Canadian oil in barrel on a hand cart to exchange it with a Chinese citizen for a washing machine in a middle ages style town market.

      We are still the biggest dog in terms of having all the other dogs fooled except maybe the Chinese dog which is growing stronger while the gray patches around our muzzle are about the only things growing on our part.

    • Nick G says:

      the Russians and Chinese are dumping U.S. Treasuries. In October China sold $14 billion and Russia $10 billion.

      Russia is drawing down it’s financial reserves to support the ruble. Much of those reserves will be T-bills. I’m surprised they didn’t sell more…

      • Watcher says:

        A moment for minutiae.

        Treasury bills are not the same as Treasury notes and Treasury bonds.

        Bills have short maturities. Notes longer. Bonds 30(+) years.

        Russians and Chinese and all other countries sell US debt instruments all the time. And buy them. Usually as maturity adjustment. Or such reports often look to see if holdings reduced and if they reduced a sale is presumed. But a sale may not have occurred. The holding may have simply matured and Treasury redeemed (paid back the loan) them.

        Doesn’t have to mean anything.

  12. SRSrocco says:

    RON… thought you might have something to say about this…

    “Fed To The Rescue” – The Plunge Protection Team Makes The Front Page

    In October it was Jim Bullard’s “QE4” hint that sent the stock market on an all-time record-breaking run of gains, which no lesser institution than the central banker’s central bank – The BIS – lamented “the markets’ buoyancy hinges on central banks’ every word and deed.” And then just two days ago, The Fed did it again: by the mere appearance of grandma Yellen (and the words “patient” and “considerable”), US stocks explode to their greatest back-to-back gains in almost six years. So it is perhaps ironic that no more mainstream media publication than USA Today has finally realised, there are no fundamentals anymore…

    http://www.zerohedge.com/news/2014-12-19/fed-rescue-plunge-protection-team-makes-front-page

    steve

    • Boomer II says:

      Isn’t the market about the rich (and their agencies) trading back and forth among themselves now? Does it amount to anything anymore? It’s an inflated asset being purchased by people who have more cash then they know what to do with and then sold to other people who have more cash than they know what to do with.

      Seems like the very wealthy live in a world pretty much detached from the rest of us. And, ironically, their wealth isn’t really tied to anything of value. It’s paper wealth and I suppose if all the poorer folks realized the wealthy have no clothes, then the wealthy wouldn’t stay wealthy.

      • Boomer II says:

        The fact that the wealthy have wealth only really matters to the extent to which they can influence politics.

        But that is the fault of the masses for letting them influence politics to such an extent.

        • Ilambiquated says:

          True. On the other hand, raising the capital gains tax to 30% would turn quantitative easing into a way to pay off the national debt, instead of making bankers even richer.

          • Watcher says:

            Dirty little secret of the rally. It’s not widely held. The holdings that are held are inside 401Ks and IRAs.

            Tax deferred.

            • Dennis Coyne says:

              Hi Watcher,

              If all income was taxed at the same rate (capital gains, wages, dividends and interest) then the deferral would make little difference unless the wealth was never spent.

              If it was not spent, then tax the money upon inheritance and get rid of all the fancy trusts and so forth that are used as tax shelters.

              Tax code could also be simpler, 10% of first 100,000, 25% of next 400,000 and 50% for income from 501k to infinity, all income regardless of source taxed the same and eliminate corporate taxes (it gets taxed already through dividends and capital gains).

              • Watcher says:

                Not a lot of money to be made projecting tax law.

                But as it is today, an investor with a chunk of money outside IRAs and 401Ks but positioned in bonds is going to make a lot in capital gains as bond yields fall, but the yield itself isn’t paying much. If he lives overseas, hell, he may have very low living expense and that yield may cover it.

                Then presto, standard deduction and exemptions take off $10K, and another $3K may come off from harvested capital loss carryforwards from the 2008 event. And there he or she sits with some room under the threshold. Could do some traditional to Roth conversions tax free. Accumulate those each year. Then when the taxable segment of asset allocation is drawn down, tap the Roth — tax free. The dood may die before he ever has to endure tax hits on the RMD.

                I know people like this, and they are taking money and buying foreign real estate and art in to be parked in Singapore safety deposit boxes. 1040 only requires reporting money in foreign accounts. Not art. Or land.

    • Watcher says:

      The Bank of Japan explicitly and publicly acknowledges that it DOES buy and sell equities. Equities, for the unaware, are instruments of equity holding in private companies, like common stock (what you hear reported as “the stock market”), cumulative preferred, non cumulative preferred and probably even convertible subordinated debentures. Anything that can be part of the capitalization of a company.

      The BoJ buys that. It’s in their period announcements. They are participants in the stock market.

      Have to look to see if the Fed is forbidden. Probably not. Treasury certainly is not forbidden. They bought big positions in preferred stock in Bank of America and AIG. GM too, as I recall.

  13. Dennis Coyne says:

    Hi all,

    I just updated my Eagle Ford output estimate.

    I use Railroad Commission of Texas (RRCT) data to find Eagle Ford C+C output from all active fields and then the RRCT statewide C+C output and calculate the Eagle Ford to Texas % (EF/TX%) of C+C output.
    I then use EIA Texas C+C output data in kb/d to find an Eagle Ford estimate (EF est) of C+C output.
    In Chart below the (EF/TX%) is on the right axis and Eagle Ford C+C (kb/d) is on the left axis.

  14. Shuffling Along says:

    I have been heads-down long hours at work and have not been following these topics closely the past couple of weeks.

    Has anyone published a clear/understandable and credible explanation on why oil prices have decreased?

    I get the supply and demand concepts….

    If the amount of oil produced per unit of time has not deceased, or has even increased, then since there is a rather limited ability to store oil, that leads me to infer that demand (at the gas pump and so forth, as it were) has been going up (or at least staying fairly flat) matching supply…again, there is a limit to how much oil can be produced and then stored for later use.

    The discussions here have indicated the opinion that the elasticity of demand for oil is pretty inelastic, at least over the short term (what does ‘short term’ mean…6-9 months?).

    I also grok that various agencies report C+C +NGL +refinery gains etc, and sometime bio-fuels are thrown in the mix, and not all of that stuff can translate into auto/truck/aircraft/ship fuels.

    So, to summarize…if the data shows that oil USED has declined in quantity then it would follow that if the amount of oil produces has not also fallen, then price should fall. However, if the amount of oil USED has not decreased, and the amount of oil produced has not dramatically increased, then I am not sure what has changed to enable oil prices to fall considerably.

    I see that some folks here think the credit/blame goes to credit market/currency/futures/other witchcraft manipulation, but I do not understand how that would work.

    I guess I need more data to understand the drivers behind this price decrease.

    Gasbuddy shows 20+ stations in my city at $1.92-$1.93 for regular today.

    • Dennis Coyne says:

      Hi OFM,

      I think the price of oil quoted is usually next month’s Futures price, currently the contract being quoted is the February 2015 contract (the Jan 2015 contract expired on Dec 19), so rather than 6 months out, the price is the futures contract 1 or two months out (on Dec 19 it was 1 month and Dec 20 it became two months as price switched from the Jan to the Feb contract on that date).

      Spot prices can be found from the EIA at link below:

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

      Futures prices at the link below:

      http://www.eia.gov/dnav/pet/pet_pri_fut_s1_d.htm

      The spot oil price and futures price (front month contract) for WTI oil is in the chart below (EIA daily data), the two prices are not significantly different.

  15. oldfarmermac says:

    There are three links in this article to specific places where some useful and relevant oil price data is to be found. I am going to bookmark them myself.

    After all the time I have spent reading about oil markets this article still has fact or two in it I have not run across before. For instance I have thought that the price of oil mentioned so often as todays price is todays spot price at some given hub but apparently not so. The price so often mentioned in the msm as todays price is actually the six months out future price according to this article.

    • Shuffling Along says:

      OFM,

      Thank you for the links to the articles.

      They are interesting articles, and I am glad to have read them, but neither answer my questions. The articles describe effects, not causes, of the oil price decline. To be fair, I have not explored the links in the BBC article yet, perhaps those information sources would provide some answers.

      On a side-note, I agree with commenters on the oil vs. NG home/business heating that the USG missed an opportunity during the stimulus spending to incentivize people to switch from oil to NG heat….or from oil to anything else (except burning coal in their basements!). Other missed opportunities included substantially greater subsidies for home PV and solar hot water, and home energy assessments/insulation upgrades.

      It will be fascinating to see history unfold with respect to oil prices…

      • Watcher says:

        Russia’s richest man responds to Putin’s call to bring assets home

        http://finance.yahoo.com/news/russias-richest-man-responds-putins-124548540.html

        Don’t look like any significant Russian is trying to unseat Putin.

        • Shuffling Along says:

          Russia should be able to be led/managed to an OK future…

          It’s population growth has stopped and even reversed a little…

          It has vast natural resources…the ratio of people to resources is vary favorable…

          It has descent industrial and science and engineering chops..

          It has formidable nuclear weapons capabilities and respectable conventional capabilities plenty more than sufficient to deter any individual or combination of aggressors (no one is invading Russia, not now, or in the next couple of decades or longer).

          Hell, it could be a really decent country if the autocracy would grow half a brain and stop shooting itself and its people in the foot over and over.

          Putin is a self-important dirtbag (as are his cronies).

          Russia, get your shit together…you have no one to blame but yourselves for your woes. Stop the smoke and mirrors fake external threat distractions to your populace and focus on self-improvement.

          Yes, other countries, including the U.S. can by all means follow the same advice!

      • oldfarmermac says:

        Hi Shufflin’,I move about that way myself these days.

        You are not going to find any definitive answer to the oil price question in the sense that there is a definitive correct and exclusive or unique answer to an arithmetic problem.

        I am personally convinced that there is nothing more needed to consider other than that one demand is down somewhat and that production including oil substitutes such as natural gas and biofuels are up somewhat. The price of oil is extremely sensitive to demand. A very small imbalance between current supply offered for sale and current amount desired by end users can and does result in a dramatic drop in consumption.

        I am certainly enjoying the low price but unfortunately have little opportunity or desire to take advantage of it. I don’t have time or money to take a grand tour of the US by motor home which would multiply my use by a factor of twenty five at least. And I am afraid to go out and buy a new BELCHFIRE SUPER truck because I am afraid the price of gas will go right back up again.

        Oil is like baby formula. You will pay as much as you have to for ENOUGH and hardly anything at all for more in the short term. If it stays down long enough to convince people it will stay down they will go back to buying v8 Mustangs instead of V6 Mustangs.But except for the youngsters nobody much has time to just ride around for the sake of just riding.

        Imagine if you will being in a small isolated world where you are a farmer selling perishable eggs and there is a perfect balance of demand and supply with prices steady as a rock. Steady gold money even. No food in this world except EGGS.

        Now if just one farmers customers die, there will be an awful glut of eggs and every other farmer will have to cut and cut and cut his price until somebody just says the hell with it and quits and restores the balance between daily supply and daily consumption and then the price goes back up.

        On the other hand if one farmer dies and his egg houses and hens die with him there will be very serious shortage of eggs and some people will have to eat a lot less collectively. Or some individuals might starve to death.The price of eggs will go thru the roof.Anybody with money enough will keep bidding up the price until he has as many as he wants.

        This extreme hypothetical example is given for the benefit of any kids or adults who happen to read this forum who are unacquainted with supply and demand in real life.

        The long and short of it is that the sellers are trying to get their customers to buy as much or more than they used to even though the customers just don’t want that much anymore.BUT if the price falls off FAR ENOUGH you can feed your cat with baby formula. In other words in order for the market to use all the oil being delivered day after day the only way it will or can happen is at a cheaper price . Much cheaper.

        The world just doesn’t want the amount delivered day after day at any price higher than the price being paid.

        And we need to remember that the prices quoted are not by any means necessarily the prices sellers are actually getting. A lot of oil, maybe most oil, is sold a long time ahead by contract. So an oil company may actually be getting eighty bucks for nearly all the oil it is selling TODAY- where as to sell a little more that company has to take the spot price- which is the price you see quoted all over the place in most cases. It may be the current spot price or the expected future spot price some months down the road.

        • Shuffling Along says:

          OFM,

          Thank you for taking the time to write your thoughtful reply.

          I always appreciate your insights.

          Cheers

          • oldfarmermac says:

            Thanks but I seldom have an original insight.But I do write from a different vantage point most of the time being the only farm guy who seems to be interested in peak oil at this blog anyway.

            I am in this case merely repeating the basic textbook example used in econ 201,202, and 203 back in the dark ages in somewhat different words.

            This is straight textbook economics disputed by nobody – the textbook was a standard one used throughout the US at cow colleges and Ivy League institutions.I am using my own words and examples to better fit the situation.

            I reread my above comment and see than one sentence is nonsense. THIS one.

            ” A very small imbalance between current supply offered for sale and current amount desired by end users can and does result in a dramatic drop in consumption.”

            It should read ” A very small imbalance between current supply offered for sale and current amount desired by end users can and does result in a dramatic shift in price if demand is highly inelastic. A little more product delivered than the customer REALLY wants results in a price collapse. A small shortage in deliveries of the amount the customers Really wants results in a price spike. ”

            This comes of answering the phone or something while composing a comment and then hitting the post button without rereading one more time.

            Wild price swings in markets where demand is said to be highly inelastic are simply to be expected. Anybody who does not understand and accept this fact either has not taken the basic introductory courses in the field or else didn’t learn anything.This stuff is as cut and dried and old hat to an economist as addition and subtraction are to a mathematician.

            As cut and dried as the conservation of mass and energy is to a chemist.

            If you are willing to believe that supply has held up or grown a bit (Including oil substitutes) and that demand has down a bit over the last few months you need nothing else whatsoever to explain the price of oil.

            So simple. So beautiful. So insane that people than ought to understand this are determined to raise mountain ranges of speculation out of such a mole hill’s worth of facts.

  16. Shuffling Along says:

    OBTW, Viva Obama.

    It is about time we started to unwind that ridiculous embargo on Cuba.

    One could quote Einstein about the insanity of doing the same thing over and over and expecting different results each year. A 53-year butt-hurt grudge is infantile.

    On another note…many people are pleased with Putin taking it in the shorts due to lower oil process (many assume there is a conspiracy between the U.S. and KSA to use this as a weapon to punish the Rus, Iranians, and Vz for good measure. However…I wonder far far the wounded animal can be pushed into the corner…I recall Japan’s oil supply situation prior to their initiation of WWII against the U.S. et al.

    Recalling George Carlin: Americans can be counted on to do two things: Take a good idea and run it into the ground, and take a bad idea and run it into the ground.

    Lastly: President Obama seems to be snatching victory from the jaws of defeat, at least for now…he has, at least for now, put paid to the concept of a ‘lame duck’.

    • I follow what goes on in Cubazuela very closely. The embargo legislation hasn’t changed. I think establishing relations with Cuba us a good idea, but now the rest of the package has to be negotiated, and Cuba has a certan urgency because its Venezuela cash cow is hitting a brick wall. Thus we have to wait to see who blinks first.

      • Shuffling Along says:

        Yea, Marco Rubio and the rest of the shrill callers need to adjust their attitudes to reality. Engagement is the key. The ‘nice guy’ approach works better…

        We can buddy up with Vz…maybe us and the Canadians can help them do a better job extracting their oil in the most efficient and effective manner.

        We in the Western hemisphere may appreciate that move as the amount of recoverable oil in existing fields continues to lessen….rest assured the World won’t be ‘awash with oil’ forever.

        • the way I see it Obama will spend 12 to 18 months negotiating with the cuban dictatorship. Meanwhile oil prices will be in a dip, the Cuban parasite in Havana won’t have as much cash flow from Venezuela, the slave population will see Fidel is senile, Raul will be aging and trying to replace himself with his evil son, Alejandro, and things may just get really tough for the military oligarchs who live at the top in the cuban regime. Meanwhile I’ll enjoy watching events and writing about it.

  17. Shuffling Along says:

    I have been greatly disjointed by Nate Silver’s web site, FiveThirtyEight.com…I hoped after reading ‘The Signal in the Noise’ that his site would address substantive topics and subjects…but he sees to have bought off on a site that writes fluffy articles about trivial fluffy subjects.

    That being said, the site occasionally posts articles that can be characterized as being in the Peak Oil ‘bin’:

    http://fivethirtyeight.com/features/the-conventional-wisdom-on-oil-is-always-wrong/

    I still find this article to pretty lightweight, but at least they are posting something besides food and sports-related articles and go-nowhere politics pieces.

    It would be nice to see this site open up a permanent tab/thread addressing Limits to Growth and ecological sustainment issues. Something like a This Finite World but with less personal bias and more data such as from Mazama Science and sites like it.

  18. Shuffling Along says:

    Hmmm…this article is potentially interesting…I have only slimmed it, yet it seems worthy to share:

    http://www.vox.com/2014/12/16/7401705/oil-prices-falling

    Maybe smart folks should take this opportunity to attempt to drive very hard bargains with dealers selling Priuses, Volts, Leafs, and other cars which use miserly (or no) gasoline….let the other folls buy the Silverados and F-150s and so forth.

  19. Dean says:

    Upper Rocky Mountain Spot Crude Oil Prices:

    WTI and N. Texas: $52.56
    Colorado Western: $38.51
    CO North Central: $43.28
    WB Mixed Sweet: $41.01
    ND Light Sweet: $39.59
    Wyoming Sweet: $43.20
    N Wyo. / S Mont.: $41.55

    Oh my …

  20. Watcher says:

    ZH just blasted an article doing yet another breakeven analysis of Bakken wells. POB is attributed as source of some things, I guess from a Rune article.

    $12 is the quoted transport cost. Helms has said $16, so that may be old data.

    • Watcher says:

      Ditto “cost of capital”. Not 5% anymore.

      What a disaster.

    • Rune Likvern says:

      Watcher thanks!
      I deliberately keep the numbers I post in the public domain somewhat in the conservative end.

      Average operational costs (OPEX) in Bakken has increased by 36% YoY according to an industry testimony to the ND state (from an article in “Uncoventional Oil & Gas Report”, November/December 2014).
      I suspect growing water cut to have caused a big portion of this cost growth.
      I used $12/b for average transport costs, and these come in a range from $6 – 15/b depending on mode of transport (pipeline, rail and location).
      The royalties I use (in the public domain) are in the low end.
      Interest rates came up with the decline in the oil price.

      According to this article (from Forbes and from September 2014);
      http://www.forbes.com/sites/christopherhelman/2014/09/18/continental-shares-fall-on-higher-bakken-costs-shaving-1b-off-harold-hamms-fortune/
      ”The concern appears to stem from Continental’s disclosure that its well costs in the Bakken had climbed to $10 million per well, about $2.5 million than a year ago.

      • Watcher says:

        Your last item, I looked at the specific Continental briefing slide in question and it was widely misinterpreted. Their cost went up because their frack stage count (aka proppant cost) went up. If you drill longer wells, of course they cost more, and they thought they would produce more. The cost per well did not go up; the definition of “well” changed.

        Interest rates did indeed rise with price, but they are a thing unto themselves because they are HY bonds and fear of default starts to trump price below a certain level.

        Anyway that guy’s conclusion would have been thought radically doomster about 6 weeks ago. Now it looks not absurdly, but not just mildly either, optimistic.

        • SW says:

          I think you are correct but lets not forget about the negative economic impact from sidelining all the potential clean-up crews.

          • Watcher says:

            haha, the downside of building earthquake proof buildings. You don’t get job creation doing repairs.

  21. Watcher says:

    Keystone will not be beneficial to US consumers — Obama, today

    Don’t look like the administration will approve a bailout. Either Janet orchestrates one, someone gets the price up, or Russia wins and shale is destroyed.

    • Obama’s analysis is flawed. Product prices will increase close to the USA Canada border, they will decrease slightly in the USA Gulf Coast. It will displace Venezuelan extra heavy blends to some extent. And refinery utilization will go up in the USA gulf coast, as well as product exports.

      • ezrydermike says:

        I thought the whole point of the last Keystone pipeline leg was to expedite the movement of Canadian tar sands oil to Gulf Coast refineries so they could refine and export products.

        • The pipeline is intended to move oil to the Gulf Coast refineries. Right now refineries along the canadian border get a lower price, thus a slightly better spread. They make a little more profit.

          Once the canadian crude gets to the gulf coast it displaces venezuelan Faja blend (that’s the big near and long term supply of 8 degree API blended to make a stream very similar to the Canadian blend).

          The USA refinery kit along the gulf coast is very well suited to handle heavy oil molecules. The rational approach for the USA is to take in heavy, refine it, give it value added and export products. But the market does have a lot of dynamic factors, including usa government policy. But the basic fact us that the world needs more oil, and the canadian crude displaces venezuelan imported crude. That’s just great from a geopolitical perspective. Venezuela is in bed with Cuba, Iran, Russia, Syria, and China. There isn’t a bad guy in this planet they don’t ally with.

    • SW says:

      Please explain to me how putting more Canadian product on the world market is beneficial to U.S. producers in a demand constrained environment.

      • What the pipeline does is put venezuelan heavy blend out to pasture. Thus what we have is an enviromental lobby packed by people who are interested in venezuela marketing oil without competition.

        • SW says:

          Playing grand geopolitics with oil (the great game) has a nasty habit of eventually biting you in the ass.

          • Possibly. But putting a boot in Maduro’s behind is a good deed. I like to criticize Latin American dictators like the turkey in venezuela.

            • SW says:

              The good people of Venezuela will not always be ruled by turkeys. What we are witnessing there is an internal class struggle exacerbated by our counterproductive habit of supplying a foreign boogie man that helps to keep these turkeys in power (see Castro, Fidel). Meddling in other country’s internal affairs may be momentarily satisfying (see the Shah of Iran) but it is almost always a really fucking stupid idea. But we never seem to run out of really stupid fucking ideas do we.

  22. toolpush says:

    Rig count down
    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTY1MTE2fENoaWxkSUQ9MjY0ODUxfFR5cGU9MQ==&t=1

    USA down 18

    Bakken down 7
    Permian down 9
    vertical down 6
    horizontal down 11

    Canada down 40

    I feel we will see larger falls starting January.

    • Watcher says:

      Look. This is not rocket science. They have to have a huge, immediate price increase or they have to have a bailout.

      There is no other alternative as a path somewhere other than towards obliteration. There are real dangers here, broadly. If shale is actually TBTF and its recency has kept it out of econometric models so that it’s TBTF status isn’t understood, this can hit the system as hard as Lehman.

      • Watcher says:

        Here’s a gem:

        Since the recession began in December 2007, 1.2 million net jobs have been created in Texas. Only 700,000 net jobs have been created in the other 49 states combined.

    • toolpush says:

      Who was it that said, the Bakken rig count would be down by 40 to 50 by mid year. Well, they are down 14% this week, and we have only just begun, as the song goes?

    • Dennis Coyne says:

      Hi Toolpush,

      Thanks!

      Interesting that the Eagle Ford is up 2 from last week.

      For year over year numbers we have:

      Williston (Bakken): down 2
      Eagle Ford: down 23
      Permian: up 63

      Oil rigs: up 141
      Gas rigs: down 34

      Horizontal rigs: up 216
      Vertical rigs: down 81

      All numbers above comparing current rig counts to those one year ago. It looks like activity has picked up in the Permian basin(rigs up 13%), that the Bakken is flat, and rigs are down about 10% in the Eagle Ford compared with last year.

  23. Schinzy says:

    Oil prices are fascinating. Below is Jean Laherrère’s historical oil price vs quantities parameterized by time. Note that the price in 1986 is a third the price in 1979 and yet production is about 8% lower. This graph leads me to believe that prices will not go up until production falls.

    • Strummer says:

      But the graph is missing another crucial component, costs. Those have risen considerably, and piling up debt can’t compensate forever.

      • Dennis Coyne says:

        Note that we have broken through the “wall” on C+C output at 76 Mb/d, in time we might move through the price “wall” at $120/b (2011$), note that in 2014 $ this would be $126/b. In time (by 2025) the World economy may be able to handle a higher price, but I think the AEO reference price in 2040 ($146/b) is about as high as oil prices can go, in 2030 the AEO reference case has real oil prices at $123/b, almost the same as Jean Laherrere’s price wall. From $60/b oil prices would reach $123/b, if they increased at 4.9% annually for 15 years. Clearly oil prices would not follow such a smooth trajectory, but that overall trend would push us to the oil price wall in 2030.

        Over that time there might be some movement towards more fuel efficient personal transportation and some increase in freight on rail, but the low oil prices would tend to slow this process. The faster that oil prices rise, the quicker the transition will be.

        I think a more realistic scenario is a quicker rise in oil prices over the next 5 years (10% annual increase) to get real oil prices above $95/b, then oil price increases may slow down to 2.5% per year as economic growth slows down and transition to less oil use occurs, if oil prices rose at 5% per year after 2020 we would reach $121/b by 2020.

        At this point either the World economy crashes due to high oil prices, or the economy attempts to transition rapidly to less oil use. Either way the peak will be behind us (or we will be straining to maintain a plateau in output) and oil use will decrease (or at minimum not increase any further). Hopefully by that time it will be clear that we need to transition away from oil and fossil fuel taxes will rise to speed the transition.
        Also the common man may make the connection that if oil has peaked, that coal and natural gas may not be far behind. Faced with these prospects more people may install PV, buy EVs, demand better public transportation, and move to more walkable and bikeable communities. Tax incentives to increase wind , solar, and nuclear power, and any other viable form of energy might become public policy.

        It may take a great depression or some other crisis to spur such changes, time will tell.

  24. Watcher says:

    If nothing else, ZH likes to be radical in both directions:

    Why The US Is About To Be Flooded With Record Oil Production Due To Plunging Oil Prices

    http://www.zerohedge.com/news/2014-12-19/why-us-about-be-flooded-record-oil-production-due-plunging-oil-prices

    The theory seems to be technocopia to magically ramp up output from currently existing wells:

    Here is the surprise for all those thinking Saudi Arabia will declare a quick win when half of the US shale is bankrupt and supply plunges: U.S. energy producers plan to pump more crude in 2015 as declining equipment costs and enhanced drilling techniques more than offset the collapse in oil markets, said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells. That and the scramble to put competitors out of work, before competitors do just that to you.

    • Watcher says:

      Eckard Global LLC will be first on the Chapter 11 docket.

    • Watcher says:

      Oh elsewhere in the article, most of it is based in a pre $55 projection by Bloomberg for next year’s output. But also the article is relying on Exxon saying they are going to boost production. He doesn’t seem to realize Exxon’s output isn’t all or maybe even mostly coming from the US.

    • nNgass says:

      The whole article rests on the notion that shale oil production remains steady over many years, similar to conventional production. The steep production decline is not mentioned in this piece.

  25. The Number Of US Oil Rigs In Use Fell Again

    The latest active rig count data from oil driller Baker Hughes showed that total rigs in operation fell by 18 last week to 1,875.

    The prior week, the rig count fell by 27 — to 1,893 from 1,920 the prior week — which was the biggest weekly drop in almost two years…

    Among major US shale plays, rigs in operation in the Permian Basin fell by 9, Williston rigs declined by 7, and Marcellus rigs declined by 1.

    Eagle Ford rigs in use, however, rose by 2 last week.

    The biggest declines in the report were in Canada, where oil rigs in operation fell by 25, from 215 to 190, as gas rigs fell 15 to 201 from 216. With the drop on Friday, total Canada rigs in operation are now below year-ago levels at 391 against 398 last year.

    • clueless says:

      Gasoline demand will go up more than the additional miles driven, if any. At $4 per gallon, people generally put gas in only when they need it, and even then many put in only $10 or $15 worth. In effect, 200 million cars with an average 18 gallon tank might average only 8 – 10 gallons at any one point in time. But, at $2, they will top it off if they possibly can. And, people with larger tanks will fill up more often. Say they normally waited until 1/8 full. They might fill up when it gets to 1/2. As long as the price is low, it is too tempting to keep it full until the price goes up again. So, 200 million cars might each contain an average of 4 more gallons after prices have dropped to where they are now. That is 19 million bbl of demand out of nowhere.

      • Lloyd says:

        At $4 per gallon, people generally put gas in only when they need it>/i>

        This is not how I behave: it would surprise me if anyone (with the exception of the extremely poor) did. The time lost to go to a gas station and pump your gas (or wait for someone to do it) more times than absolutely necessary is not worth it for a savings that is essentially the interest and opportunity cost of less than a hundred dollars for two weeks, and not even the interest cost if you keep your credit card paid off. You have to be really hard up to do that.

        Unless you can show me data that proves otherwise, I will continue to believe that people do what I do (and that I do regardless of price): I fill up the tank, and when that bottom bar starts to blink, I fill it up again when .

        -Lloyd

        • oldfarmermac says:

          I am sorry to say so in such blunt terms Lloyd but you just don’t know much about poor people – actually hardly anything at all. You can believe what you want.

          If you want to change your mind go to some service station where a lot of hard up people stop -people with ratty cars and cheap clothes and hopeless faces – and watch how much gas they buy at a time for an hour.They don’t give a shit about the five minutes. They do about the extra ten bucks in the grocery cart TODAY.

          Poor people live day to day and week to week. Next week to poor person is something to be dealt with – next week. EVERY DIME is critical every day.

          Now I do understand that going out of the way to buy gas results in burning some extra gas. But when you buy the little box of detergent because you can’t afford the big box which is cheaper per load you buy five or ten dollars worth of gas as well.

          I hire people to work for me that I must advance money just to get to my place at least once in a while just to help them out.I have known somebody to get fired for not making it to work because he ran out of gas on the way there on payday. He had been late before but that was one time to many.

          Now I used to live in a tony chi chi apartment in the Fan District of Richmond Va very very near VCU. I have made a lot of money at times- as much as two thousand bucks a week back in the late seventies and early eighties. My friends were all professional people making a lot of money. I was a burned out agriculture teacher turned pro welder working seven twelves when it suited me at local union scale and sometimes better than scale. BEEN THERE AND DONE THAT when it comes to being around people with money – not the really rich sort but professionals such as doctors and lawyers.

          But now I live in the heart of Appalachia on the old family farm surrounded by people who are just barely hanging on and barely getting by. I know EXACTLY what I am talking about.I loan out twenty bucks to somebody in desperate need at least once or twice a month. Sometimes more. I usually get it back. If I don’t the borrower doesn’t often show up at my house again asking to borrow more.

        • Raja Bob says:

          I live in a poor neighborhood, not an extremely poor one, and that’s definitely how people behave. It is $5 of gas at a time for some of my neighbors, and when gas hits $4. per gallon, out come the bicycles, and the cars stop moving about so much.

          They’d rather have the cigarettes.

          • Lloyd says:

            Hi Bob and Mac.
            it would surprise me if anyone (with the exception of the extremely poor) did.
            Without getting into too much depth(or a long drawn-out debate) this all hinges on definitions of “poverty” and “extremely”. My experience is further clouded by being from downtown Toronto, where the really poor walk or take transit.

            Keep in mind I was replying to Clueless, who used this behaviour to justify “That is 19 million bbl of demand out of nowhere.”

            I did a quick check, and the Canadian numbers for poverty are about 21%. (Quintile 1, up to $40,000, Poor & near poor: 21.1%.)

            Whatever figures Clueless was using to come up with his numbers, I challenge them on the basis that 79% of us do what I do. I would further argue that the rich and middle class use more fuel per capita, which further limits the effects of what the poor do. The exact behaviours of the extremely poor were not at issue- only the quantifiable effects of such behaviour on the national fuel supply.

            -Lloyd

    • Thomas says:

      I remember reading somewhere (not sure where) that the large drop last week was due only to vertical wells, and that horizontal fracking wells actually increased slightly… (?)

      • toolpush says:

        Thomas,

        Correct, last week it was mainly verticals in the Permian, that were laid off. And this week it was a fairly even split, A few points.
        1/ The shale wells are drilled with two rigs. One small, that does the top hole, vertical, and the second is a larger capacity that does the horizontal. Obviously the smaller vertical drill rigs will get laid down first.
        2/ The smaller rigs may be working for smaller players, who are more flexible and react faster than the larger listed companies.
        3/ Many drilling rigs would have term or multi well contracts, with certain terms and conditions for early termination. a common term, is a 30 day notice period. Therefore, even if a rig has been given its 30 day notice, it may still be drilling to finish its current well.

        I would expect the first two weeks in January when we will see a large increase in laid down rigs. I would say we are in the zombie period, where rigs have notice but are still working, but not for long.

        And just for interest Canada lost 10% of there rig this week!

        Here is the only reference that you need. BakerHughes are the people that collect the information, and everyone just puts their own spin on it.
        http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

  26. AlexS says:

    Two contradictory assessments of Eagle Ford tight oil production in November.
    Who is right?
    ———————————-
    Shale Oil Production in Bakken, Eagle Ford Basins Grew 1.5% in November: Platts’ Bentek Energy
    Production From These Prolific Shale Plays was Up 35% Compared to Year Ago Levels

    Denver, Houston – December 19, 2014
    http://www.platts.com/pressreleases/2014/121914/no

    Oil production from the Bakken shale in North Dakota and the Eagle Ford shale in Texas increased 42,000 barrels per day (b/d), or 1.5%, in November, according to Bentek Energy, an analytics and forecasting unit of Platts, a leading global provider of energy, petrochemicals, metals and agriculture information.
    In South Texas, Eagle Ford production was 43.5% higher than November 2013, with 474,000 barrels per day available to domestic end users, according to Catherine Bernardo, Bentek Energy manager of energy analysis.
    “With crude oil having hit the $60-per-barrel area, there has been a tremendous amount of attention around producer sentiment,” Bernardo said. “While companies aren’t likely to confirm formal guidance for 2015 until early next year, producers have begun to discuss expectations for drilling budgets and production growth rates. If oil prices remain under pressure in the coming months, returns in U.S. oil plays will certainly be challenged, likely resulting in capex [capital expenditures] cuts and slower production growth rates.”
    Bentek analysis showed that from November 2013 to November 2014, total U.S. crude oil production has increased by nearly 1.5 million b/d.
    Crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin averaged 1.2 million b/d in November, Bentek data showed. This was 253,000 b/d higher than levels seen in November 2013.
    “Prices of Bakken and Eagle Ford shale oil have been decreasing throughout the fourth quarter of this year,” said Jacqueline Puig, Platts associate editor of Americas crude.
    —————————————

    Eagle Ford shale output slips for first time in a year: LCI

    Tue, Dec 16 2014
    http://www.reuters.com/article/2014/12/16/us-oil-production-shale-idUSKBN0JU1SC20141216

    NEW YORK (Reuters) – Oil output from the Eagle Ford shale deposit in Texas dipped in November for the first time in just over a year, while production from North Dakota’s Bakken also ebbed, data from LCI Energy Insight showed on Monday.
    While the declines were small, and may prove short-lived, the easing output could prove to be among the first signs that a dramatic collapse in crude oil prices is starting to stunt the breakneck growth of the U.S. shale oil patch.
    Most analysts have been betting that output will continue growing well into next year due to investment decisions that were made while oil prices were still high, and to increasing efficiencies in drilling.
    Texas’ Eagle Ford’s production fell 2,000 barrels per day to 1.45 million barrels per day, according to LCI data obtained by Reuters. Production in the Bakken formation fell by 10,000 bpd to 1.15 million bpd, according to the data, which is based on historical well production data and natural gas pipeline flows.
    The two fields make up 78 percent of the total lower 48 states’ shale oil production.
    U.S. shale production overall continued to grow, rising by 5,000 bpd. For 2014 through November, oil production from shale is up more than 30 percent from the 2013 average.

    • Watcher says:

      Comparing oil production growth statistics to 2013 or 2012 or whatever is like measuring the temperature of a dead man and saying that clearly the current reading is an aberration and will soon return to normal.

  27. Ronald Walter says:

    The permit list is in the range of 12 to 14 per day, something like that. Some days have just three permits listed, it is usually more on most days though. December permits mean the wells will probably be drilled the beginning of April, end of March. If they are drilled, the rig count will be high.

    One day of activity:

    https://www.dmr.nd.gov/oilgas/daily/2014/dr121014.pdf

    • Watcher says:

      A reminder to all, permits or drilled holes do not mean commitment has been made to complete.

      You have to have money to do it, and it’s not coming from cash flow.

      The lenders make the decision. Not the drillers. Mike has said this stuff is paid for up front. All it takes is a oil price covenant in the loans and they are due in full immediately. The money can’t be sent to a sand producer if the loan is due in full immediately.

      That edges towards fraud and would move from the civil domain to the criminal domain. Nobody is going to do that.

      Overall, barring an explosion in the price of oil (which can be arranged at any time militarily), we won’t have to wait months to get clarity. Firings of anyone is held off until after Christmas, so maybe late next week the signals will fly.

  28. oldfarmermac says:

    Have any of you guys that are proficient numbers crunchers calculated how fast production of tight oil would fall off if drilling were to come to a complete halt?Or rather well completions since there seems to be a backlog of several months worth of wells drilled that are awaiting the Fracking crews?

    • AlexS says:

      There are currently about 650 drilled but not fracked wells in the Bakken alone. Fracking accounts for about half of total well cost. So, even with reduced drilling, in the next few months production in the Bakken will remain relatively resilient to declining oil prices.

      If no new wells are completed in the Bakken or Eagle Ford, the overall output volume in those tight oil plays will drop by some 35-40% within 12 months (according to David Hughes).

      • oldfarmermac says:

        Thanks I have seen that twelve month figure before – probably here. I am wondering how long it will take if the tight oil industry rolls over and dies for production to start declining enough to really grab the attention of the msm . I am guessing three months at the most.

  29. I find it ironic that more and more people are declaring peak oil to be dead right when world oil production is peaking.

    Don’t subsidize renewable energy; fossil fuels are the way to go

    The Peak Oil theory, first proposed by geophysicist King Hubbert in 1956, claimed that aggregate oil production would peak in the U.S. between 1965 and 1971. After that production would gradually decline, as oil became harder and more costly to extract, which would make developing alternative energy sources more feasible and affordable by comparison.

    And for decades most analysts believed that Hubbert was right, but no longer.

    Innovative drilling techniques that allow energy companies to extract oil and natural gas from shale have relegated Peak Oil fears to the sinkhole.

    That is about the dumbest thing I have read in a while. Well, perhaps a short while as I read some really dumb things every day. To refer to peak oil as a “theory” is to imply that there is a possibility that oil production will never peak. However it is an absolute certainty that production of oil will one day peak. Therefore to call peak oil a “theory” is just down in the dirt stupid.

      • Watcher says:

        Is the amount of methane on Titan finite?

        • John B says:

          Are you exploring a new source of natural gas production?

          • Watcher says:

            No. The point was abiotic. Thus unconventional and who knows if there is a way to be infinite as such. Maybe C and/or H arrives from space into that atmosphere.

    • BAU says:

      This guy’s background is “health” and “ethics”? Kinda explains. This guy knows nada.

      Example of the crazy times we live in, and the denial some folks live with.. That is really a dumb article in so many ways..

      The energy surpluss our society (ex extraction) is living on is -decreasing-, causing a temporary extra boost in fossil fuels production due to the wonky magic of finance and stupidity. And these idiots see this as something to strive for.

      Following this through means turning society into one big crappy extraction operation.

      It’s almost fun watching the media talk about “too high prices for consumers” and “too low prices for producers” but never really following these converging trend alls the way through to the logical explanation that we are screwed..

    • Ilambiquated says:

      Yeah, the famously far-seeing Institute for Policy Innovation.

      Other pearls of wisdom from this author:

      Is Anti-Fracking Movement Paid For By Putin’s Russia?

      Will Any Medicaid Patient Be Able to See a Doctor in January?

      Has the IRS Become a Threat to Our Constitutional Liberties?

      These guys are paid to “win” the current news cycle. It doesn’t matter a bit whether their analysis stands up to scrutiny.

      I’m looking forward to seeing his retraction in January on the Medicaid story.

    • Fuser says:

      I think a lot of people think of the term incorrectly. Some speak to peak oil when they seem to be thinking about ‘peak oil price’.

      I think when some others use the term ‘peak oil’ they seem to thinking that peak oil means ‘peak oil right now at this very instant’. They will write that peak oil is debunked because there was an oil discovery or announced reserve growth. Makes for frustrating reading.

    • John B says:

      The article linked is your boilerplate “oil industry consultant says renewables are bad” nonsense, that gets published on a regular basis.

      However, it is correct to state the Hubbert’s Peak Oil Theory is a “Theory”, meaning an explanation of some process with scientific method, and empirical data. Hubbert’s theory was also incorrect on several accounts – the US decline curve, world Peak Oil timing, and URR. Hubbert may have been correct about suggesting solar power will replace fossil fuels. We shall see.

      Of course that’s not to say that oil production won’t peak, or that no one will have called the correct timing in advance.

      • Doug Leighton says:

        “Hubbert’s theory was also incorrect………..”

        This statement is incorrect. In fact, Hubbert qualified his results and conclusions extremely carefully. People (like you) make presumptions about what Hubbert actually said [and then rattle on as though they actually know what they’re talking about. I find this extremely annoying. Nothing I’ve seen that Hubbert (actually) said was incorrect: Like every responsible scientist he qualified each and every statement he made.

        Perhaps think James Clerk Maxwell’s equations for electromagnetism are incorrect as well? Do you think Isaac Newton was incorrect? Now, of course, we have Quantum Field Theory which supersedes Maxwell’s Theory and will, in time, be replaced an even more generalized theory. Maxwell NEVER suggested Newton was incorrect and I’ve never heard a single soul suggest Maxwell was incorrect.

        Hubbert was not “incorrect” either. What he concluded is: For any given geographical area, from an individual oil-producing region to the planet as a whole, the rate of petroleum production tends to follow a bell-shaped curve. Notice the phrase: “tends to follow”. As I recall, half of Hubbert’s paper was taken up by very well thought out qualifications.

        • John B says:

          So you actually believe that US production is “tending” to follow a bell shaped curve, and that world oil production peaked in 1995, and that URR is 2 trillion barrels? That’s what he said, and here’s him saying it:

          https://www.youtube.com/watch?v=j6vXHPZ0GQU

          Your straw man arguments prove nothing.

          The problem with (some) people is that they treat Hubbert’s Peak Oil Theory as a religion, so facts don’t matter.

          His theory obviously needs some tweaking.

          • oldfarmermac says:

            I have read Hubbert extensively and he is or WAS a superb scientist as well as a world class oil man.

            I doubt you have read him at all. Now for what it is worth his work stands as verified by history and by the evidence so far except for a resurgence of domestic production that came about mostly as the result of oil prices going up by a factor of about ten or so thus enabling oil he knew about to be produced. He just didn’t think it could be gotten out at a profit.

            Expand the time scale to fifty years or more over at the production record of every major oil field in the world that has been in production any length of time and his predictions are verified to an astounding degree.

            Only a fool unable to understand that the earth is a finite space and that oil doesn’t grow back like truffles could possibly fail to understand that Hubbert got it right about ninety nine point nine percent of the time. The one only things he really missed were extremely deep water technologies coming along fast enough and FRACKING coming along fast enough to keep production rising.

            ND will play out just as Alaska and the North Sea are playing out today- barring another factor of three or four increase in the price of oil.

            Beyond that the production of conventional legacy oil is proceeding at at a rate of at least four percent annually with hardly any good spots left to look for new conventional oil. That alone just about guarantees that peak oil will have to be acknowledged as reality no matter what within a few more years.

            Expand the time scale out to about 2040 or 2050 and even the super major oil companies acknowledge peak oil as a reality.

            Now my doctor was wrong a couple of decades about how long a good friend would live and gave him a year or two. But he is still around twenty years later. Does that make my doc a fool ? Does it prove he doesn’t know his business?

            But you know what? My doc has predicted that every single patient he has ever treated will DIE one day.

            Hubbert predicted that every single oil field will peak and decline . So far he has been right about every field I have ever heard of with the possible exception of the super giants in the mid east. And they will peak and decline too. AS a matter of fact there is pretty good evidence they are doing so now or will do so in the very near future.

            The ONLY fields that are not showing evidence of peaking and declining are the relatively few newer ones that have been in production for only a few years.There aren’t very many of them and there are no conventional supergiants among them. All of them will peak within a decade or two at the most.

            There is a state park in Pennsylvania where the modern oil industry was born according to most historians. Give that some thought.

            So ” Doc Hubberts” patient has lived a while past his expectations. In terms of history a decade is a yawn and a stretch.

            So far Hubbert looks like a genius to me in terms of his forecasting abilities and I am not easily impressed. Who else has a record even remotely as impressive?

            The patient is still going to peak and decline and yes eventually die.

            Go back to your happy fantasy land of unlimited ever increasing supplies of non renewable natural resources and tell it to the econ students.

            The economists and their followers are the religious nut cases.

            Geologists know better.

            This is not to say that a geologist whose salary depends on his doing so won’t tell a lie and there are plenty of geologists whose salaries depend on the continuation of business as usual.

            These geologists aren’t about to tell the truth given that their employers would be very upset indeed- upset to the extent of seeing them blackballed in their career specialties.

            • toolpush says:

              OFM,

              I certainly agree with what you say, but there is one oil field that is doing its best to prove everybody wrong, and it is a giant as well. That is Kashagan is Kazakhstan. The way they are going they will never reach a peak to decline from. In fact the way they are going they will never produce any oil at all?

              On the basic note of finite resources, back in the Oil Drum days, somebody worked out, that if the earth was a hollow ball full of oil, at 2% growth per year, the world would run out of oil in the 22nd century sometime. Now we just have to work backwards from there.

              • Synapsid says:

                toolpush,

                “The way they are going they will never reach a peak to decline from.”

                Priceless. I’m going to steal it.

                • toolpush says:

                  Synapsid,

                  Well it is nice to see some appreciates my off sense of humor, lol. Feel free to use.

            • John B says:

              “Go back to your happy fantasy land of unlimited ever increasing supplies of non renewable natural resources and tell it to the econ students. ”

              More strawman arguments. I guess you can’t argue facts either.

              And yes, I’ve read the paper:

              http://www.oilcrisis.org/hubbert/1956/1956.pdf

              Interestingly, in the 1956 paper, he states that URR is 1.25 trillion (page 22). Later, in 1976, he upgrades that to 2.0 trillion. That’s a fairly large upgrade for someone you think is 99.9% accurate. Maugeri recently estimated URR at 5 trillion. 2 trillion is not 99.9% of 5 trillion. I’m not saying Maugeri is 100% accurate, just that there’s a big discrepancy there.

              If you’re only arguments are that oil is finite, and all oil wells deplete, those really aren’t arguments. No one is going to argue with that.

              However, if you had stated that world oil production would peak in 1995, or 2000, or 2005, and that didn’t happen. You were wrong.

              • Doug Leighton says:

                My point was that Hubbert’s results and conclusions may have been superseded to a certain degree by more recent developments (such as off shore and tight oil) but that he wasn’t wrong. Is that so difficult to get your head around? But, if you think that confidence in Peak Oil is equivalent to some form of religious fervor you really are crazy.

                • Boomer II says:

                  It seems to me that the very fact that we are now seeking oil via fracking and tar sands is an indication of peak oil. Both are dirty and expensive. If there were cheaper, easier sources of oil, people wouldn’t be bothering with these sources. Why leave the old fields if they have unlimited, cheap oil?

                  • Doug Leighton says:

                    True but irrelevant. Being “debated” is the validity of Hubbert’s Peak Oil Theory(s). Is timing really relevant: we’re running out of affordable oil — fast.

                  • Boomer II says:

                    True but irrelevant.

                    How? Seems like the fact that we are pushed into new areas that aren’t as desirable is indication that oil has already peaked in some areas. If they hadn’t peaked, we’d still be focusing on those fields rather than searching for new sources.

              • oldfarmermac says:

                Hubbert was wrong on his timing but right about just about every other point. Out of the many points he made he made one error of judgment in quantity and time but no substantial errors in his reasoning. He was the first man in the industry to point out the reality.

                If you insist that the fact that all oil fields deplete is irrelevant- ” not an argument” – then you are purely and simply a fool. The fact that the planet is a finite place is not relevant in your opinion – ” not an argument” makes you a fool twice over.

                Magueri is a shill for the oil industry and big biz status quo. Hubbert forgot more about oil than all the Magueris in the world have ever figured out for themselves put together.

                It is exceedingly easy to act as if you are a smart fellow by pointing out mistakes made by a man long dead – when the mistakes were long since discovered by other professionals in his field.

                Now as to how much oil may be ultimately recoverable- nobody actually knows. IF price and energy in are no object then oil can be manufactured out of any thing with carbon in it by robbing some hydrogen from water to make the chemistry work out.

                I have already run across lots of people who insist that peak oil will not be problem because biofuels will be the new oil or because coal to liquids will be the new oil.

                If you change the rules and the definitions in the middle of the game – and assume that technologies will be invented to accomplish a given job- at an energy profit- then any amount of oil can either be recovered or manufactured- at least in theory.

                But there is a fairly hard limit on the price that the economy can support and we have apparently found out recently that it is in the neighborhood of a hundred bucks.

                KEROGEN in rock is not going to be mined and processed into oil for a hundred bucks. Not unless you believe in technical miracles in mature industries such as mining and shipping – as in transporting vast amounts of water to the places the kerogen is found.

              • Ilambiquated says:

                I think crude oil did peak in 2005. The growth has been in lower density stuff.

            • Nick G says:

              Mac,

              I’m afraid I have to disagree. Hubbard made a very valuable contribution, but we shouldn’t exaggerate how prescient he’s been.

              Peak oil is all about timing – everyone agrees that oil is a finite resource, the debate is about when it will peak.

              Harberts model did not include price as a variable – he simply did not anticipate that oil recovery would depend on world prices.

              World oil production didn’t peak anywhere near when he said it would, and it has not peaked yet.

              Hubbert predicted that US natural gas production would fall off a cliff in the 80s – instead it still has not peaked.

              Finally, the projection that made his reputation, the US production peak around 1970, is in the process of being falsified.Hubbert was careful to not specify the shape of the decline curve, but he absolutely did not anticipate the reversal that is now occurring.

              • Nick G says:

                Please ignore spelling errors.

                Siri…

              • Sam Taylor says:

                I think you need to ask three questions here.

                1). Was hubberts model useful?

                I would argue that yes, absolutely, especially as it helped introduce peak oil as a concept and started a lot of people thinking about it. Will the decline be perfectly symmetrical? Of course not, but it’s an excellent first order approximation.

                2). Was the model the best be could have made with the information he had available at the time?

                Probably.

                3). Is what’s happening now compatible with his model?

                I would argue yes. Did he for see fracking? No. Then nor did anyone else. But then his model for American production only included conventional oil. Unconventional oil is a different resource, even if it produces the same end product. So we’re really looking at a superposition of two Hubert curves when we see us oil production rising again. Unconventional oil will still follow its own cycle of peak and decline, in agreement with hubberts theory.

                • Nick G says:

                  Again, I agree that he made a valuable contribution. But,

                  1. Peak oil was not a new idea. People have been speculating about a near term peak in oil production ever since 1859.

                  2. “Not symmetrical” is an understatement. We’ve discussed three predictions, only one (for the United States) is close to accurate, and it’s rapidly becoming falsified even as we speak.

                  3. The distinction between conventional and unconventional oil is hindsight. Hubbert did not make such a distinction. Such a distinction is useful for the purposes of analysis, but in this context it only helps to clarify the manner in which the forecast was incorrect.

                • Nick G says:

                  So, we might say that for his three predictions, he was two thirds right on one, 1/3 right on another and 0% right on the third. That’s an overall rate of 33%.

                  That’s useful, but it’s not 99.9%.

          • that URR is 2 trillion barrels?

            Actually I think that is pretty damn close.

  30. Watcher says:

    Repeating this from a Washington Times article, derived from BLS numbers, because this points pretty firmly at TBTF:

    Since the recession began in December 2007, 1.2 million net jobs have been created in Texas. Only 700,000 net jobs have been created in the other 49 states, combined.

    • Watcher says:

      That btw was an 11% job growth rate for Texas over that time period. The rest of the US avg was NEGATIVE in job growth rate up until September of this year.

      Though the numbers could not come even close to Texas, only one other state had higher job growth % than Texas.

      You guessed it, North Dakota.

      Too Big To Fail

      • Watcher says:

        And in case anyone still isn’t clear on this . . . you can look right at that reality and then at the latest election results and it all makes sense. If you’re the party in power and you preside over a disaster, even if it’s not your fault, you’re screwed.

        The GOP will either see a price explosion, or approve bailout, or THEY will be screwed, too.

        • Watcher says:

          From the TBTF wiki:

          “Proponents of this theory believe that some institutions are so important that they should become recipients of beneficial financial and economic policies from governments or central banks.[4] Some economists such as Paul Krugman hold that economies of scale in banks and in other businesses are worth preserving, so long as they are well regulated in proportion to their economic clout, and therefore that “too big to fail” status can be acceptable.”

          Don’t matter if people don’t like too big to fail. If that’s what it is, save it or die.

          • Ronald Walter says:

            If it’s 930 billion now, it can be double, more lines of credit will help more than hinder now. In other words, a bailout, just loan more money, which is being done.

            Can’t let it fail… at all. Besides, it’s oil, the one thing to keep it all going.

            The money will be there. A no brainer.

            • Watcher says:

              If the price doesn’t rise, it seems likely the industry has to be bailed out.

              Here is what happens if you don’t do the bailout:

              1) No more energy independence narrative. 3.5 mbpd of imports are restored. The underpinning for a GREAT many things wrt animal spirits is removed.

              2) Global oil production falls, and more than just the 3.5. The rest of the world has been in decline. That decline will become the ascendant reality defining pretty much all planning globally.

              3) The Fed’s balance sheet (or the US govt’s deficit) expands by the amount of the bailout. I remain persuaded the Fed is the most likely vehicle because these are purely red states and it would be impossible to find Democrat businesses to funnel deficit to and thereby lobby Democrat Senators not to filibuster.

              In contrast, if you DO bailout, here’s what happens:

              1) The normalcy, slow recovery, back to BAU narrative is smashed. Bailouts will seem casual standard operating procedure. The only hope of salvaging this would be to blame it on a foreign power. Even that will be weak.

              2) A bailout probably depresses the dollar. Double whammy. That should take the price of oil up, despite the clear increased oil production that will result.

              3) The Energy Independence narrative can be saved for a time (until geology overwhelms bailouts).

              4) Shale enshrouds itself with an aura of **viable**. This, frankly, points at Argentina. Exxon just announced hydrocarbons in a fracked shale well there.

              • Watcher says:

                Oops number 3 in the first grouping belonged in the 2nd. I’m so glad there is no editor. We can add correction posts like this to make it all clear, to anyone that wants to keep reading.

              • Watcher I have always disagreed with you on this point. There will not be a bailout of oil companies. The big companies will survive and the small ones will be bought out by the big ones…. Either that or they will go bankrupt.

                Oil company bailouts? No, it just ain’t gonna happen.

                • Watcher says:

                  Ron, the ramifications of letting shale die are enormous. That list above — loss of the energy independence narrative. That’s a huge loss. It is the basis for a lot of investment advisors trying to sell the “buy and hold long term” approach (that collects annual expense ratio) despite the smash of 2008/9 still prominent in memories.

                  Odds look pretty good at this point that most job growth since 2007 disappears. Err, jobs, not job growth. There would not seem any way to tolerate that.

                  Now, the buy existing assets meme doesn’t work with wells that are dead by the time the new owner takes possession. There IS precedent for the government or Fed FORCING companies to merge with others that are TBTF. The obvious example is BoA and Countrywide. BoA was told by both Paulsen and Bernanke to buy Countrywide. They had no choice.

                • Watcher says:

                  I just walked away for a bit and gave that some more thought, and I realize we talked about two different things.

                  You are thinking of bailout in the context of saving companies that may go bankrupt. That’s not my perspective. I’m talking about systemic risk. That’s what TBTF means. Saving small companies with big ones (are we talking Exxon here, or EOG?) doesn’t do anything to address the systemic risk. The small company is absorbed into the big company and its debt may get covered (note CLR and EOG are already loaded with debt, they don’t want to absorb more, and they damn sure don’t want to *pay* to absorb more, but FORCED means FORCED).

                  But the small company’s uneconomical wells are still not going to get completed. Those jobs are not going to get paid. The sand isn’t going to be ordered. The systemic risk to GDP and Unemployment won’t have been addressed.

                  One supposes part of FORCED could be “YOU WILL DRILL AND FRACK, EVEN AT A LOSS”, but one would think the Fed or Govt has to fund that.

                  • Mike says:

                    Watcher, I agree with Ron and I’ve said as much a number of times; the shale oil industry will not be “bailed out.”

                    Relying on shale oil to achieve energy independence in the US is physical impossible; wells cannot be manufactured fast enough in sweet spots to offset decline rates and they are already, IMO, running out of room. Energy independence was a myth propagated by the shale oil industry that unfortunately lots of people bought into. It was never going to happen.

                    Conventional resources, thousands of very small stripper well operators like myself, deep water in GOM, shale gas, everything hydrocarbon related will then also have to get “bailed out,” whatever that means. If the oil industry gets bailed out then wind and solar and bio fuels are going to whine for help, more help, too…ain’t gonna happen.

                    I don’t think anybody tells Exxon what to do, least of all the American government. They don’t want those stinking shale wells, I promise you; XTO comes to mind.

                    Mac is correct, the political aspects of a bail out are very complicated. Furthermore, there is a very real, very strong anti-oil sentiment in this country. Americans are not smart enough about oil (ie. peak oil) to accept a bailout of an industry who “FRACKS.” This big blowout underway in Pennsylvania, one or two more groundwater issues in N. Dakota, whatever; Americans will riot over frac’ing. They almost are anyway. Do you think Americans will stand for it’s government to fund it? No way.

                    I don’t think the shale oil industry is too big to fail. Excuse the analogy but shale oil is liking taking Advil for Stage 4 cancer. It was never the cure. Not all jobs created by the LTO business will be lost, not all supporting businesses will fail. There are 15,000 new wells out there that will still keep on producing.

                    The LTO industry needs to sort itself out and this price collapse will see to that. It is a good thing for many reasons. The pace of shale oil development was reckless and ultimately resulted in oversupply that assisted in the collapse of prices. It shot itself in the foot. In the process it shot me and many other conventional producers in the back.

                    This will sort itself out. However, I share your concern for how; the debt those boys piled up is staggering. I think if the shale oil industry stopped drilling wells tomorrow it could still pay that debt off from production revenue. Maybe that is what the FED says to the money boys; make them reduce your debt by 75%, then and only then can you turn them lose again. My guess is that is precisely what is going to happen anyway, without the FED. The shale oil industry will slow its well manufacturing to a crawl and get de leveraged, big time. That will be painful, but necessary; then when prices get higher again they can crank it back up.

                    What I most definitely see happening is significant tax breaks, incentives, higher IDC’s, depletion allowances, other kinds of things coming down the pike to drill more wells in the US, including shale wells. Americans will have to get those kinds of incentives are not subsidies, but at some point in the future it won’t much matter what Americans like or don’t like. They’ll tolerate whatever to be able putter around in their vehicles.

                    Mike

          • oldfarmermac says:

            I personally do not believe in the OVERALL concept of too big too fail although I do believe some banks have gotten so big that their failure could bring down the country – so that much I agree with.

            BUT if such a bank has to be bailed out then there is no reason whatsoever that it cannot be broken up into smaller banks and the bad parts paid off if necessary and if possible with tax money- or printed money. But every stockholder and every executive should be cleaned out of every dime related to the ownership or employment related do that bank. ZERO assets retained by present owners and executives.

            That is only fair to the rest of us and the only message that would get thru to the managers and owners of the NEXT potentially too big to fail business.

            And incidentally the OBAMA administration has failed us miserably – as bad or worse than that fool Romney would have failed us – in terms of prosecuting crooked bankers. Watcher is right about some things and in this case fundamentals such as criminal behavior and responsible management of other peoples assets have been proven not to matter-at least not to the justice department and not to the crooks themselves- although I don’t remember him mentioning crooked bankers in particular.

            • oldfarmermac says:

              Incidentally I do believe that even a repugnant congress and administration might bail out the domestic oil industry. But not anytime real soon. Maybe late next year or in 2016.

              There is a case to be made for doing so that can be sold to redneck conservatives and the well off so called conservatives who own the repugnant party these days don’t generally give a damn about principles such as free enterprise. They only oppose bailouts and handouts that go to their enemies.Any freebies headed their way are perfectly welcome so long as a way can be found to wrap them in the flag and patriotism and describe them as essential to the safety and prosperity of the country.

              I have yet to meet a rock-ribbed redneck conservative who is old enough to get his welfare check who wouldn’t happily take it even if he had never worked a day in his life.

              VIRTUALLY ALL conservatives morph into liberal democrats when they get old enough to start getting the old age goodies insofar as government spending on old folks is concerned. All I ever met anyway. And that is a lot.

              There might have been one or two exceptions among those who have a LOT of money and are thus not at all concerned about their own medical expenses etc.

              • Watcher says:

                Well, somewhat not entirely the point. Yes, the politics of a required bailout would be interesting, but what’s going on here is far past politics.

                The recovery that no one thought/felt was a recovery may now be explained by this earthquake of a jobs breakdown of Texas vs all other states. Shale as a huge contributor to jobs and/or GDP may have been invisible these past 5 years. Oil production is lumped with mining in econometrics. There isn’t even delineation between shale and conventional oil. Oil itself isn’t delineated. It’s all “mining”.

                THAT is the significance here. Not really the mechanism of bailout. It appears that EROEI has now asserted itself in a wide sweeping macro way. With it falling, economies can’t grow. Period. Only oil generates growth. Nothing else.

                That . . . is lethal. Globally.

                • oldfarmermac says:

                  I am personally willing to believe that peak oil may be the final serious cut that out of the death of a thousand cuts brings down the global house of Business As Usual.

                  But if the downside decline is slow enough we might be able to adapt to scarce oil. Tough and chancy affair, that. Not much hope if the decline is steep.

                  At any rate peak oil is only one resource among many running short- although for the moment it is probably the most critical one- the current relatively low price not withstanding.

                  We are in over shoot and even if the tight oil revolution were to spread fast and go global we would still be in overshoot and there is only one solution to that problem known to biologists- a reduction in population.

                  Ours could conceivably come about thru lowered birth rates but much more likely will come about via the Four Horsemen.

                • Ilambiquated says:

                  Job growth is still there…

                  http://www.bls.gov/news.release/empsit.nr0.htm

                  Mining doesn’t even get a mention in the overview. Oil is separated out in this table.

                  http://www.bls.gov/news.release/empsit.t17.htm

                  • Ilambiquated says:

                    This chart shows Texas has had hi growth growth.

                    Total unemployment is pretty low. If I work for 20 years and am out of a job for two 6 month periods in that time, I am 5% unemployed. The US average is 5.8%.

    • SW says:

      It’s the Washington Times for god’s sake and those stats are blindingly predictably highly misleading. The tip off is the word “Net’. Figure it out yourself. It has to do with how deep the holes were and where they were located. It is similar but not exactly the same as why real estate values in Dallas are higher now than they were at the peak of the bubble. Hint: because they never crashed all that far.

      • Watcher says:

        It’s from BLS numbers. And it’s job growth, not job totals. 11% vs negative growth up to September. And . . . there are lots of similar graphs floating around not from the Washington Times. Gail did the original one about jobs from shale states vs all others being far below.

        There is a lot of buttress for this story. Too much for it to be political.

        • SW says:

          I believe that to be incorrect. I read the source.

        • SW says:

          As they say, ‘there are lies, damn lies and statistics’. The way I read the data, the raw growth in service and health care jobs absolutely dwarf the growth in mining and extractive industries which is where oil and gas is located. But if you play games, political games with the data and insert the qualifier Net into the discussion, since oil and gas didn’t really lose any jobs in the worst patch of unemployment since the Great depression, you can say that the Net job growth in oil and gas since the Great recession dominates. The fact that this has been reported in numerous ‘news’ outlets is known as the eco-chamber or the great Werlitzer.

  31. Ronald Walter says:

    The US has allowed medicines and medical supplies to Cuba for sixteen years now. The licensing to provide the procurement for medicines and medical supplies has helped Cuba’s ailing medical system.

    http://www.state.gov/1997-2001-NOPDFS/regions/wha/cuba/medicine_facts.html

    American pig imperialists try to get a foot in the door any way they can and they will. It’s a conspiracy. The murkan touristas that will swamp Havana and buy cigars rolled on the thighs of 17 year old beautiful virgins? The cigars will fly off of the shelves now. har

    If a Bakken well is averaging 4000 barrels per month and there is a 25 percent decline rate in a year’s time, the well will produce 3000 barrels per month beginning day one of year two.

    36 million barrels produced each month will fall to 27 million barrels per month the following year providing all 87 hundred wells remain as such.

    350 days of production, you’ll have a per month drop in production of approximately 83 barrels for a Bakken well. The simple math will suffice.

    83×12=996

    An average of 2.845 barrels per day per well at a decline rate of 25 percent for the first year of production.

  32. dave ranning says:

    happy days!

  33. KC says:

    Hi All – I’ve been following along the discussion here as a lurker. I n particular I’ve been looking at Enno Peters’ curves of the Bakken Field EUR. (And the Eagle Ford as well?) and Jeff Brown’s Export Land Model (ELM). I wonder if either have done any exhibits overlaying the Bakken Field EUR on top of worldwide ELM, or they worldwide peak curve overplayed on the ELM. Maybe it’s ine of those “nothing to see here” exhibits, but I thought it might be an interesting visual, as far as the timeline, perhaps to the year 2025 or 20300, though I have no idea how to generate such an exhibit myself.

  34. Ronald Walter says:

    The Countrywide banker Mozilo walked away with some money. The bank went broke, Angelo Mozilo still has 600 million dollars of net worth. Corzine lost 1.2 billion dollars. Investors were left holding the bag. Jim Cramer was recommending Bear Stearns and two weeks later, it was gone.

    Every Wall Street bank was bankrupt except for one when Paulsen begged Congress for 700 billion dollars. Congress had to fork over the money, otherwise it was teats up for the banks.

    It was in October of 2008, the US Senate voted Wall Street banks a bailout, not let them sink. You throw them a lifeline and save their sorry asses from going broke. The systemic risk is too great to let them fail. Besides, the good senators from all fifty states are not that heartless. Goldman Sachs and JP Morgan were grateful, thanked the US Congress and on Monday morning, they had their coffee and rolls.

    Banks can’t go broke like that, losses don’t count, just profits. The bonuses are then justified.

    Banks too big to fail going broke can’t happen, it didn’t happen, and it won’t happen.

    Oil is by far and away more important than money and it can’t fail, the threat to the system is not only too great, it is devastating, catastrophe waiting to happen. However, it won’t, too big to let it happen.

  35. oldfarmermac says:

    Sometimes I have a hard time deciding when THE JESTER is running wild and when he is spouting out some unspeakable wisdom that the king must hear but won’t hear from any other source- all other possible sources being either unwilling or afraid to bring up the unspeakable wisdom.

    I generally take Watcher’s never ending ” everything is totally manipulated” arguments with a substantial sprinkling of salt and most of Ronald’s as Saturday Night Live tv style commentary on the news.

    But I can see a bailout happening in the oil industry. Not for a while. But within the foreseeable future.

    The current price crash is probably going to result in a wild price rebound to a new sky high level when (and if of course) the world economy gets off it’s crutches and supplemental oxygen.The lack of current investment plus the depletion than never sleeps virtually guarantee a very sharp and prolonged price spike- one that will persist as long as the economy at that future time can support it.

    I am a big believer in adaption-via greater efficiency and change of lifestyle – and in pushing renewables pedal to the metal all the time.

    But I do not believe we will switch to electric vehicles and electric railroads and intermodal freight and quit flying, etc, FAST ENOUGH to prevent another oil crunch. The next one could be very bad indeed taking into account the ELM and possible political complications. Iraq and a couple of other countries could fall into the hands of people who will shut off oil exports as a matter of holy war against the infidels to give a possible example. Religious fanatics are quite capable of such actions even at the expense of their own personal families.

    In such a situation the people of the US would go along with – might even insist on- an emergency level bail out of the domestic oil industry – and given that tight oil is apparently the only oil that can be brought into production in short order- tight oil would get most of the bailout effort.

    It is important to remember that in such a situation there will be millions of out of work people clamoring for a jobs program who will add their political weight to the balance on the side of a bailout- as well as couple of hundred million people who need ( cheaper ) GOD GIVEN CHEAP GASOLINE..

    I forget exactly where in the Constitution it says so but I am sure there is such a right buried in there somewhere- if nowhere else it can be found as whachamacallit- the word will not come to mind – but an emergent property of the Commerce Clause. Sarc light is blinking but very dim.

    • Boomer II says:

      But I can see a bailout happening in the oil industry. Not for a while. But within the foreseeable future.

      I can see several reasons why this might not occur as some here expect.

      1. The new billionaires are in Silicon Valley. I doubt they feel any loyalty to the fossil fuel and related industries. If they start influencing politicians, they most likely will push for government help for other industries instead.

      2. As Mike said, the fracking guys haven’t been helpful for the conventional oil guys. If the conventional oil guys would rather the frackers feel some pain, who is going to push for a frack bailout?

      3. The big factor here might be the Kochs. They seem to be influencing politics more than any other single money source. My understanding is that they have an interest in tar sands and refineries. Does propping up fracking help or hurt them? They claim they are libertarians and don’t want government messing with business, but I don’t believe that. I think they support whatever helps their businesses.

  36. Lloyd says:

    Have been reading Watcher’s thoughts on Too big to fail, and the other threads on whether Saudi and Russia are trying to harm US interests (or just acting in their own, or not even planning at all) and have to raise an alternate viewpoint.

    I don’t think a bail-out is practical, or, if attempted, that it would result in anything useful. A scenario: you guarantee a certain price support for oil from the Bakken. You’ll let every prospect be drilled? Only the ones currently in production? Some kind of lottery for permits? Some kind of quota?

    It’s this last one- Some kind of quota?– that’s the issue. It’s a slippery slope.

    I come from Canada, and from systems like the Milk Marketing Board and the Canadian Wheat Board, quota systems designed to control prices and to maintain the profitability of producers.

    The US has used quota to support oil price in the past – The Railroad Commission of Texas. OPEC modeled itself on the RRC.

    A better bet than a bailout (though still unlikely) is some kind of international quota- maybe global, maybe continental. And if the GOP can blame it on Obama (“he’s a whacky socialist, but he’s the POTUS! We didn’t have a choice!”) the actual and propaganda benefits of quota-induced price support- continued lower imports of oil, employment and GDP effects, national security boilerplate (you can maintain your ability to run the defence machinery, etc.), spreading the cost of imposing the quota to the rest of the world- are quite compelling. If you can work around the fact that it goes against GOP dogma, you’re golden…of course, the fact that the GOP can accept its own dogma in the first place shows how mentally flexible they are.

    -Lloyd

  37. Anonymous says:

    This is so damn profound I think it merits repeating:

    On the basic note of finite resources, back in the Oil Drum days, somebody worked out, that if the earth was a hollow ball full of oil, at 2% growth per year, the world would run out of oil in the 22nd century sometime. Now we just have to work backwards from there.

    Watcher, as for your Titan hydrocarbons…that is a good jape, we all got a good laugh.

    I think that the fact of oil producers moving into producing more and more difficult oil-bearing geologies (tar sands, tight rock formations, deeper off-shore, pre-sal, etc) overtime, which requires more and more energy spent on extraction for the marginal unit of production, is a strong indicator that global peak oil production is coming….when? I don’t know. My feeling has been, ever since ~2005, is that the PO time will occur sometime between 2020 and 2030, but that is just my gut…no science there. I notice that Gail posted a shark-fin oil production chart on her site’s latest article, which shows the roll-off slope happening at 2015. We have seen those kind of charts from circa 2005 and on, usually showing the peak year about a year or two down the road from the date of posting. Unfortunately, these posts give the PO crowd an air of ‘boy crying wolf’…but rest assured, the turning point is coming…just maybe not in 2015. Whenever it happens, the following time will be ‘interesting’.

    • Ilambiquated says:

      The Earth is about 10^21 cubic meters. A barrel is about 0.16 cubic meters. Oil production in 2014 is about 92m bpd.

      92,000,000*0.16*365=5,372,800,000 cubic meters a year. (5bn)

      Put that number in a spreadsheet and multiply by 102% (1.02) repeatedly, and you get the chart below. Years from present is on the horizontal axis. I also added 105% and 108%. (Note: 8E+20 means 8*10^20)

      • Nick G says:

        The thing is, no one (including the most conventional of economists) is assuming infinite exponential growth in commodity consumption.

        US oil consumption is lower now than in 1979, but GDP is 2.5x larger.

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