US Shale Declining and OPEC Still Climbing

There is new data out today. The EIA published their International Petroleum Statistics yesterday. The EIA also published their Drilling Productivity Report which gave their expected shale oil and gas production through September. Then this morning OPEC published their Monthly Oil Marketing Report with OPEC crude only production numbers through July.

First the Drilling Productivity Report. Of course most of the Drilling Productivity Report is projection, not history. And that projection goes through September 2015.

Bakken

The EIA has the Bakken peaking in December and declining 107 thousand barrels per day since that point. A secondary peak was reached in April and declining steadily since then.

Eagle Ford

The EIA has Eagle Ford peaking in March and declining 226 thousand barrels per day since that point.

Niobrara

The EIA has Niobrara peaking in March, almost flat for one month then declining sharply after that for a total decline of 75 thousand barrels per day after that.

The Permian was the only major shale area with no decline so far. The EIA has the Permian up 29 thousand barrels per day since the rest of the field, combined, peaked in April.

Total Shale

The EIA has total shale peaking in April at 5,434000 bpd and declining by 360 thousand barrels per day by September to 5,074000 bpd. 360,000 barrels per day is quite a decline by September.

All EIA data below is through April 2015.

World

The EIA’s International Petroleum Statistics has data only through April, 2015, the month where they have total shale production peaking. World C+C production reached a new peak in April at 79,996,000 barrels per day. It is unlikely that this peak will hold as OPEC production was up 437,000 bpd from April to June.

Non-OPEC

Non-OPEC C+C production peaked in December 2014 at 47,186,000 bpd and had declined by 230,000 bpd by April. I believe this will be the final non-OPEC peak. By the end of the year US production will be down by .5 million barrels per day and the rest of non-OPEC will also be down by at least that amount. And even if higher prices turn US production around the rest of Non-OPEC will continue to decline.

Non-OPEC Less USA

From December to April US production was up 307,000 bpd bun during that same period the rest of non-OPEC production was down 537,000 bpd. It is very likely that this non USA, non-OPEC production decline will accelerate at the very time US production decline is also accelerating.

All OPEC data below is crude only through July 2015.

OPEC 12

OPEC production still increasing through July. OPEC Crude only increased by 101,000 bpd in July to 31,513,000 bpd. That was less than one third the 317,000 bpd increase in June.

Saudi + Iraq

The OPEC increase has all been the Saudi and Iraq show. From January thru July OPEC 12 was up 1,355,000 bpd. During that same period Saudi and Iraq was up 1,384,000 bpd. 

OPEC Less

During that same January thru July period the rest of OPEC was down 29,000 bpd.

Iran

Iranian production is creeping up. They are now just short of 200,000 barrels per day above their low of 2,665,000 bpd of October 2012. Their output now stands at 2,861,000 barrels per day.

Secondary Sources

Here we have OPEC production according to secondary sources as well as OPEC production according to the producing nations themselves. Note that the secondary sources said Saudi was up 39,200 bpd in July while Saudi said their production was down 202,700 bpd in July.

The page OPEC Charts has been updated with the July data. 

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481 Responses to US Shale Declining and OPEC Still Climbing

  1. Jeffrey J. Brown says:

    A new fight over oil shows why it’s so hard to keep Iraq from splintering

    https://www.washingtonpost.com/world/middle_east/a-new-fight-over-oil-shows-why-its-so-hard-to-keep-iraq-from-splintering/2015/08/09/a17fd04e-240a-11e5-b621-b55e495e9b78_story.html

    BAGHDAD — Iraq’s Kurdish region has begun to sell oil independently of the central government, a move that is exacerbating divisions in the country as it struggles to turn back Islamic State militants.

    The Kurdish region last month stopped transferring oil to the state as it had promised to do under a landmark deal in 2014. Kurdish officials argued that payments from Baghdad had not been sufficient. Instead, the region exported more than 600,000 barrels a day itself, Kurdish and Iraqi officials said, a step that Baghdad considers illegal.

    The dispute threatens to widen differences in a country already effectively split into three parts: the Kurdish north, areas in southern and central Iraq controlled by the Shiite-led government, and territory in the north and west seized by the Islamic State.

    The collapse of the oil deal also risks ruining one of the key achievements of Prime Minister Haider al-Abadi, who was credited with improving relations with the Kurds after years of acrimony. “It’s a crisis,” said Arez Abdullah, a Kurd who heads the Iraqi parliament’s oil committee. “In reality, neither side is committed, and they are exchanging accusations.”

  2. Glenn Stehle says:

    Fascinating! Who wudda thunk it?

    It’s pretty obvious by now, at least to anybody paying attention, that the US is locked in an economic war with Saudi Arabia and Russia.

    But maybe Saudi Arabia isn’t down for the count just yet, as the US’s #1 war propaganist, Ambrose Evans-Prichard, would have us believe?

    The latest war propaganda from team USA:

    “The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn….

    If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. “It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run,” said the Saudi central bank in its latest stability report….

    By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.

    Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments.

    The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year – and not only by switching tactically to high-yielding wells….

    “There was a strong expectation that the US system would crash. It hasn’t,” said Atul Arya, from IHS….

    IHS said an astonishing thing is happening as frackers keep discovering cleverer ways to extract oil, and switch tactically to better wells. Costs may plummet by 45pc this year, and by 60pc to 70pc before the end of 2016. “Break-even prices are going down across the board,” said the group’s Raoul LeBlanc….

    IHS said shale is so competitive that it may “take off” again early next year after troughing in the fourth quarter, adding 500,000 b/d in 2016. “It could crowd out other parts of the world. In the long run the US could get a bigger share of the pie,” said Mr LeBlanc.

    http://www.telegraph.co.uk/finance/oilprices/11768136/Saudi-Arabia-may-go-broke-before-the-US-oil-industry-buckles.html

    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11556531/Oil-slump-may-deepen-as-US-shale-fights-Opec-to-a-standstill.html

    • I see the squeeze aimed at Russia. It’s the Saudis and the USA government. In other words, it’s a neocon type project. I also suspect the Saudis have enough influence within the OPEC bureaucracy to make it publish “funny looking” production statistics.

      For example, the outside source production for Venezuela is oscillating around the same value. But everything I heard says production is going down, by now it’s about 2.1 mmbopd. Venezuela oil production is a bit hard to figure out, because they are importing crude oils and gasoline components. This allows them to load an export stream that’s inflated by imports being blended with the country’s production.

      • Glenn Stehle says:

        It’s difficult to know who threw down the gauntlet, or who is playing footsie with who.

        But one thing is sure. Given Russia’s rejection of Saudi Arabia’s repeated offers to cut oil production if Russia would do the same, Russia has certainly decided to take up the gauntlet.

        We’ll see whose oil and gas production suffers the most, whether it be Russia’s or the US’s. This is the criteria by which “the winner” in this tussle will be determined. (All sides will of course lose in absolute terms, as in all wars.)

        So far Russia’s production, as well as Putin’s popularity (which has soared to all-time highs) have proven quite resilient. Time alone, though, will tell, and we’ll see whose oil production cracks first.

  3. Javier says:

    So Saudi Arabia has replaced North American shale and sand oil as the oil production increase that is preventing Peak Oil from taking place. Funny we still read headlines that US is winning the oil war. Reminds me of the Argentinian press news on how they were winning the Falckland Island war.

    So the question is if Saudi Arabia can keep increasing enough its oil production during the rest of 2015 to compensate for global decline.

    I would think not. The low prices are accelerating the reduction in production globally as time passes. Although we can think that Saudi Arabia can increase its production, it is hard to think that it will increase it in an accelerated way. Already Saudi Arabia spare capacity is all but gone.

    • Arceus says:

      It’s difficult to understand the Saudi strategy. When the rest of the world is cutting production, why max out production so that the oil can be sold at a lower price? The only reason that makes sense to me is that a conflict is immiment in the Middle East, or the House of Saud doubts they will be in power much longer.

      • Javier says:

        Even if the price is reduced, it is still true that the more you sell the more income you make. Plus the more you sell the less your rivals sell and the smaller their income.

        To me their tactics make sense. During the 86 oil glut they cut production and suffered enormously because of lost market share. This time they are going after the market share no matter the price. They have cheap-to-produce oil and huge monetary reserves. They think they’ll be the last one standing.

        • AlexS says:

          I also think that the Saudi strategy is quite understandable. The rest of the world is NOT cutting production. Some countries have declining oil production due to natural declines, temporary outages or political instability, but not as a result of deliberate output cuts. Others have stable ot even increasing production.
          If the Saudis cut production by, 1-2 mb/d, that would have a temporary effect on oil prices, but would also stimulate more drilling by the U.S. shale companies and more LTO production. Ultimately, prices will drop again, but the Saudi market share would be lost to the U.S. competitors.
          Nobody wins in this price war, all producers are suffering. But those who deliberately cut production would suffer not only from low prices, but also from decreasing market share and sales volumes.

        • Glenn Stehle says:

          But what about 2009?

          How do you explain that the Saudis followed a completely different strategy now than they did in 2009?

        • Arceus says:

          >>Even if the price is reduced, it is still true that the more you sell the more income you make. Plus the more you sell the less your rivals sell and the smaller their income.

          Thanks for the reply, but this does not make sense. Would a rational businessman rather sell 10 million barrels of oil at $60 or 11 million barrels of oil at $43? And frankly, I’ve never bought the “market share” excuse either. Having spent considerable time overseas, and having dealt with various cultures, the “market share” comment always struck me as a convenient fallback excuse the Saudis agreed to use to conceal their actual strategy.

          It’s entirely possible, the Saudis are now not being rational. Perhaps pride is involved. Perhaps they can not admit their strategy is not working as they thought it would. Perhaps they take too much pride in being the top oil producer. Or perhaps, they know something most of us do not and in that case know exactly what they are doing.

          • Javier says:

            The oil market is not every businessman market. As AlexS explained any unilateral cuts from the Saudis will work in the shale industry advantage and in Saudi disadvantage. It will result in the Saudis selling less oil and the rest selling the oil that the Saudis cut. This is a nightmare scenario for the Saudis, and they have already been there during the big oil glut of 1986. They can only cut production if they keep market share and control. They cannot cut production to lose market share and control.

          • Glenn Stehle says:

            Could it be that the Saudis and Russians aren’t hunting squirrels, but have an elephant in their sights?

            Maybe the real target of the Saudis and the Russians is dollar hegemony?

            If one looks at the record of meetings between Russia and the Saudis, the Saudis don’t seem to make any decisions before meeting with the Russians first:

            https://www.youtube.com/watch?v=40Y-BgCBnHY

            https://www.youtube.com/watch?v=gYqDLE4Jcac

            Of course we are not privy to these meetings or what is said and discussed, so we can only speculate as to what is really going on.

            • Arceus says:

              Yes, I think you may be on to something there…

            • DuaneX says:

              So far the USD is only getting stronger. If that was the target, and I doubt it, the gun blew up.

              • Glenn Stehle says:

                Whether one speaks of the mercantilitst strategies of China and Germany, which of course entail the devaluation of their currencies relative to the dollar, or the current oil price war between Saudi Arabia and Russia and the US, the objective seems to be the same: to destroy the productive might of the United States.

                In the long run — it is important to remember that it is only in the long run — the inexorable force of the quantity theory of money seems to invariably come into play.

                Can you name one single global hegemonic empire since the advent of capitalism, some five or six centuries ago, which has managed to retain its financial dominance once its productive dominance has been lost?

        • They lost market share but they retained something more important- their outright ownership of the country and the good will of the only country willing to guarantee their title – the USA.

          • Glenn Stehle says:

            Maybe the Saudi royals are beginning to have second thoughts about whether their deus absconditus is as omnipotent and all-powerful as it claims to be?

            Maybe the Saudi royals are being to doubt whether Uncle Sam’s potentia absoluta is all it’s cracked up to be?

            • Uncle’s right arm is plenty strong to keep the Saudis on their throne but I can see that they might have some recent worrisome doubts about his trustworthiness and willingness to stick around when the going gets tough.

              Our problem is that we want to fight quickly and then be nice to the loser. We helped restore Germany and Japan after WWII and TRIED to help Iraq move ahead after kicking out Saddam Hussein.

              But in a country that has long been under the rule of men rather than the rule of law… you can’t just turn things over to the men again. It takes generations for the rule of law to establish deep roots. It takes only a year or two for the bad guys to seize control again when we pull out- assuming we even left good guys more or less in control.

              There is little chance we will ever keep actively engaged troops on the ground in Sand Country except as a last resort to keep the oil flowing. As soon as things calm down a bit we want them back home again.

              Rinse and repeat.

              I doubt the Saudis are willing to hitch their national wagon to the Russian bear under any circumstances if they can possibly avoid doing so – but they will perhaps play ball with the Bear for limited business purposes.

              We have plenty of people even in a forum such as this one who are totally convinced that the USA is Satan’s right hand man but we have never occupied a country and built a wall around it to keep the people IN.

              The Saudis are not stupid. If they cannot depend on us and our close friends then they are looking at going it alone.

              Their relatively impoverished but large and potentially powerful neighbors are NOT their friends.

              Sand Country is Old Testament country, the sort of place where people routinely start wars for no more reason than they think they can win them and live on the proceeds of victory. And for the Glory of Allah etc.

              ( This is not to say modern western countries have behaved any better in historical terms but we modern westerners don’t make a HABIT of starting wars in recent decades.)

              Actually the Saudis have plenty of reason to want to hurt the Russians due to their siding with the Iranians.

              I am sticking with my own analysis, that the Obumbler administration and the rest of official Washington left and right could care less about the domestic oil industry given the shaky state of the economy.

              Low oil prices are one of the best available tonics for the economic flu.

              The Saudis in my estimation are playing ball with Uncle Sam to an extent not apparently recognized by anybody other than myself, at least in this forum. Of course there are plenty of other reasons for them not to cut production. I have listed most of them here in recent days. So have numerous others.

              It is not uncommon for people and countries having relationship difficulties to fight in public but cooperate in private when compelled to do so by necessity.

              The ENTIRE world economy is at high risk of collapse right now.

              The Saudis have ample numbers of the very best qualified people on their payrolls including sons of the family trained at the finest western universities in economics and finance etc.

              MAYBE -JUST MAYBE – they think they are serving their own best interest by selling oil cheap for a year or two and thus reducing the short term risk of a devastating world wide depression.

              That might cost them more than they are losing now by selling cheap for a while. It might cost them their country and maybe their very lives in some cases in the event of a hot resources war breaking out and escalating out of control.

              The idea that they can destroy the American tight oil industry is utmost foolishness in my estimation. Tight oil will be back in a matter of months once the price of oil goes up again. The only way anybody can DESTROY tight oil is to buy up the mineral rights and sit on them.

              The best or worst depending on the point of view they can do is bankrupt the current companies working the tight oil fields.

              The men will still be around, the equipment will still be in lay down yards somewhere not too far away. The exploration is done and the roads are built and the pipelines are in place. The regulatory apparatus is in place, the housing is in place.

              There are plenty of people and organizations around with money enough to drill a few ten million dollar wells without borrowing a dime. Once they are making money the lenders will be back too.

              Oil cannot and will not stay cheap very long in the face of depletion, capex cut to the bone , and growing population unless the world economy goes continuously downhill.

              Of course for people in the industry even a year is a VERY long time. Hopefully most of the ones who have been doing ok for the last decade didn’t spend ALL the money they have made on new trucks and easy living.

              Farmers who make it thru a lifetime learn early watching their daddies to pay down the big debts and save as much as possible in good years because the bad years are as sure as the seasons coming at random intervals, sometimes three or four in a row.

              Who thinks the Saudis are planning to PERMANENTLY sell oil dirt cheap just to keep American tight oil off the market? OR any other oil for that matter ?

              They aren’t even going to slow down the alternative energy industry to any REAL extent. The sale of electric cars is lagging because gasoline is dirt cheap but the research labs all over the world are still working around the clock on a hundred different fronts to bring super duper batteries and fuel cells and super light materials etc etc to market.

              The longer these new technologies incubate in the research lab the faster they will succeed when they DO make it to market.

              If there had been no impetus to develop solar cells due to high energy prices the various scientists working on the basic science involved would have kept right on working on it albeit at a relatively leisurely pace .

              • Arceus says:

                >> The idea that they can destroy the American tight oil industry is utmost foolishness in my estimation. Tight oil will be back in a matter of months once the price of oil goes up again.

                You may be right. Or not. I think you underestimate the damage a few years of $40 oil will do to the tight oil industry in the U.S. Up to 80% of current workers may leave the industry, find other jobs in something less unpredictable, never to return. Companies will be down-sized. Many, many future petroleum engineers, already worried about the shift to alternative energy, will never graduate much less enter the industry. Much of the essential infrastructure will never be built out, and once active oil fields will fall into disarray. Will the coal industry of Appalachia revive itself if the price of coal eventually rises? Probably not.

                • You don’t need petro engineers to operate a drill rig or lay a pipeline. And I might be wrong but I believe nearly all the jobs involved in running a drill rig , excepting the BOSS job , can be learned in short order by intelligent men who are motivated by high pay.

                  Folks who work outside the trades seldom understand the EXTENT to which the skills involved overlap. The basic skills are common to all trades. The next level up involves reading drawings etc. If you can read a building blueprint you are eighty percent of the way to reading welding blue prints. Safety training is much the same across the board in all trades. Being a world class rolling stone I have worked at a journeyman level in construction, mechanics, welding, and operation of heavy equipment.

                  Between times I played around on the farm spending the money I made doing other things.

                  Most of my life you could get hired on as a mechanic , welder, trucker or construction jack of all trades on the basis of a quick interview and maybe the boss making two quick phone calls. Start today or tomorrow.

                  So I could quit when I pleased and go back to work when I pleased. Sometimes I quit on a whim to spend a few days fishing with old buddies or shacking up with a new girlfriend. I generally found a suitable new job within two or three days once I started looking.

                  Those days are LONG GONE. 🙁

                  They will never be back.

                  Achieving journeyman status as an auto mechanic from scratch takes maybe four years max. If you know auto mechanics you can make journeyman truck diesel mechanic in a year. If you grew up driving trucks on a farm you can make journeyman trucker in a couple of months. I could pass as a journeyman level painter without ever having worked as a painter in my life. Learned that on odd days when SOMEBODY had to pitch in and help the real painters catch up.

                  For sure there will be no shortage at all of heavy equipment operators, welders ( welding takes a while to learn ) cooks, truck drivers, accountants, laborers etc. Top dollar wages will get the ESSENTIAL men back. It won’t take long for ENOUGH of them to return to train new guys.

                  The overall economy in my opinion for a ton of reasons is going to be sluggish from here on out.

                  ONE REALLY good guy made straw boss can keep anywhere from two to six ok guys on the straight and narrow in trade work.

                  • Glenn Stehle says:

                    We get it, Old farmer mac.

                    You’re on the same yell team as Ambrose Evans-Pritchard.

                    USA! USA! USA!

                    To wit, here’s Evans-Pritchard attempt at moving the goal posts:

                    “Until now, shale drillers have been cushioned by hedging contracts. The stress test will come over coming months as these expire. But even if scores of over-leveraged wild-catters go bankrupt as funding dries up, it will not do OPEC any good.

                    The wells will still be there. The technology and infrastructure will still be there. Stronger companies will mop up on the cheap, taking over the operations. Once oil climbs back to $60 or even $55 – since the threshold keeps falling – they will crank up production almost instantly.

                    OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output.”

                    http://www.telegraph.co.uk/finance/oilprices/11768136/Saudi-Arabia-may-go-broke-before-the-US-oil-industry-buckles.html

                    The Saudis will need to keep oil prices low for at least through 2016 in order to inflict serious damage on the US oil industry, and the investors who bet on the industry. After that, we will see how quickly the US industry and its investors can recover from these wounds.

                    Personally, if the Saudis do decide to keep the pressure on through 2016, I don’t see investors lining up to invest in domestic oil ventures again, or any high-cost oil production ventures as far as that goes, with the knowledge that Saudi Arabia can wipe them out again if it wants to. It’s going to be difficult to get those animal spirits going again.

                  • shallow sand says:

                    If future US oil and gas projects require more of a down payment (cash) than they have since the shale boom started, there will be far less of them and production will fall.

                  • Richard says:

                    Farmer,
                    True about rig hands, but reservoir and completion engineers, geologists, geophysicists…not true. You don’t need drilling hands let alone rigs if G&G aren’t developing drillable prospects. Yes, my conventional background shows. And true, with shale once the field is identified you don’t need G&G. But yo DO need engineers.

                    A lot of people don’t realize the talent pool problem in this industry. There are few replacements when the older guys hang it up in a few years. I am a rarity being a geophysicist and only in my mid forties.

                    All these cuts could come back with a vengeance.

                  • Mac, I guess it depends on the rig, the well, the pressures, how fast you want to go, how many people you want to hurt, and how much oil you want from the well. I prefer everybody to have at least five years experience. The rookies get to wear a special color hat to let the others know they don’t know what they are doing. I also like to check their “x years without injury” tags. Anyway, it’s just a consideration. I prefer to pay more and get better and safer workers.

                • ezrydermike says:

                  where were all the LTO crews working 10 years ago?

                  • Ten years ago they were ALMOST EVERY ONE OF THEM working at some other trade or profession and had to be trained to do tight oil by the handful of self trained pros in tight oil- who no doubt mostly were experienced conventional guys when they moved into tight oil.

                    Now if we were talking five or ten years down the road, a hell of a lot of these people REALLY WOULD be retired or would have really found good jobs in other professions.

                    But my guess is that oil prices will be high enough for the tight oil guys to be back at work within three years.

                    Most of the regulars here seem to think oil will go up again within this time frame too, or sooner.

                    If you have to work with green hands, you slow down and work with them. If it takes an extra week to drill a well , so what- so long as you are getting a cheap rate on the rig and everything else because business is STILL SLOW.

                    It will take the competition an extra week as well. You can still make money if the price of oil is high enough. If it is not then you will not restart operations.

                    You get really good help by robbing it from other companies. I may be altogether wrong but I think anybody who is a qualified hands on journeyman oil guy who comes from a conventional oil background will get up to speed in tight oil in maybe a year at most.

                    I don’t really have any idea how many engineers it takes to run a tight oil operation but probably not very many considering the biggest part of the exploration work seems to have been done already. Do you REALLY need an engineer to set up a rig and drill a well? Does he have to be on site or can he supervise from a remote location? Is he needed around the clock or can he just check in every four hours?

                    Fernando, how did you get guys with a minimum of five years experience ?I can tell you- you offered them a better deal than the competition.

                    Your competition somehow managed to stay in business using a lot of less experienced help though, did it not?

                    If I am still around, and this blog is still around, in three years we will know whether the tight oil industry is unable to expand due to a lack of good help.

                    I am ready to place small bets if any regular will consent to hold the money.

                    Now as to how long the industry will LAST- I expect any given tight oil field to peak in only a decade or maybe two , judging from what I read here.

                    Maybe there will be new places to move to- maybe not.

                    Shell is not exploring up near the North Pole just for the fun of it.

                    I don’t hear much about potential tight oil hot spots outside the ones mentioned so often here.

                    If I am wrong then I will laugh with all you guys laughing at me.

                  • Mac, I use the term “rig spread”. This includes all the variable costs we incur when drilling and completing a rig (excluding high cost operations such as logging and perforating). A typical variable rate can range from $30,000 per day to $150,000 per day.

                    Low quality personnel can cause delays which cost a ton of money. But they can also get people killed. And that’s not acceptable.

      • Danlxyz says:

        Maybe the Saudis want to maintain their exports to supply their customers but need extra production for their needs at home i.e. air conditioning in the summer. If that is the case they will lower production in the fall.

      • Anon says:

        Because it will destroy the US producers for years. Saudi oil itself still makes money at these prices. Their national budget doesn’t but they have other ways of covering that. Each barrel of oil sold still net brings in money.

        Shale…ha, no. ~ $30 in NoDak sustained is twice as bad as anyone thought it could get. And they’re out of hedges.

        • Glenn Stehle says:

          The current crop of oil men remind me of the two Aggies who were in the watermelon selling business.

          They were buying watermelons for a buck and selling them for six bits.

          First Aggie: I can’t figure out why we’re losing money.

          Second Aggie: I can. We lack volume. What we need to do is take out a loan so we can buy a bigger truck.

      • Arceus, either they have an agreement with the USA to reduce prices and break Russia, or they need this production to produce gas and generate electricity. It’s summer time and the AC demand must be very high? The third alternative is a move to beat down on the unconventional and marginal oil producers (and their lenders). They may wish to have some of them go bankrupt. A fourth alternative blends all three. They see so many advantages at this point on several fronts they’ll keep it up for a few months. If gas is a key reason then we should see Saudi Arabia cut production in late September.

    • Glenn Stehle says:

      Javier,

      Nick Cunningham reports:

      “The International Energy Agency (IEA) predicted in its July oil market report that oil demand will hit 94.97 million barrels per day (mb/d) by the end of the year, a nearly 2 mb/d jump from the second quarter. Demand will increase in 2016 as well – the IEA says by another 1.2 mb/d.”

      http://oilprice.com/Energy/Oil-Prices/Bullish-Bets-On-Oil-Go-Sour.html

      Recent reports out of China seem to indicate China is not going to crash and burn anytime soon, which would have a deleterious effect on oil demand :

      “The commodity crash may feel as if Armageddon has arrived but it is, in reality, the tail-end of China’s hard landing, compounded by Saudi Arabia’s political decision to flood the global crude market….

      It hard to know whether premier Li Keqiang misjudged China’s hard-landing earlier this year. The Politburo is deliberately trying to deflate the country’s $26 trillion credit bubble – up from $9 trillion in early 2009 – knowing that stimulus-as-usual is becomes more dangerous with each stop-go mini-cycle….

      The authorities were slow to respond to multiple shocks but they have finally get their bond market off the ground. Local entities are issuing securities at a pace of $130bn a month, amounting to a shot of stimulus. Real borrowing costs have halved since late last year….

      It is not a return to the manic uber-stimulus of the boom years, but it is unlikely that China will spiral deeper into its slump over coming months.

      http://www.telegraph.co.uk/finance/economics/11782568/Day-of-reckoning-postponed-as-global-recovery-builds.html

      Meanwhile, dissidents like Euan Mearns are predicting US oil production to fall by 830,000 barrels by the end of the year.

      http://oilprice.com/Energy/Oil-Prices/When-Will-Oil-Prices-Turn-Around.html

      Mark me up in the dissident school.

      • AlexS says:

        “Meanwhile, dissidents like Euan Mearns are predicting US oil production to fall by 830,000 barrels by the end of the year.”

        The EIA is predicting US oil production to fall by 630 kb/d by the end of the year and by
        926 kb/d by August 2016.

        • Glenn Stehle says:

          And then, in the last quarter of 2016, the EIA is predicting US producton to rebound to just a tad shy of 2015 highs.

          All this by the magic of the hallowed ” US shale oil revolution,” I suppose.

          http://oilprice.com/Energy/Oil-Prices/When-Will-Oil-Prices-Turn-Around.html

          • AlexS says:

            Arthur Berman uses data from July STEO. The latest EIA STEO issued today predicts December 2016 production 350kb/d below March 2015 levels

            • Glenn Stehle says:

              So the EIA finally decided that it can no longer play a role in sustaining the myth of the great US shale revolution, that the gap between fantasy and reality is just too wide, and threw in the towel?

              What does that tell you about the EIA?

              • AlexS says:

                They have significantly reduced oil price forecast

                WTI oil price forecasts ($/b) : EIA STEO August 2015 vs. July 2015

                • Glenn Stehle says:

                  But the EIA still clings to the belief that, as your graph below shows, US oil production will stage a recovery in the last quater of 2016.

                  And this, in turn, is based on what? The belief that shale oil drilling activiy will take off once again when oil prices rise above $55?

                  Various industry cheerleaders are claiming to have already reduced drilling and completion costs for shale oil wells by 50%, and can reduce those costs another 30% in 2016. “We’ve driven down drilling costs by 50pc, and we can see another 30pc ahead,” said John Hess, head of the Hess Corporation.
                  http://www.telegraph.co.uk/finance/oilprices/11768136/Saudi-Arabia-may-go-broke-before-the-US-oil-industry-buckles.html

                  IHS, whose executives have been some of the key players in crafting US global energy policy, are chanting the same chant.

                  But if one takes a peek at, for instance, Pioneer Resources’ Q2 financials, which is hardly free of exaggerations and industry boosterism itself, it claims to have reduced drilling costs by only 20% to 25%.

                  In addition, Pioneer is touting only a 17% reduction in lease operating cost, most of which, by the way, can be explained by reductions in wellhead severance taxes.

                  http://investors.pxd.com/phoenix.zhtml?c=90959&p=irol-presentations

                  So shale oil companies can drill a well for $3 or $4 million in 2016 that it cost $10 million to drill in 2014, $3 or $4 million being the cost that would be needed, at $55 oil, to make these drilling ventures economically viable?

                  When donkeys fly!

                  It’s pretty clear that the EIA is still heavily influenced by industry and American exceptionalist cheerleading.

    • Glenn Stehle says:

      Javier,

      And some are claiming that at current production rates, OPEC spare capacity is hovering around only a couple of million bopd.

      If demand continues to surge and US production does indeed fall by 830,000 bopd by the end of the year, the current glut of oil could end pretty quickly.

      http://www.reuters.com/article/2015/04/15/oil-opec-buffer-idUSL5N0XC3MD20150415

      • Javier says:

        Glenn,

        My crystal ball is not working, so I have to make use of reasoning only.

        A. Supply side
        -Increase: Saudi Arabia, Iraq and Iran may still have room to increase production. Libya is an unknown.
        -Decrease: Essentially all the rest. US Shale, Canadian sands, Venezuela, North Sea and perhaps Russia. To the decline we have to add supply destruction from low prices.
        -Unknown: Storage capacity. If it starts running short its price will increase and supply will have to abruptly be adjusted to demand. No oil can be extracted that cannot be sold or stored. At low oil prices storage capacity build up does not make sense.
        -Conclusion: Oil supply has limited upward momentum and significant downward momentum. I think it will come down in a question of a few months at most.

        B. Demand side:
        -Increase: Relatively low prices are certainly a positive. If the global economy recovers from the soft spot demand should increase.
        -Decrease: Leading indicators, trade, forex all suggest the economy is so far worsening and the economic cycle is mature. Commodity countries are about to enter recession. A global recession is a real possibility in the next months. An interest rate hike by the FED is also a negative.
        -Unknown: The stock market is tremendously overvalued and losing its risk appetite. A stock crash would precipitate a recession.
        -Conclusion: The risks are high and demand recovery depends on economic recovery. The probabilities are on the side of a weak demand due to poor economic conditions.

        So even though anything can happen, I believe chances are that over the next 6-12 months we will see a production decline but the demand is also likely to decline and depressed oil prices will be the least of our problems.

      • Hi Glen Steele ,

        I am not on the USA one! USA one ! cheerleading squad.

        I am just a white haired bunged up OLD observer of reality who has worked in the trades beginning in the early sixties as a part-time equipment operator while in university and continuing thru today, off and on.

        I shut down the commercial part of the farm recently and am now remodeling three old houses two hours at a time, twice a day, that I bought to fix up as rentals. I pass as a carpenter, drywall hanger and finisher, painter, plumber , and electrician to the entire satisfaction of the building inspector. I hired the flooring done due to not liking to be on my creaky old knees anymore.

        Jobs in the trades come and go cyclically.

        There are ALWAYS enough old guys around to get the wheels turning again with new guys, no matter the trade.

        All the talk , ONE HUNDRED PERCENT OF IT, about lack of skilled help has always in my experience been industry bullshit put out by employers wanting four guys to show up for two openings so as to keep wages down.

        Tight oil will come back quickly once the price of oil gets high enough and stays high enough to convince people there is money in it. Tight oil is not going to be a scratch job like bringing on a new field entirely which the pros here tell me takes eight to ten years in total.

        From what I read here and elsewhere a permit can be had in North Dakota in a matter of days or weeks and a mothballed drilling rig moved onsite in less than a month and work started immediately assuming roads are in. There are plenty of roads already in. There are plenty of men out of work who will be GLAD to go back to making high five incomes rather than getting by doing whatever they can find other wise.

        MY ARGUMENT is that times are slow and will remain slow and therefore good help will be easy to find for years to come if high wages are offered.

        YOU otoh are making the USA !USA! argument by saying the guys who lose jobs in the oil fields will find something else so good they cannot be hired back with an offer offer of a raise and a bonus.

  4. grs says:

    Record high production into record high stockpiles at record low prices. Preparation for war?

  5. AlexS says:

    Meanwhile, Bentek says that U.S. LTO production was still growing in June:

    Shale oil production in Bakken, Eagle Ford grew slightly in June

    August 3, 2015
    http://www.ogfj.com/articles/2015/08/shale-oil-production-in-bakken-eagle-ford-grew-slightly-in-june.html

    Oil production from the Bakken and Eagle Ford shale plays increased marginally in June vs. May, according to Bentek Energy, an analytics and forecasting unit of Platts.
    Oil production from the Eagle Ford shale basin in Texas remained strong in June, jumping 18,000 barrels per day (b/d), or less than 1%, vs. May, the latest analysis showed. This marked the fourth consecutive month of production growth, albeit small, since February when production dipped nearly 10,000 b/d month on month. Meanwhile, crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin remained relatively flat, increasing 6000 barrels b/d, or less than 1% in June vs. May.
    The average oil production from the South Texas, Eagle Ford basin last month was 1.6 million barrels per day. On a year-over-year basis, that is up almost 240,000 incremental barrels per day, or about 17% higher than June 2014, according to Sami Yahya, Bentek energy analyst. The average crude oil production from the North Dakota section of the Bakken in June was 1.2 million b/d, or up nearly 100,000 b/d from year ago levels.
    “It is astonishing to see what producers in the Eagle Ford and Bakken shale basins are accomplishing despite dwindling rig count numbers,” Yahya said. “Rig count in the Eagle Ford basin decreased by roughly 65% from a year ago, from 233 in June 2014 to the 105 active rigs today. And yet, production is almost a quarter of a million barrels per day more.”
    Similar trend is observed in the Bakken shale, where rig count dipped about 50% from approximately 160 rigs last year to the current 80 active rigs, Yahya noted. In the Bakken, too, production is up about a hundred thousand barrels per day, he said.
    The contradictory relationship between rig count decline and production growth speaks volumes to the efficiency gains producers have achieved over the past year.
    “Gains in efficiency have been swept every facet of the drilling and production operations,” Yahya said. “Drill times have been reduced on averaged by three to five days in most of the major shale plays in the country. As well, producers are continuing to focus more on their more productive acreages, where initial production (IP) rates are higher.”
    Bentek analysis shows that from June 2014 to June 2015, total US crude oil production has increased by about 750,000 b/d.
    It’s a different story for prices, noted Luciano Battistini, Platts managing editor of Americas crude. “The price recovery oil producers were hoping for has been delayed as the massively oversupplied oil complex continues to pressure prices. Eagle Ford crossed the $65 per barrel (/b) mark on June 11 and has been sliding since,” Battistini said. “Bakken prices at the Williston basin, however, ranged between $55/b and $60/b from the end of April to end of June, showing resilience.”
    The Platts Eagle Ford Marker, a daily price assessment launched in October 2012 and reflecting the value of oil out of the Eagle Ford shale formation in South Texas, has increased 31% between January and June, with an average price of $57.56/b for the first six months of 2015. But it is down 41% from year-ago levels. The marker has ranged between $46.22/b and $66.23/b since the beginning of this year.
    The price of oil out of the Bakken formation at Williston, North Dakota, was up 44% between January and June, with an average price of $49.31/b for the first six months of 2015, according to the Platts Bakken assessment. Platts Bakken, however, is down 40% when compared to last year’s corresponding month. The wellhead assessment has ranged between $37.67/b and $59.32/b since the beginning of January.
    The Platts Bakken, introduced April 22, 2014, is a daily assessment of price for oil closest to the wellhead prior to determination of transportation by rail or pipe. The assessment reflects a sulfur content of 0.2% or less and an American Petroleum Institute (API) gravity of 42 or less, similar to the nature of North Dakota Light Sweet crude. The Platts Eagle Ford Marker reflects the value of a median 47-API Eagle Ford crude barrel, based on the crude’s product yields and Platts product price assessments, adjusted for US Gulf Coast logistics.
    —————————————
    My comment:
    Bentek says that EF rig count decreased from 233 in June 2014 to 105 active rigs today.
    For comparison, Baker Hughes data shows a decline from 210 to 73 rigs.
    The reason is that Baker Hugues data for EF covers 14 core counties in Texas, while other sources include a larger area. For example, this source http://eaglefordshale.com/news/eagle-ford-rig-count-at-112/
    includes 30 counties to its EFS rig count

    • Arceus says:

      Astonishing. Can only guess all producers are resigned to the fact oil is going much lower and so will pump and sell as much as they can while the price is relatively high. And whether their belief is true or not, it doesn’t really matter – their actions enable it to be a self-fulfilling prophecy.

      • AlexS says:

        What is the alternative: 1) unilateral cuts by some producers (see Javier’s and my own comments above) or 2) a cartel-like agreement between OPEC and non-OPEC producers, including hundreds of U.S. independents?

        • AlexS says:

          Output cuts make sense only if low oil prices are due to temporary (cyclical) declines in demand, like in 1998-99 and late 2008 – 2009.
          If lower oil prices are due to secular trends in oil production, like in the 80s or now, unilateral cuts in production are self-defeating strategy.
          The best cure against low oil prices are low oil prices

          • Glenn Stehle says:

            AlexS: “If lower oil prices are due to secular trends in oil production, like in the 80s or now….”

            Personally, despite all the hype coming out of the US oil industry, I believe the US’s “great shale revolution” is a flash in the pan.

            The next few months will tell, and we’ll know soon enough if the great shale miracle was reality or fantasy.

        • Javier says:

          As I see it, the increase in production above the increase in demand that has brought about the price collapse is likely going to bring forward Peak Oil a few years from the future.

          This is such an important and serious matter for the world that the UN and world leaders should be sponsoring your number 2 alternative: A global agreement on oil production and export quotas to stabilize the oil market and the global economy as we orderly transition as much as possible to other sources of energy.

          By not doing it and keep silent about this problem while touting climate change, they are making sure that a global solution is not found. The price to pay will be unaffordable.

          • AlexS says:

            Javier,

            a multilateral agreement on fixing oil prices is wishful thinking:
            1) too many parts are involved
            2) how can you force private and publicly-traded companies to cut output?
            3) UN and other international organizations have no mandate to regulate markets. They also proved inefficient in resolving much easier issues.
            4) cartel agreements are illegal in most countries.
            5) There would be fierce opposition from oil consuming industries

            I’m not saying that free market can fix all the problems. But in this case I think that only market forces – steady growth in global demand (1.1-1.4 mb/d per year) and slowing or declining output from all sources (with few potential exceptions, like Iran and Iraq) will ultimately change the current situation in the oil market. And it will take not 15 years, like in the 80s-90s, but only 2-3 years to return to price levels acceptable to the majority of producers ($75-80).

            • Arceus says:

              The big unanswered question is why the Saudis abandoned their role as “swing” producer. The role of “swing producer” has generally worked to their advantage. They could increase production when oil demand (and oil prices) were high, and decrease production when oil demand (and oil prices) were low. The shale tight oil producers are really just minor players with limited resources. Why did the Saudis abandon their long-time role of swing producer? I’m sorry, but “market share” is not the reason.

              • Jimmy says:

                I don’t understand why people expect a low cost producer to play the role of swing producer so higher cost producers can stay profitable. It’s also not very “capitalistic”. Expecting a producer of product with low costs of production to cut production so the competition with higher production costs can stay in the game makes no sense.

                • Arceus says:

                  >>I don’t understand why people expect a low cost producer to play the role of swing producer

                  Yes, well we are talking about Saudi Arabia here. The Saudis are in a unique situation to play the important role of “swing producer.” It is a role only they can play. But before I get into that, it helps to remember that Saudis are very few in number and filthy rich in a world that is very, very poor by comparison. Historically, the Saudis exist due to the benevolence of others, particularly the military might of the United States. American blood has been spilt on more than one occasion to protect the free flow of oil from the Middle East. For a quite a long time, the U.S. not only protected the kingdom of Saudi Arabia from harm, but has also dutifully paid hefty sums to the House of Saud due to cartel pricing (OPEC). In a perfect world, the Saudis would be allowed to exist, to charge whatever they wanted to charge for their oil, and could even, if they so desired, suddenly drop the price of oil to an unbelievably low amount to drive most of their competitors from the marketplace. But this is not a perfect world, and actions have consequences.

                  Perhaps that is some sort of answer to your question…

                  • Arceus says:

                    Moreover, oil is appreciably different animal than say limestone. Most countries consider oil to be a strategic national resource and domestic production to be highly important. If a country should get even 50% of its oil from the Middle East, and one day the region disappears in a mushroom cloud, then what?

                    Pearl Harbor was attacked by the Japanese due to an oil embargo. Should another country attempt, by market forces or otherwise, to destroy the domestic oil infrastructure of another country, how many countries would stand by and allow it to happen if they could prevent it?

                    Understandably, if there is one country that might stand by and let it happen without much of a protest, it might be the United States.

                  • Glenn Stehle says:

                    Arceus,

                    Market fundamentalism is the rule of the day in the US.

                    This faith — which has acquired the trappings of religion — rules out the regulation of US oil producers.

                    We’ll see how well market fundamentalism fares as it comes up against some of the more regulated forms of capitalism in Saudi Arabia, China and Russia.

                • ”I don’t understand why people expect a low cost producer to play the role of swing producer so higher cost producers can stay profitable”

                  This is not hard to understand. If the Saudis can keep the price HIGH by cutting production THEN they make AS MUCH or MORE profit on their higher priced low production cost of oil while selling a LOT LESS of it.

                  In the past they have been able to pull off this very trick. They probably could NOW but so far at least have been unwilling to do so for reasons we can only speculate about.

                  • Jimmy says:

                    It seems to me that the Russians and the USA can also keep the price HIGH by cutting production. It seems only KSA is expected to do this. I would assume their motive for not doing so is similar to Russia’s and USA’s. The message from KSA might be “we’re not your swing producer anymore”. The marginal cost producers will perhaps be the new swing producers. That’s how it is with most products other than oil. I can’t think of any other product or resource that when the price of it drops the lowest cost producer puts production on ice to shore up the price so the marginal cost producers can stay in business. In early 2008 GWB was in KSA asking for more oil production to bring the price down. In 2015 USA now wants less production from KSA to bring the price up. I suspect KSA has had enough of what USA wants. Maybe that’s the message.

                  • Nick G says:

                    I can’t think of any other product or resource that when the price of it drops the lowest cost producer puts production on ice to shore up the price so the marginal cost producers can stay in business.

                    You have to look at other cartels. DeBeers certainly does what you describe for diamonds.

                  • DT in Calif says:

                    As I see it, the media has it all wrong. The Saudi’s aren’t afraid of US shale. They’re afraid of global shale. In the last few years, the world has come to understand the true size of the shale oil resource…it is about 6 times as big as US shale. If the Saudis allowed upstart shale projects to gain critical mass and infrastructure elsewhere in the world, they’d be pushed out of the market for sure. So long as those projects never gain the required size, infrastructure, hundreds of rigs, frack fleets, roads, rail, electricity, etc, the Saudis can tolerate low price environment for 12-24 months. US shale will rebound gradually when prices recover, but these other projects will never get lift off. What gets killed as collateral damage is the long lead mega projects, deep water and heavy oil projects.

                  • Nick G says:

                    “the true size of the shale oil resource…it is about 6 times as big as US shale.”

                    Got more detail, and some links for that?

            • Arceus says:

              I think Javier’s idea is quite possibly workable if undertaken within the U.S. Avoiding a senseless price collapse in a limited national resource, in fact, seems quite sensible. The big difficulty in doing it would be finding the competent bureaucrats who could implement it (who are also apolitical). I imagine it would work something like this: U.S. oil companies that want to sell oil to the U.S. market will be given a yearly quota based on a formula that uses say proven reserves and past five year production history. Companies will be paid a fixed price of say, for example, $70 per barrel of oil. If any U.S. companies do not want to be part of the U.S. market they would be free to sell their oil overseas. Any U.S. companies that do sign on to supply the U.S., market would be allowed to produce more than their quota but would be required to sell that oil overseas. Japan used this model very effectively with their fledgling electronics industry. After five years or so, the quota system may need to be reviewed.

              • clueless says:

                Arceus says: “I think Javier’s idea is quite possibly workable if undertaken within the U.S.”
                I respectfully disagree. Having followed the Industry closely since the early 1970’s, it is crystal clear to me. If any collection of politicians/bureaucrats put in place any rules that were intended to stabilize or increase the price of oil they will be vilified by the opposition as well as by 100% of the media. Even if it were in place for a year, and prices did not go up, followed by an Atomic Bomb going off in the Saudi Arabian oilfields, they will get the blame for increased prices, not the bomb.

                • Arceus says:

                  Yes, it would take a strong political leader to pull it off. He would have to address the country directly: “Fellow citizens, I need to speak with you about an urgent situation. Our country has, in the last five years, nearly achieved something that previously was almost unthinkable – energy independence. We are now producing more oil at home than ever before. This has resulted in an economic boom that has helped all of us. We no longer rely on the Middle East for the energy that powers our economy. We no longer send our hard earned dollars to OPEC. However, that may soon change. Our old rival OPEC, led by Saudi Arabia, is now attempting to destroy all that we have built the last five years. These countries are using predatory pricing to bankrupt our oil industry. If we let it happen, the results will be disastrous. In short order, our energy costs will spike, our money will be again sent to Middle East for more imported oil, and our economy will be in tatters. There is a solution…”

                  • islandboy says:

                    Surely you do not believe that the Saudis are engaging in predatory pricing? Or are you just suggesting that your fictional US political leader should try and bamboozle the public with that line?

                    If you do believe that It’s the Saudi’s fault then you are wrong and misguided at best or dishonest at worst. I looked up “predatory pricing” some time ago and it is the act of selling product at a very low price in such a way that you force competitors to also sell at a loss. For predatory pricing to achieve it’s intended purpose, the party engaging in predatory pricing must be able to sustain selling at a low price long enough to totally bankrupt the competition to the point they have to cease operations. According to the Wikipedia article linked to, US Courts have established that for prices to be predatory, they must be below the seller’s cost.

                    This is not what is going on in this case. If the Saudis are engaging in predatory pricing, they would have to be producing at a loss, their production costs would have to be higher than the prevailing market prices. I have not seen anybody attempting to make the claim that the Saudis or the Russians or the Norwegian for that matter, are loosing money on every barrel of crude they sell. It is my understanding that the countries named have done so well over the years that, they have built up considerable reserves of assets and can better ride out this downturn in prices than most. A quick look at Sovereign Wealth Fund Rankings, if only the funds whose origin is listed as oil are considered, Norway has the biggest nest egg followed by Abu Dhabi and Saudi Arabia. Two funds are listed for Russia that come in at number seven and eight however, the two of them combined would be the sixth largest oil based SIF in the world.

                    What is going on with LTO would fit in better with the idea of predatory pricing in that these companies are going “all in” to increase the supply to an oversupplied market and doing so at a considerable loss as shown by the fine work of Shallow Sand. The only problem with that theory is that most of the companies supposedly engaging in predatory pricing, do not have a nest egg or another arm of the business that can generate a profit to cover the losses of the LTO operations. Most of these operations are highly leveraged and AFAICT none of them are financing current operations out of cash flow since none of them have been making much in the way of profits since the price collapsed.

                    Interestingly but, not surprisingly for most of you guys, my interest in predatory pricing comes from the area of solar pv module pricing. Over at TOD I wrote on the subject a couple of times including this post in which I discuss the bankruptcy of Suntech and the problems at Yingli. Both companies are still operating since the assets of Suntech were acquired by another company and if Suntech is going at anywhere their pre bankruptcy pace, the two companies should make up more than ten percent of worldwide module production. I have a hard time understanding why one would invest billions to set up facilities to manufacture solar pv modules and then operate at a loss but, how is that any different from what is going on in the LTO business?

                  • Glenn Stehle says:

                    Arceus,

                    Well FDR pulled it off. But that was only after the Great Depression clipped the wings of the market fundamentalists so they couldn’t fly so fast.

                    You might want to try to get your hands on a copy of Nicholas George Malavis’ “Bless the Pure & Humble: Texas Lawyers and Oil Regulation, 1919-1936.” He discusses the hurdles the Roosevelt administration had to overcome in the legal battle over regulation of petroleum production before production limits could be imposed.

                • It wouldn’t be done to regulate the price of oil. It would be done to reduce emissions and help electric vehicles 😐

                  • Nick G says:

                    You seem to be joking, but you’ve hit on a big motive for KSA to lower prices: they’re very sensitive to the growth of EVs.

                    LTO isn’t the only competitor they want to slow down with low prices.

            • Mike says:

              Alex, I agree with your assessments completely.

              I understand the predicament KSA finds itself in and I do not blame it for not cutting it’s production; quite the contrary. I do believe, however, if the KSA capitulates later in the year and does cut its production, the rest of OPEC will follow suit, with at least temporary convictions to each country’s individual quotas. Non-OPEC conventional production is still on it’s predictable decline path and for the next several years anyway, is not a threat to supply/demand fundamentals.

              Those supply/demand fundamentals were changed beginning 2013 with the onslaught of 2 million barrels more barrels of LTO production in the US. The world did not need that oil and current prices reflect that.

              I agree, the solution to low oil prices is low oil prices, save how that pertains to LTO production in the US. We’ve seen within the past 6 weeks an indication of what $60.00 oil did for the LTO business model and subsequently how fast the price fell back to 43 dollars. Save demand fears in China, oil prices fell simply on the “threat” the shale oil business was ready to ramp back up.

              Unlike conventional exploration and production, mass shale oil well manufacturing can have an immediate affect on supply/demand fundamentals and prices. That is a direct threat to price stability and I believe that is what frightens the KSA more than anything.

              I agree that shale oil production in the US cannot be cut, nor restricted. The natural decline of the these wells, once producing, would make that entirely unfeasible. What I would suggest, however, is that the number of shale wells drilled in the US could be easily restricted. It has been done in Texas via the Texas Railroad Commission for the past 80 years thru well density (wells per acre) and well spacing (distances between wells and/or lease lines) requirements. It would be easy for any state with LTO production in the US to follow the regulatory guidance of Texas and restrict the number of wells drilled. Rules regarding density and spacing use to be made in the name of conversation and the long term preservation of our hydrocarbon resources. Everything we were concerned about 80 years ago we should be even more concerned about today.

              If OPEC cuts it’s production it is logical to me the US LTO industry should therefore cut it’s production. It can’t. It can, however, be forced, quite easily, to actually limit the number of shale wells it drills. This would help ensure stable oil prices and a healthy domestic oil industry going forward. It is also in the best interest of our long term energy future.

              The LTO industry has not succeeded in self-regulating itself; it’s deep in debt, caused oil prices to tumble, and is now facing extinction. State regulatory agencies should be required to regain control of what is now an out of control LTO industry.

              Mike

              • Arceus says:

                Interesting that you blame shale for the slump to $43 per barrel and not Saudi Arabia which seems hell bent on increasing record production into the teeth of record oversupply with oil prices continuing their drop to multi-year lows. Also interesting that you want to give shale producers quotas, but let conventional producers pump as much as they wish. Perhaps if I was in your situation (a conventional guy), I would feel the same way.

                • Mike says:

                  I do blame the shale business, yes; it was not KSA that caused the 2 MBOPD overhang in 2013-2014. Expecting OPEC to cut its production to make room for US shale oil is not reasonable. You apparently want them to “swing” down, not up. I did not write anything about shale oil “quotas,” I don’t know where you got that. I spoke about regulating the number of shale wells drilled in the US. Its not a new concept. As a conventional “guy” I am already regulated as to where I can drill wells and how close they are together. The shale industry can do whatever it wants to do as long as it can borrow the money to do it.

                  • HR says:

                    Maybe the Obama regime and the Saudis are working together to marginalize the Russians? That’s why the Saudis aren’t cutting production? That’s why the LTO guys get all the Bucks they want? No sane people would do all this just to corner the Russians but the Washington crowd has their own Agenda.

                  • Arceus says:

                    >>>Maybe the Obama regime and the Saudis are working together to marginalize the Russians?

                    Maybe. Perhaps it’s different. Maybe the Saudis, the Russians, the Chinese, and (an unknowing) Iran are working together in a loose coalition to marginalize the USA. They all seem to have top secret access to Obama administration emails and docs… Obama is worried about his legacy… perhaps their timing is very good.

                • AlexS says:

                  “Interesting that you blame shale for the slump to $43 per barrel and not Saudi Arabia which seems hell bent on increasing record production into the teeth of record oversupply with oil prices continuing their drop to multi-year lows. ”

                  Yes, since November 2014, when OPEC refused to cut production in response to falling oil prices, Saudi Arabia’s crude oil production increased by 740 kb/d, while U.S. C+C output was up only 240 kb/d.
                  But, looking at the chart below, can you still blame Saudi Arabia for flooding the oil market?

                  Oil production in Saudi Arabia and U.S. (mb/d)
                  Sources: JODI, OPEC, EIA

                  • Arceus says:

                    You need to start the chart at Jan 2015 at the earliest. For 2015, who has been increasing production – U.S. shale or Saudi Arabia. Prior to that time, the market was not oversupplied, correct?

                  • Arceus says:

                    For 2015, who has been cutting rigs and who has been increasing rigs?

              • AlexS says:

                Mike,

                It’s an interesting idea: not to force shale producers to cut output, but to restrain they growth by regulating the density of shale wells.
                Paradoxically, the main winners would be shale companies themselves: they would burn less cash thanks to higher oil prices and lower capex. Unfortunately, in the real world, I don’t think TRRC or any other government agency would dare to introduce such regulations

                • Mike says:

                  Alex, you are exactly correct, sir. Limiting the “growth” of LTO resources is a win, win, for everyone. For shale companies and all Americans.

                  The regulatory statutes are already in place in Texas, they need only be implemented, again. They are in place in OK as well. There would need not be any “introduction,” only enforcement. In my opinion ND would follow. Texas has always been willing to take the lead on these sorts of things; it is not a decision to me made by the Federal government, by vote; its the sole decision of 3 Railroad Commissioners in Texas.

                  I think, personally, it would take some guts, and some leadership in saying to Texans…we are wasting our natural resources at 45 dollar oil prices by allowing this out of control spending spree the shale oil industry has undertaken. Let us step back in and take control. It will help stabilize oil prices, stabilize jobs, jobs, jobs, and better ensure a viable tax base that will benefit all Texans, all Oklahomans, all the good people in N. Dakota and all Americans. Stand back and watch. We’ve been doing this for 80 years (check out the price of oil between 1946 and 1977); we know what we are doing.

                  This, I believe, is precisely what needs to be done, Alex. Leadership. This “nationalistic” attitude Americans have, this “we were almost energy independent bullshit,” is wrong. Its stupid. We were not even close to energy independence. Its a global oil market; we need to behave in the same way we expect the rest of the world to behave. We are no better, and deserve no more.

                  We have identified what the problems are, I want to move forward and fix those problems. Yaking endlessly about big frac’s, or whining about the Saudis isn’t gettin’ it.

                  Mike

                • Arceus says:

                  On the face of it, it would seem a difficult task to ask the shale drillers to further reduce their rig counts while OPEC (Saudi and Iran) continues to set new monthly production output numbers. Perhaps the EPA could become involved and some type of “environmental concern” could be used to reduce the activity of the tight oil companies in the way it helped the country ease away from coal usage. Not sure if Bloomberg would fund such as cause or not. Possibly

                  • Mike says:

                    Arceus, I wrote very clearly, so I thought, that if the KSA and OPEC agree to cut production, so should the US. The manner in which that could be done is by restricting the number of shale wells drilled in the US. That is already done in conventional reservoirs, in the name of conservation, not pollution. In spite of 45 dollar oil prices and an 8 billion dollar debt load, one of the biggest shale players in the EF is still drilling wells on 60 acre spacing, with laterals 330 feet apart. Oh wait, make that 43 dollar oil.

                    If one believes that there are 2 million LTO locations remaining to be drilled in the US I am sure the idea of restricting the development of shale resources is hard to swallow. I do not believe any such thing. Conserving those LTO locations for the future, slowing the pace of development, cooperating with the rest of the world in stabilizing oil prices seems like a pretty good idea to me.

                    Mike

                  • AlexS says:

                    Mike,

                    Here is an interesting (some would say controversial) article by your namesake. Or is that yours? :)

                    Could North America Pull Off Its Own Oil Cartel?

                    By Michael McDonald
                    Posted on Thu, 06 August 2015
                    http://oilprice.com/Energy/Energy-General/Could-North-America-Pull-Off-Its-Own-Oil-Cartel.html

                  • Mike says:

                    That’s not me, Alex. As early as 1910 oil operators in the United States coined the phrase “independent producers” to separate themselves entirely from Rockefeller and the anti-trust, monopoly issues facing Standard Oil. We are all indeed fiercely independent (of each other) and any kind of collaborative effort at a domestic cartel would just be one big chicken fight. It would never happen.

                    Mike

                • They would do better simply by regulating flaring and venting, and the amount of time a well can produce without a direct connection to a pipeline.

                  • Mike says:

                    They are doing that. Infrastructure is improving. Limiting flaring is not he answer to limiting the development of LTO resources. Regulating spacing and densities is. Or, hopefully, the money train stops and that slows development.

              • islandboy says:

                Hey Mike, since I see numbers for “permits issued” floating around here all the time, that implies that before one drills, one must get a permit from some regulating body, obtain permission if you will.

                Shouldn’t it be a fairly simple matter for companies to submit the financial estimates for any well that they are seeking a permit for? The estimates would have to be based on verifiable current cost and revenue projections based on a wellhead price calculated on the basis of a reference price on the futures market. If the company cannot show how they are avoid losses on a given well, no permit. Permits would expire after a given period to prevent companies building up a inventory of permits when prices are high and not drilling for whatever reason.

                The regulators could justify not granting permits by saying something like “Based on the production from other similar well in this area we do not see how losses can be avoided on this well and will not permit anybody to throw investors funds and/or borrowed money at such an obviously poor risk.” Before anybody says that operators will just submit rosy estimates, any estimate that is too far out of line would result in the operator being called in to explain exactly how they plan to do what others have failed to do and face extra scrutiny if they manage to convince the regulators that they can successfully pull it off.

                If something like that was in place, I’m pretty sure that a ton load of wells that are currently producing, would never have permitted.

                • Mike says:

                  Island, I liked your post up hole about predatory pricing. It is wrong to blame the KSA for this mess and is absolutely wrong for America to expect OPEC to cut production to make room for more LTO stuff.

                  Your idea above is reasonable and is indeed a way to restrict shale oil development, for sure. Its complicated though and, respectfully, not necessary.

                  It is interesting to me the difficulty people have with the concept of regulation by states with regards to well spacing and well density rules for the oil and gas industry. All producing states have laws in place regarding conservation of natural resources and all of those states have regulatory agency overseeing the oil and gas business. Those agencies issue permits to drill oil and gas wells based on statewide rules for spacing and density, or specific rules for individual field designations. It is not a free for all by any means. No permits can be issued that circumvent state or field rules unless by complicated hearings and special orders.

                  The problem began when the shale industry sought special rules for their self-serving development of a field or pool it was developing. Conservation principles were thrown out the window in a mad dash to energy independence. Now the shale industry can just about do whatever it wants. Again, to use my previous example, it makes no sense to me whatsoever to be drilling shale laterals 330 feet apart from each other at 43 dollar oil prices. Those wells will never pay out at anything less than 75 dollar oil prices. Each one of those wells require 400 tons of steel and 10 million gallons of fresh water to drill and complete. Let’s save those wells for 10 years from now, when we’re really going to need the stinky stuff.

                  I personally do not believe this uncontrolled spending spree the shale oil industry has been on has worked. In fact, it has failed miserably. By Thanksgiving we’re going to know exactly how miserably. Its time to reel those fellas in a little bit. We can do it easily with existing laws.

                  Puerto Rico, have I heard you say?

                  Mike

              • Dennis Coyne says:

                Hi Mike,

                Excellent analysis, I agree with all both you and AlexS have said above.

                Thanks.

                Talk with the commissioner.

                • Mike says:

                  Dennis, thanks. You and I have written about this before and you have brought it up many times.

                  I of course cannot bring any influence to bare on the need to regulate shale oil development. It is going to take some serious news regarding production decline and company failures to get law maker’s attention. That’s coming in a few more months. Having said that, Americans feel entitled and I trust that if you were to poll people here they would say, without hesitation, that America should be allowed to develop its resources and its OPEC that should cut, it’s OPEC that should be the swing producer and regulate oil prices.

                  Its a bit different than in years past, isn’t it? When prices were high all of America wanted OPEC dissolved and blamed them for high gasoline prices…now we need their help.

                  I think the public relations campaign the shale oil industry engaged in years ago, and that is still waging with false information, has been nothing short of remarkable, really. It has taken years for the public, and the media, to finally begin to understand what is really going on with this high cost production. They really still don’t get it. And BTW, the oil lobby is a very powerful thing.

                  Mike

            • Javier says:

              a multilateral agreement on fixing oil prices is wishful thinking

              Perhaps. But I also know that is ridiculous that we allow Peak Oil to happen because we are unable to match demand and supply. Arabia Saudi was capable of doing that for decades for the entire world.

    • Glenn Stehle says:

      “It is astonishing to see what producers in the Eagle Ford and Bakken shale basins are accomplishing despite dwindling rig count numbers,” Yahya said. “Rig count in the Eagle Ford basin decreased by roughly 65% from a year ago, from 233 in June 2014 to the 105 active rigs today. And yet, production is almost a quarter of a million barrels per day more.”

      Similar trend is observed in the Bakken shale, where rig count dipped about 50% from approximately 160 rigs last year to the current 80 active rigs, Yahya noted. In the Bakken, too, production is up about a hundred thousand barrels per day, he said.

      The contradictory relationship between rig count decline and production growth speaks volumes to the efficiency gains producers have achieved over the past year.

      “Gains in efficiency have been swept every facet of the drilling and production operations,” Yahya said. “Drill times have been reduced on averaged by three to five days in most of the major shale plays in the country. As well, producers are continuing to focus more on their more productive acreages, where initial production (IP) rates are higher.”

      Bentek analysis shows that from June 2014 to June 2015, total US crude oil production has increased by about 750,000 b/d.

      Lordy! Lordy!

      Another day, another load of horse manure from the US oil and gas industry.

      I was active in the oil and gas business back in the 1970s and 80s when the industry made the switch from industrial (productive) capitalism to finance (predatory) capitalism.

      In this war between the US’s finance capitalism and Russia’s and China’s industrial capitalism, who do you reckon’s gonna win?

    • Mr Yahya needs to study petroleum and projects engineering so he can avoid being amazed by year on year production increase in spite of decreasing rig counts. I think I could train him in three days so he can avoid such statements. 😑

      • gwalke says:

        It is astounding, isn’t it, that people continue to write this sort of thing about rig counts and initial production figures, when a fairly cursory glance at the figures shows that completions matter more than rigs for short term production, and initial production has very very little relationship to production profile.

  6. Looking at Sand Country ( my personal euphemism for the Middle East oil producing countries) from the point of view of an arm chair historian leaves me believing another hot large scale war – one involving outsiders in large numbers – is likely within the next decade at the longest and could get started just about any year.

    People such as Saddam Hussein and the ones in control of ISIS are not apt to ever be satisfied so long as they believe they can accumulate more power and more territory.

    Todays Ron post indicates that barring miracles on the production front Peak Oil is going to be an obvious reality pretty soon, maybe within the next two years. (It will take a while for obvious facts to sink in.)

    A couple of million barrels a day is the difference between fifty dollar oil and hundred dollar oil. A shortfall of a couple of million taken off the market by depletion of legacy production and a couple million more taken off by folks eager to put the pitchfork into the Great Satan and his minions will be enough to trigger all sorts of economic troubles.

    ( One man’s poison is another man’s meat however and oil shooting up well past a hundred bucks would certainly solve the business problems of our regular hands on guys such as Mike and Shallow Sand.)

    A very common response of leaders in big trouble is to go to war to fix the troubles if war looks like a workable option. War does not generally solve resource problems in the long term but it can work like a charm in the short term both to divert attention from the shortcomings of leadership and to actually solve the problem – sometimes, for a while – so long as victory is achieved.

    There is little question that the USA and allies if in desperate enough economic straits will again put massive armies on the ground in Sand Country to keep the oil flowing. This is a temporary solution which costs an arm and a leg day after day , but it is cheaper than a super massive depression.

    It is now obvious that nation building in Sand Country is a tougher nut than we know how to crack so any oil that flows due to boots and tanks on the ground will likely cease to flow within a year or two at the most if and when we pull out.

    But it is going to start flowing in lesser quantities year after year starting pretty soon ANYWAY.

    I believe in the Mighty Mighty Market and the ( arguably ) Invincible Invisible Hand but I do not believe we can afford to risk the Market and the Hand solving our oil addiction problem in a timely fashion.

    The Market is supplying us with F150 pickup trucks so goddamned big the average owner of one has to lower the tailgate to put a bag of groceries in or get it back out. The Hand is not going to replace fifty million of these oversized beer fetchers overnight when -IF-the oil shit hits the fan SUDDENLY with more efficient vehicles or with street cars and affordable urban housing or localized industry or anything else in a timely fashion.

    Pray for Pearl Harbor Wake Up events. If we get enough of them fast enough we might actually change our ways. Otherwise we are at very high risk of finding o ourselves in one hell of a collective fix one day with tens of millions of people thrown out of work by a depression brought on mostly by a sudden peak in oil prices.

    History generally moves very slowly in terms of human perceptions.

    But sometimes it moves so fast as to catch even the most wary of us with our pants around our ankles.

    It’s WAY past time to face up to the reality of resource depletion in terms of national politics. We desperately NEED a leader who will simply TELL IT LIKE IT IS rather than sugarcoating everything and avoiding the bad news.

    I have succeeded in convincing a number of hard core free market conservative acquaintances that oil really does come out of holes in the ground and that it DOES NOT grow back like potatoes.I have convinced some of them that air pollution really is a major problem in terms of their personal health and the health of their children. I have convinced some that KEEPING rivers clean is a LOT cheaper than purifying their drinking water.

    It CAN be done but name calling and a condescending snooty attitude are not part of a workable plan for doing it.

    If Sky Daddy really exists and really does look after drunks, little children and the USA and really does work in mysterious ways then He will send us a republican president with the balls and the credentials to enable him to tell the truth about the environment and resource depletion- somewhat after the fashion of Nixon being able to go to China.

    I am not holding my breath.

    • Nick G says:

      In other words, oil is dirty, risky and expensive, and we should kick the habit ASAP.

      I agree with all you said with one small quibble: dealing with an emergency oil shortage would be painful, but not catastrophic. Carpooling, probably with decentralized smart phones, would be very fast and effective. Connecting with just one other commuter cuts costs in half…

      • wimbi says:

        Indeed so, and so with all we do- so easy to reduce ff use by BIG amounts with so little sacrifice, if any, in this hugely wasteful society (USA).

        As I have so often noted, open any catalog of the kind I get every day in the mail. Check off anything in it that is NEEDED. How many checks? Usually, none.

        And how much ff went into everything associated with all that nonsense? That much we save by simply not doing it. As I said, easy- easy to do nothing rather than anything useless.

    • MarbleZeppelin says:

      Old Farmer, the reason that car companies produce a lot of light trucks is that they make much more profit on them compared to cars. People buy them because they do jobs that cars can’t do.

      I think most everybody here is missing the soon to be reality. History will repeat itself. The last time the US peaked in oil production and became more dependent upon imported oil, the exporters put the squeeze on us, twice. So I say look to the near future not for peak oil problems in particular but for obvious cutbacks in imports, due to political reasons, not lack of oil. The squeeze will be put on the US. We survived the last few, we will survive the new squeeze, but it will make all that effort and money put into the Middle East to “stabilize” it look like the waste that it was. Mark my words.

      So we will see a big jump in car efficiency, maybe a huge relative jump in electric cars and trains. We saw a big jump in car efficiency in the 80’s because of import problems. Now maybe the US will take their real position seriously. Energy independence will be forced upon the US or at least the Western Hemisphere.
      Europe needs to watch itself also, they are in a very poor position energy wise.

      • Nick G says:

        People buy them because they do jobs that cars can’t do.

        Like squishing smaller cars, and advertising conspicuous consumption.

        Sure, there are a few tradesmen who need them, but they are in the small minority…

        • I am with Nick when it comes to the utility of oversized pickup trucks. Even though I live in the boonies and among the working classes not over twenty percent of the newer full sized pickup trucks I see on the road are EVER used t haul anything heavier than a few bags of groceries or trash.Groceries and trash fit nicely into the trunk of my ancient Escort.

          The twenty percent are actually used OCCASIONALLY to haul real loads and to tow trailers. In my estimation not over one out of twenty new Ford pickups is actually owned and operated as a business vehicle NECESSARY to a business. Here and there you will see one actually loaded up on a daily basis with a tradesman’s tools.

          One of my neighbors drove a totally optioned out F250 to estimate jobs for his paving company until he retired.

          He could have driven a subcompact car for a tenth the cost but without that status symbol potential customers would likely have taken him for an amateur.That particular truck is now over ten years old and has never had anything in the cargo box other than a suitcase or groceries.

          • MarbleZeppelin says:

            Maybe it’s just your sample but the pickups near me haul a lot of stuff. The vans are mostly work vans. It’s all the SUV’s that might be a problem if you are concerned about saving fuel.
            A lot of the families have both a small car and a pick-up. Most parking lots around here, including the local high school, are mostly small cars and I live in a farming community. When I go to town, it’s pretty much all small cars. Maybe the pickup thing is a mid-western or southern phenomenon.

        • MarbleZeppelin says:

          A lot of farmers around here and a lot of tradesman, it’s not the town or city. Most of the vehicles are small cars now but people still need the trucks. Sure there are a few adolescent types that buy them and put the big tires on but they grow up after a while.
          However, the government was behind the growth of the SUV and pick-up truck business. Small businesses like farmers, tradesman and about any other business got big tax deductions for buying light trucks (which include SUV’s). I don’t know if these deductions are still in place but here is some research on the situation. Page 13 and 14
          http://www.foe.org/system/storage/877/b3/8/568/gs20041.pdf

          • Nick G says:

            the government was behind the growth of the SUV and pick-up truck business.

            Not the government, really. It was the car companies, and the wealthy vehicle buyers, who managed to put and keep that in the tax code.

            And, of course, it was the car companies that created and preserved the CAFE light truck loophole.

            “Big government” is not the cause of the problem – it’s just the battlefield where these lucrative prizes are fought over, and won or lost.

            It doesn’t really make sense to say government is good, or bad. It’s necessary, to replace real, physical battlefields.

            It doesn’t really make sense to say that government should be big, or small: it should do the right things, no more and no less. And, if you care about what government does, you have to get in there and fight for it, because you know that others are in there trying to get “stuff” – tax breaks, military contracts, jobs, etc.

            Learn about government. Contribute to, and talk to, your representatives.

            Get involved.

            • MarbleZeppelin says:

              Actually it’s Henry Ford’s fault for automating car production for the masses and Eisenhower’s fault for wanting the super-highway system. Oh yes and the oil companies fault for providing too much fuel and asphalt for the roads.
              The blame game can go all the way back to Roman chariots and Roman road building. I really blame that guy that invented the wheel.
              Let’s not forget the bridge and highway engineers. They are just as culpable.

              • Nick G says:

                Eisenhower’s fault for wanting the super-highway system. Oh yes and the oil companies

                I don’t mind cars, or oil, in the right place and proportions. The problem: we use way too much, due to hidden subsidies.

                For instance, Eisenhower’s highway program was started by the Secretary of Defense, who justified it for national security. That program was paid for with tax dollars, and the highways were tax exempt, unlike railroads. Who was the SecDef? The CEO of GM…

                At about the same time, right after WWII,the car companies and the oil companies conspired to gain control of mass transit systems around the US and dismantle them, replacing them with buses. They were convicted in federal court.

                I could go on…

                • MarbleZeppelin says:

                  Sorry, kinds grumpy since my lobbyists went to big corporations for more pay. Now all I have is a vote, and then the guy or gal does what they want anyway.
                  Tax exempt? The governments taxing themselves now? That would be funny.

                  • Nick G says:

                    Railroads pay a lot in property taxes, as well as fuel taxes, etc. Government owned highways and roads pay nothing, but rarely charge tolls. Further, they are supported by many taxes beyond gas taxes.

                    Long distance trucking is heavily subsidized, as a result. Not to mention passenger traffic…

                  • MarbleZeppelin says:

                    Maybe I think of tax exempt in another way. Governments have control over the roads and usually they do not tax themselves. So the idea that roads are tax exempt, I just find silly. Our taxes pay for them, why would we tax our taxes.
                    Railroads are private entities that usually own the right of way. Local, state and federal governments do tap taxes out of them as they do the other corporations and individual owners.
                    Truckers pay fuel taxes, mileage taxes and permits.
                    Any truck over 26,001 lbs or in combination over 26,001 lbs must be permitted when traveling across state lines. Truckers can choose to get temporary permits or order annual permits. Annual fuel permits expire Dec. 31 of each year and temporary permits are typically good for 3 to 10 days. Truckers must also have license tags or temporary permits that allow you to cross state lines. Truck license Tags are valid for different durations based on the state of issue.

                  • Nick G says:

                    Well, first of all, there’s nothing necessary or automatic about the idea that government doesn’t pay taxes. We’ve set it up that way, but that’s arbitrary. In fact, it’s probably not a good idea: it incentivizes bad land-use.

                    The same thing for schools and other non-profits: why should a university or church be allowed to set up tennis courts and big lawns in the middle of a dense urban area, and not pay taxes? It encourages the kind of gradual annexation of public spaces we see in older cities like Boston, where non-taxable property is so common that it really pushes up taxes for every one else.

                    But, there’s no reason why highways have to be run by the government: they could be private toll-ways. One of the reasons why railroads have declined so much in the last 100 years is that truckers are heavily subsidized by this system.

                    And, no, fuel taxes don’t pay for all of the costs of highway construction and maintenance, and even if they did, who else gets such a sweet-heart deal that they pay no taxes into the general fund – just fund the maintenance of their own infrastructure? Certainly not railroads.

                  • Stan says:

                    Marble, trucks do not pay in proportion to their impact. Road taxes do not increase at an exponential rate while the damage by vehicle weight does. Likewise, the U.S. government could own railroad tracks. They are as important for national defense as interstate highways.

                  • MarbleZeppelin says:

                    Stan, in general corporations only pay 4 percent of the federal taxes in this country even though they make most of the money. The corporations pay only on profit after getting huge amounts of deductions.
                    I wish I only paid taxes on profit, but I am one of the ones that pays 96% of the taxes.
                    So I would not be surprised if the trucking companies don’t pay a fair share, it’s the way the system works. You want your wallymart junk, you pay for the road to get it there. Railroads are corporations, so they pay at corporate rates.
                    Everything should move by flying, then we could get rid of all that road infrastructure.

                  • Nick G says:

                    Railroads are corporations, so they pay at corporate rates.

                    We”re not talking primarily about income taxes. We’re talking about property taxes, sales taxes, etc. Corporations, including railroads, don’t get any protection from property taxes.

                    Bottom line: long haul freight trucking would be much more expensive if it had to pay it’s own way, like railroads.

        • Richard says:

          Nick, could you point out a car that will haul my daughter’s 1500 lb horse to horse shows every couple of weeks?

          • Mike says:

            Or a drum of Baker DMO, an 8 5/8ths overshot, oil and bumper jars with X-over subs, my water can, 2) 36’s, three boxes of underwear rags and 9 empty Bud Light cans?

            • Doodlebugger says:

              Thanks for the laugh Mike. I feel most are wondering what the heck those items are. Kind of needed a laugh while trying to decide whether to keep those great hard working hands on the payroll till this fiasco is over.

              • Mike says:

                DO NOT QUIT, SIR; NOT EVER. ROLL UP YOUR SLEEVES; IF YOU CAN’T AFFORD NEW POKA DOT GLOVES, WASH THE OLD ONES OUT ( just not in the wife’s washing machine!) AND STAY WITH IT. AMERICA NEEDS US.

                Thank you.

                Mike

            • Richard says:

              Mike,
              You forgot the engineers boots stuffed in the space between the cab and bed.

          • Nick G says:

            For that small minority of trips, there will be appropriate electrics. For example:

            http://www.viamotors.com/lineup/

            • Mike says:

              Right.

              Where am I going to plug the son of a bitch in if I am out of juice in Tilden, Texas? The same place I buy all my cow cake?

              • Nick G says:

                You can charge in an RV park in George West Texas. Lots of spots in San Antonio.

                Or, you’ll need the extended range version, with a small onboard ICE, like a Chevy volt.

                Did you know that submarines (diesel, and some nuclear) are extended range EV’s??

                • Fred Magyar says:

                  So are Royal Caribbean’s cruise ships.

                  Quantum of the Seas is equipped with diesel-electric propulsion system powered by two Azipod XO thrusters with a rated capacity of 20.5MW and four bow thrusters with a power output of 3,500kW each.
                  The ship is capable of cruising at a speed of 22kt.

                  • Nick G says:

                    Good point.

                    And, of course, almost all rail is propelled by electric motors – they have the necessary torque for hauling 200 heavy rail cars up mountains.

                    Electric motors are smaller and more powerful than infernal combustion engines. Big ones are simpler and cheaper than big ICEs, which is one reason why Tesla is beating the pants off of it’s luxury competitors, who are used to charging enormous premiums for big ICEs.

                  • Toolpush says:

                    Fellas,

                    It may surprise you that a lot heavy machinery is run on electric or hydraulic propulsion. A few examples are oil rigs, ships, heavy cranes, mine dump trucks, drag lines, trains, and the list goes on. This is mainly done for control purposes. These are not engines or power sources, they are motors that have useful control features. AC Variable Frequency Drive, had been a big enabler for electric drive, though DC has been and still is used in large quantities.
                    What we are talking about on POB, is the energy source. Even an electric cable hooked to the grid, is not an energy source. That come from the power station, whether that be an ICE, coal, solar, or wind etc.

                  • Nick G says:

                    This question arises around EVs, which can eliminate most oil consumption (regardless of the source of the electricity).

                    Some people don’t realize how powerful electric motors are, and how widely used they are.

              • ezrydermike says:

                at Max’s

                • Richard says:

                  Good points guys. When I find an electric that replaces the utility, hauling capability, and off-road ability ofm y truck, I’ll seriously consider it.

                  • Nick G says:

                    Yeah, it’ll take years for the selection of EVs to expand to cover the whole spectrum of what people need.

                    Most car companies don’t really “get” EVs, which is why they marketed them as econo-boxes.

                    That’s also why Tesla is so successful – they started at the high end, instead.

                  • Yeah. I would have started with an electric limo. All they do is take people to the airport and back.

          • I used to tow a three thousand pound boat and trailer behind an old Volvo wagon. She was sort of slow off the line and up hills but never let me down. Stopping it was dicey. Best not to follow any closer than four or five car lengths for every ten mph.

            I keep a heavy duty four by four pickup truck myself but I drive it ONLY when the roads are icy or when I have a load to haul. Reserving it for these uses means it will most likely outlast ME. It’s a ninety one and I fully expect to drive it another fifteen years if I am lucky enough to drive deep into my old age.

            Otherwise I drive the Escort.

            • Richard says:

              Farmer,
              I have a Mini and so does my wife. We mainly use truck for hauling and going out in the field.

          • Fred Magyar says:

            Hey Rich,
            Maybe you could get your daughter a wagon and hitch it to her 1500 lb horse and she could ride in it all the way to the show, eh?

            • Nick G says:

              Good thought: seems like you ought to be able to just ride your horse to the show, doesn’t it?

              Damn kids, with their newfangled contraptions. Horseless carriages – what will they think of next?

              Get a horse!

              • Fred Magyar says:

                Damn kids, with their newfangled contraptions. Horseless carriages – what will they think of next?

                How about really, really big, horseless carriages in which they can tow their horses around…

            • Richard says:

              Fred,
              I love that idea. Got suckered into the horse business in the first place. I have one horse to move, know people who take three to a show. Talk about getting there faster, they’d have a wagon team to my one.

          • Jimmy says:

            How far, she could perhaps ride the horse to the show?

          • Ricardo, your daughter needs to put that beast on a low calorie diet.

            • Mike says:

              Richard, you have now been properly introduced to the anti-oil faction at POB. Fernando is oily, but apparently does not know much about horses (remember, the carrot goes to the front, not the back). If we could get completely off hydrocarbons by October 19th these guys would be ecstatic…until it’s time to fly somewhere for a vacation, or home to see grandma for Christmas.

              In the past you have given us some good insights into oil economics and conventional resources, I hope you will stay with us. In the mean time I am checking into cruises from Katy to Carrizo Springs, with an overnight stop in Goliad, and if I can find one, electric, of course, I’ll let you know.

              Mike

              • Nick G says:

                Aviation doesn’t really need oil either – they can get much more efficient, and be fine with synthetic fuel.

                On the other hand, they don’t use a big percentage of overall oil consumption, so aviation will be about the last thing to leave oil behind, perhaps 60-75 years from now.

                Oil has been enormously useful, but it’s always had a lot of hidden costs: oil wars, pollution, etc. It’s time to kick the habit.

              • Richard says:

                Mike,
                Everyone here is great and I value their opinions, even if I don’t agree. Besides us conventional oil guys got to stick together. You asked in a previous comment to bail you out every so often. Same goes for me. And let me know what you find out about that cruise.

                • Hi Richard,

                  I put a very high value on your opinion as a pro in the oil industry and readily admit I actually know very little about it.

                  But BUT but BUT but the point I have been trying to make is that people MOVE between companies and between geographical areas when money is involved.

                  IF you must have a geophysicist to run a tight oil company, are you telling me you can’t offer one working in conventional oil a raise and hire him away from his current employer?

                  If a given tight oil company goes broke and all its assets are bought up by a larger company that survives, maybe even a big conventional company, will that company not HAVE a geophysicist or two or however many are needed already on the professional payroll?

                  Maybe things really are that different in the oil industry but in industries I know more about, the people getting back in after a bust take into account the salaries and wages they will have to pay. An expected or anticipated high cost payroll is counterbalanced by their making a low offer for the existing assets of a company that went out of business.

                  • Richard says:

                    Farmer,
                    Thanks, I appreciate your comments. Your describing “robbing Peter to pay Paul”, which does happen.

                    A number will leave and not come back. Saw it in 99. Know a PhD who became a school teacher rather than go back. It happens.

                    I’m talking about those and the kids coming out of university. NO ONE studies Geophysics or Geology. Get an MBA, way easier. G&G just aren’t sexy any more. Plus either one REQUIRES an MS, minimum. Ten years ago you could work with a BS AND 20+ years experience…those days are long gone. The kids know this. Given $42 oil, business it is.

                    Talent drain will be a killer. Sure you can steal talent. Sure companies will BK. Still, pool is small and getting smaller. You can train. Will take time and the low hanging fruit is gone. It promises to be a costly problem. We shall see.

                    One other point. Shale guys DO NOT understand the fine points of conventional plays, particularly engineers. G&G in conventional and those in unconventional aren’t as interchangeable as those outside industry think they are. I’ve said before I play Yegua and some Frio. I watched shale players who replaced our team at my former employer collapse the casing on three excellent producers, 22MMCFD and 1100 barrels, because they didn’t understand Yegua rocks can’t be pulled on like that. Expensive.

                    My point through all this, there are some things not being considered that really should.

              • Mike, I’ve never seen a 1500 lb horse. A horse that heavy must eat like a small elephant.

                • Richard says:

                  Fernando,
                  Canadian Trekhaner, 17,2 hands, 1510 lbs. Vet said optimal. Belgian Draft 19 hands, approximately 2500 lbs. Don’t ask how much these beasties eat.

                • Mike says:

                  Fernando, I’ve got a Draft/Percheron cross with feet bigger than dinner plates. He can out eat any elephant I’ve ever seen.

                  If you give me your address I’ll FedEx him to you tomorrow.

                  Mike

                  • That’s not a real horse. That’s one of those computer animated breeds they use for hauling beer carts in commercials. Like the dinosaurs in Jurassic Park.

            • Richard says:

              Fernando,
              Been saying that for years. I’m told in return that warm blood horses are big, and that’s that. Good jumper though.

  7. Mario says:

    I find it incredibly frustrating that good data seems impossible to get. Just here, we have Ron quoting government numbers that shale production is finally declining. In one of the replies, not so fast, Bakken and Eagle Ford are actually still rising.

    Personally, I find it hard to believe that production in those areas can still be rising because of the impact of high initial declines, but I’m so confused now I don’t know what to make of any numbers and maybe I have it all wrong.

    • Watcher says:

      Welcome to the new post 2008 normal.

      No data means anything.

    • Jimmy says:

      There are some articles I’ve read recently with headlines about production being up but the data they used was year over year data. Month to month it’s down. Year over year it’s been up.

      • Fred Magyar says:

        Your confusing that data with short term vs long term trends in global warming >;-)

  8. Ovi says:

    According the today’s EIA report, US production will continue to rise due to projected increase in the GOM. Not quite sure how the projected 391 kb/d can totally offset the decline in tight oil. Are other new areas starting up?

    From P61, August OPEC report.
    “US total oil supply is anticipated to grow by 0.32 mb/d to average 14.19 mb/d in 2016, representing a downward revision of 10 tb/d from the last monthly report. US liquids production for 2016, based on 2015 assumptions, is shown in the following table and graph. The breakdown indicates that the main component of US oil output, tight oil, will decline from 579 tb/d estimated growth in 2015 to only 90 tb/d in 2016. Oil production from six new projects are expected to come on stream in the GOM, i.e. Gunflint (120 tb/d), Heidelberg (80 tb/d), Stones (50 tb/d), Julia (34 tb/d), Dantzler (32 tb/d) and the delayed BigFoot project with a peak capacity of 75 tb/d.”

    • I think the EIA is publishing politically driven forecasts. They seem inclined to over predict production while ignoring oil price trends. The predicted oil prices don’t support production increases.

      The only other option is that IEA has an aggressive oil price forecast.

      • gwalke says:

        In fairness, incompetence is probably more likely. Remember that they recently admitted they were predicting Texas production by getting a ruler and adding 50kbd each month, and that the Drilling Productivity Report was actually predicting large declines when the Bakken was broadly flat.

  9. AlexS says:

    In its Short-Term Energy Outlook released today the EIA has substantially reduced its estimates/forecast for U.S. oil production, which reflects lower oil price assumptions.

    From the report:

    “U.S. crude oil production is projected to increase from an average of 8.7 million b/d in 2014 to 9.4 million b/d in 2015 and then decrease to 9.0 million b/d in 2016. The forecast is about 0.1 million b/d lower and 0.4 million b/d lower for 2015 and 2016, respectively, than in July’s STEO. The decrease in the crude oil production forecast reflects a lower oil price outlook that will reduce expected oil-directed rig counts and drilling and well-completion activities throughout the forecast period.
    EIA estimates that U.S. crude oil production averaged 9.5 million b/d in the first half of 2015.
    This level is 0.3 million b/d higher than the average production during the fourth quarter of 2014, despite an almost 60% decline in the total U.S. oil-directed rig count since October 2014.
    The most recent production estimates indicate U.S. crude oil output was 9.5 million b/d in May. EIA estimates that total U.S. production was unchanged in April and began declining in May, falling 180,000 b/d from the April level. Some of this decline reflects outages in the Gulf of Mexico that are expected to be temporary. The decrease in total production was preceded by declines in onshore production, which began in April.
    EIA expects U.S. crude oil production declines to continue through the third quarter of 2016, when total crude oil production is forecast to average 8.8 million b/d. EIA estimates total U.S. crude oil production declined by 100,000 barrels per day (b/d) in July compared with June.
    Forecast production begins rising in late 2016, returning to an average of 9.1 million b/d in the fourth quarter. A total of 13 projects are scheduled to come online in the Gulf of Mexico in 2015 and 2016, pushing up Gulf of Mexico production from an average of 1.4 million b/d in the fourth quarter of 2014 to more than 1.6 million b/d in the same period of 2016.”

    U.S. oil production forecast: EIA STEO August 2015 and July 2015 (mb/d)

    • AlexS says:

      The EIA now expects total U.S. C+C production to decline by 926 kb/d from the peak in March 2015 to the lowest point in August 2016.
      Production in the Lower 48 States (excl. GOM) is expected to decline by 954 kb/d between March 2015 and June 2016
      Lower 48 States (excl. GOM) oil production forecasts from August and July STEO

  10. Wind is now according to the latest government data supplying four point nine percent of our electricity here in the land of the sorta kinda still free.

    Solar is above one percent in my opinion given that so much is small scale production not accounted for in official statistics.

    Just about everybody who buys a new Chevy Volt from here on out will be able to drive it exclusively on the battery almost every day excluding weekend trips etc.

    The technology ambulance is unfortunately apt to run out of affordable gasoline before it can get us collectively to the renewables hospital.

    Sad.

  11. Ronald Walter says:

    Maybe the oil corps could get together on a Sunday morning in a church somewhere and have a prayer session to pray for higher oil prices. Realtors did when the housing crisis stuck them with a bag to hold.

    Dear Lord, please help us by buying more oil. Surely, Lord, there must be a need for a couple of million barrels of oil each day in heaven that You can buy to ease our financial burdens. Lord, hear our prayer.

    Can’t hurt one bit to pray for some relief from all of those mounting monetary losses. If anybody has money to bail out the oil conglomerates, God does. Maybe Goldman Sachs too, since they do God’s work.

    God might tell the oil corps to go straight to hell, if so, then Goldman can answer all those prayers being they do God’s work too. All it takes is money and the prayers are answered.

    Har

    • MarbleZeppelin says:

      That’s right Ron, the oil companies’ guardian angels will make a deal with the devil to produce a lot of abiogenic petroleum and suddenly the old fields will be oozing the stuff out again. Gushers galore on Monday morning. The banks will get the notice from the devil to fund more drilling and away we go, happy motoring for another fifty years.

  12. Nick G says:

    Good article on solar, and mini-grids, in Africa:

    “. “In places like Zimbabwe and the Democratic Republic of Congo there’s no business case or government or consumer willingness to pay for the grid.” Bottom line according to Miller: “Policies that are grid-focused will not meet the needs of the worst off.”
    In contrast, he says, the organizations behind Power for All are building businesses that are enjoying strong customer demand. “We’re advocating a subsidy-free energy solution that is aligned with people’s willingness to pay,” says Miller.
    Solar-LED lighting is selling because a $10 solar light pays for itself in 10 weeks thanks to avoided kerosene and candles and, according to Miller, it will save its owner $200-340 over its 3-5 year lifetime. He says a solar light that also charges cell phones—a $25 investment—pays off in both dollars saved and by expanding its owner’s access to market opportunities and phone-based banking.
    Miller says much of the commercial investment to Power for All’s segment is going to firms like Off Grid Electric that sell solar as a service, charging something like $15 up front and $2 a week. “You pay indefinitely, just like a utility bill,” says Miller. He says Off Grid Electric is scaling up rapidly in Tanzania, and cites competitors in Kenya, Uganda, and Rwanda who are growing fast “SE4ALL’s report adds that grid access is not all that it’s cut out to be. In the developing world brownouts and blackouts can be a daily affair. As its U.N.-World Bank authors put it: “The presence of an electricity connection is a prerequisite for receiving electricity supply, but does not guarantee it.
    …The report makes this case through a recent study of electricity access in Kinshasa. Close to 90 percent of residents in the DRC’s capitol have access to electricity through grid connections. But in practice extensive limitations in hours of service, unscheduled blackouts and voltage fluctuations degrade access. “The reality is that the streets of Kinshasa are dark on most nights and that few households can actually use the electrical appliances they own,” according to the report.”

    http://spectrum.ieee.org/energywise/energy/renewables/electrification-rumble-renewable-minigrids-challenge-the-big-grids-primacy

    • Fred Magyar says:

      This is exactly what I was trying to explain to Fernando the other day! It makes zero economic sense to continue investing in the grid at this time, in places such as these countries in Africa.

      It is a lose, lose proposition for both the energy providers and the potential end users. Investing in small scale distributed PV provides an immediate stable source of electricity which the end user has full control over.

      There are no surprises such as brown outs when you least expect them. Sure the end user is 100% responsible for learning about the limitations, understanding and maintaining his system and batteries but this is not rocket science!

      I can think of absolutely no valid arguments against going the distributed PV route! Suggesting these people take their money and put it under a mattress while waiting for solar to become cheaper while paying exorbitant prices for intermittent electricity delivered by a fossil fuel powered grid will just bankrupt everyone!

      • Arceus says:

        Your argument makes sense. Not easy to argue against, but I’ll give it a go. If you live in a remote hut in Africa, for example, what is the most pressing need? Is it clean water? Food? Healthcare? Do you fear for your safety? If you had an extra $50, what would you spend it on before purchasing a solar panel? I have no idea of the answer to any of these questions by the way.

        • Fred Magyar says:

          I’m assuming these people have at least basic shelter access to potable water and are not starving. They may or may not have some form of health care but they want electricity to power a few LEDs at night, charge their smart phones to communicate with friends and the world and maybe want to power a tiny 12 volt refrigerator. It looks like my attached graphic. I’m willing to bet everything I have that these people will never have anything like what we call a grid!

        • Wake says:

          People try to spend very little money at all if they can. Most families in the village I lived in might have had an income of $400 per year but only ever see 50 in cash in a year, the rest was the crop

          Even so there is tremendous waste that some things could help

          Women spent several hours a day pounding grain and making food, another hour or three hauling wood and water to cook it

          A trip to market could be a risk that a cell phone can alleviate, pricing is obscure on stuff you want to buy and sell, as well as availability

          We had a car though 3-4 days a week but it was still a big deal and expensive to leave so most didn’t

          Cell phones, with a solar charger, perhaps pumps etc would I think have been very useful but they were after my time

          First technology I saw in every village aside from the visiting market cars was a gasoline powered mill, where you could grind your grain for a dime or quarter instead of pounding

          Most folks could not afford that though in mine

        • Check this out, it’s a trip report by a Christian missionary to see a northern Kenya tribe. This is one of the few places in Africa I’ve visited where a few solar panels or a wind turbine make sense. But they can’t be installed in individual huts. It would have to be placed in a well guarded location at the center of the “village”, in a place where they can have guards protect the panels from thieves and raiders.

          http://trinitybaptistkenya.org/a-summary-of-my-trip-to-the-rendille-february-1-10-2012-jonathan-underhill/

          If you want to read more look up “Close Encounters in the Chalbi Desert”.

          The opposite side I’ve seen is the small villages and towns in Congo on the way from the Brazzaville / Kinshasa region to the coast. They can’t use solar panels set on individual huts either.

          My rough guess is they prefer medical care for their kids, some help with education and scholarships to help them get out of the rut, hand cranked water pumps, and Ak47 rounds. If there’s a cell network available a cell phone charger connected to an electric power supply makes sense. I suspect most locations do better with a small communal solar facility next to a local clinic. The clinic doesn’t even need a regular doctor, just somebody who knows the basics.

        • Techsan says:

          One of the main things they spend money on is kerosene for lanterns, for light at night. Not only is the kerosene expensive, but the fumes from the lanterns indoors cause lung disease. Solar is cheaper and provides light without lung disease.

          • Wake says:

            Every man in my village had a cheap flashlight using even cheaper Chinese batteries that were still a real expense

            They would use them till you could hardly see the bulb glowing

            That was pre led though

            Lots of benefit in avoided battery and kerosene

  13. shallow sand says:

    Per Flint Hills Resources crude price bulletin 8/11/15:

    ND Light Sweet $29.25

    ND sour $13.50

    Kind of like the nostalgia promotions gas stations run sometimes when they sell gas for $0.99 for a few hours.

    $8 million well. 80% NRI. 250K oil first 60 months. 250K gas first 60 months.

    200,000 barrels x $29.25= $5,850,000.00
    200,000 mcf x $2.50 = 500,000.00

    Severance tax 10% (635,000.00)
    OPEX (1,340,000.00)
    G & A. (233,000.00)

    Pre-interest net. $4,142,000.00

    75% borrowed at 8% (2,400,000.00)

    Post interest net. $1,742,000.00

    • Rune Likvern says:

      shallow, I am a fan of your posts.
      NRI; Net Revenue Interest?

      Good video explaining WI and NRI …. for those interested.

      [ https://www.youtube.com/watch?v=eZU5hvGcngg ]

      I placed the URL in brackets to avoid it being auto loaded

      • shallow sand says:

        Rune. Yes. NRI= net revenue interest. In my examples I always use GWI (gross working interest) = to 100%.

        In reality, seems the shale wells have a lot of non operated working interest owners.

        • shallow sand says:

          Rune is there any reason to think typical Bakken wells will have cumulative oil in 60 months of more than 250K barrels?

          • Enno Peters says:

            Shallow, the average
            1) ND well has about 190.000 bo after 60 months.
            2) Middle Bakken well has about 220.000 bo after 60 months.
            3) Three Forks well has about 180.000 bo after 60 months.

            I don’t see any big changes in those projections as of yet.

          • Rune Likvern says:

            Shallow,
            (I hope Ron allows me reposting the chart below I posted at the end of his previous post.)

            The chart shows monthly versus cumulative LTO for 60 months (both Middle Bakken and Three Forks) for wells with at least 12 months of flow started from Jan 08 and as per April 2015 grouped by productivity).

            In the chart is also a table showing the number of wells and their portion of the total.

            This chart is dynamic as more wells are added expect (small changes), especially for the first 12 to 24 months.
            The green line very much represents the average well.

            The average well struggles to reach 250 kb LTO after 60 months, more like 210 – 220 kb.

            • Longtimber says:

              If all fixed costs are 10 Million (??) , thats $48 per Barrel. So many wells are Winners and many wells are Losers pre Opex.

    • islandboy says:

      Shallow, I try to follow all of your posts since it is apparent to me that you are focused on highlighting the profitability, or lack thereof, of much of what is going on in the LTO business and are doing a damn fine job of it IMO. Please forgive my ignorance but, in that list of expenses, I do not see anything that indicates that the principal on the loan is being repaid, in which case the “post interest net” comes up short a whopping $6,258,000.00! If that is in fact what you are illustrating, that shit should be illegal!

      • shallow sand says:

        Island. You are correct. I have not seen many examples of companies paying down principal. In a few cases, a small amount of loan principal will be paid as the result of an asset sale or stock issuance.

        The standard loan term for conventional oil and gas projects onshore US was 5 years, with banks loaning 50-60% of proved, developed producing PV10. Think of PV10 as an appraisal. It is the present value of the future stream of income from the oil and/or gas project, discounted by 10%.

        At present, almost all shale companies have more long term debt than PDP PV10, using the current futures strip oil and gas pricing. So, if they quit all drilling, and applied all net income to their debt, they could not pay the debt off. However, this would cause US production to fall off a cliff, and oil and gas prices might quickly recover, which might, for some, make debt repayment a possibility.

        However, none of the companies want to admit this, so they keep on borrowing and drilling. They have had easy credit for a long time. Hopefully that is ending.

        • I don’t think the tight oil producers had easy credit. What they had was stupid lenders.

        • AlexS says:

          shallow sand,

          An important thing to consider is that most large and medium-sized shale companies have relatively small
          near-term debt maturities. Most of their debt matures in 2018-19 and especially in the next decade. And hence they are not expected to have problems with liquidity in the near term. That is one of the reasons for their relative complacency as regards cash balances and debt levels.

          Oasis Petroleum Debt Maturities ($MM)

          • shallow sand says:

            AlexS. You make a valid point. US shale companies did a very good job of offloading their debt from banks onto bond holders. Hopefully not too much into US pension funds.

            The bonds do not require principal payments until they are due, at which time a balloon payment in the entire amount of the bonds are due, at par.

            Kind of like interest only loans for new houses about ten years ago.

            Notice I use five years in my simplistic calculations of payout. I do that because that is how I analyze success regarding a drilling project. Ironically, that lines up with when the bonds for shale become due.

            Lower for longer. No fun at all, unless you are strictly a consumer.

            In 2019, 2020, the US will have thousands of shale wells producing 5-50 barrels of oil per day. So let’s say an average of 30 barrels gross per well. How does one of those look at $80 oil in the field? Again assume .80 NRI.

            Oil sales. $700,800.

            Less severance. $70,080
            OPEX. $268,000
            G&A. $33,000

            Net before interest, principal and income taxes. $329,720.

            Kind of tough to pay off those bonds coming due. Can’t even pay the interest on them very easily. Especially when you drilled the heck out of your best locations in 2015-2016 while oil prices were very low.

            • HVACman says:

              So it looks like Oasis has about $3B in bonds that mature by 2022. And their situation is repeated throughout the shale industry. Could be hundreds of $B total. If there is zero budget for paying the bond principal at maturity for all this shale activity, and the bonds will mature in the 2020-2022 time frame, the question for the rest of us becomes: will the resulting bond defaults be a catalyst for the next US financial “crisis”? Will the defaults trigger possible “failure” of major bond holders – holders “too big to fail”? But can the US gov. backstop another round of defaults like that? The years 2020-2022 may be pretty rough – and for more than just the shale industry.

  14. Amatoori says:

    Hi all

    Found this quote and was confused as always now days reading about oil.

    Morgan Stanley urged caution in using the EIA’s estimates in a research note today, citing common historical revisions. The EIA may not be capturing all the gains in efficiency that companies have made since the downturn began, such as focusing drilling on only the best parts of different plays.

    “We would be hesitant to assume recent forecasts for a sharp decline will be realized,” Adam Longson, a commodity strategy research analyst for the bank, said in the note.
    http://www.worldoil.com/news/2015/8/11/shale-oil-output-wanes-as-us-producers-retreat-in-bear-market
    —-

    Whats your opinion about this? Reading and looking at data here and other places this seam to be some wishful thinking. BUT the decline isen’t that big in real EIA numbers yet. Is EIA that slow on data or is the production still flowing in?

    We tend to look for information that support our hypothesis, hope thats not the case here for me.

    • Huckleberry Finn says:

      EIA HAS captured a lot of the efficiency gains. Look at productivity per rig in the last 4 months. It is compensating for the best targets being hit.

    • Javier says:

      I would trust the devil over Morgan Stanley. They are often in the opposite trade that they recommend. They are probably trying to sell their oil trades to their customers and the EIA data is spoiling the scam.

  15. Watcher says:

    I see another effort is underway to blame the Saudis.

    How about don’t blame them. Or Russia. Or Shale.

    How about you take a look at mazamascience.com/Oilexport for entire world. See that little white sliver between the black line and the gray area?

    Think about it.

    • Javier says:

      It’s all Disney’s fault. People learn from infancy that every story has to have bad guys, and if they have an Arab accent then look no further. It’s inprinted.

      Of course the Arabs get the opposite inprinting, so it is all Occidentals’ fault. In this case they have a point.

      • MarbleZeppelin says:

        Governments cease to have a purpose if their are no enemies.

        • clueless says:

          fire; roads; education; zoning; rules like speed limits;regulation of food and drugs; criminals; border security; and dozens more.

          • Fred Magyar says:

            Yeah, but none of that is REALLY necessary unless you have enemies 🙂

          • Bob Nickson says:

            All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, the fresh-water system, and public health, what has the Government ever done for us?

    • Longtimber says:

      OK, Quiz time Grasshoppers. If you switch to Mass – no sliver – Refinery gains perhaps? Consumption post refinery?

      mazamascience.com/Oilexport for entire world

      • Watcher says:

        Very good. That was 1/2 of the thinking.

        The other half is no surplus, and yet, it’s somehow all about . . . . . .?

    • DuaneX says:

      OilExport is case sensitive

  16. Ronald Walter says:

    It’s a deflationary environment.

    Credit contracts, prices contract/collapse.

    After all of the inflation, expansion of credit and prices, it is a world of hurt, especially for those who borrowed too much, i.e. shale oil hunters and gatherers, it is going to hurt.

    It’s a trap.

  17. The city of LA, the penultimate car city, is planning on adding hundreds of miles of bike and bus lanes.

    http://www.latimes.com/local/lanow/la-me-ln-mobility-plan-20150811-story.html

    I can see this working out very well indeed in a place where the weather is well suited to biking almost every single day of the year.

    • Oskar DiSilvo says:

      ‘penultimate’

      ‘Next to last’?

      1: next to the last

      http://www.merriam-webster.com/dictionary/penultimate

      ultimate

      a : most remote in space or time : farthest
      b : last in a progression or series : final
      c : eventual 2

      d : the best or most extreme of its kind : utmost

      http://www.merriam-webster.com/dictionary/ultimate

      Anyhoo,

      I do not subscribe to the notion that the magic solid white line separating the car lane from my several-foot-wide paved berm will protect me tiding my bicycle from the dumb-asses ostensibly ‘driving’ while talking on the cell phone, texting, surfing the web, putting on makeup, futzing with their navigation system, trying to find the right radio station, MP3 song, or pod cast, talking/arguing with their wife/girlfriend/etc, eating, drunk or high or some/all of the above more or less at once, whilst speeding in their poorly maintained vehicle. I would need a jersey barrier, guard rail, or better yet a dedicated pike path with highway and street overs and unders. I would love the exercise and the reduction in my FF use, but I do not have a death wish. This isn’t Holland.

      • b , in the sarcastic sense , the final totally taken to the absurd example of too much of a good thing. I should have put on a smiley face or sarc light.I should remember that sarcasm does not work on the net, given that I often remind others of this very thing.

        I am with you on the dangers and never ride a bike in traffic myself but it is also obvious that everybody in a city cannot drive due to gridlock and that everybody cannot AFFORD to drive anyway.

        It has been conclusively demonstrated that biking in a city is actually safer in terms of the bikers personal health than driving even after accounting for accidents. The explanation is that you reduce your risk of heart attack , obesity, etc , to such an extent that the risk of having an accident is an acceptable and even DESIRABLE tradeoff.

        My solution would be a barrier between the bike lane and cars wherever possible, not possible at intersections though. Or- since there are now cameras almost every where- jailing any driver who hits a bike in a bike lane for a year, taking his last dime, and revoking his license permanently. Second offense ten years. No probation. No exceptions.

        Drunk driving deserves hard jail time , no exceptions. Drunks have killed a couple of people dear to me.

        • The problem is solved by passing strict laws to condemn drivers who strike a biker. The penalty could be simply having the biker’s family beat the miscreant with baseball bats. (the beating length and baseball bat material being proportional to the damage suffered).

        • Oskar DiSilvo says:

          Mac,

          You have some fine ideas, than you!

      • Techsan says:

        All that you say is true. But, the benefits of the exercise far outweigh the chance of being hit by a car. The main place where cyclists get hit is late at night, by drunks. Cyclists should avoid arterial roads late at night, especially on weekends. Cycling to work (which I did today, at 104 F or 40 C) is one of the best things one can do for health.

        • Oskar DiSilvo says:

          Who knows, I may give it a try and roll the dice.

          I would hate to end up worse than dead though.

  18. Ves says:

    Financial system is in breakdown. Too much money is printed.
    It takes only $50 for gas and 12 hours to drive to Montana but once there they are asking me $70 for an hour of horseback ride. And I need 4 horses. Cool $300. Plus Tax this and Tax that on the top. I thought these prices for horses are assured in Mad Max scenario, not now 🙂
    Wrangler is trying to convince me there is a value there and that I shouldn’t compare with cost of gas. He said it is experience that counts. For sure it is experience but unpleasant one 🙂

    • Fred Magyar says:

      Same experience down in Brazil, gas is a bit more expensive but not by much However the horse back riding out on the farm cost my brother, my niece and myself about US $50 bucks total for all three of us, for a four hour ride, with the owner, a nice Swiss Lady, as our personal guide… I don’t care how great an experience Senor Wrangler is trying to sell ya it ain’t worth $70.00 per hour, no way Jose!
      People in the US seem to be losing all touch with reality! Their falls back to earth will quite painful, I think!

      • SW says:

        Like anything, it is worth what you, or similarly situated rubes are willing to pay.

        • Ves says:

          SW,
          Don’t fall that easily for that supply and demand mantra. Simple explanation is that constant easy credit at the top inflated all kind of costs and it is chasing ever decreasing pool of solvent customers at the bottom. Around Yellowstone you have million dollar log homes in rental pool that can’t cover taxes and maintenance for the year from the rental income but the valuation of the home increase every year. And the new ones are getting built even now. Why I might ask? And why not, when credit spigot is wide open from the lenders. Does that remind you of shale industry? It reminds me.

  19. Jeffrey J. Brown says:

    Available Data for OPEC 12 Countries and the World (gas data only through 2013) follows (EIA + OPEC). Of course, data quality is an issue, but we can only work with the data we have.

    In 2014, OPEC accounted for 42% of global C+C. The implied increase in OPEC condensate production from 2005 to 2014 was about 1.2 MMBPD (1.2 to 2.4). Note that the large increase in US condensate production (over 45 API gravity) would fall in the other 58%. Just from 2011 to 2014, the EIA is estimating that US condensate production increased by about one MMBPD, so I suspect that the increase in US condensate production from 2005 to 2014 was probably somewhere around 1.5 MMBPD.

    2014 OPEC Production (2013 for gas) as a Percentage of 2005 Production

    Gas: 151% (2013 data)
    Natural Gas Liquids (NGL): 112%
    Crude + Condensate (C+C): 102%
    Crude Only: 98%
    Implied Condensate: 200%

    2014 Global Production (2013 for gas) as a Percentage of 2005 Production

    Gas: 123% (2013 data)
    Natural Gas Liquids (NGL): 126%
    Crude + Condensate (C+C): 105%
    Crude Only: ?
    Condensate: ?

    • Jeffrey J. Brown says:

      As I have frequently noted, in my opinion the only reasonable interpretation of the available data is that actual global crude oil production (45 API gravity and lower crude oil) was flat to down from 2005 to 2014, as annual Brent crude oil prices doubled from $55 in 2005 to an average of $110 for 2011 to 2013 (remaining at $99 in 2014).

      But if it took trillions of dollars in upstream global capex to keep us on an “Undulating Plateau” in actual global crude oil production from 2005 to 2014, what happens to crude oil production going forward, given the significant ongoing declines in global upstream capex?

      Following is a chart showing API gravity versus sulphur content for 16 major global crude oils. Note that the EIA is showing virtually no increase in US 40 API and lower crude oil production.

  20. Roxy says:

    Hi Ron,

    Love your site and all your posts, I was wondering, does your date of peak change with this new information?

  21. AlexS says:

    The IEA released its August Oil Market Report.

    Key takeaways:

    • Global oil demand in 2015 is expected to grow by 1.6 mb/d, up 0.2 mb/d from their previous Report and the fastest pace in five years, as economic growth solidifies and consumers respond to lower oil prices. Persistent macro-economic strength supports above-trend growth of 1.4 mb/d in 2016 (vs. 1.2 mb/d projected in July report).
    • World oil supply fell nearly 0.6 mb/d in July, mainly on lower non-OPEC output. While non-OPEC output growth has sunk from its heights of 2014, supply in July was still running 1.2 mb/d on a year earlier thanks to hefty investment made previously. Oil’s second lurch below $50/bbl has prompted major oil companies and independents alike to revisit investment plans and take an axe to them. While a drop in costs and efficiency improvements will help to offset some of the spending cuts, output is likely to take a hit soon. Non-OPEC supply growth is expected to slow sharply from a 2014 record of 2.4 mb/d to 1.1 mb/d this year and then contract by 200 kb/d in 2016 – with the US hardest hit.
    • OPEC crude supply inched 15 kb/d lower in July to 31.79 mb/d as Saudi output eased and offset record high Iraqi production and increased Iranian flows. The ‘call on OPEC crude and stock change’ rises to 30.8 mb/d in 2016, up 1.4 mb/d on this year due to a stronger demand outlook and stalling non-OPEC supply growth.
    • OECD inventories rose counter-seasonally by 9.9 mb to hit another all-time high of 2 916 mb in June with their surplus to average levels widening to a record 210 mb.
    • Even with the slowdown in non-OPEC production and higher demand growth, a sizeable surplus remains. The IEA latest balances show that while the overhang will ease from a staggering 3.0 mb/d in 2Q15, its highest since 1998, the projected oversupply persists through 1H16. Assuming OPEC production continues at around 31.7 mb/d (its recent three-month average) through 2016, 2H15 sees supply exceeding demand by 1.4 mb/d, testing storage limits worldwide. The surplus drains down to about 850 kb/d in 2016, with 4Q16 marking the first quarter of a potential stock draw. This outlook does not include potentially higher Iranian output in the case of sanctions being lifted.

    Year-on-year growth in global oil consumption (mb/d). IEA Oil Market Reports August 2015 vs. July 2015

    • AlexS says:

      As such, the IEA data and forecast show a strong demand-side response to lower oil prices. This is particularly important, given that there are several counteracting factors:

      1) Oil demand is price inelastic. That means that even very substantial changes in oil prices result in relatively modest changes in demand.
      2) Oil demand is more correlated with GDP growth than oil price. Meanwhile, global economic growth has marginally slowed in 2015. According to the IMF, it was only 2.2% in the 1Q15 and is expected to average 3.3% for the full year vs. 3.4% in 2014. In emerging economies, which are the main drivers of global demand, GDP growth is expected to slow from 4.6% in 2014 to 4.2% in 2015.
      3) For many non-US consumers the effect of lower oil prices was partly offset by a stronger dollar.

      Global y-o-y oil demand growth (mb/d) vs. Brent oil price (reverse scale)
      Sources: IEA OMR August 2015, Brent price forecast by the EIA (STEO August 2015)

    • Thanks for the charts Alex. Here is the biggie from that report:

      World oil supply fell nearly 0.6 mb/d in July, mainly on lower non-OPEC output. OPEC crude production held steady near a three-year high. As lower prices and spending cuts take a toll, non-OPEC supply growth is expected to slow sharply from a 2014 record of 2.4 mb/d to 1.1 mb/d this year and then contract by 200 kb/d in 2016.

      A 600,000 barrel per day drop in non-OPEC output is quite significant.

      • Jeffrey J. Brown says:

        As noted above, my bet is that the decline is showing up first in 45 API gravity and lower crude production.

      • AlexS says:

        Ron,

        that’s indeed a very big drop, especially as there was no significant accidents, civil wars or unplanned outages. But I’m trying to figure out where this drop could occur.
        The US C+C was down 100 kb/d in July (EIA estimate), Russia was down 70 kb/d (local sources). What else?
        The EIA shows a decline of only 150 kb/d for combined non-OPEC total liquids in June.
        The projected 200 kb/d decline in non-OPEC output in 2016 is also worth noting, as in July OMR the IEA was forecasting an increase of 30 kb/d.
        BTW, OPEC is still expecting non-OPEC production to increase by 270 kb/d in 2016, and the EIA by 100 kb/d.

        • Those projections can change by as much as half a million barrels per day from one month to the next. They are just guessing and my guess is every bit as good as theirs.

  22. Useful article about Venezuelan politics.

    http://nationalinterest.org/feature/coming-soon-another-rigged-election-venezuela-13544

    Maduro went overboard during his weekly TV show last night. Sent a “telepathic salute” to child abuser Daniel Ortega, blamed the USA embassy for the San Felix food riots, said he was creating a new bureaucracy to fight the food black marketeers, blamed the president of a food packager for the food shortages….

  23. SAWDUST says:

    After two days of PBoC fixing. Over night the dollar tanked big time against all it major counterparts. The world minus Japan and Europe need a weak dollar.

    Truth is Fed could have raised interest rates a long time ago if they really intended on doing so. When they drag a rate hike out over a long period of time instead of just doing it. It allows time for positions to be built up driving the dollar up to the point where it’s no longer feasible to actually raise them.

    One could argue that Fed did it intentionally to drive price of commodities down. Lower oil and other commodity prices should have produced economic growth.

    When QE and low interest rates fail to spur economic growth or anymore economic growth than they already have up until this point. Then low commodity prices fail to spur economic growth. Then there is nothing left that can. There is nothing left to drive the economy forward from here.

    Global financial collapse should happen over next two years. Without economic growth it doesn’t matter how much money they print or what the price of oil and other commodities are. They can’t stop economic Armageddon and it don’t matter that there is still lots of oil in the ground.

    Fed should grow a pair an jack rates up to 8% forcing not only world wide economic depression but it would flush a vast amount of debt out of the system. Which would allow an economic recovery. Everything would just start over at much lower levels than they are at today But they don’t wont to do that cause the world would be a much different place than it is today. What BAU is would need to be redefined to much lower levels than it is today.

    • Jeffrey J. Brown says:

      Winners may be largely defined as those who lose the least.

      • Watcher says:

        Bingo.

        And note the exquisite thinking by China on this matter. It’s about self interest and it’s not about anything else. Specifically, when you erode your currency and you’re an oil importer, you get hurt.

        But not if you wait for cheap oil.

        • SAWDUST says:

          Should be a rash of CB interest rate cuts on the way. Particularly in Asian countries. It’s definitely all about self interest.

          I am curious as to what happens when everyone has zero interest rates.

          • Watcher says:

            That’s when KSA and Russia wonder why they accept pieces of paper for something valuable and decide to save it for the grandchildren.

            This absurd notion that countries with enemies will sell absolutely vital things to their enemies just because the price rose will be laid bare.

            • Nick G says:

              And, they’ll lose the export money and importers will realize they don’t need the oil.

              Oil is dirty, risky and expensive – kick the habit.

            • SAWDUST says:

              What would happen to the Russian/China Gas agreement if China’s interests rates worked there way down to Zero?

              Should i just reread previous comment? Or will Russia sell to the Chinese regardless? Canada has been selling to The US for the last 7 years with interests rates at zero. But we are talking about two totally different situation so outcome might be totally different.

              In my mind global trade will become almost non existent even between so call allies. Agreements will be torn up.

              • Watcher says:

                China never imposed any sanctions. No reason to retaliate.

                A good piece of data to have would be . . . given Russia has a certain oil production requirement for domestic consumption, what amount of nat gas is produced with that quantity of oil, and does that quantity exceed Russia’s domestic natgas needs?

                If the gas is going to flow anyway, no reason not to provide it to their Chinese partners.

              • Synapsid says:

                SAWDUST,

                The second NG deal between Russia and China, the Power of Siberia-2 pipeline that would run down to Xinjiang, is on indefinite (well, negotiations are “not intensive”) hold because China says the economic environment is not what it was. I think this means that they view the deal as too expensive now what with their growth slowing, and maybe China is looking at LNG as more useful than previously (though not, I should think, in the west of the country.)

              • Interest rates have never into any decision I made to buy ANYTHING at all except real estate. I have always paid cash for everything else.

                Why should the Russians give a damn about Chinese interest rates so long as they SPEND the money which the Chinese pay to them for their gas?

                AS Ron our gracious host has often pointed out, there are ways to exchange just about any currency for any other on any given day and know exactly what you were going to get.

                And while the rest of the world may be mostly tied up like Gulliver with the Lilliputian’ s threads of the dollar denominated international trade banking system, the Russians and the Chinese are able to trade gas or timber or whatever going south for any sort of manufactured good or agricultural good ( winter fruits and veggies?) etc coming from China moving north.

                Uncle Sam may be able to stop most countries from getting paid for trade goods or loading and unloading ships moving from one country or another by twisting arms. But the Chinese and the Russians are in a position to laugh at him when trading with each other or their own close allies.

          • Dennis Coyne says:

            Hi Sawdust,

            The World Bank discusses negative interest rates in a recent report.

            When zero isn’t low enough, central banks go to negative rates (European Central Bank, Danish Central Bank, and Swiss Central Bank).

            • SAWDUST says:

              Hi Dennis,

              All those central banks with negative rates can never exit negative rates. All central banks are trapped. Eventually all negative interests rate have to become even more negative to keep the party going and hold off complete collapse and all interests rates that are still positive will have to go negative to hold off collapse for just a little while longer. All fiat money is going to zero. Collapse can only be delayed for a little while longer. It can’t be avoided forever.

              Oil does play a role but it’s the amount of debt. Unpayable debt and unpayable liabilities thats going to collapse pretty much every country.

              And what i mean by zero is it won’t get accepted as a form of payment much longer.

              Don’t know what the new medium of exchange will be but it won’t be currency for much longer. You’ll have to have actual stuff of value to trade if you want to import or export goods. and you’ll probably need stuff with actual value just to trade locally.

              De-population will happen rather quick when currency is no longer accepted as form of payment anywhere.

              Global collapse isn’t 10 or 20 or 30 or 40 year off. It’s 2-5 years in my opinion. It will happen when there is still plenty of oil left also.

              We will have massive deflation, purely monetary thing as defaults happen. Followed by hyperinflation as governments around the world respond with more money, debt, credit creation and spending. Then global War.

  24. MarbleZeppelin says:

    Is the cost of fuel for cars even very important? Let’s look at the stats. According to the U. S. Bureau of Labor Statistics the average car costs about $16 per day before fuel costs. Since the average driver goes about 34 miles per day, that is currently $2.80 per day for fuel. If the price of fuel doubles, that will add another $2.80 per day which is a 15% increase in operating costs.
    Calculated for 28 mpg and fuel cost of $2.30 per gallon (current price near me).
    So to compensate they could just cancel the cable TV subscription and after a short period of adjustment have better lives with no increased cost. Many are probably spending more on coffee per day than they spend on gasoline.
    Except for the near destitute or the extreme traveler, fuel prices for personal transport in the US are a minor concern.

    • Jeffrey J. Brown says:

      On the Edumunds True Cost to Own website, you can plug in different assumptions for fuel costs and see how that changes the projected total cost over a five year period (assuming 75,000 miles in five years):

      http://www.edmunds.com/tco.html

      Actually, most people tend to underestimate the total cost of owning and driving a vehicle.

      • Nick G says:

        Yes, it’s astonishing how much people are willing to pay for cars.

        Why so many people buy new instead of used is baffling. Why so many buy SUVs baffles me too. Also baffling: ICEs instead of hybrids, or EREVs, or EVs….

        • Ronald Walter says:

          Somebody has to buy new and trade for another new to have a used car.
          I’ve bought used cars and there are always problems, when you buy new, it’s new.

          There can’t be all used cars.

          A new car has zero mi!es on it, very little maintenance at the beginning, and when there are enough miles to trade for another new, people do.

          Trade with 50000 and less, you will be able to sell for more money.

          Besides, new cars in 2016 are far superior to the old days new cars.

          • Nick G says:

            Cars could run for twice as many miles as they do. We toss out cars way before they’re worn out. The market value declines due to low demand for used cars, and a relative minor fender bender or repair exceeds the market price, and the car is “totalled” or sold.

            So, sure, there have to be some new cars, but the volume could be 50% of what it is currently. That would mean much lower annual depreciation, and much lower cost per year for everyone.

            • Manufacturers build dozens of different models and change the models every year or two in order to fool the buyer into thinking he is getting something special.

              Not true at all. One car in the same general class such as four door sedan is very much the same as the next in the same price class.

              Then because there are so many variations in models it costs a lot more than it would otherwise to repair them.

              Most cars could be kept running twice as long as usual a lot cheaper than buying new.

              I drive older cars and trucks carefully selected in respect to reputation for ease of repair and reliability and available of good economical aftermarket parts etc.

              My Chevy truck will probably make four hundred thousand miles if I live so long and my Escort will make three hundred thousand. I have had excellent luck with certain imports too.

              I paid a thousand for the Chevy with a badly rusted tail end due to road salt and fixed it myself. Gave eighteen hundred iirc for the Escort ten years ago.

              DEPRECIATION costs me PEANUTS. Ditto property taxes and full coverage insurance. I need only liability coverage. No need to give the insurance company the value of an old car every three or four years in the event of it getting destroyed in an accident.

              Given that my old car and truck are PROPERLY maintained I don’t think twice about taking a trip in either of them.

              • Nick G says:

                That’s the secret: proper preventive maintenance.

                That’s why commercial vehicles (planes, trains, trucks, etc) typically are used for many decades. They may be built a little more sturdily, but P.M. is the essential ingredient.

    • Mike says:

      Surely an increase in the cost of fuel – say a doubling of the pump price per gallon/litre – would not have much effect on private motoring in the US? Here in Europe, the cost of petrol (gas) or diesel can be four or five times the cost over there in N America. Yet we are as addicted to the motot car as you are over there. I have no actual figures, but my impression is that motor fuel costs are but a small % of total household expenditures. of course, it varies from country to country – fuel is substantially more in Ireland than in the UK, – but between the different countries there is no discernible difference in car usage or distances travelled or whatever. I cannot believe that a doubling or even tripling of the pump price of petrol and diesel would be mean a disastrous and catastrophic apocollapse for the US (and Canada?).

      • Toolpush says:

        Mike,

        Is this our Mike the oilfield hand of Southern Texas, or just his alter ego? smiles

        PS. With the much greater fuel economy of European cars and the lesser distance traveled, even with the high cost of fuel, I am sure the average European spend less on fuel than the average American.

        • Mike says:

          That is another Mike by a different mum. At 43 dollar oil this oilfield Mike has no ego.

          I’d ask Ron for my blue ink back, to keep me separate, but he’d probably just soon I go back to work and get off his blog completely.

          Blue Mike

          • Mike, we love having you here, please don’t leave this blog. It is the oilmen on this blog that make it worth reading. Without you guys this blog would be a lot poorer.

            • Mike says:

              Thank you, Ron; I won’t leave. If the price of oil gets any lower maybe I’ll change my handle to In the Red Mike.

        • Mike says:

          Different Mike. Don’t often post, only occassionally, not being in the oil trade so to speak, but do enjoy all that is posted by the experts on this site. Maybe I should change to Mick. Or Britmike. Sorry for confusion.

      • MarbleZeppelin says:

        You are right Mike, it would all be quite manageable. However it would be a grand opportunity for griping and for corporate/political moves on the oil company part. They would be pushing for drilling off the Atlantic Coast, in Anwar and every other preserved or public place. Plus they would be screaming for more subsidies since the cost of drilling would increase.
        The stupid yokels here would go right along with it. No need, but major negative changes would happen for no good reason.

      • Nick G says:

        The average European uses 18% as much fuel, vs the US.

        Much better efficiency; fewer vehicles per capita; much lower vehicle miles traveled per vehicle.

        Europe consumes the majority of it’s oil in it’s very inefficient freight transportation, both rail and truck.

        • MarbleZeppelin says:

          Wow, last I heard it was half. Big drop there, highways and streets must be empty.
          Where did you get that figure?

          • Nick G says:

            The vehicles use about 60% as much fuel; about 60% as many vehicle miles traveled per vehicle; and they have far fewer vehicles per capita.

            Oddly enough, they have a lot of commuters, and some vicious traffic jams in places. I guess they have far fewer miles of roads, to match the fewer vehicles on the roads.

            I’ll look for my source…

            • MarbleZeppelin says:

              Germany uses about half the petroleum per capita that the US uses. France uses a little less than half the petroleum per capita that the US uses. So they must use it elsewhere if the cars are not using much.

              • Nick G says:

                Yes, it’s surprising – they use much less for passenger transportation per capita, and much more for commercial freight.

                Seems to be the result of three things: a fragmented train system due to their heritage of lots of small countries; a prioritization of passenger over freight rail; and, high taxes on passenger fuel but not on commercial diesel (one of the results of that is much greater use of diesel for passenger transportation). As a result, they consume a lot more fuel on trucking freight around.

                • It’s also the result of a nearly brand new high speed expressway system, and the flexibility afforded by having trucks deliver goodies almost anywhere within two days.

      • Ronald Walter says:

        It’s 460 km from Edmunton to Grand Prairie up there in Alberta. You’d have to pile six people into your car at 2.25 per liter. You can’t do that when you want to drive your convertible there on a nice summer day.

        Today’s recommendation is buy a couple of pounds (900 grams) of beef steak grown in Alberta. Superb quality beef, you can’t go wrong.

      • This is for our Euro Mike judging by his comments on the price of fuel affecting American drivers.

        First off there is NO consensus as to just who is middle class in the USA. The definition of middle class is fluid to say the least. So I will just use dollar income to discuss this question. Any family making over say sixty to seventy thousand a year household income is most likely driving a pretty expensive car or two or three cars.

        These people do make up a very large part of our population and could easily afford to pay eight or ten bucks per gallon considering that gasoline would STILL be a rather minor expense compared to the total cost of owning and driving a nice car traded in on a frequent basis.

        But when the household income level falls much below that , especially if both Mom and Pop are working and driving to work, the cost of gasoline IS a dead serious issue.

        Plenty of people in the fifty thousand or so household income bracket are living pay check to paycheck and have VERY little disposable income after paying all their bills- AND such people tend to live a LONG way from where they work BECAUSE good housing close to good jobs in this country costs a LOT more than good housing out in the boonies – even after allowing for the cost of a long commute.

        For a wild ass guess maybe twenty percent of the working people in this country would be SEVERELY impacted economically by ten dollar gasoline. I personally live in the boonies where many people are forced to commute rather long distances to jobs that do not pay very well. They would not be able to manage from one paycheck to the next if gasoline were to double in price and double again.

        Just about all of them now drive compact and subcompact cars but not too many of them could manage to trade up to a REALLY fuel efficient car. There just aren’t that many around on the second hand market in their price class and they would have to sell the cars they are driving now for very little.

        Anyway , most of us believe , along with just about all of our politicians , that there is a whatchamacallit , a penumbration or something along that line , in the Constitution that guarantees us the right to dirt cheap gasoline FOREVER in any amount we so desire and that anybody who disagrees is a whale loving tree hugging commie. 😉

    • dh says:

      The critical mistake you make MarbleZeppelin is to assume an infinite supply of oil, which always seems to be the case near the peak. And wouldn’t we expect relatively low real costs near the peak?

      The real cost of oil will rise relentlessly, no matter what dollar price is placed on it. As you accurately observe, if you don’t have any money, the price is low but you still can’t afford it.

      We’re bankrupt, we’ve reached the end of the line. However, where I will agree is that to people of means and a high enough socioeconomic background, they should be able to acquire fuel for some time.

      • Nick G says:

        ouldn’t we expect relatively low real costs near the peak?

        No, we really wouldn’t. If there is a scarcity of something, it’s price should arise. If there is a real peak in supply, then you’ll have a shortage, and prices will spike.

        Now it’s conceivable that you could have a boom and bust cycle that occurs just before the peak of supply. That Ron’s argument. That could happen.

        But it’s not what you would normally expect.

        • If there is a real peak in supply, then you’ll have a shortage, and prices will spike.

          Nick, that is faulty logic. A peak in the supply of oil does not automatically mean a shortage. The exact opposite is far more likely. The point of maximum production is far more likely to be perceived as a glut than a shortage.

          You can find no better example of this than what is happening right now. You may not agree that oil production is at peak right now but you must agree that this very well could be the peak. Yet the price of oil says we currently have a glut.

          If your argument is true then you must show the reason why we currently could not possibly be at peak. I don’t think you can do that. Of course you can show how oil production might be increased, Iran, Libya etc. But such conditions will always exist. And they will, no doubt, exist when we are at peak oil.

          • Nick G says:

            A peak in the supply of oil does not automatically mean a shortage.

            I agree – we were talking about expectations, and what the likely scenario would be, in the abstract and in general.

            The point of maximum production is far more likely to be perceived as a glut than a shortage.

            That idea I don’t get. If the demand curve is stable, and the supply curve suddenly shifts, then the balance of supply and demand is disrupted: less supply means higher prices.

            You may not agree that oil production is at peak right now but you must agree that this very well could be the peak. Yet the price of oil says we currently have a glut.

            Yes. This is a classic commmodity boom & bust scenario: there was a shortage, prices rose, then after a capex lag supply rose even higher, and prices crashed. That’s a classic scenario.

            In the classic long-term commodities scenario we would see what we’re seeing now: a glut on the market, low prices, a collapse in supply-side investment, which would set up the next cycle of shortage, high prices, high investment, subsequent glut, rinse and repeat.

            You’re guesstimating that underlying depletion will prevent supply from recovering for the next cycle. That’s certainly possible. As a practical matter that would be the peak: a situation where supply is sharply limited by geology not only temporarily but in the long-term.

            Actually, I agree that’s not only possible but not unlikely, but only if you ignore unconventional supply in the form of EVs. EV investment will spike, their prices will go decisively below that of ICEs (in contrast to the current situation, where the Total Cost of Ownership of EVs is lower, but that’s not clear to consumers who focus on the purchase price). EVs will replace ICEs, and oil will lose it’s dominance in transportation.

            • That idea I don’t get. If the demand curve is stable, and the supply curve suddenly shifts, then the balance of supply and demand is disrupted: less supply means higher prices.

              Ah… but we are not talking about less supply are we. We are talking about more supply. You are, apparently, talking about the post peak period. I am talking about the peak.

              Again, the point of maximum production is far more likely to be perceived as a time of glut rather than a time of scarcity. Also, I am not trying to predict what might happen after the peak here. And all this talk about EV and ICEs have nothing to do with the matter. Peak oil production will be the point of maximum production of oil regardless of the cause.

          • Nick G says:

            Let me say this again, in a slightly different way:

            If you look at the curves created by Hubbert and many others in the past for PO, you see a fairly rounded curve, where production stops growing and then peaks. In that situation, you would expect prices to start rising as production growth starts to slow, and then prices to spike and stay high around and after the peak level of production.

            In this case, production growth slowed down about 10 years ago, and then accelerated again after prices rose. That’s not what Hubbert expected to see before a peak in production. At this point we have a glut. We don’t have a geological limit to production.

            It’s certainly possible that we’ll see that soon, but if so it’s not showing up in the production data overall. A traditionalist is certainly justified in arguing that we’ll have yet another boom and bust cycle with another higher peak. Heck, we haven’t yet seen a clear world-wide decline.

            Can LTO expand once again, when high prices return? Maybe. There’s certainly LTO outside the US, in the Vaca Muerte, for example. Will it be enough to overcome overall depletion? That’s a very, very hard question to answer, and I don’t think anyone should be all that confident of their answer, whichever side of the debate they land on.

            I would argue that we shouldn’t take the risk of finding out: we should transition away from oil ASAP. We certainly can do that, and we should.

            • If you look at the curves created by Hubbert and many others in the past for PO, you see a fairly rounded curve, where production stops growing and then peaks. In that situation, you would expect prices to start rising as production growth starts to slow, and then prices to spike and stay high around and after the peak level of production.

              Isn’t that exactly what happened? We have been on a relative flat plateau since 2004. Production started to slow 10 years ago! Then prices shot up in 2008 and knocked the economy for a loop. We were, at that time, very near the peak. Prices started to rise again a year later and brought on line a lot of unconventional oil. Production shot up causing a glut. You are looking at it right now.

              The two terms “Maximum Production” and “A Shortage of Oil” are contradictory. Isn’t that obvious? If not, then why not? Please explain.

               photo JODI World CC_zpstic3q6go.jpg

              • Nick G says:

                Prices started to rise again a year later and brought on line a lot of unconventional oil. Production shot up causing a glut.

                Hubbert didn’t foresee that. No one did. Hubbert (and everyone else) had a curve that looked like the left half of that chart – the sharp increase in the right side of the chart was not expected. According to PO expectations, the curve should have started to show a decline on the right side of the chart. Right?

                This chart is not consistent with PO. It’s consistent with the classic boom and bust cycle. Now, it’s certainly possible that you’re right and that depletion will kick in and prevent oil production from ever growing again. If so, then 2015 could, in hindsight, be the peak.

                So, 2015 could be the peak. But, if so it didn’t happen the way Hubbert, or anyone else, expected. They expected a gradual slowdown in production which caused a shortage in supply. That would have cause a spike in prices that would have coincided with peak production.

                In other words, Hubbert expected flat production or a decline in the last several years, not another spike in production. That plateau would have been accompanied by a continued high price level.

                Make sense?

                The two terms “Maximum Production” and “A Shortage of Oil” are contradictory.

                Not really. You can have a peak in production, while at the same time the slowdown in production growth would cause there to not be as much oil as needed.

                Again, Hubbert expected a nice round top to the peak, where production struggles to grow before it stops altogether. That, in fact, is essential to the whole concept of Hubbert Linearization: it models the slowdown in growth that happens before the peak. During that slowdown you’ll have a growing shortage, and rising prices.

                • This chart is not consistent with PO. It’s consistent with the classic boom and bust cycle.

                  I did not mean it showed peak oil was now, only that it very well could be the peak. There is nothing about the chart that says “This is not the peak”.

                  However peak oil has nothing to do with boom and bust cycles. Peak oil could very well happen right in the middle of a boom bust cycle.

                  I am not at all concerned with what Hubbert thought the peak would look like. Anything he thought would only be speculation.

                  Of course there is nothing that says the peak will happen at a time of an oil glut, only that this is very likely to be the case. It is extremely likely that the point when more oil is been produced than has ever been produced in the history of the world, that this will be “times of plenty” in the oil world.

                  Again, there is nothing that even hints that at the time when more oil is being produced than has ever been produced in the history of the world that there will be a shortage of oil at the same time. Just plain old common sense should tell one that the opposite is far more likely to be the case. That this time of maximum production will likely mark an oil glut.

                  And what Hubbert thought or did not think has nothing to do with this debate.

                  • islandboy says:

                    I think that is why Campbell et al speak of “the bumpy plateau which precedes the decline.” They had the benefit of living long enough to refine the idea of what life at the peak would look like. Looks to me like we’re on that bumpy plateau as we speak.

                  • Nick G says:

                    There is nothing about the chart that says “This is not the peak”.

                    Actually, there is. Look back at all the discussions in TOD. There was a lot of talk about being in a plateau starting around 2005, and everyone expected that we’d see either a continued plateau or a decline. Mostly, people expected a decline.

                    No one anticipated the current spike in production. No one anticipated a glut. Everyone expected continued high prices – the only question was whether prices would go even higher.

                    I’m talking about expectations. No one expected to see what we’re currently seeing.

                    Right?

                  • Actually, there is. Look back at all the discussions in TOD. There was a lot of talk about being in a plateau starting around 2005, and everyone expected that we’d see either a continued plateau or a decline. Mostly, people expected a decline.

                    Nick, I think you are really confused. You keep looking for peak oil, or no peak oil, in the things Hubbert said or Campbell said, or what folks on TOD said, or…. What those folks said has nothing to do with anything. No one knows what the oil production chart will look the month we are at peak oil. The chart will not tell you a damn thing except the history of oil production up to that point.

                    And Nick, if there is a peak on that chart that is higher than any peak in the history of oil production, then that could very well be the all time peak… or not. There will be nothing in that chart that tells you anything except history.

                    End of story.

                • Jeffrey J. Brown says:

                  Or actual global crude oil production peaked in 2005, while global natural gas production and associated liquids–NGL & condensate–have so far continued to increase:

                  http://peakoilbarrel.com/us-shale-declining-and-opec-still-climbing/comment-page-1/#comment-531612

      • Glenn Stehle says:

        Isn’t what you are alluding to is what is known as the “paradox of value”?

        The paradox of value (also known as the diamond–water paradox) is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.

        https://en.wikipedia.org/wiki/Paradox_of_value

        For this reason every major school of economic thought, with the exception of the US’s current reigning school — the neoclassical school or market fundamentalist school — has rejected the exchange or price theory of value in favor of:

        1) A normative theory of value (traditional religion)
        2) A labor theory of value (Adam Smith)
        3) A cost of production theory of value (Ricardo)
        4) A Marxist theory of value (Marx)

      • MarbleZeppelin says:

        No, dh, I never assume an infinite supply of oil. I do hope for a very limited supply. What you assume is that transport energy will not be replaced. Fuels can only go so high in price without reductions in demand and forcing alternative energy sources in transport.
        Same thing is happening in the electric power industry. Natural gas has to stay cheap or it will be replaced by coal, PV and wind power. Natural gas would get relegated to short-term peaking power.
        As prices rise, demand falls as efficiencies, alternative power and modified habits come into play.

    • MarbleZeppelin says:

      Uf course, any dumkopf knows der vinters hab lessen lighten den Calivornia. So vat?
      Das ist vye we hab der vind und der pumpen storage. Vill be no problem ven vie take uber das Mittle East. Und Frenchies got all dose nice reactors. Denmark here ve Kommen.

      Vat you mean, nicht sprechen aber das? Oooopsy. Vhen can vie turn das lighten back on?

      Notice to tourists in Deutshland.
      “Achtung!
      Alle touristen und non-technischen lookenpeepers! Das machine is nicht fur fingerpoken und mittengrabben. Is easy schnappen der springenwerk, blowenfusen und poppencorken mit spitzen sparken. Das machine is diggen by experten only. Is nicht fur gerwerken by das dummkopfen. Das rubbernecken sightseeren keepen das cottenpicken hands in das pockets. Relaxen und watchen das blinkenlights.”

      • Fred Magyar says:

        Uf course, any dumkopf knows der vinters hab lessen lighten den Calivornia. So vat?

        Vielen Dank mein Sehr geehrter Herr!!!

        Ich Bin Rollen Auf Dem Flooren Und Laughen Minen Arsch Offen …

    • Californians are not going to be held accountable by the RUSSIANS someday for the SIEGE of STALINGRAD.

      Furthermore,

      I have personally always believed the Germans expected to dominate the solar and wind industry the way they have long dominated the upper reaches of the automobile market with Beemers, Audis, Mercedes etc.

      In order to do that they had to get a big jump on the rest of the world and planned their industrial and energy policy accordingly.

      Unfortunately it looks as if the Chinese leapfrogged them and are going to dominate the solar industry.

    • islandboy says:

      This picture (2.2 MB jpeg) says all you need to know! Germany has similar solar resources to Seattle and we all know how sunny it is in Seattle! 😉

      Seriously though, that picture shows why the action in the US is where it s and why solar in the US southwest is not a bad investment. It’s only going to get better/worse (depending on whether you’re invested in renewables or fossil fuels)

      • MarbleZeppelin says:

        . The panels operate more efficiently when they are cooler. Hot desert temps are not the best operating environment and the panels need active cooling to operate near peak efficiency. Sunny and cool to cold is the best operating environment.
        Looks like prime country out west north of Arizona, New Mexico and Texas.

        • islandboy says:

          I’m not sure that temperature effects are that important when choosing sites for large (utility) scale pv projects. I have been following the first utility scale project in my neck of the woods and one major consideration was proximity to the transmission lines since, the project developer is responsible for the cost of getting the power to the nearest connection point on the grid.

          In my experience the modules run about 40 C hotter than ambient temperatures so, you lose about 20% for the temperature difference between the cell surfaces and ambient. For one location to get 10% better performance for a given system, it has to be about 20 C cooler for the same amount of solar resource. Looking at the attached map showing the Annual Average Temperature for the US, it’s not that straightforward. It kinda looks like to get to a location that is 20 C cooler (10% better performance) you may well have to settle for a reduction in the solar resource that is greater than 10%.

          It does not appear to be the case that, ambient temperatures have played a major role in the choice of locations for large scale pv projects. I suspect the solar resource is the primary consideration, followed by other issues like proximity to transmission lines.

          • wimbi says:

            My PV provides nice warmer air for the air source heat pump in winter. Makes big difference in COP.

            In summer, can heat water or help hot water heat pump.

            Solar/wind certain to get better, fast. Opposite to oil/gas.

            People here know all about first and second derivatives, so why so many tears about ROI on oil when sanity would put your chips on the other pile right quick?

          • MarbleZeppelin says:

            Heat can rob 10 to 15% of the output. One of the things that needs to be remedied at large commercial installations is the angle problem. Fixed angle mounts cause output to be lost and force an angle for summer peak which makes the winter output much lower.
            Mounts that are adjustable, say three positions, would increase the output and only involve a couple of guys walking around for a few hours repositioning them four times a year.

      • SW says:

        In my view this is the money shot. You can argue all you want about the current state of the technology and the economics, but this is the resource we are working on exploiting and it is huge and it is never going to go away. You have to be incredibly stupid to turn your back on it or stick your fingers in your ears and pretend that it is never going to happen. Will it be enough all by itself? I’m doubtful. But it can sure as hell make a significant contribution and the idea that we shouldn’t be doing all that we can to exploit it is essentially a political tribal impulse.

  25. The EIA Weekly Petroleum Status Reportcame out a little while ago. They have US C+C production at 9,395,000 bpd, down 70,000 bpd from last week and down 215,000 bpd from their high on June 5th.

    Weekly C+C photo Weekly CC.jpg_zpsivcj0wms.png

  26. Longtimber says:

    Bloomberg went out and did some math.
    “The fall has wiped $1.3 trillion off the value of energy companies as their share prices have fallen along with crude. That’s a number so big it kind of doesn’t mean anything … ’til you think about all the pension funds and retirement accounts that have those company shares in their portfolios.”
    http://www.marketplace.org/topics/business/final-note/energy-companies-lose-13-trillion-amid-oil-crash

    • Nick G says:

      A $1.3 trillion loss, due to reliance on oil.

      Oil is very risky and expensive. It’s time to kick the habit.

      Of course, that kind of sunk cost tells you why some people fight the transition, kicking and screaming.

    • Glenn Stehle says:

      $1.3 trillion

      Just imagine, since there are 116 million households in the US, that works out to a nifty $11,200 per household.

      That ain’t pocket change.

      And besides, the bloodbath in energy stocks may not be over yet.

      • Arceus says:

        Interesting number, but I wonder what percent of households even have $1000 invested in energy stocks? My guess would be less than 10% but that is just a guess. The drop the last few weeks in energy stocks has been particularly vicious though, no doubt.

        According to Pew Research, 53 percent of Americans own no stocks at all, including in their retirement accounts. Only 10 percent of Americans have pensions.

    • Websites like marketplace don’t grasp the idea that prices will have to rise to allow production to satisfy demand. A more practical approach is to guesstimate their value using a gradually rising price until it reaches $150 per barrel.

      • I agree with Fernando about the price of oil needing to go to a hundred fifty or so per barrel in constant money in the not so distant future in order to maintain production somewhere close to present day levels.

        He does not mention a specific time frame but my guess is that oil will be over one fifty per barrel in ten years in todays dollars. More efficient use of it will allow us to pay the higher price. If I ever buy another car I expect it to get at least forty five mpg as opposed to the thirty my current car gets. And lifestyle changes will also help – there will be fewer cars and fewer miles driven per capita with more mass transit and people walking and biking more and housing and work being better integrated spatially.

        Now Fernando I have a challenge for you.

        While oil is going from fifty or so to one fifty or so over the easily foreseeable future , how about you telling us how far in your opinion the price of large transportation sized batteries will FALL?

        I just can’t see how an engineer can believe conventional cars are going to be cheaper than electrics ten or twenty years from now.

        The business of manufacturing ice engines and transmissions is mature and only rather small incremental cost reductions can be expected from here on out.

        The modern large capacity rechargeable battery industry on the other hand is barely out of diapers, figuratively speaking.

        • Nick G says:

          I just can’t see how an engineer can believe conventional cars are going to be cheaper than electrics ten or twenty years from now.

          A Nissan Leaf is already the cheapest car on the road to buy and own. Look at Total Cost of Ownership at Edmunds.com. Nothing is cheaper, even without the tax credit. With the tax credit, it’s insanely cheap. I’m surprised people don’t buy them as party favors.

          Have you looked??

          • MarbleZeppelin says:

            $150 oil would be great. It would be even better if natural gas went up too. Think of all the EV’s that would sell and all the wind and solar PV and insulation along with heat pumps that would be purchased.
            Yep, what the industry wants will be the very same thing that shoots them in the foot. Since they are on their way out anyway, it doesn’t much matter.
            Hey OFM, why aren’t your local guys growing sugar beets and running on ethanol for transport?

            • Ethanol except maybe produced in the tropics from sugar cane is very expensive compared to ordinary gasoline. Beyond that ethanol produced in temperate climates is the environmental equivalent of the preachers broad smooth highway to hell.

              It would be MUCH better to conserve oil and make it last as long as possible and preserve the environment in better condition.

              My opinion for what it is worth is that there is PLENTY of oil to last a very long time yet IF we use it for truly important purposes such as producing and delivering food. Electrics ultimately powered by wind , solar, gas coal and nukes will in my opinion soon be cheap enough to displace nearly all of the oil burnt in personal autos. By soon I mean maybe ten years or so.

              Nick has a good argument if you are talking about new cars in the mid price range but old cars and econoboxes are still cheaper than a new LEAF and WILL REMAIN CHEAPER until there are plenty of older used electrics on the used car lots. Ten years or so.

              • MarbleZeppelin says:

                Old Farmer said It would be MUCH better to conserve oil and make it last as long as possible and preserve the environment in better condition. ”

                Problem with that statement is that the math is all wrong. As far as climate change goes the result doesn’t change much if we put out the CO2 over 50 years or 150 years. End results are similar if not the same. The total amount really counts.

                People act as if the earth system has a switch, if we change our ways or at least aren’t as bad, things will get better. No switch exists, the system is driven by large inputs of energy and the state of the earth is balanced by a consortium of clouds, gases, vapors, particles and reflections. It’s a balancing act and the more we push, fast or slow, the further the new equilibrium point.
                All that faster does is make the change happen faster with resulting energy changes being more dynamic.

                Sugar beets are far more efficient an ethanol producer than corn. They grow right here in good ole USA. If your choice is not eating or growing some sugar beets so you can farm and deliver food, make the choice.

              • Nick G says:

                There’s no econobox on the new car lots as cheap as a Leaf to buy AND operate.

                Used Leafs are out there, and I suspect they’ll beat the pants off a used ICE, even if it’s free.

                • Mike says:

                  Yes, I am quite certain there are lots of the little buggars in used car lots everywhere. They are slower than snot, can’t haul two bags of groceries without getting passed by skateboarders and won’t go 300 yards without an extension cord.

                  Electric cars are clean, if waxed properly, but very expensive and very risky and most people are trying to kick the habit.

          • dh says:

            Do you have numbers, Nick G? I have been to that site and I don’t see comparisons.

            Also, you have to factor in that used cars are cheap. To be fair, there are used EVs as well, but specifically I am talking about a used, efficient ICE small car vs a new EV.

            Everybody knows you think EVs are going to save the world. Those of us who are more skeptical want to see the data.

            • Nick G says:

              Have you found the Total Cost of Ownership section?

              um… Why compare a new EV to a used ICE?

              • Because used ice cars are plentiful and can be had for very low prices in decent running order.

                I can put eight gallons of gas a week and repair my Escort fro a LONG time on the difference in the value of it- one to two thousand dollars – and the price of a new LEAF.

                Plus it is MUCH cheaper to insure and taxes are trivial on such an old car.

                • MarbleZeppelin says:

                  My neighbor has an old F150 from the 80’s. Six cylinder. Still running but he finally bought a replacement, a used truck only about 10 years old. Still keeping the old one around to haul wood and such for a while. Guess he is attached to it. AM radio only.
                  The Leaf will soon have a lot more range. I think that is part of what is holding back sales on EV’s they are improving so fast.
                  The problem is that despite all the fantastic changes, it’s still the same car world out there. Once more charging stations show up and ranges get better the ball will really start rolling. The older models will get really cheap really fast.

          • Bob Nickson says:

            Even then, Edmund’s shows $4,347.00 over five years in maintenance and repair costs for a 2012 Leaf.

            For what exactly? Cabin air filter changes?

        • How far will the price of large energy storage devices fall? It could be anywhere from 20 % of today’s cost to 80 % of today’s cost….50 years from now.

          But I got the feeling storing electrons won’t be the answer. My guess is that eventually they’ll manufacture something like dimethyl ether and put it in a high pressure super plastic tank. To manufacture the DME they’ll have to use some sort of new fangled fusion power, I guess. I just don’t see batteries to be that practical. And solar power doesn’t have the energy density to do the job. We need to tap the Big Bang.

          • The problems involved in building a super powerful super high capacity battery are TRIVIAL in comparison to the problems involved in building a working power producing fusion reactor.

            As for the potential power available from solar panels- they may eventually be cheap enough to deploy them by the square mile in nice sunny climates. I guess that size solar farm would be enough to run your dme plant for four or five hours a day at least.

            • I see the fusion reactor before I see that super powerful battery. It’s the physics. Thus far nobody knows how to store electrons in a device one can load over 1500 times in a short period of time, which weighs something reasonable and doesn’t cost $12 million.

              • My old computer on which I had all my bookmarks and research on fusion reactors stored die on me and so I have no links or data immediately available to argue the realities of fusion power.

                Suffice it to say that a very well funded research program run by a consortium of several countries staffed with top notch physicists and engineers has not yet been able to accomplish the equivalent of building a campfire using what might be the most sophisticated research equipment ever actually built.

                Fusion power- juice flowing out of fusion reactors into the grid- is a joke fifty times funnier than a battery say five times as good as the ones we have now- and one five times as good would allow you to drive fifteen hours straight cross country before stopping overnight to rest.

                I will sometime later see if I can’t find a link to a Cal Tech professor describing the difficulties involved in building a WORKING fusion power plant.

                Let’s remember that so far nobody has even built one that does NOT work. The research guys are still banging rocks together trying to get a fire started. IIRC they might have gotten the fuel to smolder for a millisecond or so – after what, forty or fifty years now of continuous effort?

          • islandboy says:


            LG plans to develop next-generation EV batteries

            3M and South Korean LG Chem have signed a patent deal for the continued development of NCM (nickel, cobalt, manganese) lithium-ion batteries. LG Chem hopes to develop improved electric car batteries with the acquired patent knowledge….[snip]

            The main aim, with this acquired know-how, is the development of a new storage cell chemistry for affordable electric cars with a 320 km driving range by 2017. LG Chem is going to be working on developing large-capacity lithium-ion batteries that hold between 80 and 120 kWh with a single-charge-range target of 300-500 km.

            Their roster of customers for technology they have now and the next generation ready for introduction next year for the 2017 model year includes GM, Ford, Volvo, Renault/Nissan and the Volkswagen Group. Like Panasonic, LG does not appear to be doing anything revolutionary, just plodding away at incremental improvements.

            This fits in pretty much with Tony Seba’s playbook in that, he posits that without any step changes in technology, these incremental improvements will allow the 200 mile $40,000 EV by 2018. By 2020 he predicts the $31,000, 200 mile EV and the $22,000, 200 mile EV by 2022. GM is on track to beat that schedule with some 50 pre production Chevy Bolts undergoing testing as we speak.

  27. learner2 says:

    Can someone please explain to me why all shale stocks are up huge over the last few days, even as oil has fallen? OAS and WLL now up as much as 33% from recent lows.

  28. Mario says:

    I’d be interested in peoples’ estimates of when we will see crude supply and demand back in balance. i.e when actual demand and supply are in balance. According to Arthur Berman, as of July, we still have a surplus of about 2.3mm bpd of supply relative to demand, and that is with a big drop of over 500,000 bpd in the month.

    It seems that demand is still ticking up along reasonably but supply has been a little sticky, in large measure because of OPEC (read Saudi Arabia and Iraq).

    Thanks to all who provide their estimates in advance. Much appreciated.

    • Watcher says:

      Maybe supply and demand were never out of balance.

      • Arceus says:

        This. When the price of oil drops by half, producers must drill twice as much to make the same amount of money. When the price of oil goes back up, things may start to balance.

  29. shallow sand says:

    Anecdotal only, but maybe tells us something.

    An eleven well package of non-operated working interests consisting of Mississippian and Woodford horizontal wells in OK just went off the board on the internet auction. Various operators, including Chesapeake and Unit Petroleum. One interest was an overriding royalty interest.

    The 1/15-4/15 average net monthly income reported was $5,359. The high bid appears to be $39,000.

    Keep in mind high bid does not mean sale as the reserves was not met.

    Just a little over 7 times monthly net, during a time when oil and natural gas prices were very low.

    Some of these horizontal wells maybe are not worth much? Or maybe just an anomaly?

    • shallow sand says:

      Of course, I have not seen it posted here, but keep in mind those wells produce a lot more gas and NGLs than oil

      CHK sold their products, before hedges, for the following prices in the first 6 months of 2015:

      Oil. $46.16 per barrel.
      Gas. $1.17 per mcf.
      NGLs $4.17 per barrel.

      Oil equivalent. $13.52 per BOE.

      I had not realized how bad CHK’s basis is for all three products. In Q2 things were worse, with gas selling for .75 per mcf and NGLs selling for $1.90 per barrel, oil at $51.21 per barrel. Per BOE$12.13.

      Am I reading those numbers correctly from their press release?

      • Rune Likvern says:

        shallow
        NGLs $4.17 per barrel.

        Is there a typo?

        Historically NGL has traded in the range of 50 – 70% of oil due to lower volumetric energy content.

        • coffeeguyzz says:

          Shallow

          Those numbers are not only correct, the commitments to the pipeline company, Williams (? $2B/yr?) actually paint a far bleaker future. (The NGL price is $1.90).

          Aubrey McClendon has exerted an extremely far reaching influence in this world of shale extraction … manifesting in an increasingly negative fashion hurting many, many people.
          Forbes has an excellent snapshot of Chesapeake’s current status, and a projection of its future (big time toast, IMHO).

          You read of Zeits’ appraisal of Continental’s current operating mode over at Seeking Alpha.
          CLR, EOG, the big boys will pick up the workable assets of Chesapeake and all the others about to go tits up.

          And, BTW shallow, you could not be more inaccurate in saying I am uncaring for the welfare of those negatively impacted by this shale stuff. The sooner the reality of this industry is recognized, individuals as well as companies will, hopefully, adapt and thrive.
          There are those connected to this site far more knowledgeable than I about the works of Darwin. However, a main point of his, I believe, is that the strongest, fastest, biggest is not the one apt to survive … rather the one most able to successfully adapt to change.

          Gerard

          • I have not noticed that in BUSINESS being ,big strong, and fast is NECESSARILY a hindrance to adaptation but it is obvious enough that a lot of large businesses are burdened with hide bound management unable to deal with fast change.

          • shallow sand says:

            coffee. You misunderstood me, I think.

            You have always been sympathetic to the carnage that has resulted.

            My comment last post was along the lines of you being interested in the production increases with new tech, but not being so concerned about whether either the new tech, or the shale stuff overall is economic.

            I don’t have a problem with your posts, learn some things.

            Hopefully someday shale oil, or whatever it’s proper name is, will be profitable. If it is it means our investment will be making a good return again.

            The reversal of fortune has been dramatic. In June, 2014, the price in the field was $90-105 per barrel. It is now $25-40 per barrel. Some are not even getting 1/3 of what they were 14 months ago.

            I am astonished CHK sold NGLs for $1.90 per barrel last quarter. I am going to ask a dumb question. Is what CHK sold counted as oil or gas by EIA?

            I do have one thing I might ask. Why do you think CLR is strong? The company started in 2007 with almost no debt and a good amount of production. As of 6/30/15 the were at 226K BOE per say, 34% gas and NGLs, and have $7 Billion of long term debt. They will likely be cash flow negative 2 half 2015 with falling production and an increasing percentage being gas and NGLs.

            Finally, they have more than half the long term debt than CHK ($12 billion v $7 billion) but less than 1/3 the production (703K BOEPD v 226 BOEPD). I will grant you they realize much more per BOE than CHK, but I wouldn’t call them strong.

            In fact, outside of XOM I really would not call any oil company strong, at least ones I read up on.

            • Mike says:

              Coffee, Shallow did not say nor imply you were not empathetic to the plight of the rest of the oil and gas industry when you continually promote the shale oil industry. I did. I implied it.

              To fully understand the complexity of “adaptation” in an industry where the price of your product can fall 50% in 90 days, you kind of have to be in it, and scared, before you can offer advise to others.

              Mike

      • AlexS says:

        Chesapeake sales prices

        • Rune Likvern says:

          AlexS, thanks.

          What do they net back at such NGL prices? $1.90/b for NGL in 2Q15 does not sound like something that adds.

          • AlexS says:

            Rune, NGLs are a by-product. Chesapeake and others do not show separate costs and netbacks for oil, NGLs and nat. gas

      • Rune Likvern says:

        Look at US propane/propylene stocks

        • Rune Likvern says:

          Notice that the price for NGL (in the table posted by AlexS further up) has been in decline as stocks grew.
          NGLs are fractionated and stored under pressure, and how much remaining propane storage there is in the US I do not know, but the collapse in prices NGLs is sold for may give a hint.

          • AlexS says:

            CHK average NGL selling price dropped much more than U.S. propane prices

            Propane Spot Price FOB, Mont Belvieu, TX (Dollars per Barrel)
            Source: EIA

      • AlexS says:

        Chesapeake unit costs ($/boe)

        • Rune Likvern says:

          AlexS, thanks.

          IIRC, 1 boe NGL = 1 barrel.

          So total operating expenses were $16.95/boe in 2Q15 and NGL sold for $1.90/b.
          NGL normally is a small part of total production, but…

          So in 2Q15 this company lost about $15/boe NGL.

          Simplistic described there are to parts to total costs;

          CAPEX + OPEX = TOTAL

          Roughly for a shale well (@8M) the CAPEX element may be in the range of $10 – $20/boe.

          In other words in 2Q15 this company lost $25-$35/boe NGL it produced and sold.

          • AlexS says:

            Rune,
            Natural gas prices in boe are much lower than oil prices.
            The costs of extracting natural gas in boe are also much lower than oil extraction costs.
            NGL is a by-product of natural gas, although it costs something to extract, to separate from NG, to transport etc.
            Oil barrels, NG boe and NGL barrels are different barrels, both in terms of selling prices and costs.
            We know prices for all these products, weighted average price for their mix, and weighted average costs for their mix. But I think it’s not correct to calculate netbacks for each product by comparing the price for each product with the average costs for all 3 products.
            That said, I agree with you that with the price at 1.90/boe they are losing money on NGL sales

            • Rune Likvern says:

              AlexS,
              I now noticed the DD&A is included in total operating costs and interest expenses.
              Using a conversion of 6 Mcf approximates 1 boe (total of $16.95/boe operating expenses) it amounts to something shy of $3/Mcf (which appears to be in the ballpark) in operating expenses and in 2Q15 it sold for $0.75. This is goes well with other unit costs I have seen.

              The weighing depends on the portions of the various products.

              That 1 boe of NGL have a cost of about $17 (sold for $1.90), does not appear farfetched. NGL’s is stored under pressure and ambient temperature. I suspect unit costs to be higher.

              In 2Q15 there was no positive net back for NGL and natural gas.

              Point is that these losses has to be carried by the profits from the oil, if any.
              Disclaimer, I used to do natural gas engineering in oil companies.

              • AlexS says:

                DD&A is part of operating costs, but is not included in cash operating costs.
                I agree with you that their nat gas and NGLs sales were loss-making in 2Q, I just can’t calculate what were exactly these losses per boe

                • shallow sand says:

                  Speaking of very low prices, read that Western Canadian Select posted prices are now down to around $23 per barrel.

                  Don’t see how tar sands producers could be doing anything but losing $$ at that price.

                • Rune Likvern says:

                  Exact numbers require access to company data bases. We will have to settle with what we can derive from data in the public domain.
                  The magnitude I believe to be close, then add some error bars.

    • Who pays for the abandonment liabilities in this type of property sale? If they are close to marginal an owner could be liable for abandonment costs in the near term.

  30. ezrydermike says:

    2014 Wind Technologies Market Report

    According to the 2014 Wind Technologies Market Report, total installed wind power capacity in the United States grew at a rate of eight percent in 2014, bringing the United States total installed capacity to nearly 66 gigawatts (GW), which ranks second in the world and meets 4.9 percent of U.S. end-use electricity demand in an average year. In total, 4,854 MW of new wind energy capacity were installed in the United States in 2014. The 2014 Wind Technologies Market Report also finds that wind energy prices are at an all-time low and are competitive with wholesale power prices and traditional power sources across many areas of the United States.

    Additionally, a new trend identified by the 2014 Wind Technologies Market Report shows utility-scale turbines with larger rotors designed for lower wind speeds have been increasingly deployed across the country in 2014. The findings also suggest that the success of the U.S. wind industry has had a ripple effect on the American economy, supporting 73,000 jobs related to development, siting, manufacturing, transportation, and other industries.

    http://www.energy.gov/eere/wind/downloads/2014-wind-technologies-market-report

    • ezrydermike says:

      2014 Distributed Wind Market Report

      According to the 2014 Distributed Wind Market Report, distributed wind reached a cumulative capacity of almost 1 GW (906 MW) in the United States in 2014, reflecting nearly 74,000 wind turbines deployed across all 50 states, Puerto Rico, and the U.S. Virgin Islands. In total, 63.6 MW of new distributed wind capacity was added in 2014, representing nearly 1,700 units and $170 million in investment across 24 states. In 2014, America’s distributed wind energy industry supported a growing domestic industrial base as exports from United States-based small wind turbine manufacturers accounted for nearly 80% of United States-based manufacturers’ sales.

      http://www.energy.gov/eere/wind/downloads/2014-distributed-wind-market-report

    • I guess this means all wind subsidies and special feed in tariffs can end, and wind can be treated just like a natural gas powered turbine.

      • ezrydermike says:

        we should put a wind turbine near you. all that constant hot air blowing should do wonders for the intermittency problem

        • The report above says: “The 2014 Wind Technologies Market Report also finds that wind energy prices are at an all-time low and are competitive with wholesale power prices and traditional power sources across many areas of the United States.”

          If they are competitive they don’t need the subsidies. Or is the report more bs? I’ve come to expect government lies, but are they so blatant?

          • Stan says:

            Oil and gas don’t need subsidies either but they still get more. Weird that you are focused on the wind subsidies.

  31. nNgass says:

    Reuters: Crude stockpiles in the United States fell by 1.7 million barrels last week, just short of market expectations for a draw of 1.8 million barrels, government data showed. Gasoline inventories also fell, by 1.3 million barrels versus the 647,000 barrels forecast. But U.S. crude imports rose by 393,000 barrels per day to 7.0 million bpd.

    Isn’t the rise in import a [partial] sign that US production is slowing and more crude has to be imported?

    • Arceus says:

      Possibly someone wants the price of oil to drop further.

      • Arceus says:

        Or they are speculating the price of oil will rise in the near future. Or both.

    • Cracker says:

      Or the imported oil meets refinery needs while the local stuff doesn’t? Quality and API are factors in the equation.

      Jim

  32. Rune Likvern says:

    Something else.
    Diesel does all the heavy lifting in the economy and last time I checked drilling rigs, trucks etc ran on diesel.
    have a look at how US distillate (includes diesel) stocks has moved in recent years and particularly since crude oil prices tanked.

    • Toolpush says:

      Rune,

      If you calculate how much a drilling rig used per day, multiply a 1000 for the rigs that have been stacked. Find out how much the frac spreads use, and how many have been parked. How many of Watchers trucks, aren’t hauling water and sand. I think you will find out why the diesel use have been dropping.
      As a side note as the pad drilling is becoming the norm in established production areas, more pipelines are coming into use for frac water, produced water and oil production, also lowering diesel use.
      They were using a lot of oil to find and produce oil. EROEI comes to mind.

      Now an interesting exercise would be if the Corn ethanol plants were to shut down, and see how that effected the diesel and Nat Gas markets?

      • Rune Likvern says:

        If someone had data on hp for rigs, frack spreads etc. it would be possible to make a back of the envelope estimate.

        In the recent 11 weeks US distillate stocks grew with about 2 Mb/week (0.3 Mb/d).

        • Toolpush says:

          Rune,

          A larger drilling rig is going to use 35 to 50 bpd, going by an Apache press lease, in 2012, they quoted 32,ooo gal of diesel per frac. Since then frac jobs have grown in size.
          Ball park figures will be about 100,000 barrel of diesel per day for drilling and fraccing. Then you have transport.

          As for the stock pile numbers you quoted. This takes into account exports, production and consumption. If you want to get read on the US economy, you would be better to look at the usage numbers, which are down about 5% or 200,000 bopd.
          So the oilfield collapse, may not account for the total drop in diesel usage, but it does account for a big chunk of it!

          • Mike says:

            Rune, I was asked recently to estimate steel, water and diesel costs in a typical shale well; the Bakken being different that the Eagle Ford because there are typically 3 strings of casing used in the Bakken, I believe. Mr. Toolpush is spot on with 1500 HP drilling rig diesel use, of course. I witnessed a 6M pound 34 stage frac that used 3,640 bbls. of diesel.

            Cementing pumping services, bulk transportation of cement, and mud, and sand, plug and perforating services, water pumping for 200,000 bbl. frac job; service people running up and down roads 24 hours a day; everything in the oilfield runs on diesel. So I think the decline in shale activity (I am told EOG will be down to 6 rigs in the EF soon, if not already) has to be significantly reducing diesel consumption in the US. Big time.

            Mike

            • Rune Likvern says:

              Mike, thanks.
              It could be interesting to do a full life cycle analysis of all energy used for an average LTO well versus energy returned from it.

              A fast look at Toolpush and your data suggests an EROEI of about 10:1.

              3,640 bbls of diesel for one frack?!

              • Mike says:

                Sorry, Rune; I messed up on that. The frac I witnessed took 96 hours of pumping time and we used about 57,000 gallons of diesel. I have no earthly idea where I got 3,640 bbls., wow! Sorry.

                Mike

                • Rune Likvern says:

                  It’s ok Mike.
                  We are still talking about 1,350 bbls of diesel for one frack, in 96 hours ..4 days! Wowsers

            • gwalke says:

              Mike, Toolpush,

              Very interesting stuff. Any idea where you might find data on the number of frac spreads operating in either Bakken or Eagle Ford month by month? Have so far come up dry, with the exception of some stats from Triangle and the top level completion figures companies publish in quarterly results.

    • Cracker says:

      Anecdote: Over the past six months, in central Florida USA the diesel price premium to regular unleaded gasoline (87 octane) has decreased from 60 cents down to about 12 cents, and I have seen it lower than gasoline once recently. Today the lowest regular unleaded price is $2.29 per gallon, with diesel ten cents higher.

      Jim

  33. Amatoori says:

    Found this article at Seeking Alpha that I found very useful and easy to get the grip of the problem with the weekly EIA report.

    http://seekingalpha.com/article/3428016-u-s-production-rolled-over-in-may-its-in-the-eia-data-that-investors-should-be-watching?ifp=0

  34. Off topic but an indication of how deep the cultural rot has progressed.

    If things continue on in the usual fashion , the political backlash I often mention will come to pass with a vengeance. And with that backlash will come the destruction of any real hope of working together to solve our environmental problems.

    It is now just about impossible for half of us to say what we think on a university campus in the USA.

    http://www.theatlantic.com/magazine/archive/2015/09/the-coddling-of-the-american-mind/399356/

    • Arceus says:

      I find your use of the term “cultural rot” a form of microagression 😉

    • dh says:

      Empires decline in unexpected ways.

      Who would have thought that America…the traditional bastion of free speech and expression (even to the point of resulting in a sort of disorder) would become a nation where thought and speech are highly regulated, even if by social means?

      Yet here we are.

      • Fred Magyar says:

        For the record, I really don’t give a shit if some stupid kid gets upset at the things I might say! I’d have them sit down and watch ‘The Best of George Carlin’!
        https://goo.gl/QI961v
        Don’t like it? Then listen real carefully! “Fuck you kid!”

        • Ronald Walter says:

          It’s bad for ya.

        • The rot goes a damned sight deeper than one or two kids telling you what you cannot say or think. It has penetrated deep into the management of the universities themselves. PC is morphing into thought control.

          You can literally get kicked out of a university for contradicting the politically acceptable status quo these days. I was awarded the ONLY ”c” grade in the entire graduate education department at VCU some years ago for contradicting the politics of a professor. I just pointed out some midday sun obvious facts.

          That C would have disqualified me from getting a masters degree but I was only taking the course to get my professional educators license punched for another few years just in case- and to scope out the girls of course. Having a grad school id in a university town is a big social plus. So the C did not do me any harm, the State Board of Education not yet having figured out that the minimum passing grade is a B even today.

          Incidentally that little go round was enough to get me blackballed socially . Damned near all of the grad students in education or other social science fields who knew me were very reluctant to be seen talking to me after that.
          Fortunately VCU is a good sized U so this hardly mattered except it impressed on me how shallow and timid most people actually are.

    • MarbleZeppelin says:

      Looks like the kids and young adults have found a way to exert power and influence over authority. Normally authority would just put them in their place but apparently they have seen weakness in authority and are capitalizing upon it.
      Of course, they don’t care if their education is stunted, look how most of them grew up.
      Just was listening to NPR with a discussion about the lack of new teachers coming into the system. Less and less young adults are interested in becoming teachers each year. The discussion also hit upon how unprepared many new teachers are for the complexities of the job, not getting enough field training or mentoring before being put into a position.
      So, weak teachers facing a moronic herd that thinks it can run the show. Nice mix.

  35. DT in Calif says:

    International oil production has been inclining by 0.5 million to 1.0 million barrels per day each year for decades. The drop in international rigs has not been as severe as it has been in the US, and only brings us back to a more normal historical level — a level that, in the past at least, still resulted in production growth. Ignoring what some countries do by opening and closing valves to change production: What rig count is necessary to ensure that the international production capacity (real well capacity) is declining? With about 1300 rigs currently operating, are we there yet? Or do we need to be closer to 1000 rigs?

    I can’t predict what will happen with Iran or worldwide demand growth, but I know the supply and demand curves will intersect much sooner if production capacity is also declining outside the US.

    • Toolpush says:

      DT,

      International rig counts take longer to come down as their contracts are traditionally longer. 3 to 5 year contracts are very normal, where as they would be very rare in the US land market. Therefore a company needs to look at cancellation costs compared to on going drilling costs.
      The other thing with offshore projects, the cost of drilling is a very small proportion of the cost of production, therefore a drilling rig maybe kept on site and drilling until the project is completed due sunk cost made in the development of the field.
      The International rig market is definitely slowing down, I am not sure when it will turn, but I feel it has a way to go yet, and it will take longer to return than the US land market.The only place in the world that is showing any life, is the Middle East.

    • DT, production capacity is declining outside the U.S. Each country and field is slightly different, but lower prices do put a squeeze on everybody. Most of them realize that deferring repairs and other activity can make sense if the individual well is marginal, or they simply lack the cash flow. I keep a close eye on Ecuador because I know their fields and it’s an OPEC country. Their production is both state owned and privately owned. State owned production is holding up better. Private is dropping rather steeply.

  36. Mike says:

    Mounting evidence of just how truly resilient the US shale industry is…the lower oil prices get, the lower
    “breakeven” costs become:

    http://www.bloomberg.com/news/articles/2015-08-12/oil-at-30-is-no-problem-for-some-cost-cutting-bakken-drillers

    • shallow sand says:

      Mike,

      Good grief, will this BS never end? No friggin definition of break even or how any of this BS is calculated, but by golly we disclose the oil price down to the penny.

      Wonder how Whiting is preparing to grow production? Their recent earnings release has production going from 170K BOEPD to 153K BOEPD from Q2 to Q4, and falling further in 2016. EOG fell in Q2 and is projected to fall further.

      As I brought up recently, in Q2, OAS was cash flow neutral with slightly falling production and a well head price, after hedges, of $78.01. Or about $86 WTI.

      I think Rune has pointed out OAS 2015 wells were much better than previous years, early on of course. Wonder if they will revert to the mean?

      I still think that break even (under my definition – cash flow neutral with flat production) in the ND Bakken requires $78-$100+ WTI, depending on the company.

      Our oil check is going to be low next week, and will be worse in September, for August production. However, I do think this second drop was unfortunately necessary to get US production to really tank.

      So many lies.

      Could someone show me the calculation for $29 or whatever break even in the ND Bakken and define what is meant? Should be pretty simple. Haven’t seen it yet, and I have been posting a year almost.

      Mike, would you define break even differently than I am?

      • shallow sand says:

        $29.42 will cause half of the McKenzie Co wells to generate a return of 10%.

        10% annually? Or, in 2052 when we plug the well we will have sold 10% more in $$ of oil than what the well cost in 2015?

        The math is only made vague and/or complicated to cove up the fact that production rates are falling and companies are still big time cash flow negative, with overwhelming debt.

      • Mike says:

        Shallow and Alex, you guys did a good job of picking this dumb Bloomberg article apart; I knew you would. Honestly, it was so dumb I didn’t pay much attention to it and only posted it because of how incredible the misinformation is becoming.

        “10% annually? Or, in 2052 when we plug the well we will have sold 10% more in $$ of oil than what the well cost in 2015?”

        It absolutely cannot be 10% ARR so I am guessing it has to be 10% ROI, or 1:1.10. Good grief.

        I am not buying the 40% decline in total well costs. I know what rig rates are, I know everybody is hungry and practically doing stuff for nothing now, but tangible costs (steel, cement, mud) have not declined that much yet. 20-25% total for each well is what I hear, at most. My apologies to the NDDMR, but no way. Alex is right, if that is the true breakeven in McKenzie County every rig in ND should be up there going wide open. That’s bunk.

        Shallow, I would not define “breakeven” (Lord, I hate that word) any differently, no sir. But as you have said before, we are not in this stinking business to break even.

        Thanks guys. The article was meant to show how incredibly convenient it is that the lower oil prices go, the lower breakeven costs magically become.

        http://finance.yahoo.com/news/gundlach-oil-goes-40-barrel-222059421.html

        Mike

    • AlexS says:

      I think Bloomberg is using the data from this report by North Dakota Department of mineral resources: https://www.dmr.nd.gov/oilgas/BreakevenHistorical.pdf

      DMR is using the data submitted by operators. So all the blame on DMR and shale companies

      Prices are at the wellhead, so WTI breakevens are $5-10 higher

      From North Dakota DMR Report:

      “DMR developed these prices by tracking economic data submitted by operators during our monthly hearings. We have an economic dataset that includes monthly well operating costs, yearly drilling costs and IP rates for each county for the past 12 months and type curves to model average well production by county. Based on those figures, we were able to develop the breakeven oil prices at a 10% rate of return.”

      Breakeven Oil Price per Barrel at the wellhead in 4 core ND Bakken counties

      • AlexS says:

        In these 4 counties breakevens are much higher than the current price, and there were only 4 active rigs at the end of July

      • AlexS says:

        3 of these 4 counties have shown spectacular declines in breakeven prices, according to the ND DMR.
        Yet, there was only 1 active rig in Stark County and no rigs in 3 others in the end of July.
        How can the DMR calculate breakevens if there are no drilling rigs and hence – no new wells drilled?

        • shallow sand says:

          AlexS. Good data as always.

          Any explanation of the math behind the above that you could find?

          • AlexS says:

            No, they do not give any explanation.
            ND DMR is good in providing production data.
            But in everything else I am not so sure

            • shallow sand says:

              AlexS. Look at the 10/14 break even’s. Dunn and McKenzie were below $30 even then.

              Anyone have a contact at ND DMR? Maybe they can explain how these are calculated.

            • Enno says:

              Exactly.

              They are pretty bad with making estimates of monthly, past, completions, and the “typical type curve” they use is pretty different from the average actual curve. So I would take their breakeven calculations with a grain of salt.

  37. Toolpush says:

    Shallow,

    You obviously went to the wrong accounting school, where they taught you to pay your bills. The newer schools do their work differently.
    Borrow what you can from the banks, no intention of paying them back.
    Raise money in bonds, plan to retire before they are due
    Raise money on Wall St as required. don’t need to worry about as they don’t need to be paid back.
    Offer casing companies space to store their excess pipe. (don’t tell them you plan to store it down hole)
    Sign contracts with service companies, that don’t require in payment in anybodies planned futures

    Drill hole, produce oil, make money.
    Give yourself a pay rise due to all the money you have saved the company.

    Shallow, I really don’t see what your problem is?
    BTW, it is no longer called “Break even”, it is called “break the bank”
    Now retirement? Bonds due 2020, 2018 sounds like a good date!

    I would like to think I am being sarcastic, but sometimes I am not quite sure if it is the truth or not?

    • shallow sand says:

      Toolpush. LOL!!

      I tell you what will really lower break even.

      Shale Oil R Us goes liquidation BK. BK trustee sells Shale Oil R Us leases for $15K per flowing BOE. The remaining $30-100K per BOE of debt is discharged. Now that lowers break even.

      (Mike, sorry to steal your material!) LOL!!

      By the way. Surprised no comments about my auction anecdote. I guess I should have mentioned the wells were completed between 2012 and 2014. Tough to figure exactly what net BOE per day was, but I came with 22 BOEPD. That means high bid was just $1,773 per BOE.

      $1,773 x 703,000 BOEPD for
      CHK in Q2 = $1.25 billion.

      They owe $10.5 billion of long term debt.

      I’m not claiming that is what CHK company wide production is worth. Just throwing that out there.

      What era last saw .75 mcf gas and $1.90 per barrel NGLs? The great depression?

      These numbers are just insane.

      I’m not buying it. We owe $0.00 on leases. No debt payments required. We are pretty worried at these levels. And we have all oil.

      .75 per mcf and 1.90 per barrel is absurdly low. Why bother to produce? If oil goes below $30 for very long, we will go into hibernation mode. Just pump them enough to breathe.

      • Toolpush says:

        Shallow,

        The low Nat Gas price for CHK, will be due to the constrained pipeline capacity in the Marcellus. In my opinion, a big telling point will be how the Marcellus price reacts as the bottlenecks get removed. As the pipelines get built, if the price increases to HH, then it may save some companies. If supply continues to increase and price stays low, it will be interesting to see who can survive.
        It is hard to see too many companies surviving for too long with these prices. I am sure we will not have to find out the final result.

        • Heinrich Leopold says:

          toolpush,
          The narrative of new pipelines coming and saving Marcrcellus exists now for years. However, for natgas transportation costs are ten times higher than for oil, there are shortfall fees…. So it takes some time and money to build up a transportation infrastructure. Where should the money come from? The recently started up REX pipeline reversion did not flood the market so far with Marcellus gas. In the contrary: US natgas production hovers around a year low of 71 bcf/d. There are some further pipeline expansions planned for November. Nevertheless, as far as I know it concerns just around 2 bcf/d, which can barely turn around a 71 bcf/d market.

          • Toolpush says:

            Heinrich,

            I know we have been through this a few times, but the fact that Marcellus gas in around $1 mfc, and HH is around $3, with Marcellus being nearer to the unsatisfied market of the NE, means there is gas in the Marcellus looking for a market, but can’t get there at the current time.
            I have never said any one of these pipelines coming online is going to be the a single correcting factor. But I have been consistent is saying we need to wait and see how the price reacts to increased pipeline capacity.
            Range Resources, in their report, said, constraints this year, in balance next year, and excess pipeline in 2017. To me it will be how things react leading into 2017.
            1/Does the Marcellus price rise?
            2/Does HH price rise due to increased demand?
            3/ Does capacity rise to meet the pipeline capacity?

            Industry is expecting/hoping # 3 is correct, but if #2 is correct, then we are going to see some turmoil in the Nat Gas market especially with all the new shiny LNG plants being built.
            Time for the popcorn!

            • AlexS says:

              Excerpts from an article in RBN Energy

              Waiting for a REX Like You – Full Scale Reversal Opens Marcellus/Utica Natural Gas Floodgates to the West

              Sunday, 08/02/2015
              https://rbnenergy.com/waiting-for-a-rex-like-you-full-scale-reversal-opens-marcellus-utica-natural-gas-floodgates-to-the-west

              Tallgrass Energy’s Rockies Express Pipeline (REX) opened the floodgates for Marcellus/Utica producers this Saturday, August 1, bringing online its Zone 3 East-to-West (E2W) expansion capacity. The expansion tripled westbound design capacity to a full 1.8 Bcf/d from the Marcellus/Utica producing region to delivery points in Ohio, Indiana and Illinois. Potentially this additional takeaway capacity eases supply congestion in the Northeast and will support beleaguered Marcellus/Utica pricing points. As REX touches nearly every part of the US gas market, the expansion can ultimately be expected to reconfigure gas flows and price relationships across multiple regions as it comes online.
              Thus far design capacity and long-term shipper contracts for such westbound flows were limited to 600 MMcf/d, though operationally, REX has been flowing close to or more than 1.0 Bcf/d of Marcellus and Utica supply west since February of this year.
              This Saturday, (August 1, 2015) REX flipped the switch on new E2W capacity, so to speak, and just like that an incremental 1.2 Bcf/d of firm contracts start kicking in for “forward-haul” capacity westbound from the Clarington, OH area to Moultrie County, IL. This is in addition to 600 MMcf/d of westbound commitments already in place for supply from MarkWest’s Seneca processing plant via the Seneca Lateral. That brings the total Zone 3 east-to-west contracted capacity now to 1.8 Bcf/d. The 1.2 Bcf/d in additional firm contracts are held by four shippers, each with 20-year terms for east-to-west flows: American Energy Appalachia, EQT Energy, Gulfport Energy Corp, and Rice Energy.

              This weekend’s expansion to REX capacity will not result in overnight changes to pipeline flows in Zone 3. These changes will take longer to occur because they rely on the addition of new receipts into the mainline pipe from suppliers in the Marcellus and Utica that will take time to get connected in order to fully utilize all of the new capacity. So while the completed E2W expansion opens up potential access to new markets for expanding Marcellus/Utica production, the market significance of this change will be determined by how rapidly the new capacity is taken up to meet new westbound receipts and deliveries
              Given these receipt capacity constraints, it will probably take some time for the REX E2W expansion to fully impact cash markets. For example Dominion South cash prices in the over supplied Marcellus/Utica region were at historical lows in July and closed Friday’s trading for the weekend at $1.32/MMBtu, $1.45 below Henry Hub spot prices. These prices should not be expected to jump significantly higher right away because of the expansion but as REX begins to take away increasing volumes of Marcellus/Utica gas in the months to come they should find support and begin to respond.
              In conclusion, although REX E2W is a huge deal for the natural gas market, it is likely to take a month or two to completely unfold, given receipt capacity constraints. In other words, don’t expect a big bang this week but a slow transformation over some period of time.

              • Heinrich Leopold says:

                AlexS, toolpush,

                The latest rbnenergy.com article is now much moderate than the previous ones. My main point is here to be able to distinct between the narrative, which want to seduce investors to spent their money on some hype stories, and the true trend. As it is impossible to see the trend by assessing all detailed projects and factors it is possible in my view by analysing some numbers, which are independent from the hype. Production numbers are such factors, which are very difficult to manipulate. The natgas inventory difference to last year has been 750 bcf in April and diminished to 521 bcf in the latest week. This trend is accelerating and in my view we will have an inventory deficit by October this year. The reasons are the low oil price, which reduces oil and associated gas production, the sharp decline of monster well production and the low price for associated oil and NGL which make many previous former profitable gas wells unprofitable. My main indicator for the internal weakness for natgas production is for me the price ratio of natgas versus oil. We would normally expect that oil and natgas prices go down and up in price in the same fashion. However this is not true as the natgas market is very concentrated on North America and oil is sold worldwide. Secondly, it is a specific fingerprint characteristic for shale production that the destinction between oil and gas well is far less defined than for conventional production. In other words a shale oil well contains much more natgas than a conventional oil well on average. On the other side a shale natgas well contains much more oil and NGL than a conventional natgas well. This has serious consequences on production. The ratio of natgas versus oil price stands at a multiyear high during this time of the year. Normally this ratio increases over fall and early winter due to increased natgas demand. Currently the ratio is as high as during winter time and four times higher than usually during summer time. This indicates an extreme tightness of natgas, despite still high inventories, yet the trend is strong.

  38. Kellyb says:

    I just got done debating someone bout that $30 breakeven. I think they’re only referring to production costs. Still gotta add G&A, interest expense, and most importantly, CAPEX, which pushes cash flow breakeven up around 80.

  39. shallow sand says:

    I looked at a DMR report dated 1/8/15. I suspicion what is being referred to re break even is a 10% IRR, as that is what is referred to in that report.

    • shallow sand says:

      And over the life of the well using company provided EUR.

    • AlexS says:

      In this latest report, they are also using 10% IRR.
      10-12% IRR is a standard for breakeven price calculation.
      However DMR doesn’t explain which categories of costs they include and how they calculate those costs.
      This especially refers to the counties where there was no drilling activity since the beginning of the year

      • Watcher says:

        Guys, this is all part of the process.

        If numbers don’t say what is desired, change their definition. Who would complain? Lenders? Not if they are backstopped.

  40. Mike says:

    So basically this reference to “breakeven” is what the minimum price of oil has to be for existing production to be profitable. This has nothing to do with CAPEX or anything like that? It means at 30 dollars a barrel there are some wells in the Bakken producing that can still make a 10% annual rate of return, yes? Which in essence can mean 5-7 more years to payout depending on the age of the current producing well and CAPEX recovery.

    Shallow, I have a controller and a CPA. I can get into oil and gas accounting methods as far as I want, which is, thankfully, often not as far as I need. I have over a hundred wells to operate, rigs running, and problems that occur every hour of every day. That is all often all I can handle so I stay out of the accounting “department” as much as possible. This is a very country way of looking at things, I know, but it is one of the reasons I think I have survived all these years: in my roughneck mind I don’t earn interest, a return, or profit on my initial capital expenditure until that well, or acquisition, until that expenditure has paid out and I have all my money back in my grubby little oil stained hands. Then, its profit. Not before. What is wrong with that way of looking at things?

    Mike

    • AlexS says:

      Mike,

      In theory, breakeven price should include cash OPEX+CAPEX+IRR at 10-12%.

    • shallow sand says:

      How we look at it too, Mike.

      What I think these people making these claims are doing is calculating IRR over the life of the well, using the companies EUR estimates and expense estimates.

      I will try to explain this, but my finance knowledge is rusty, so anyone who is more on the ball can take a crack at it.

      Break even appears to mean achieving a net present value of zero using a 10% discount rate, over the life of the well, using company provided well costs and EUR.

      Therefore it is an absolutely meaningless calculation, especially as money is borrowed for almost all of the wells drilled, with an interest rate of 5-10% in most cases, with principal due in 5 years in most cases.

      It is absolutely ridiculous because achieving these rates of return would bankrupt every company drilling shale wells.

      Further, plugging in an EUR of 800,000 when 450,000 looks about right, really messes up the calculation, as does underestimating OPEX.

      Finally calculations of IRR over well lives of 30-50 years are pointless. What investor has that time horizon for an oil well. I think if the companies would share with us their break even calculation spreadsheets those would show just how ridiculous touting these metrics is.

      Again, I am open to criticism of my views by those more knowledgeable than I.

      • Watcher says:

        The world changed in 2008. Nothing is insulated from that change.

        When money is printed whimsically, both a lifetime spent understanding it and businesses measured by it become similarly whimsical.

      • Mike says:

        Thanks. See what funky shale oil arithmetic can do to you if you let it? It makes you begin to doubt yourself. I guess as long as you don’t go off the deep end and borrow a bunch of money you have no intention of ever paying back your still OK.

        I never heard the accounting term IRR until just 4 years ago and the onslaught of this shale stuff. Honestly, I get it, but its ridiculous. But not near as much as breakeven, which I never head of either until 2 years ago. I don’t get that. Don’t need to. 450 KB EUR per well; that much, Shallow?

        http://fuelfix.com/blog/2015/08/13/moodys-42-per-barrel-is-enough-to-cover-costs/#30935101=0.

        Check out the “administrative” charges per barrel in this article.

        • shallow sand says:

          Mike, I cannot tell if the knucklehead in your link is the author, Moody’s or both.

          The author picks up on the fact that it generally costs more to drill and produce oil than gas.

          However, no mention of price differentials depending on gravity, location, etc.

          Worse, they are presumably using the 6/1 gas to oil ratio for BOE.

          Therefore, EQT, which I think produces almost 100% gas, in Marcellus and Utica, is really not handling anything well. Price for mcf for Q2 was $1.41, or their Q2 BOE was $8.46. What enabled them to earn one cent per share were hedges which caused them to realize $3.97 per mcf Up thread I do believe I indicated CHK was $12.13 for Q2. Remember CHK benefitted from $51 oil, gas was .75 and NGLs $1.90.

          Yep, admin expense for these shale dudes can be pretty high. Apparently no one in the C suite is taking pay cuts. Wonder if they are still getting free stock? .74 cents a share may not incentivize anyone eh?

          The oil and gas price is now false IMO, in the sense that it is purely a trade, much like $147 was in 2008 and again at $31 in early 2009.

          Dang it Watcher, you keep lecturing us about the bizzaro world of economics since 2008. Here we are again.

        • AlexS says:

          Mike, shallow sand,

          The average $42 per barrel in Moody’s research is actually $42 per boe for the mix of oil, NGLs, and nat.gas.
          For oil producers, costs per barrel are much higher, but their average realizations per barrel are also higher.
          For nat. gas producers, both average realizations and unit costs are lower.

          Two examples, all data for the 1st half of 2015:

          1/ Chesapeake.
          Production mix: 17.8% oil, 11.0% NGLs, 71.2% natural gas.
          Weighted average sales price for oil, NGLs and nat. gas: $13.52/boe excluding hedges and $18.99/boe including hedges.
          Cash operating and interest costs per boe: $7.1 ($$17.8 including DD&A),
          Capex per boe: $18.
          Full cycle cash costs per boe: $25.1
          Cash burn (capex – operating cashflow): $1,524 million

          2/ Whiting
          Production mix: 80.6% oil, 7.9% NGLs, 11.5% natural gas.
          Weighted average sales price for oil, NGLs and nat. gas: $41.36/boe (including hedging)
          Cash operating and interest costs per boe: $23.49 ($43.35 including DD&A),
          Capex per boe: $56.61
          Full cycle cash costs per boe: $ 80.10
          Cash burn (capex – operating cashflow): $1,199 million

          • AlexS says:

            P.S. The average WTI price in the 1st half of 2015 was $53.1/bbl (not $42), and almost all shale companies have burnt cash.

            Moody’s is a rating agency, not a newspaper, not an investment bank.
            I would expect from them a more thorough analysis

          • shallow sand says:

            Thank you for the excellent information AlexS.

            Keep in mind that although WTI was over $50 in first half, most companies realized less.

            Q3 is shaping up to be as bad, or worse, than Q1. Q1 saw BOE for oil weighted companies in the high 20s to low 30s.

            • AlexS says:

              Actually, all shale companies realized less than WTI on their oil/NGL/nat. gas sales mix, most of them much less.

              Average WTI spot price in 1Q15 was $48,5.
              In the first half of 3Q15 it was ~$48.8, including ~$44 in the first half of August.
              The average price for 3Q will most likely be lower than 1Q (the EIA forecast is $46,8)
              Honestly, I did expect downward price correction in 3Q, but I thought prices would not drop to 1Q lows.
              In addition, some hedges, which helped oil companies to alleviate the situation in 1H15 have already expired.
              On the other hand, costs are now lower than in 1Q.
              All in all, 3Q will certaintly be worse than 2Q, and probably more or less comparable with 1Q.
              Capex will be lower, and we will see how this will affect the rig count

              • Mike says:

                In the Eagle Ford, premiums to WTI by way of LLS postings, and/or posting comparisons, use to be upwards of 10-15 dollars a barrel in excess of WTI. That is all gone now, as are the hedges those WTI to LLS postings were based on. I think actual WH prices to WTI will erode further.

                “Drilling” and completion costs are lower that Q1 but not as much as being touted. That of course is of relevance only if drilling continues and I don’t think we’ve seen the last of rig counts declining, not by a long shot. As I have said, the biggest of the big in the EF, that once had 35 running, will be down to 6 by 3rd quarter.

                Production costs are only marginally down. Q3 is going to blow some folks’ socks off.

                M.

                • AlexS says:

                  Yes, unlike drilling and completion, production costs are only marginally down. Production taxes per boe are down. Interest expense per boe is up.

                  • Mike says:

                    Per incremental barrel and mcf, not production taxes in Texas where 2 out of the 3 largest unconventional plays in the US exist.

                  • AlexS says:

                    Mike,

                    I’ve seen 2Q results for several companies, all of them had lower production taxes per boe produced.
                    For example, Pioneer Natural Resources, which is a big producer in the Permian and EFS, had $1.30 per boe in 1H15 vs. 2.32 in 1H14.

                  • Mike says:

                    OK, I understand, sorry. Severance taxes are 4.6% oil and 7.5% gas respectfully and have not declined. I thought the inference was to ND dropping their production taxes.

                    Are you in the oil business Alex?

                  • AlexS says:

                    No, Mike, I’m just a researcher analyzing the oil and gas industry. That’s why what you, shallow sand and other guys from the oil business are saying here is so interesting for me.

                  • Mike says:

                    Alex, you are very good at it and I enjoy your posts. I think the more you learn about the practical aspects of what it is you are analyzing the more you will enjoy it and more importantly, the easier it will be to separate fact from fiction. I fear there is a lot of the later being spread about these days.

                    By the way, there is some interesting info on Sandridge out, a debt buy back that is…puzzling.

                  • AlexS says:

                    “I think the more you learn about the practical aspects of what it is you are analyzing the more you will enjoy it and more importantly, the easier it will be to separate fact from fiction”
                    Exactly!

    • Glenn Stehle says:

      Mike says: “I have over a hundred wells to operate, rigs running, and problems that occur every hour of every day.”

      You have rigs running?

      Phew! I’d like to see what kind of conventional wells you’re drilling in mature Texas basins in the current price environment. Just exactly what kind of conventional prospects do you believe are profitable, given current oil and gas prices?

      • Mike says:

        No drilling rigs, just workover rigs. Mucho problemos all the stinking time. If I can get through two cups of coffee in the morning before the first problem rolls in, then I know its going to be a pretty good day. Some mornings by 8 I am looking for a flat rock to crawl under.

        Mike

        • Glenn Stehle says:

          Well I was just wondering, because in my neck of the woods the number of rigs drilling conventional oil wells has dropped from 230 four years ago to less than 50 now.

          Drilling shale oil wells may be an unattractive play at current prices, but it’s still the best game in town.

  41. MarbleZeppelin says:

    In the long struggle between man and Nature, once in a while Nature just says no.
    https://www.youtube.com/watch?v=Hr-xBtVU4lg

    Having observed and photographed eagles for years, I would not want to be on the receiving end of those talons. Being harassed by goshawks was bad enough.

    Reading a book called “Cuckoo Cheating by Nature” by Nick Davies, professor of behavioral ecology at the University of Cambridge. For those interested in evolutionary adaptation and counter adaptation, this book is a must read. The common Eurasian cuckoo and it’s host birds have a continual battle of adaptive trickery and defenses as the cuckoo parasitizes the smaller host birds to raise it’s young. This is definitely a long and evolving entanglement of species. It also vividly depicts how humans observe, test and learn about the natural world. Who could resist a book that starts out in a place called Wickens Fen and tells a story of the nemesis of small birds who have their young murdered and get deceived into raising a horrifying changeling?

    • Fred Magyar says:

      Loved it!
      Eagles 1, Drones 0 …

      Once the humans go extinct I’m pretty sure nature will take care of cleaning up the detritus left by man! There will certainly be new lifeforms we can’t even imagine now. Too bad none of our biologists will be around to study them. Who knows maybe in another 500 million years or so some truly intelligent life will finally evolve on this planet. Hopefully it will do a better job than we have in taking care of this miniscule chunk of moist, still warm, rock!

  42. Ronald Walter says:

    http://www.bnsf.com/about-bnsf/financial-information/weekly-carload-reports/pdf/20150808.pdf

    Petroleum cars at 9,728 for week 31 of 2015.

    Week 31 of 2014 was 12,153 cars of rock oil, a drop of 19.95 percent.

    A substantial difference.

  43. Longtimber says:

    OMFG, wow! Tonnage and energy density.? Don’t see mention of an Product UN Number(s) or Facility type.
    Everyone in Houston recalls the Phillips 66 HCC Explosion. IIRC it took Hurricane Andrew to knock it from the Top Insurance claim(s) in History. To this date you can’t source some the specialty PE grades that came from this facility.

    http://www.dailymail.co.uk/news/article-3195477/Fifty-people-injured-enormous-blast-explosives-shipment-hits-Chinese-city.html
    https://en.wikipedia.org/wiki/Phillips_disaster_of_1989

  44. Jeffrey J. Brown says:

    WSJ: On U.S. Farms, Fewer Hands for the Harvest
    Producers raise wages, enhance benefits, but a worker shortage grows with tighter border

    http://www.wsj.com/articles/on-u-s-farms-fewer-hands-for-the-harvest-1439371802

    Last year, about a quarter of Biringer Farm’s strawberries and raspberries rotted in the field because it couldn’t find enough workers. Samantha Bond was determined not to let that happen again. Early this year, Ms. Bond, human resources manager for the 35-acre farm in Arlington, Wash., offered 20% raises to the most productive workers from the last harvest. She posted help-wanted ads on Craigslist, beside highways and on the bathroom-stall door at a church. She also successfully lobbied local high schools to broadcast her call for workers during morning announcements.

    Despite Ms. Bond’s efforts, Biringer again faced a worker shortage and typically drew fewer than 60 of the roughly 100 employees it needed on harvest days. “There was definitely hair-pulling going on,” she said.
    Ms. Bond’s travails reflect a broader struggle by U.S. fruit, vegetable and dairy farms to secure farmhands as illegal immigration from Mexico declines and a strengthened U.S. economy makes it easier for people to find less backbreaking work, often in areas with cheaper housing costs. In an industry notorious for poor working conditions, farm companies are wooing employees by raising wages faster than inflation and enhancing medical and other benefits. Even so, many farms say these efforts have failed to meaningfully address their worker shortfalls.

    Overall in the U.S., the decline in workers is reducing fruit and vegetable production by 9.5%, or $3.1 billion, a year, according to a recently published analysis of government data by the Partnership for a New American Economy, a nonpartisan group that supports a looser immigration policy. . . .

    Some farmworker advocates say they see little evidence of widespread improvement in working conditions. Though labor shortages exist in some areas, labor-rights violations persist and “overall, agricultural employers can still do a much better job of attracting and retaining workers by improving conditions on the job,” said Bruce Goldstein, president of Farmworker Justice, a Washington, D.C., group that works to protect farm laborers.

    • MarbleZeppelin says:

      Be better setting up a pick your own system on 10 or 15 of those acres. Offer low prices and have the general public pick the harvest. Corn mazes work wonders too for bringing in the bucks. Having your vegetable and fruit stand (with pies and other goodies) right at the entrance to the maze or pick-your-own area is a real plus.

    • Glenn Stehle says:

      Fascinating!

      For an outstanding read on the subject of immigration and the intersection of race, labor and industry (including the agriculture industry), David Montejano puts it all in historical perspective in “Anglos and Mexicans in the Making of Texas, 1836-1986.”

    • Glenn Stehle says:

      And, hands down, the UK wins the prize for a collosally stupid and morally bankrupt immigration debate.

      When it comes to immigration, David Cameron makes Donald Trump look like Albert Einstein, that great intellectual and moral giant of the 20th century.

      Politics and polemics: Europe’s immigration story
      We analyse the media coverage of the immigration debate
      http://www.aljazeera.com/programmes/listeningpost/2015/08/politics-polemics-europe-immigration-story-150808090144535.html

      The UK actually has a tiny immigration problem, but you wouldn’t know it given Cameron’s hysteria and histrionics.

      Cameron comes over us like some strange atavistic curse, a throwback to a group called the Women Patriots which, in 1932, tried to keep Einstein from immigrating to the United States.
      http://www.susan-neiman.de/docs/t_subversive_einstein.html

      • Stilgar Wilcox says:

        “When it comes to immigration, David Cameron makes Donald Trump look like Albert Einstein, that great intellectual and moral giant of the 20th century.”

        Glenn, I see it as just the opposite. Why is Europe responsible for repatriating refugees? If Syria and some of these other countries want to have geo-political wars then that’s their problem, not some other region’s.

        • Glenn Stehle says:

          Well if you believe the UK has no moral or humanitarian obligation to accept refugees from Syria, then it has a legal obligation. The UK is required to accept refugess from Syria under international law:

          The obligation exists under Article 33 of the 1951 Refugee Convention not to return a refugee to a country of territory where he/she would be at risk of persecution:

          “No Contracting State shall expel or return (“refouler”) a refugee in any manner whatsoever to the frontiers of territories where his life or freedom would be threatened on account of his race, religion, nationality, membership of a particular social group or political opinion.”

          This is known as the principle of non-refoulement, which is considered part of customary international law and therefore binding on all states. The principle is also incorporated in several international human rights treaties, for example the 1984 Convention against Torture, which prohibits the forcible removal of persons to a country where there is a real risk of torture.

          http://www.geneva-academy.ch/RULAC/international_refugee_law.php

          However, in the entire year of 2014 the UK had only 2,410 persons from Syria applying for asylum.
          http://ec.europa.eu/eurostat/statistics-explained/images/b/b7/Five_main_citizenships_of_%28non-EU%29_asylum_applicants%2C_2014_%28number%2C_rounded_figures%29_YB15_III.png

          To hear the way David Cameron carries on, however, you’d think this posed a grave threat to the life of the nation.

          To put the the UK’s infinitesimally small number of Syrian refugees in proportion, Germany had 41,100 Syrian refugees applying for asylum in 2014. That’s 17 times the number the UK had.

          But even this pales in comparison to the 622,000 Syrian refugess in Jordan, the 1,160,000 Syrian refugees in Lebanon, and the 1,623,000 Syrian refugees in Turkey.

        • ezrydermike says:

          what about countries with foreign policies / behaviors that directly caused the situations that people are fleeing from?

          Do they have an obligation to the refugees?

    • Glenn Stehle says:

      And I’d say Singapore wins the prize for an intelligent and moral immigration debate:

      101 East – Calling Singapore Home
      https://www.youtube.com/watch?v=5NpXGmhvLTo

      The intriguing part of the Singapore debate is that, despite all the attempts of the governmnet to sell a liberal immigration policy to the people, large swaths of the public are not buying it.

      This seems to indicate that tribalism and groupism may be inbuilt into human nature.

    • Just needs to pay more. Lots of those articles are written by people who want to bring in cheap foreign laborers. The proper response is let them pay more or go out of business. Otherwise they’ll keep on cramming in cheap labor from Mexico and Central America.

      • Although I frequently disagree with Fernando sometimes he is dead right and simply tells it like it is.

        Farmers want cheap labor. Construction companies want cheap labor. Well to do limo liberals want cheap sophisticated European women to raise their kids for them. Every body wants cheap labor except the laborers themselves.

        This boils down to a situation somewhat analogous to the environmental problem known as the tragedy of the commons.

        When the local textile industry moved overseas to get cheaper labor the people put on the street amounted to only a trivial portion of the work force. The vast majority of people still had their usual incomes and continued to buy lots of clothing. Then the furniture guys closed up. Then the auto guys moved. The electronics guys moved.

        Every time an industry left chasing cheap wages the percentage of people with good incomes fell and the percentage without good jobs rose.

        Eventually we wound up supporting the displaced mostly with welfare paid for by the people still working.

        And our POTENTIAL enemies are now industrialized to the point that if occasion arises we are going to be in a heap o trouble fighting a conventional war.

        We exported our CO2 emissions too but the environmental movement tends to forget that the wind knows no borders.

        This months Chinese CO2 will be in my lungs within a couple of months.

        • Nick G says:

          Well to do limo liberals want cheap sophisticated European women to raise their kids for them.

          The people I know that use limo’s and full time nannies are definitely not liberals.

          When the local textile industry moved overseas to get cheaper labor the people put on the street amounted to only a trivial portion of the work force.

          It’s important to remember that most of the textile job losses were due to automation. 80% of the job losses would have happened even if other countries simply didn’t exist.

          We exported our CO2 emissions too

          Not much, in the overall big picture. We still manufacture and export a lot of stuff. Oil imports have been the single biggest problem in our trade deficit, though they’ve shrunk a lot lately.

    • Twenty percent of the chicken feed wage paid for picking strawberrys is a chicken shit raise. When farm labor actually starts paying as well as working in a nice clean fast food restaurant out of the sun and the rain and standing up straight and living at home, there will be no problem with hiring enough help.

      Till then- well, farmers go broke all the time for one reason or another.I would advertise at least DOUBLE the going rate if I had a hundred thousand dollars worth of strawberries fixing to rot on me. That would be MUCH cheaper than letting them rot.

      • Nick G says:

        Isn’t it weird to see people say “I’m paying more, but I still can’t find employees!”.

        Well, duh. You’re obviously still not paying enough.

  45. ChiefEngineer says:

    We don’t need your freaking oil, the future is here !

    The new technology will give drivers of the Audi sport utility vehicle a range of more than 500 kilometers (311 miles). At Audi’s Annual General Meeting in May, the company announced it was developing a sporty SUV with electric drive, which is to be launched in 2018.

    http://www.greencarcongress.com/2015/08/20150813-audi.html#comments

    Let the oil price wars continue

    • thrig says:

      Ah, that oil is kinda important for building the roads the car sitters seem to like to sit around on. Properly built concrete roads will last a good long while, while asphalt is gone in a few decades. Alas, nobody is building like the Romans did, and any gax tax increase tends to be dumped into…

      http://brucefnesmith.blogspot.com/2015/08/transportation-can-dysfunctionality-be.html

      Oh boy, new maintenance obligations to ignore because… oooh… a sporty SUV! We’re saved!

      • Nick G says:

        Properly built concrete roads will last a good long while, while asphalt is gone in a few decades.

        Exactly. Why not build with concrete, now that asphalt is expensive?

        • Ronald Walter says:

          asphalt is a smooth ride, concrete is a pain.

          • Cracker says:

            Correct Ronald.

            Expansion joints = ker-thump, ker-thump, ker-thump. And repairs are interesting as the concrete breaks up. It isn’t a superior alternative, just different. Instead of asphalt, the oil went into cement making and rock mining and sand pits. Just more BAU.

            Jim

        • Concrete pavement has not actually proven to be that much more durable than asphalt and fixing it is insanely expensive once it starts breaking up. I used to dread driving on the concrete miles of freeway near where I lived. The state highway department finally gave up and put about eight inches of asphalt over the old concrete, which has held up very nicely ever since.

          Asphalt roads are a hell of a lot cheaper taken all around. Concrete is harder to put down and thus more expensive by a large margin to place as pavement than asphalt. It also costs an arm and a leg these days, much more than asphalt the last time I checked.

          • Nick G says:

            Studies I read about concrete versus asphalt, back when asphalt was cheap, said that the higher installation costs of concrete roughly balanced out the lower durability of asphalt.

            Have you seen any reliable sources on the idea that concrete has turned out to be not that durable in general? My observation has been that concrete lifespan depends entirely on the quality of the installation…

            • I have never researched concrete versus asphalt but the Virginia Dept of Transportation poured a lot of concrete in the Richmond area when I lived there – supposedly to high standards of materials and workmanship, and VDOT has always been on the ball technically. The concrete lasted a good while but rode rough as hell and then started breaking up like crazy. The local papers covered the story in tedious detail for a long time while attempts were made to repair the concrete pavement.Jackhammering it out takes a hell of a long time and a LOT of manpower. Then you have to POUR IT and let it harden as opposed to just rolling it out like asphalt which goes MANY TIMES faster.

              The conclusion in the end was that concrete is less than it is cracks up to be ( a pun?) and that the Commonwealth would pretty much stick to asphalt in the future.

              • Nick G says:

                Mac, 2 thoughts:

                I suspect a sub-contractor screwed up the original installation; and

                I bet that was when asphalt was still dirt cheap.

                Roman concrete has lasted 2,000 years. Modern concrete doesn’t do quite as well (yet, though some researchers think they’ve cracked the mystery of roman concrete longevity), but it still lasts a lot longer than asphalt.

  46. ezrydermike says:

    3 articles in today’s LA Times touch on some of the issues discussed here…

    New loans for cars and light trucks hit a 10-year high in the second quarter of the year, pushing total auto debt above $1 trillion for the first time, according to government data released Thursday.

    http://www.latimes.com/business/la-fi-auto-loan-debt-20150813-story.html

    California’s two biggest public pension funds lost more than $5 billion on energy-related investments for the year ended June 30, according to a new report.

    http://www.latimes.com/business/la-fi-calpers-calstrs-energy-losses-20150813-story.html

    Tesla Motors Inc. said Thursday it plans to sell an additional $500 million worth of stock to help fund its current projects, including new-car development and a battery plant being built in Nevada..

    The Palo Alto-based maker of electric cars also said its billionaire chief executive, Elon Musk, plans to buy $20 million worth of the shares being offered.

    Tesla’s existing stock jumped nearly 3% after the announcement, gaining $6.98 to $245.15 a share in morning trading on Wall Street.

    http://www.latimes.com/business/la-fi-tesla-stock-20150813-story.html

  47. Ronald Walter says:

    I can wipe out potato bugs by the thousands and they are absolutely tenacious, will not give up, there is no overshoot, it seems, no matter what attempts to control their numbers, it doesn’t stop, it goes on and on, the music never stops, it is a hopeless case, it will be the bane of any existence, the resistance is futile, if you quit, you’ll be catching your breath, Mother Nature will make a complete fool of you, you’ll be a babbling idiot withered on the vine, it will be hopeless.

    It is the beginning of a sea change. Mass migration out of somewhere seems to be the norm, regardless of where that somewhere is. If you are unable to set up a pumping system to avoid contaminating a river while extracting the polluted contents, you have committed a crime against humanity. Idiocy at its finest and its finest hour.

    Fo gigure.

    Now, it is a nascent what you don’t want to know.

    Have a good evening, after all of the bad news, but that’s too bad, mon.

    But, hey, it’s not that bad.

  48. ezrydermike says:

    Michael Klare’s take on the situation from Tom’s Dispatch…

    http://www.tomdispatch.com/blog/176035/tomgram%3A_michael_klare%2C_big_oil_in_retreat/

  49. ezrydermike says:

    kinda off topic, but has anyone been following the gold mine spill in Colorado?

    What an effin’ mess. Going to be a long time before this is resolved. I read somewhere else that there are over 500,000 of these types of mines in the US.

    http://bigstory.ap.org/article/82823810eed24b16a8000733c0c3a174/navajo-nation-says-it-feels-brunt-colorado-mine-leak

    There are hundreds of thousands of abandoned mines out West. Many hold tens of billions of tons of waste containing arsenic, asbestos, cadmium, cyanide and mercury.

    For decades, the dangers of abandoned mines have been well understood, but a mix of political inertia and lack of funds has stymied efforts to clean up the problem.

    “This is a problem everyone has known about and we all predicted there would be a catastrophic failure at some point,” said Mark Williams, a fellow at the Institute of Arctic and Alpine Research at the University of Colorado Boulder.

    A 1993 report from the Mineral Policy Center (now known as Earthworks) found that there were 557,650 abandoned mine sites in 32 states and that the cost then of cleaning them up was as much as $72 billion. The majority of these mines are located out West in Colorado, Utah, Arizona, New Mexico and California.

    Known as hard rock mines, many date back to the height of the California Gold Rush in the 1800s. Miners swept across the Rocky Mountains in search of gold and silver in the 1870s and 1880s. The bulk of the mines were exhausted by World War I.

    The mine owners left behind as much as 50 billion tons of untreated, unreclaimed mining waste. The Mineral Policy Center report found they have already polluted 12,000 miles of the nation’s waterways and 180,000 acres of lakes and reservoirs and “are a growing threat to underground aquifers.”

    http://www.cbsnews.com/news/spill-sheds-light-on-legacy-of-abandoned-mines-out-west/

    • clueless says:

      A big teaching moment. Nuclear waste does not flow downstream. And, you have a caveman mentality if you do not think that in the next 100 years that technology will solve the problem.

      • ezrydermike says:

        not sure I understand your comment

        • clueless says:

          Nuclear waste is easier to control and will be easier to get rid of than 100 year old mine waste.

          • Longtimber says:

            In North America, ~100% (?) of Radionuclides from commercial Reactors are still above ground – almost naked to elements or attack. Granted it’s not even rocket science, it’s more political foolishness, economics and planning. Some of the funds in trust for “disposal” were wiped out during the 2008 Crash. That second incident in China looks not like just a hydrocarbon explosion to me (??) , perhaps, certain “cargo” was not destined to leave port.

  50. clueless says:

    I posted this earlier this morning. What happened?
    EY (Ernst & Young, one of the top international accounting firms) did this analysis a little over a year ago. Adjust for a 33% decline in the cost of drilling/fracking a well and a 10%-15% increase in production because of drilling in the best areas.
    http://www.ey.com/Publication/vwLUAssets/EY-US-upstream-costs-prices-and-the-unconventional-treadmill/$FILE/EY-US-upstream-costs-prices-and-the-unconventional-treadmill.pdf

    • Where did you get the 33% ?

      • clueless says:

        Just a WAG based on comments that are all over the board. From 10% to 50%. I do not have a clue, but somewhere between 25% and 35% seems to be an average that would be possible.

        • Watcher says:

          quotes:

          As is shown in Figure 2 below, full-cycle costs have exceeded average
          revenues since 2006 (again, apart from the distortions in 2009),
          while average upstream operating cash fl ows have been broadly
          fl at since 2005. Critically, however, free cash fl ows (i.e., operating
          cash flows less capital expenditures — defi ned as F&D spending in
          this case) have been trending downward since the start of the shale
          boom and have been generally negative since 2005. As is shown in
          Figure 2, companies have been largely fi nancing their US upstream
          development activities through increased debt, asset sales and,
          if available, from cash-on-hand.

          And . . . this is the last paragraph before they do their sales pitch (which basically says this industry is so pathetic they MUST hire Ernst & Young to tell them how to fix everything, for a fee)

          As we noted earlier, full-cycle US upstream costs have exceeded
          US$60 per boe since 2008 (again, apart from the distortions in
          2009). But we must keep in mind that this is a blended cost, including
          both oil and natural gas. If we assume that the theoretical break-even
          cost for gas development in 2013 was between US$4 and US$6 per
          million BTU or roughly US$24 to US$36 per boe, and given that the
          US gas/oil production split was 55%/45%, the break-even cost for oil
          would have been US$80 to US$90 per barrel in order for the blended
          rate to be around US$60 per boe — a good bit higher than the typical
          estimates of under US$75 per barrel.

    • Glenn Stehle says:

      This from the analysis is a pretty interesting data point:

      ….in 2013…the US gas/oil production split was 55%/45%….

      So they’re saying that over the four year period 2010-2013 the U.S. upstream business (including both conventional and non-conventional, since the analysis is of the US’s 50 largest oil and gas producers, regardless of whether they operate in conventional or non-conventional plays) was losing about $10 for every barrel of boe it produced, and those losses with an average WTI price of $95 and a NYMEX natural gas price that looks to be about $3.75. Those oil and gas prices resulted in revenues of about $50 per boe produced, with full-cycle costs per boe of $60, thus the $10 per barrel loss.

      So the upstream business was already operating at a loss before the price rout.

      So now with WTI at $42.36 and NYMEX natural gas at $2.81, if we plug in the same gas/oil production split of 55/45, instead of $55 we’re talking $28 per boe produced, or about 50% the 2010-2013 average.

      No wonder the oil and gas cheerleading squad is saying producers have reduced drilling and completion costs by 50% already and can reduce them by another 30% in 2016. Those are the costs that are needed to make the deals economically feasible, regardless of whether those cost reductions are feasible or not.

  51. Somebody way upthread asked why farmers are not producing and running their own operations on sugar beet ethanol.

    This is an interesting question, given that you can read about beets potentially yielding enough to manufacture huge amounts of ethanol compared to corn but I have never looked into it until this minute.

    The first and simplest answer is that lots of farmers raise beets already and if beets yield so much ethanol then there probably WOULD BE a beet ethanol industry.But high yields are not necessarily the same thing as high profits.

    Here is a quote from a USDA study now ten years old but it says it all.

    “•The estimated ethanol production costs using sugarcane, sugar beets, raw sugar, and refined sugar as a feedstocks are more than twice the production cost of converting corn into ethanol.”

    http://www.usda.gov/oce/reports/energy/EthanolSugarFeasibilityReport3.pdf

    To the best of my knowledge there have not been any significant changes in the relative costs of producing corn and beets in the last decade but I am not a corn guy and I know very little about beets.

    I know corn abc’s and when you use corn to make moonshine you also get a a nice yield of CO PRODUCT or using alternate terminology BYPRODUCT high protein livestock feed as well as ethanol out of every bushel of corn. High protein feed is a VERY valuable product in a country that eats a lot of beef and pork and chicken.

    Now as far as running actual farm operations on corn ethanol or biodiesel it could be done and we could do it in the event that oil for some reason becomes unavailable or EXTREMELY expensive. It would take quite a while to manage a full scale changeover and cost a hell of a lot of money.

    It is possible to build NEW diesel engines that run on a pittance of diesel fuel , maybe five percent, and ninety five percent ethanol, but they are substantially more expensive than a conventional diesel.

    So far as I have been able to find out, converting an existing diesel engine to run on ethanol ( still using a little diesel continuously ) is out of the question as a practical matter. Buying a brand new engine is MUCH cheaper and a converted engine is STILL a USED engine.

    There are a few old gasoline fueled tractors still in use that could be converted to run on ethanol in an emergency but they are few and far between and virtually all of them are too small for today’s larger implements.

    So far petro diesel has always been the more practical option by a substantial margin.

    Somewhere down the road when oil is REALLY scarce and expensive it is probable that most farmers will run on locally or regionally produced biofuels or maybe synthetic diesel made from coal. Farm machinery can also be run efficiently on compressed natural gas if affordable tanks become available and lpg which is already widely available.

    Refueling is no big deal since you very seldom travel very far from home base with farm machinery.

    Even twenty dollar a gallon diesel is cheaper than hay and oats by a mile. Oat burners can’t be switched off.

    Here is a link to some current research into running diesels on ethanol.

    https://teknologiateollisuus.fi/sites/default/files/file_attachments/vtt_ethanol_engine_7.5.2015.pdf

    • Ronald Walter says:

      The corn growers were looking at corn prices of a 1.68 per bushel back in the mid to late eighties, were in need of a stimulus of some kind to increase prices and the ethanol industry was born to do just that.

      Throw a gallon of gasoline on the ground, light a match to it and see what happens.

      Do the same for ethanol and you will discover which has the greatest energy content.

      Alcohol burners are for the chemistry lab, gasoline burners are engines mounted on a frame and are used to power a drive train because they can.

      • Three gallons of two hundred proof moonshine are as good as two gallons of hundred octane gasoline- except you need a bigger fuel tank. You can actually get more outright power from a given size engine using the moonshine since it has superb antiknock properties and you can push the compression ratio up to twenty to one or even higher.

      • shallow sand says:

        Guess what Ronald, multiply 1986 corn price times CPI and one gets $3.86 per bu.

        Take 1986 soybeans of $4.75 times CPI and one gets $10.92 per bu.

        Likely will not get either of those prices at harvest.

        And I don’t think CPI does a good job of measuring anyway. I think it is too low. $11 oil would be $25.30 today. I think $25.30 oil today would be much worse than $11 in 1986.

        OPEX 4-5 times per barrel what it was in 1986.

  52. SatansBestFriend says:

    http://www.telegraph.co.uk/news/worldnews/europe/russia/11797351/Russia-and-Nato-actively-preparing-for-war.html

    Mr Fool: Why are they doing this? We need peace and love and anarchy.

    Mr Obvious: The US military predicted Peak Oil in 2015, their prediction looks wrong because they (like everyone else) missed the shale boom, but if you factor that in, it looks like they were ON THE MONEY like RON P. It is unlikely they are the only oil importing country that came to the same conclusion.

    Mr Fool: Maybe we can implement Anarchy to solve our problems!!

    Mr Obvious: Sorry I just spit my coffee out on my keyboard. South China Sea, Ukraine Invasion, ELM, Eurasian Economic Union, NATO Missile shield. No coincidence!!!

    Thanks for all the valuable input here!!!

  53. AlexS says:

    A new article by John Kemp

    COLUMN-U.S. shale firms slide deep into the red on low oil prices: Kemp

    Aug 12, 2015
    http://www.reuters.com/article/2015/08/12/usa-shale-kemp-idUSL5N10M3HA20150812?feedType=RSS&feedName=everything&virtualBrandChannel=11563

    Aug 12 (Reuters) – North America’s leading independent oil and gas producers reported large losses in the second quarter despite cutting costs and increasing output.
    Ten of the largest independent oil and gas producers in the United States reported total losses of almost $15 billion between April and June, compared with profits of almost $3.5 billion a year earlier.
    Three more independents remained profitable, but reported net income of only $66 million, down from more than $1 billion in the second quarter of 2014.
    ………………………………………………..

    • Amatoori says:

      If that is Q2 the H2 will be so much incredible unbelievable mega disaster. The once who survive will be very strong though.

    • shallow sand says:

      The large losses are the result of reserves impairments some companies have taken.

      AlexS, what would be an even better comparison would be cash flows for the companies 1H 2014 v 1H 2015.

  54. islandboy says:

    Zambia turns to solar amidst power shortage

    Zambia is aiming to feed 1,200 MW of solar power into the national grid by August 2016. The country is currently amidst an acute power deficit and PV is now being seen as the new source….[snip]

    Zambia is plagued by a grave electricity shortage at the moment. Zambian power company Zesco is seeing a 560 MW shortfall in electricity due to water levels falling at hydropower dams. The country depends on hydropower for more than 90% of its power supply according to Bloomberg.

    The government plans to open up a retail outlet at Zesco to allow easy public access to affordable solar appliances such as inverters. The reason for this is to combat the current situation where renewable energy products are being sold at very high prices by dealers. At the moment, Zambia is importing electricity from Mozambique and are in talks with other stakeholders who have extra power to supply to the country.

    I thought that this might be of interest to folks discussing solar pv in Africa further up.

    • Fred Magyar says:

      It’s also of interest to me to me down here in Brazil where there are many parallels to what you describe. Brazil depends to a large part on hydroelectric power, we are now in a the midst of a major drought and because of exorbitant import taxes, corruption, government mismanagment, etc… the price for PV systems has been very expensive! I think that will have to change soon.

  55. shallow sand says:

    Interesting that tobacco stock prices are surging, at least RAI.

    So, we are going to get off oil by discouraging its use, even though it is useful. Not working so well with smoking, which really has no usefulness.

    Full disclosure, I don’t smoke.

    • Fred Magyar says:

      Yeah, but both oil and nicotine are highly addictive, in different ways, but addictive nonetheless.

      As for tobacco stocks, I wonder if it simply means that the purchasers of those stocks are also betting on an ever increasing pool of future addicts as the population continues to increase. Wonder what happens to those stocks if the population crashes, if and when peak oil really starts to hit…

      • MarbleZeppelin says:

        ADDICTION: Addiction is a condition that results when a person ingests a substance (e.g., alcohol, cocaine, nicotine) or engages in an activity (e.g., gambling, sex, shopping) that can be pleasurable but the continued use/act of which becomes compulsive and interferes with ordinary life responsibilities, such as work, …

        I think that applying the term addiction to the use of fuels is not appropriate. Otherwise we would be finding people driving incessantly day and night to get that fix or high, finding them along the roads out of gas and stealing fuel from other vehicles or holding up gas stations to get fuel. Most fuel use is dedicated to ordinary life activities and responsibilities.
        Recall the source of the statement “America is addicted to oil” George Bush.

        Personally, I really don’t care what moves my vehicle unless it pollutes the world. Electricity is fine, I don’t think most people care either as long as they get to where they need to go or the cargo gets to the destination.

        • Nick G says:

          It’s a metaphor, based on the idea that we suffer withdrawal pains when we try to reduce oil consumption.

          These withdrawal pains include reduced profits and stock prices for oil companies and refiners, job losses for ICE engineers, increased campaign contributions for republicans, etc.

          • MarbleZeppelin says:

            Or they could just say America uses a lot of oil.
            I have reduced my use of oil products quite significantly and felt just the opposite of pain, in fact my wallet felt relief and I got a healthy dose of self-satisfaction.
            .

  56. DT in Calif says:

    In conventional fields, a typical natural decline rate might be 15-30% annually (while on primary depletion).
    Can anybody tell me what is a the typical production decline rate for shale wells? I understand it is pretty steep. Is the decline exponential, or hyperbolic? Thanks.

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