World Crude plus Condensate Decline Rate

There is concern that World C+C may decline steeply after the peak, I believe those concerns are over blown. There is always the possibility that there could be a severe recession due to high debt levels, high oil prices or potentially due to both problems in combination. War and environmental damage due to overpopulation are also potential problems which may lead to a crisis.

If none of these problems arises in the near term (say for the next ten years), and demand for oil is high enough to keep annual average oil prices above $75/b from 2018 to 2025, then the average annual decline rate of oil (C+C) output will remain under 2%.

For simplicity in the analysis that follows, I assume the peak in C+C output is 2015 and that output will decline at a relatively steady rate from 2015 to 2025. This in unlikely to be the case in practice and the actual path of future world output is unknown, the intention is to determine a likely trend line for World C+C output.  Using quarterly C+C output data from the EIA, I constructed the charts that follow.

Data is from the International Energy Statistics page at the EIA website.

The “Big 14” oil producers from 2002 to 2015 are (in order from largest to smallest): Russia, Saudi Arabia, United States, China, Iran, Mexico, Canada, UAE, Venezuela, Kuwait, Iraq, Nigeria, Norway, and Brazil. The Rest of the World (ROW) is all other oil producers besides the “Big 14”.
All charts below (except the natural log charts) are in kb/d.

declinepost/

The Big 14 increased C+C output by about 8 Mb/d from 2010 to 2015.

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For the ROW C+C output decreased by about 3 Mb/d from 2010 to 2015.

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To consider decline rates we look at the linear trend of the natural log of output. For the ROW the average annual decline rate was 2.69% from 2010 to 2015.

declinepost/

The C+C output of the Big 14 increased at an average annual rate of 2.71% from 2010 to 2015.

declinepost/

As a very simple future scenario, I assume the ROW decreases at 3% per year and that the rate of increase of the Big 14 is zero. The chart below shows the scenario, with ROW output read from the right axis, output is in kb/d on both left and right axes.

declinepost/

If we look at the natural log of World output we can find the average annual decline rate for the scenario above over the 2016 to 2024 period, it is 0.63% per year.

declinepost/

The scenario above is very conservative, as oil prices rise above $85/b it is possible that the output of the Big 14 will rise at 0.52% per year (5 times slower rate of increase than 2010-2015) and that ROW might decline at an average rate of 2%/year on average over the 2016 to 2024 period.

That scenario results in a plateau in C+C output, chart below, ROW is read from right axis.

declinepost/

In either case, C+C output either does not decline at all for 8 years (optimistic scenario) or declines slowly at 0.6% per year in a conservative scenario.

I have also just posted a new Open Thread for non_petroleum discussions, please try to keep this thread focused on oil and natural gas related topics.

Thanks.

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514 Responses to World Crude plus Condensate Decline Rate

  1. > and demand for oil is high enough to keep annual average oil prices above $75/b from 2018 to 2025

    Isn’t that the huge question mark though? As demand failure likely caused the price crash in the first place, indicating an inability of world markets to afford higher oil prices, what’s the economic mechanism that would allow for higher price support? Since 2008, liquidity injections created an economic climate that pushed up prices, but there seems to be no more of that on the horizon. The global economy remains in the doldrums, and the enormous losses mounting in the oil industry might well be a cap on any future substantial economic growth.

    I just don’t see where the necessary wealth to support sustained higher prices can come from.

    • Dennis Coyne says:

      Hi Stuart,

      The World economy will continue to grow and at low oil prices oil supply will fall, this is just a matter of supply and demand. If your supposition that a severe recession is imminent proves correct, then oil prices will remain low and oil supply will continue to fall.

      Do you assume the World economy will remain in a permanent depression? If not then oil prices eventually rise.

      • Stavros H says:

        We can’t even exclude the possibility that at some point before the end of the current decade, the global economy sees accelerating economic growth. Remember that after the Great Depression of the 30s, the global economy bounced back spectacularly.

        Moreover, even a global economy with a very low rate of growth will still demand vast quantities of oil & gas to operate. Hence, the price for hydrocarbons will inevitably rise in the coming years. In fact a sluggish global economy may prove even better for oil prices since the funds won’ be there for other sources of energy to be developed, the world will remain massively reliant on fossil fuels to keep spinning around.

        • Dennis Coyne says:

          Hi Stavros,

          A sluggish economy will keep oil prices lower and might have the effect of keeping alternatives from being developed as the alternative may be less competitive, eventually oil prices will rise due to depleting oil availability and there will be a move to alternatives when this occurs. It is difficult to predict how quickly this will play out, but slow growth will eventually result in a shortage in oil supply and higher oil prices and then reduced demand as alternatives replace oil.

          • Nick G says:

            Low oil prices may slow the growth of alternatives somewhat, but a lot of countries are pushing public policy that supports those alternatives.

            Look at India: serious proposals to try to switch to EVs completely in just 14 years.

            http://economictimes.indiatimes.com/industry/auto/news/industry/india-aims-to-become-100-e-vehicle-nation-by-2030-piyush-goyal/articleshow/51551706.cms

            • Caelan MacIntyre says:

              The problem with so-called alternatives is that they may kill the hands that fund, build and/or purchase them, depending on how much energy they put out (thermodynamics, entropy, etc.); how much of BAU/GAU (Government As Usual) they sustain (if relatively much at all); and how mobile they are and so forth.

              Of course, there are other problems out there too. Anyone keeping an eye on them?

            • Toolpush says:

              Nick,

              From your article.

              “To my mind, lack of electricity access in villages across the country is a serious concern for us as a nation. There are about 50 million homes which don’t have access to electricity.

              So India needs to build a reliable electrical grid first, but they are working on a good supply of fuel.

              This was just approved last week.
              https://en.wikipedia.org/wiki/Carmichael_coal_mine

              The Carmichael coal mine is a proposed thermal coal mine in the north of the Galilee Basin in Central Queensland, Australia. Mining is planned to be conducted by both open-cut and underground methods.[1] The mine is proposed by Adani Mining, a wholly owned subsidiary of India’s Adani Group. The development represents a $16.5 billion investment.[2]

              At peak capacity the mine would produce 60 million tonnes of coal a year. In court Adani said it expects the mine to produce 2.3 billion tonnes over 60 years

              I am sure this is not what you were thinking!
              PS I think we are getting away from our oily thread.

              • Nick G says:

                India needs to build a reliable electrical grid first

                And EVs are an enormous benefit to building a reliable grid: they provide demand right when it’s needed. Got too much wind power at night? Charge then. Too much solar at noon? Then charge at noon. They can be a UPS for the house, and probably for a neighborhood.

                As for coal: as you might guess from the above, the synergy of EVs with the grid helps wind and solar enormously.

                Finally: EVs ARE the the next oil. Nothing is more relevant to an analysis of oil’s supply and demand over the next 30 years.

                • Reno Hightower says:

                  If they truly are the next oil, there would not be a need to tell everybody who will listen that EV’s are the next oil. It would be self evident.

                  I

                  • Nick G says:

                    there would not be a need to tell everybody who will listen

                    A lot of people don’t need to be told. For instance, the Indian Power Minister, who’s planning for India to go 100% EV in 15 years.

                    Change is resisted by many people. One hundred years ago it was common to hear

                    “Get a horse”!

                  • Fred Magyar says:

                    It would be self evident.

                    Disruption is never self evident!

                    Ask Kodak what they thought about digital cameras disrupting film back in the day. Or AT&T about the potential for the cellphone market.

                    Digital cameras killed film and back in the late 80’s AT&T’s market research came up with a potential of 900,000 cellphone users over the next decade. The actual numbers were over 100,000,000 users.

                    Neither of these markets were self evident at the time. There are hundreds of other similar cases. More importantly none of the supposed inside experts ever saw it coming.

                    I certainly don’t claim to know if EV’s are the next ‘OIL’ but I’m 100% sure they are going to disruptive private transportation in a big way much sooner than most people in the Oil business expect.

                  • Caelan MacIntyre says:

                    “EVs ARE the the next oil…
                    Change is resisted by many people. One hundred years ago it was common to hear

                    ‘Get a horse’!” ~ Nick G

                    Let’s hear it for Nick G’s sell-anything sleaze.
                    (That rhymes.)

                    Cars are of course not oil/energy– unlike a horse– and, unlike a horse too, you can’t eat a car; you can’t travel through a relatively-undeveloped landscape in a car; a car is not part of a healthy properly-functioning biological ecosystem; a car cannot be repurposed like a horse can to do other forms of work; a car cannot self-reproduce; a car depends on a vast network of non-local support and BAU-style lack of ethics; a car does not provide good material for compost (during and after its life) and thus living organisms or a veggie-garden; a car doesn’t provide anywhere near the companionship for humans and other animals that a horse does; a car has nowhere near the sophistication and intelligence of a horse (self-driving, self-fueling, etc.); and a horse engages in nowhere near the levels of habitat destruction– often out of necessity for the operation of a car– that a car does. I probably forgot countless other things, with apologies to the horse.

                    “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.” ~ Sheikh Rashid bin Saeed Al Maktoum, ‘Founder’ of Dubai

                  • Fred Magyar says:

                    Caelan said:

                    “Cars are of course not oil/energy– unlike a horse–…”

                    I think you missed Nick’s point, I’m pretty sure he is well aware of the fact that a car is not energy! But shared driverless EVs could indeed be the next big thing at least in the urban transportation sector.

                    On the other hand an EV can be used as energy storage and in a circular economic model can be recycled when it come to the end of it’s useful life.

                    As for horses I don’t think they would be remotely sustainable if 9 billion plus humans decided to keep them for transport, work on a farm or energy backup in the form of food should the need arise.

                    I think we should make E.O Wilson’s Half Earth model our goal, work on reducing population and unnecessary consumption, switch over to a circular economic model for starters and see how things evolve. Yes I realize that is a simplistic and somewhat naive characterisation on my part but so be it!

                    There are major changes happening globally in all sectors already, Political, economic and technological. The only option is to embrace that change.

                    Living on permaculture farms is not a viable option for the vast majority of humans. Unless we make cities sustainable somehow and keep some form of industrial civilization going we may as well just start nuking urban centers. It would be more humane…

                    Cheers!

                  • Caelan MacIntyre says:

                    Good morning in the Americas, Fred…

                    You and Nick G et al. with this and similar kind of talk seem to be creeping closer to rationalization. I think I get what Nick G was saying only too well, hence, my mention of sleaze. You can handwave/rationalize away anything you want really– slaves, genocide and anything else– and the car as oil and screw horses bit seems to be hitting new lows, maybe of desperation for a way of life that is really a way of death. We all know it.
                    Technology is already disruptive.

                    “As for horses I don’t think they would be remotely sustainable if 9 billion plus humans decided to keep them for transport, work on a farm or energy backup in the form of food should the need arise.” ~ Fred Magyar

                    ^^ That’s what I mean about rationalization.

                    “Yes I realize that is a simplistic and somewhat naive characterisation on my part but so be it!” ~ Fred Magyar

                    Well now at least we are getting somewhere.

                    “The only option is to embrace that change.” ~ Fred M.

                    Change, which is not all equal nor created equal, comes in myriad forms and can be rejected, fought for, against and/or modified, and come from you too– democracy and equality and all that. Lots of options there.

                    “Living on permaculture farms is not a viable option for the vast majority of humans. Unless we make cities sustainable somehow and keep some form of industrial civilization going we may as well just start nuking urban centers. It would be more humane…” ~ Fred M.

                    ^^ More borderline crazy-talk.

                    Besides, permaculture includes cities. Look it up.

                  • MotherEarth says:

                    A horse isn’t energy either when it’s used as transportation. It has to be serviced and fueled like a vehicle.

                    I think Caelan would be happier writing comments on rocks with coal.

                  • Caelan MacIntyre says:

                    LOL
                    For ‘MotherEarth’, it’s all about cars now.
                    Her horses are so last aeon. Been there, done that.
                    And so inefficient in terms of
                    [making money through third-party] servicing and fueling [etc.]. [Oh, wait, did I just write that?]

                    ‘As for Caelan’s comment, why it’s… it’s back to writing with coal for him! We will ensure that our factory-floor wage-slaves and robots will be making one less pen and pencil as of today…’

                    Where do you guys come from?

  2. Oldfarmermac says:

    Hi Dennis,

    There is an old saying that in the end pessimists and alarmists are always right, if you give them time enough to “be right”.

    I hope you are right and that oil production declines rather slowly and steadily after peaking, but somehow I keep thinking that the law of diminishing returns is going to take a bigger bite out of oil production.

    How long has it been since anybody discovered a really big new oil field?

    • SatansBestFriend says:

      Good one Mac.

      And atheists never get to say “I told you so!”.

      • Caelan MacIntyre says:

        They don’t have to. If there is a god, and God wants to ‘effect the universe’, then s/he needs access, and access necessarily implies ‘leakage’, and once we get leakage, then the universe encompasses God and s/he ends up being part of it and then we’re back to square one– no God per se, just the universe as it is, was and always will be.

        Getting back to oil… I feel that the sooner we can get out of this mess, the better. Oil is allowing the human being to large-scale decentralize their way of life and put it on a knife’s edge for all kinds of strange effects. Thank you.

        And now back to our regularly-scheduled programming…

        • Caelan MacIntyre says:

          Correction: In the above comment, I meant, large-scale centralize, not decentralize.

          Also, the various notions of ‘God’ that I have heard about often seem like glorified anthropomorphizations of the universe… including Oldfarmermac’s ‘Sky Daddy’.

          …For all we know, God is more like a vast above-ground pool of sweet crude that stretches to the horizon.

    • Dennis Coyne says:

      Hi Old Farmer Mac,

      How many large new fields have been discovered in the US since 1980? Reserve growth in the US from 1980 to 2005 was 63%. Jean Laherrere estimares that 2P reserves in the World (excluding oil sands) were about 850 Gb at the end of 2010. If we add oil sands to these reserves we get about 1250 Gb of oil reserves at the end of 2010. Let’s be conservative and assume oil sands reserves will not grow.
      The 850 Gb of reserves would grow by 535 Gb if they grew by 63% so that gets us to about 1785 Gb of oil reserves at the end of 2010. Jean Laherrere also estimates about 200 Gb of discoveries after 2010 so if we add those in we get to 1985 Gb of oil reserves, plus cumulative output to the end of 2010, which was 1140 Gb for a total URR of 3125 Gb. Cumulative C+C output was 1280 Gb at the end of 2015, leaving us 1825 Gb of oil reserves to work with. Also note that 80 Mb/d is 29.2 Gb/year and if we assume the peak is reached when half of the URR is reached that would be about 9 years from 2015 or 2024. If 2015 is indeed the peak, decline will be slow.

      • R DesRoches says:

        One of the problems is the Light Tight Oil is not included in these analysis. In their latest report the EIA has estimated that in North America there are 78 billion barrels that are proud able, up from 16.8 Billion in 2011.

        For the rest of the world the EUA estimates that the recoverable potential is 418 billion.

        At the current rate of growth this potential can be over 1 Trillion barrels in five years.

        Over the last five years the cost of developing and producing these assets have dropped in half.

        • Dennis Coyne says:

          Hi R DesRoches,

          The EIA reserve estimates are not very good, I focus on USGS estimates which are much better. In the rest of the World LTO resources are unlikely to be produced, the US oil industry is unique in the large number of smaller oil companies relative to most other nations. The mineral rights laws are also very different in the US from elsewhere. For the US a more reasonable estimate for a LTO URR is about 35 Gb rather than 78 Gb, the EIA may have been fooled by the hype in investor presentations rather than looking at 10ks.
          Keep in mind we are talking about a World URR of 3400 Gb, 35 Gb is 1% of this total, it barely moves the needle (a rounding error as it were).

          LTO will be a relative flash in the pan, in the US it will peak in 2020 and then decline rapidly (4%/year or more) after 2030 as poorer quality areas will no longer be profitable to drill and complete.

          • R DesRoches says:

            It will take a while to see where LTO is going as the cut in drilling will have a major short term effect on production. The study the EIA has done is a bottoms up analysis and is much more detailed than anything the USGS has done.

            Year after year I have seen many analysis saying tight oil is not going anywhere. The first of these analysis I done years ago proved beyond any doubt that the Bakken will never produce more than 77,000 barrels a day.

            With a resource potential of 77 billion barrels, it is hard to see a peak in 2020, or any time close to that

            • I would love to have the detailed breakdown for that 418 billion barrels. Does anybody have a report for the latest events in Western Siberia and Argentina?

            • Dennis Coyne says:

              R DesRoches,

              The EIA “bottom up” analyses are not usually based on geology, they hire an outside consultant and often the “analysis” just gathers together information in investor presentations. So you can choose the EIA analysis, but do you remember their estimate of the Monterrey Shale.

              http://www.reuters.com/article/eia-monterey-shale-idUSL1N0O713N20140521

              In 2011 they estimated 14 Gb, in 2014 it was revised to 0.6 Gb.
              There may be future revisions of about 48 Gb of US LTO TRR to maybe 5 Gb or less. The final US LTO URR will be between 30 and 40 Gb, I think the lower end of the range is more likely.

              • R DesRoches says:

                Yes the EIA has updated their estimates of the recoverable LTO resources:

                April 5, 2011 – 16.8 Billion Barrels
                June 13, 2013 – 64.9 Billion Barrels
                Sept 24, 2015 – 78.2 Billion Barrels

                We have been hearing for years that LTO production is about to crash, instead it had gone up by 1 million barrels a day for three straight years.

                Now that rig counts are down by close to 80% we will see at last declines in LTO production.

                • AlexS says:

                  The EIA estimates the volume of technically recoverable reserves and does not take in consideration economic factors, such as oil prices, costs, capex requirements, company financials , etc.

                  • R DesRoches says:

                    A peak oil analysis takes the ultimate potential, and when about half the resource is produced we are at the peak.

                    With the very large cut in world cap ex, world oil production is going to fall to the point where prices will be much more than necessary to make a high ROR on LTO.

                  • Dennis Coyne says:

                    I don’t think the URR for US LTO will be 78 Gb.

                    US LTO Estimates (optimistic)
                    Bakken/Three Forks=12 Gb
                    Eagle Ford= 9Gb
                    Permian Basin= 8 Gb
                    Rest of US= 5 Gb
                    Total=34 Gb

                    The USGS estimates about 4 Gb for undiscovered LTO resources in the US outside the Bakken/Three Forks, Eagle Ford, and Permian Basin, I have bumped this up by 1 Gb, if we doubled this estimate to 8 Gb, then a very optimistic estimate would be 37 Gb.

                    This is the basis for my 30 to 40 Gb LTO URR estimate for the US. Note that the USGS F5 estimate (5% probability that TRR would be larger than this) for the Bakken/Three Forks in April 2013 was 36% higher than the mean estimate (15 Gb vs 11 Gb), if we apply this to the entire US estimate of 34 Gb we would have an F5 estimate of 46 Gb for US LTO. That would suggest a 95% probability that US LTO will be less than 46 Gb and a 50% probability (F50) that it will be less than 34 Gb.

                • likbez says:

                  R DesRoches,

                  We have been hearing for years that LTO production is about to crash, instead it had gone up by 1 million barrels a day for three straight years.

                  With enough financial thrust even pigs can fly, it’s just unsafe to stand where they are going to land.

    • Dennis Coyne says:

      Hi Old Farmer Mac,

      I suppose I get your point. If it hasn’t happened yet it simply means it is more likely to happen in the future. I disagree, I think humans population will peak in 2050 and will fall to below today’s level before 2100 and then continue to fall from there. As fossil fuels peak (by 2025 for peak energy from coal, oil, and natural gas) the price of fossil fuel energy will rise and the cost of substitutes such as wind, solar, hydro, EVs, rail, and light rail will fall we will transition away from polluting fossil fuels and still have adequate energy. Energy efficiency will also be important. We also need to work on soil and water problems, but falling population will put less pressure on natural resources. We should also recycle products and design them cradle to grave for easier recycling along with making quality products that last for decades rather than years.

      • R DesRoches says:

        I’ll stick with the EIA estimates as they are the most up to date being completed late last year.

        The USGS should take a look at the UNITA basin, with 1.2 Trillion barrels of light tight oil in place.

        It has 5,000 feet of stacked plays, and the first horizontal wells were just drilled last year in four different zones which has never been drilled before with reported very good results, but with tight details. Follow up drilling will take place this year. Much of the basin has been developed with only verticle wells, and only in a couple of the zones.

        • Reno Hightower says:

          I am sure the USGS is aware of the Unitah basin. Got an email that Southwestern is selling their position in the Unitah later this month at a bid. 43,000 acres.

          You can find production and acreage in every shale play right now. Utica, Marcellus, Haynesville, Bakken, etc.

          My experience is I would be very skeptical of any reserve numbers. Specifically reserves from government agencies or other groups that have no production or well data to back up their claim. My rule is reserves are what you pull out of the ground.

          • GoneFishing says:

            Does it really matter how much oil there is in a shale play if the producers can’t make a profit?

            • Dennis Coyne says:

              Hi Gonefishing,

              No only economically recoverable reserves matter. The question is what oil price can the World sustain? My answer is about $120/b, if World real GDP growth averages 2%/year (at market exchange rates) an C+C output remains 80 Mb/d or less.

              If I am correct (and people who know more than me disagree that oil over $100/b can be sustained), then much of the LTO in the US (a URR of about 35 Gb) will be profitable to produce.

              If I am in correct and oil prices remain under $85/b long term (for the next 10 years), LTO output would be considerably less, maybe half of my high oil price estimate.

              We do not know future oil prices, my WAG is that as demand outruns supply after 2017, that oil prices will be high.

          • That’s Uintah, I believe. What are they planning, slanted wells in tight Cretaceous sands?

          • R DesRoches says:

            I agree that well data is needed to make these estimates, and that is just what the EIA used to make the estimate that the U.S. has 78.3 Billion of Light Tight Oil producible resources.

            The estimate was made by using well data. You should read the report as it goes into great detail on how the calculation was made. It is very impressive.

  3. @Dennis sez:

    “If none of these problems arises in the near term (say for the next ten years), and demand for oil is high enough to keep annual average oil prices above $75/b … from 2018 to 2025, then the average annual decline rate of oil (C+C) output will remain under 2%.”

    Where is the MONEY for all this ‘demand’ going to come from?

    Not from driving cars in hapless circles. We’ve been driving for a hundred years and it hasn’t earned us a dime. Absence of earning = we’re flat broke. Because driving does not produce a return (unless the operator drives a truck or a taxi) customers pay by borrowing. Customers borrow directly from their own banks, or their bosses’ companies borrow from THEIR customers’ banks … or the governments borrow, in the place of their straitened citizens.

    A billion borrows a day for a hundred years … no wonder the fuel prices are in the basement. Use of fuel is a proven loser. The marginal customer here and there around the world is destitute enough to keep the lid on prices.

    It isn’t just the happy motoring: cars need widely spaced destinations and millions of miles of roads to connect them, all the above requires a massive industrial enterprise, giant governments, finance, real estate and insurance along with a bottomless supply of non-petroleum resources. None of these things are paid for by driving. Building countries around the automobile and borrowing to do so = hundreds of trillion$ of dollars in debt.

    Zero percent interest, quantitative easing, the fuel industry hungry for credit … ironically due to low prices … and the customers are starved of funds as credit is diverted to drillers. The shortage of customer cash = entire petroleum industry has fallen insolvent.

    Put another way: high prices would continue to add some marginal amount of petroleum to the markets. What would trigger compounding shortages? A: low prices. There is no law that requires prices that satisfy the petroleum industry.

    Our blessed economy’s #1 product is poverty. Low prices are here to stay; shortages that are currently underway will intensify (our ‘supply glut’ is a surplus of condensate: Jeffrey Brown). Fuel constraints won’t make any customer richer. Low prices are here and absolute shortages are coming.

    • Dennis Coyne says:

      Hi Steve,

      The World economy will continue to grow at 2% per year in real terms, oil demand will grow as well. Low oil prices will eventually curb oil supply and prices will rise. You assume there will be a recession, if there is oil prices will remain low and supply will fall due to lack of demand for oil. This is certainly possible, I think the odds are fairly low (less than 1 in 4) that this will occur within the next 4 years.

      I am talking about a global recession where real GWP contracts over a 12 month period. Perhaps if governments all over the World follow the silly policies of the EU in response to a major recession, then we might see another prolonged recession. Hopefully the economists who advised that balanced budgets were wise policy in the face of a serious economic downturn have re-read The General Theory.

      • SatansBestFriend says:

        “The World economy will continue to grow at 2% per year in real terms”

        If oil begins to decline, and I think there is ample evidence provided on this site that it might, I would not back that statement.

        There are housing bubbles all over the world in the major economies (Europe, China, Canada, Australia, etc).

        If interest rates start going up, these a going to blow up, big time.

        The “roll your debt over to lower interest game” has hit rock bottom. Everyone is playing it. And it can’t be played, ANYMORE.

        Based on the laws of math, when interest rates begin to rise, all of the entities that are playing this game are in trouble.

        An there are lots and lots of people (US Government, Corporate USA, Wall Street, Global housing markets, Pension Funds, Insurance Companies, etc), who are tied up in this mess.

        I am not confident interest rates will stay low, because they are ultimately determined by the market. And, like peak oil, at some point people are going to see where things are heading.

        Thanks!

        • Dennis Coyne says:

          Hi Satan’s best friend,

          Interest rates tend to rise when the economy is doing well. The 1980s experience in the US was an aberration due to poor monetary policy by Volker and was in response to high oil prices. Economists have since learned to focus on core inflation (leaving out volatile energy and food prices) and have a better handle on monetary policy when oil prices are high.

          Bottom line, high interest rates are a reflection of too much demand for liquidity and not enough supply of liquidity. This will only happen if economists forget how to do monetary policy properly and the World economy is booming. In that case World GDP goes up and debt to GDP ratios tend to fall and the debt can be easily serviced even with higher interest rates.

          • Oldfarmermac says:

            Debt is or can be a winner loser game, just like war. It may be that the folks who own the debt find out they are only rich, instead of UBER rich.

            Default is historically extremely common. What the results of default on the grand scale might be, is anybody’s guess. I have read some convincing arguments that most important reasons Hitler was able to take over Germany was the unduly harsh terms forced on Germany after WWI, terms designed to force Germany to pay war reparations.

            In a stable democracy, the ownership of such debts might just be taxed out of existence. The problem is that in the end, we do owe such debts to ourselves. The mythical Social Security trust fund for instance is supposed to pay for my old age welfare bennies until I am PERSONALLY recycled. Pensions of all sorts, old age savings, etc will largely vanish in a bad enough financial collapse. Then a whole new New Deal will have to be implemented.

            • Dennis Coyne says:

              Hi Old Farmer Mac,

              A financial collapse more severe than 2008/2009 is not very likely.

              The only reason 1929 to 1933 was so bad was because important economic work by Keynes and Milton Friedman and Anna Schwartz had not yet been done. As long as the important economic work of the past 80 years is not completely forgotten, a repeat of the debacle of the early 30s will not be repeated.

              Although the Europeans tried their level best to repeat the mistakes of the past in response to the GFC. 🙂

              • yt75 says:

                Economics works …
                The concerns are indeed not overblown at all, and for extremely “trivial” reasons.
                Hubbert symmetrical curves were always backed up by another “source” taking over.
                Clearly not happening.

                • Dennis Coyne says:

                  HI yt75

                  I doubt output will follow a hubbert curve.

                  I only use HL to get some idea of URR.

                  In the past HL tended to underestimate URR.
                  In 2005 the HL suggested a URR of 2000 Gb. Now it’s 2500 Gb if we ignore oil sands output.

                  The oil shock model gives us an estimate of extraction rates from producing reserves. Even if they are fixed at the 2015 level output declines slowly.

                  At current oil prices output will fall. Then oil prices will rise and after a lag of 2 or 3 years output will rise.

                • Dennis Coyne says:

                  Hi yt75,

                  The oil shock model does not assume symmetrical “Hubbert curves”, discovery and production are used to estimate World producing reserves and extraction rates from those producing reserves. For the future we assume some extraction rate based on the past and future producing reserves are based on an estimate of the World URR and takes into account potential future discovery and reserve growth.

                  The scenario presented below assumes 2015 extraction rates continue in 2016 and 2017 and then extraction rates increase slightly from 2018 to 2025 and then remain fixed at 8.6% (the extraction rate was 8.4% in 2015). The annual decline rates for this scenario remain under 1% from 2018 to 2039, by 2050 the annual decline rate is 1.4%.

              • Nick G says:

                the Europeans tried their level best to repeat the mistakes of the past in response to the GFC.

                Arguably the Euro was an EXACT replication of one of their biggest mistakes: the gold standard.

          • Nick G says:

            The 1980s experience in the US was an aberration due to poor monetary policy by Volker and was in response to high oil prices.

            Well, not really. Sure, oil was a large factor, but the bigger factor was systemic inflation, and inflationary expectations, that had been building since around 1968. Inflation was starting to be incorporated into Cost Of Living Raises, and wages in general, as well as many other commodities and sectors of the economy.

            Volcker raised rates to 18% to “wring out” inflationary expectations from the economy. It worked very well, though at great cost.

            He would have done it with, or without, the spikes in oil prices.

            • Dennis Coyne says:

              Hi Nick,

              The reason for the inflation of the time was a booming economy in combination with high energy prices. From 1968 to 1971, the economy was just overheated and a combination of monetary and fiscal policy could have gotten inflation lower and by 1972 inflation was moderate, then the oil shocks boosted the inflation rate again, in my opinion Volker went too far raising the federal Fund rates to ridiculous levels and caused unnecessarily high unemployment, the prime rate rose to as much as 20% and hurt the housing market and farmers.

              Tight monetary policy was needed, but moderation would have been better, maybe limiting the Federal funds rate to 12% would not have caused as severe a recession.

              Volker is credited with bring inflation under control. Energy prices falling after 1981 played a large part.

              • Nick G says:

                I agree with that in general, except:

                by 1972 inflation was moderate, then the oil shocks boosted the inflation rate again

                The change in oil prices wasn’t large enough to have that effect, all by itself. Look at the inflation rates for the period of 2004-2008: they were pretty low. Look at inflation rates now: they haven’t dropped that much despite crashing oil prices.

                Remember, the impact of oil on inflation calculations are a one-time thing: if oil prices rise dramatically over the period of a year, that raises inflation. If they stay at the same high level for the next year, they don’t raise the general price level at all…because oil prices haven’t changed in that period.

                • Dennis Coyne says:

                  Hi Nick,

                  The Economy was very different in 1974-5 in its oil intensity the effect of a jump in oil prices then affected the economy differently than in 2004 to 2008. No doubt there were other effects, monetary and fiscal policy may have been used to counteract the effects of the oil shock and may have feed into inflation. The inflation may have been unrelated to increases in the price of oil, but I think it had some effect on starting economic disruption and the economic policies that followed in response led to inflation persisting.

                  • Nick G says:

                    The Economy was very different in 1974-5 in its oil intensity.

                    Yes. Real GDP was about 40% as large, while oil consumption was roughly the same. But, the differences in inflation are much larger than that.

                    Inflation over the 10 year period of 1975-84 was about 8.4%: that’s a cumulative 64 percentage points over a 2% threshold. In contrast, inflation over the 2004-2008 period averaged 2.7%, for a cumulative 3.5 points over the 2% threshold. So, in the 2004-08 period there was about 5.5% as much inflation as in the 70’s, or 14% as much after adjusting for the difference in oil intensity.

                    That suggests that only about 14% of the 1970’s inflation can be explained by oil.

                  • Dennis Coyne says:

                    HI Nick

                    I said it cannot be explained by oil alone.
                    The fact that oil was such a large part of the economy leads to multiplier effects. The large effects then lead to economic disruption and government policies that cause more inflation.

                  • Nick G says:

                    The fact that oil was such a large part of the economy leads to multiplier effects.

                    What did you have in mind?

                  • Dennis Coyne says:

                    Hi Nick,

                    When oil is a large input into most everything produce by an economy, the rise in the price of oil affects the price of almost everything in the economy.

                    As a thought experiment, assume everything produced in economy A requires oil as 50% of the input cost to the average product. In economy B oil is only used as 10% of the cost of producing other products. For both economy A and economy B oil prices rise by 100%.

                    Which economy will have a higher rate of inflation after the rise in oil prices?

                    In 1974, the US economy was more like economy A and in 2004 it was more like economy B.

                  • Nick G says:

                    As a thought experiment, assume everything produced in economy A requires oil as 50% of the input cost to the average product. In economy B oil is only used as 10% of the cost of producing other products.

                    Well, actually, we know the ratio: when oil was at $25 around 2005, that meant the US economy used oil as about .6% of the cost of producing products. Oil was about 1.2% of the US economy ($25 x 20M bpd x 365 divided by about $16T). Half of oil products were used for direct consumption by individuals for passenger vehicles. The other half were used by businesses to produce goods and services (mostly in transportation).

                    Roughly one half of one percent.

                    In 1980 it was about 2.5x higher, or about 1.25% of the cost of producing goods and services.

                    That’s really not overwhelming.

                  • Dennis Coyne says:

                    Hi Nick,

                    It has a larger effect than you seem to realize.

                    I won’t bother to try to convince you.

                    Higher oil prices make more of a difference when an economy uses more of it in dollar terms as a percentage of GDP.

                    Year-% GDP spent on crude oil
                    1973- 1.32%
                    1980-5.41%
                    2005-1.68%
                    2012-2.76%

                    The increase from 1973 to 1980 was 309%,
                    the increase from 2005 to 2012 was 64%, a difference of almost a factor of 5.

                    Perhaps you are not old enough to remember, the two situations were very different in 1973 compared to 2005.

                  • Nick G says:

                    Dennis,

                    If we want to assess the impact of rising oil prices on inflation, then it seems to me that we want to look at the period during which oil prices rose: starting from a point that might reasonably be described as historically normal, or average, to the point where they peaked and started to decline. For the recent period that would be 2003 to 2008, right? The increase would be: 152%.

                    Year Price GDP Barrels (M) Share of GDP
                    2003 $27.69 11,512.2 7,312 1.76%
                    2008 $91.48 14,718.6 7,136 4.44%
                    Ratio 2.52

                    So, the 1970’s increase was roughly twice as large.

                    That’s not nearly enough to explain the much larger difference in inflation.

                  • Dennis Coyne says:

                    Hi Nick,

                    The reason for the difference in inflation response was due to structural differences in the economy in 1975 to 1985 compared to 2005 to 2015. For example considering gasoline consumption (the only dataset with long term price and volume that I could find).

                    The average US family spent about 21% of disposable income on gasoline from 1973 to 1982 and only 11% from 2002 to 2011.

                    That is the primary explanation for a similar % increase in nominal oil spending relative to nominal GDP having greater effect on inflation in the 1980s compared to 30 years later.

                  • Nick G says:

                    The average US family spent about 21% of disposable income on gasoline from 1973 to 1982 and only 11% from 2002 to 2011

                    That makes sense. It’s consistent with my analysis just above that suggests that US “oil intensity” was about twice as high in the 1970’s.

                    But…it looks to me like inflation was about 7 times as high in the 1973-1981 period. So, the greater spending on oil and gasoline only account for a minority of inflation in that period.

                    Remember, inflation is a change in price level (except to Austrians, of course…). If prices rose in 73 and then fell again, then that decline should counterbalance the earlier increase. In effect, if you have two increases to roughly the same price peak, it only counts once as a contributor to increased price levels, aka inflation.

                  • AlexS says:

                    Was CPI calculated in the 1970-80s in the same way as today?

                  • Dennis Coyne says:

                    Hi AlexS,

                    The basket of goods changes over time to reflect the changing structure of the economy. So CPI was calculated differently.

                    Also because energy expenditures were a larger part of consumer expenditures, the rising energy costs led to a bigger bump in wage costs which fed through to increased costs of most other goods.

                    There were also other structural differences in the economy in the earlier period. More buildings were heated with oil, more electricity was generated using oil.

                    All of these increased costs gradually fed through to prices as at first not 100% of the costs were passed on to consumers.

                    Inflation also is dependent on how fast the economy is growing and the level of employment, fewer unions has also led to less power for workers which has kept wages and inflation low.

                    So comparing the two periods and how an oil shock would affect inflation is far from straightforward as there are so many structural differences we are comparing apples and oranges.

                  • AlexS says:

                    Dennis,

                    My questions are:
                    1)was core CPI calculated in the 1970s -early 1980s?
                    2) there were several changes in CPI calculation methodology over the past decades. With old methodologies, today’s CPI (or core CPI) numbers would be higher
                    (some economists say – much higher)

      • Adam Ash says:

        Hi Dennis!

        I’m somewhat surprised at your firm assertion that the World economy will continue to grow at 2% per year. For ever?

        My impression of recent years is that the reported ‘growth’ is a myth supported by printing money (the western world) and false reporting of the value of existent and non-existent assets (the rest).

        The consequent increase in real unrepayable debt is a factor which cannot be ignored in any appreciation of where the world will be in a few years time. Your oil calculations are only one element of that picture, with resource availability, cost of extraction, economy, debt et al all intertwined.

        So in my view your oil-centric estimate of future oil conditions is ‘interesting’ but unlikely to come to fruition.

        • Dennis Coyne says:

          Hi Adam,

          No not forever, for the next 5 years or so. This estimate is less than the IMF’s forecast of 2.5% to 3%, because they have tended to overestimate by 0.5% to 1% in the past.

          I don’t remember saying forever, I believe growth will eventually slow down as population growth slows down and then peaks in 2050. Per capita real GDP growth (at market weighted exchange rates) will continue the 1.4% growth rate of the past 40 years for at least the next 10 years and may slow down as the World becomes fully developed. Growth will be slower in the OECD while the rest of the World has faster growth and income between nations becomes more equal. Chart below show natural log of real GDP per capita to show the growth rate , the data is from FRED at link below:

          https://research.stlouisfed.org/fred2/series/NYGDPPCAPKDWLD

          Chart below.

        • Dennis Coyne says:

          Hi Adam,

          The printing of money is not really an issue. World debt to GDP is not at unreasonable levels. The World debts that are unrepayable will affect the lenders (mostly wealthy individuals), the defaults are a loss for one party and a gain by the counterparty. For every lender there is a borrower, and there are always some debts that are defaulted on. The housing bubbles have deflated in most OECD nations and the attempt to stimulate the economy through “money printing” has mostly just resulted in increased reserves held by banks.

          The BIS reports “Total reporting countries – Non financial sector – All sectors – Market value – Percentage of GDP – Adjusted for breaks”, which is all the market value of all debts public and private in the nonfinancial sector of all countries that report to the BIS (Bank for International Settlements), the chart below uses that data.

      • Okay, first:

        The Peak Oil people have been right all along, what has baffled them is the (ongoing) decline in price …

        Keep in mind, a decline in price IS and always has been inevitable! A very high price would ration consumption to the degree that the price falls. Nobody knows what the ‘too high’ price is/was. My comment over the past several years has been, “how high is too high? A lot lower than you think!”

        As for growth, the economists and policy makers are irrelevant, resource constraints cannot be fooled, physical problems cannot be cured with edicts, subsidies or PR. Monetary policy = trend following + front-running + witch doctoring, it isn’t worth paying attention to. The ‘price’ of money is set millions of times per day at gas pumps around the world. Because of the connection of money to a VALUABLE physical good, money is becoming hard (some harder than others). This looks like austerity b/c it IS austerity … and there is nothing policy makers can do about it (other than implement stringent conservation and live with the consequences).

        Growth = the increase in unsecured loans / time. What is measured is COST of goods + services not the goods and services themselves. GDP = a tallying of payments. These payments (to meet the costs) are universally borrowed. There are no such things as ‘Earnings’ or ‘Wages’. Every return is borrowed. NONE of our industries can pay for themselves, none ever have. If any industry could do so it would have occurred, there would be no debt as the magic industry would have retired it. Then it would have made everyone rich. Obviously such a thing has never happened, 300 years of fossil fuel driven industrial development = a handful of industrialists that are rich, the rest poor + hundreds of trillion$ of dollars of (unpayable) debt.

        We have a debt money system, ALL funds are loans, all money is debt, all circulating money is 3d parties’ unpaid debts. There is no other form of money: we haven’t used slaves to dig money out of the ground since the 17th century.

        As such debt money is unsecured! The baseline collateral for ALL funds in ALL currencies is human labor … yet labor is worth 1/200th of a gallon of gasoline! Consequently, repayment of debts requires their increase! Debts can only be increased by way of MORE gasoline; to increase by way of labor or PR or wishful ‘technology’ thinking is impossible.

        When the increase in the amount of gasoline slows then shrinks, as it is now, so does the ability to gain more funds. That’s why prices are declining = less funds in both nominal AND real sense. Indeed, demand is universal; it exists everywhere there is a television. CONSUMPTION requires loans, these are becoming far more difficult to gain as priority credit is sped to creaky, politically correct businesses; as finance lends back and forth to itself while lending less to everyone else.

        1/200th does not begin to cut it. That’s were we are, perched at the end of the plank, the sharks circling under our feet, listening to the siren call of 1/200th.

      • Caelan MacIntyre says:

        Dennis Coyne, call on line one please; Dennis Coyne, call on line one please, thank you.

    • Oldfarmermac says:

      “. The marginal customer here and there around the world is destitute enough to keep the lid on prices.”

      I must disagree.

      High prices for a decade were enough to encourage production to go high enough to oversupply the market at those same formerly high prices.

      Oil is cheap as much or more so because producers are willing and able to sell it, for now, and probably for the next year or two, at the current low price, rather than solely because the end users being broke.

      I know tons of people who are NOT broke, at the personal level. A couple of them pay an extra quarter in order to get really first class service when they fill up, their windows washed, etc, but my MD and my attorney who both make megabucks stop at the places that sell for a dime less.

      People are back to buying full sized pickup trucks with monster v8 engines these days. Ford doesn’t even sell a small pickup domestically anymore. But ya know what? Today’s monster pickup truck gets fifty to a hundred percent better fuel economy than the ones I used to drive two or three decades back. A new Corvette gets as good on gas as a Pinto I used to own, so long as you drive it gently.

      This is not to say there aren’t a lot of broke people out there, or that we aren’t at high risk for an economic disaster due to excessive debt at all levels. I agree with Steve about that, just not about the timing of it.

      He says now, I say later, maybe a whole lot later, although the debt piper must eventually be dealt with, one way or another.

      My personal guess is that most of the debts will have to be written off. This means a TRANSFER of OWNERSHIP of whatever resources exist, to a far greater extent than it does the destruction of those resources. The folks who think they are rich because they own lots of government and stock market paper are going to find out they aren’t. This does not bother me very much, except for the fact that working class and poor people are also dependent on that paper to cover programs such as social security, medicare, school lunches, etc.

      Now as to whether driving in circles is profitable- I see that issue as being better framed by asking whether it is AFFORDABLE. It is going to grow less affordable as time passes, barring miracles on the renewables front. Oil depletes.

    • Dennis Coyne says:

      Hi Steve,

      The feedback loop you envision should result in zero oil prices and no oil output. Why has this not occurred? It seems there should be not oil produced at all and some day that might be the case, in the mean time the last time I checked there were about 1.2 billion vehicles on the roads in 2014. The number is expected to rise to 2.0 Billion by 2035.

      Now you are correct that there is no rule that says oil companies have to make a profit. In the long run, if they are not profitable they will go out of business. In that case supply goes down to the point that the marginal producer barely makes a profit, if the quantity of oil supplied is not sufficient to meet demand for oil (quantity of demand) the price of oil will rise.

      There may be fewer cars driven or existing vehicles may be driven fewer miles, but in the next 5 years or so this number is likely to increase rather than decrease Worldwide.

      Permanently low oil prices seems highly unlikely to me, I expect oil prices will start to rise in 2017 at the latest and be above $75/b by 2018.

      • Adam Ash says:

        Denis, we conflate ‘price at the pump’ with the true price (worth) of oil.

        The price at the pump is but a fragment of the true cost to society, as the pump price ignores all the externalities such as cost or pollution, cost of climate change etc etc.

        If the price at the pump was ‘real’ then I and my millions of fellow retail oil buyers COULD make better informed decisions about how much to use and how much to pay – ignoring the fact that ‘an informed market’ is as illusory a beast as ‘an informed electorate’!

        But because the market is skewed and the price at the pump does not give ‘we the market’ any truly useful information at all, our response to the retail oil price is inevitably ‘wrong’ and ‘unhelpful’. Since we retail consumers are not really the ‘market’ (I have absolutely no say in the price BP pays for the crude oil which makes the refined product I buy from their service stations) then we must look deeper into the market mechanism to discern its workings and cause and effect.

        Bluntly, I think even our best our models are too crude, and so inevitably our predictions of the future are similarly ill fated; baring the inevitable instances of ‘right answer for wrong reasons’.

        Its fun to watch, but I would not hang my hat on it!

        • Dennis Coyne says:

          Hi Adam.

          I agree markets are not perfect, just the best solution we have come up with.

          The market is indeed more efficient if all costs (including external costs from pollution) are included. If the external costs could be estimated with precision (they cannot), those costs could be included through a pollution tax and then market outcomes would be better. Economics suggests this is the optimal way of handling pollution, but policy makers have not gotten this message (or have been captured by special interests).

          • Nick G says:

            I agree, with one quibble:

            If the external costs could be estimated with precision (they cannot), those costs could be included through a pollution tax and then market outcomes would be better.

            They don’t have to estimated with precision. A roughly reasonable estimate, or something at the low end of the estimated range, would be a vast improvement.

            • Dennis Coyne says:

              Hi Nick,

              I agree, the problem is there is not often agreement on what the external costs are, any amount would be better than nothing, but resource allocation would be more efficient if the external cost estimates were more accurate, don’t you think?

              This is not an argument for no action, simply an argument for continued research to improve the estimates.

              • Nick G says:

                I agree.

                The funny thing is, that even the most conservative of economists also agree with that premise.

                They do still disagree on what to include. For instance, there’s the cost of insecurity of supply, which can be roughly equated to the cost of oil wars, somewhere around $2T and counting:

                ‘I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.’

                Alan Greenspan.

                Seems like Greenspan should be pretty authoritative for most economists. Still, the resistance from the right (financed, of course, by the FF industry) continues, as it does for climate change.

                Other costs meet less resistance, perhaps because they’re harder to deny. These include the costs of pollution, which are quite high: 18 cents per kWh for coal, for instance – 3x the direct cost of mining, transporting and burning coal.

              • Nick G says:

                One study, from the IMF:

                http://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf

                IMF: ‘True cost’ of fossil fuels is $5.3 trillion a year

                V. CONCLUSIONS
                Global post-tax energy subsidies—after incorporating the most recent estimates of the environmental damage from energy consumption—are substantially higher than previously estimated. The estimate for 2011—at $4.2 trillion (5.8 percent of global GDP)—is more than double the amount reported by Clements and others (2013). The estimate grows to $4.9 trillion (6.5 percent of global GDP) in 2013 and is projected to remain high at $5.3 trillion (6.5 percent of global GDP) in 2015 despite the large drop in international energy prices. This trend suggests that energy subsidy reform is as urgent as ever, in particular to tackle the un-priced externalities from energy consumption. Low international energy prices provide a window of opportunity for countries to eliminate pre-tax subsidies and raise energy taxes as the public opposition to reform is likely to be somewhat more
                muted.

                • That study is mostly bullshit. They base the “global warming damage” on excessive co2 emissions from hyped fossil fuel resources.

                  Most of the climate propaganda has this built in flaw.

                  • Nick G says:

                    No.

                    First,

                    “ Most energy subsidies arise from the failure to adequately charge for the cost of domestic environmental damage—only about one-quarter of the total is from climate change—so
                    unilateral reform of energy subsidies is mostly in countries’ own interests, although global coordination could strengthen such efforts. ”

                    2nd, “hyped fossil fuel” is speculative. Peak enthusiasts believe it, the rest of the world…not so much. We can have a long discussion of coal resources, if you like. Or, we can talk about Green River shale (aka kerogen), which is a miserable source of liquid fuels, but burns quite nicely.

                    3rd,

                    Pigovian taxes are calculated on a per unit basis, not an overall basis. If there isn’t as much fossil fuel as we think, then the taxes are proportionately less.

                  • Dennis Coyne says:

                    Hi Nick,

                    The Green River Shale is much more expensive to mine than coal. The price of coal will rise as it depletes and wind and solar are likely to be cheaper so the coal won’t be economically recoverable because low cost wind and solar are likely to make it less competitive. Also, just because something can burn does not make it a viable energy resource. There are many problems with Kerogen, so a discussion of it would be time wasted. Kerogen will always be the fuel of the future. One that never arrives.

                  • Nick G says:

                    The price of coal will rise as it depletes and wind and solar are likely to be cheaper so the coal won’t be economically recoverable because low cost wind and solar are likely to make it less competitive.

                    I agree. It’s happening already. But…that’s very different from the idea that Peak Coal is coming. At the point that coal becomes non-competitive, it will still be affordable…just not competitive.

                    The Green River Shale is much more expensive to mine than coal.

                    Well, sure, it’s more expensive: it’s lower density, and it tends to have a fair amount of overburden. But…have you seen evidence that it would be much more expensive?

                    There are many problems with Kerogen, so a discussion of it would be time wasted. Kerogen will always be the fuel of the future. One that never arrives.

                    Almost all discussions of kerogen are focused on it’s viability for liquid fuels. I’m talking about just burning it, like coal or peat. Have you seen a detailed discussion that shows that’s not viable??

                  • Toolpush says:

                    Nick,

                    You mean using oil shale like this.

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

                    I wouldn’t think this would be on your list of things you would be encouraging!

                    It is dirty by anybody standards.

                  • Dennis Coyne says:

                    HI Fernando

                    Even if damage from climate change is ignored, the cost of pollution from coal and oil should be taxed.

                    Wouldn’t you agree?

                  • Nick G says:

                    You mean using oil shale like this. https://en.wikipedia.org/wiki/Oil_shale_in_Estonia I wouldn’t think this would be on your list of things you would be encouraging!

                    Absolutely!!

                    My point is that there’s a lot of fossil fuel in the ground, and that humanity has to make a conscious choice to leave it there. I think we’re in the process of making that choice, but there’s nothing automatic about it.

                    We can’t rely on geology to make it for us.

                • Dennis Coyne says:

                  HI nick

                  As the answer is obvious that it will be more expensive nobody has looked at it,
                  We could speculate but not worth it imo.

                  Peak in anything is a matter of both supply and demand.

                  The stone age did not end due to supply problems. 😉

                  • Brian Rose says:

                    Dennis,

                    Easter Island may be a more appropriate example. Albeit an extreme one.

                    The question that is so fascinating is whether fossil fuel use will decline primarily from scarcity (Easter Island) or innovation (Stone Age).

                    From 2005-2012 I was firmly in the scarcity camp. I thought we were at peak in 2008, and the ramifications for growth and the global financial system led me to believe companies like Tesla and SolarCity would file bankruptcy before they even began the necessary multi-decade transition to sustainable energy and transport.

                    Sitting here in 2016 I’m delighted that the financial system survived, investment in renewables is compounding, high oil prices unlocked significant new production, and multi-year $100 oil didn’t cause collapse.

                    Then again, it’s not that $100 oil would or wouldn’t cause 2008 redux – it is that global production throughout that period was strong enough to maintain, through minimal growth, the global economy. Had production begun to wane the world economy would have shrank. We would have blamed a European Debt Crisis, or whatever the weakest link in the chain was, but it would have really been due to high oil prices, and, more accurately, a decline in the availability of the global economies most important energy resource.

                    If I’m eating just enough calories to maintain my body weight, and my intake of calories declines, then I will lose weight. My metabolism/economy will also begin using calories more efficiently, but it has limits and a continued decline in calories will lead to failure of a major system eventually.

                    Since ~2013 I have become more optimistic than at any point since 2005, but that is relative to my previous very pessimistic views.

                  • Nick G says:

                    Had production begun to wane the world economy would have shrank…. it would have really been due to… a decline in the availability of the global economies most important energy resource.

                    Not really. Maybe, with gross mismanagement of the economy, but…a Toyota Corolla gets you to work just as well as a Chevy Tahoe. Carpooling actually works. The US dramatically reduced it’s domestic oil consumption during WWII – it’s a choice.

                    If I’m eating just enough calories to maintain my body weight, and my intake of calories declines, then I will lose weight.

                    Oil isn’t essential. It’s like beef vs pork: if the price of beef goes up because the production of beef goes down, people can and should eat pork. Or soy beans.

                  • Dennis Coyne says:

                    Hi Brian,

                    I was also convinced that the peak was near in 2008 or so and thought the GFC would be more catastrophic than it turned out.

                    As far as Easter Island vs Bronze age, it is often a bit of scarcity and a bit of technology.

                    Technology is not magic (as Easter Island proves), but often scarcity prompt a bit of innovation. In the case of the stone age (I am no anthropologist) perhaps scarcity came in the form of stone tools not getting the job done and someone discovered metal and developed the ability to make tools and weapons using those metals. So a better method replaced stone tools, just as oil replaced coal, and the car replaced the horse. At some point out grandchildren will wonder why anyone would want to drive a vehicle with an internal combustion engine. Or perhaps they will wonder why anyone would want to drive at all, as AVs will make driving obsolete.

                    That’s the hope anyway, oil coal, and eventually even natural gas will go the way of the stone axe and projectile point.

              • Caelan MacIntyre says:

                Dennis Coyne, call on line two please; Dennis Coyne, call on line two please, thank you.

      • @Dennis sez:

        “The feedback loop you envision should result in zero oil prices and no oil output. “

        That feedback loop is underway right now, there is absolutely nothing anyone can do to stop it. I call this process ‘energy deflation’ and it is similar to debt deflation as described by Irving Fisher in 1933.

        https://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

        Ultimately, the price of crude will reflect its remunerative use, not customers’ access to credit … there will be no credit to access.

        Right now, easy money is borrowed from credit cards at the gas pumps or from employers’ customers @ retailers, factories, wholesalers, government agencies, etc. At the same time, much more easy money is borrowed by drillers from the bond market. Obviously, more money goes to drillers than to the customers; the outcome = customers are starved of funds => appearance of a ‘supply glut’ => drillers are insolvent.

        When (if) the flow goes the other way the drillers are starved of funds => no fuel => widespread debt default and drillers are insolvent.

        I explained the process in detail in 2013:

        http://www.economic-undertow.com/2013/01/23/net-energy-end-game-theory/

        A corollary to energy deflation is dollar preference, where the dollar becomes ‘hard’ because of its exchange for petroleum products at the gas pump. This is the same as the dollar–gold swap in prior hard currency regimes. Hard currencies are deflationary b/c holding money (gold) is worth more than anything that can be gained by spending. At some point (now) the dollar becomes a proxy for fuel instead of a proxy for commerce … which is simply spending for its own sake. When that switcheroo takes place, the dollar becomes VALUABLE and is hoarded out of circulation. ‘Commerce’ is reduced to arbitrage currency traders seeking to gain that dollar- petroleum bargain the same way commerce during the 1930s was arbitrage between currency traders swapping paper money to gain ‘real money’ gold.

        The only way to end dollar preference is for the US to ‘go of oil’ the same way President Roosevelt took the US off the gold standard … that means zero buying and selling of petroleum. The alternative is an economic depression that is absolutely identical to that of the US in early 1930s … carrying forward endlessly into the future as people hold onto their last dollar (or what might replace it) to gain the chance at some fuel.

        How long is endless? Until all the cars are gone …

        If anything thinks the country/world can afford anything higher tech than walking shoes under this particular set of converging circumstances is fooling themselves!

        This is very serious business, there is no way out of it, because it is an economic manifestation of depletion … which is a one-way-street. We can use what remains of our time to pro-actively eliminate our waste of precious, non-renewable capital. We can also start being realistic about what we are capable of. Without petroleum and the leverage it provides we cannot build out replacment energy supply whether it is nukes or other ‘renewables’; anything other than the most minimal fleet of electric cars is preposterous, so is more sprawl, more billions living the USA lifestyle … more business as usual … it’s a fantasy. The time for ‘hocus-pocus’ is over, hard times are coming and we adapt or else.

        All this leaves out the effects of climate change/overloading our non-renewable waste carrying capacity.

        • sunnnv says:

          Steve – The 1933 link was nice, now I’d like to read yours.

          But all the pages at economic-undertow.com just redirect back to the main page…

        • Caelan MacIntyre says:

          Sweet…

          …What happened to Dennis?…

  4. JODI’s take. All data below is from JODI through January 2016. Rest of the world is World less Dennis’ big 14 listed above.

     photo Jodi World_zpstebnyn7n.jpg

    The World peaked, so far, in November 2015.

     photo Jodi Big 14_zpshfh8hz1d.jpg

    The Big 14 peaked, so far, in August 2015.

     photo Jodi ROW_zpsdgngsufl.jpg

    • Dennis Coyne says:

      Hi Ron,

      Thanks. I don’t see a big difference between the JODI data and the EIA data. It looks like the ROW has been pretty flat since Sept 2013 in the JODI database. The EIA data was through 3Q2015 and also matches pretty well with JODI through that point. My expectation is the big 14 will be flat through mid 2017 and may start to rise slowly when oil prices recover.

  5. AlexS says:

    Dennis,

    Decline in oil production in ROW in 2011-15 is largely due to supply disruptions in a number of countries affected by internal and external conflicts (see chart below). Their reserves remain in place, and production facilities in Libya and Sudan/South Sudan were not damaged by hostilities. Sooner or later oil production in these countries can be re-started.

    • Dennis Coyne says:

      Hi Alex,

      Excellent point. The reason why a bottom up analysis is better is it catches those types of issues.

      The pessimists would argue that oil will never be produced in those countries at the level they were before. I tend to think the pessimists are incorrect, time tends to answer these questions.

      I think you have this right.

      • AlexS says:

        Dennis,

        Nobody expects oil production in these countries to return to previous levels in the near term, but sooner or later it will return. And that may be a negative surprise for other producers.

        Meanwhile…:

        Libya: UN-backed attempt to form a unity government, which would include representatives of the two rival governments in the east and the west of country.

        “U.N. envoy urges rapid Libya handover as fragile peace holds”
        Wed Apr 6, 2016
        http://www.reuters.com/article/us-libya-security-idUSKCN0X32A3

        Yemen:

        “Saudi Prince Sees ‘Significant’ Progress Toward Yemen War End”
        http://www.bloomberg.com/news/articles/2016-04-03/saudi-prince-sees-significant-progress-toward-yemen-war-end-imkk92vu

        Sudan/South Sudan:

        “South Sudan Economic Crisis Easing on Sudan Ties, Minister Says”

        http://www.bloomberg.com/news/articles/2016-03-02/south-sudan-economic-crisis-easing-on-sudan-ties-minister-says

        • Sudan ordered reopening of border in January to boost trade
        • Oil production in South Sudan rising as conflict eases

        Sudan sealed its borders with South Sudan in 2011, after accusing President Salva Kiir’s government of supporting rebels on Sudanese territory. The reopening signaled a further rapprochement between the two countries and followed an announcement earlier in January that Sudan will renegotiate fees it charges South Sudan for oil passing through its territory.
        Landlocked South Sudan has sub-Saharan Africa’s third-largest oil reserves and currently pumps about 160,000 barrels a day. The government in Khartoum exports its neighbor’s crude through pipelines to a port on the Red Sea and collects a fixed price per barrel in transit fees.
        Oil production is rising in South Sudan as the country reopens oilfields that had been closed because of the conflict”

        Syria:

        With Assad, or without Assad, Syria will have to rebuild its oil industry.

      • AlexS says:

        Dennis,

        You know, I prefer the good old time-consuming bottom up analysis, like Rune Likvern’s recent update on Norway.

        • Dennis Coyne says:

          Hi AlexS,

          Me too, I just don’t have the time to do it. Rune’s analysis is indeed superb.
          In the EIA database there are 102 oil producing nations, I don’t have a lot of insight into all 102 nations and the IEA and EIA already do this bottom up analysis, I do not have the resources to match what they have already done.

          Your point is excellent on the 4 nations you have pointed out. The declines there were political rather than geological and have skewed my result.

          Thanks for pointing out this glaring omission by me.

      • The sistem is too complex. Evidently at any given time somethng somewhere is down. When I prepare an oil production forecast for a large asset or combination of assets, I create a capacity curve, then introduce a downtime factor. This is caused by well and plant downtime.

        In addition to it, we can add statistical weather events (for example hurricane season), and in some areas we may want to account for guerrilla activity impacting pipelines.

        The world wide oil production curve probably needs to assume about 2-3 % lower production caused by these political upheavals. For example, right now the hassles are in the Muslim region, but Venezuela sure looks like a bomb about to explode anytime.

        • Dennis Coyne says:

          Hi Fernando,

          Excellent idea, unfortunately I don’t have your in depth knowledge of the industry to create such a capacity curve.

          I would think that looking at past production would tend to include the statistical down time and that the general trends of the past would continue, essentially this is what the oil shock model does. The analysis presented here was even more of a simplification to get the point across.

          From your perspective, does a long term (for 10 years or more) decline of World C+C average output (12month trailing average) of more than 2% starting before 2020 seem likely?

          • No. My hunch: it’ll oscillate around 80 mmbopd. I have serious doubts c+c production will ever reach 85 mmbopd. By 2035 we will be in a well defined decline.

            • Dennis Coyne says:

              Hi Fernando,

              We do not always agree, but in this case I agree 100% with your assessment, and if I didn’t I would probably change my assessment as you know far more than me about the oil industry.

    • 70%H2O says:

      I think the decline of Yemen in that graph is geological. They really are running out. A few years ago they closed their refinery and export the crude to SA. They had to small flow to maintain MOL.

  6. robert wilson says:

    Hubbert’s biography The Oracle of Oil reviewed in Nature. https://twitter.com/masoninman/status/717792907994894336

  7. Dennis, 14 countries are about 10 too many when figuring out where the increase in world oil production is coming from. Since 2010 all the increase in world oil production, plus a lot, has come from four countries, not fourteen. That is Saudi, Iraq, USA and Canada.

     photo Jodi Big 4_zpssexp4lzx.jpg

    Since October 2010 production from these four countries alone has increased by over 8,700,000 barrels per day.

     photo Jodi World Less Big 4_zpserplr419.jpg

    The rest of the world, that is less these four countries, peaked in January of 2008 and since that date, they have declined by over 4,000,000 million barrels per day.

    Yes, there have been political outages among many of these nations. But there will always be political outages. And it is likely to get worse rather than better. That is even though Iran will likely recover most of what sanctions cost her, there will be other political outages.

    So Dennis, question what these four nations will do in the future. The rest of the world will continue to decline.

    • Oldfarmermac says:

      Hi Ron,

      Things might improve in Venezuela, but I doubt that country will be able to increase production for at least a couple of years after they finish up their inevitable political revolution.

      So for a wild guess, I think maybe they can up production starting three or four years from now. The potential is there for them to produce enough to move the needle globally.

      My opinion for what it is worth is that mid term to long term political stability in Venezuela is a better bet than anywhere in Africa.

      • What’s mid term? Right now they are suffering from 500 % plus inflation, crime is even higher, there’s a serious food, medicine, water and electricity shortage.

        At the same time Obama was watching baseball with his pal Raúl Castro, Maduro was signing a deal to send $1.2 billion to Cuba in additional contracts, sort of an “in your face” show Raúl mounted to show he was in control of Venezuela and can humiliate it’s people at will.

        I see many signs that Obama’s spineless pandering has encouraged Maduro to move to a military dictatorship copying Castro. This is seen by the Venezuelan opposition, which has 70 to 80 % of the people supporting a change away from Maduros “robber socialism”, but lacks military and brown shirt forces loyal to the regime.

        Thus the system continues to decay, and violent street action repressed by very violent means may come within the next few months. If this extends to the oilfields we may see production drop by a million barrels per day, easy.

        Things are so bad yesterday I wrote a short suggestion to the opposition, to pass a constitutional amendment on an urgent basis creating an external three member commission to rule on the emerging conflicts between the National Assembly, which has 2/3 opposition deputies, and the Cuban and narco controlled executive.

        • Oldfarmermac says:

          Hi Fernando,

          One way or another, my personal opinion is that the situation will resolve itself in Venezuela, with one side or the other gaining a clear upper hand inside the next three or four years.

          Either way, investment in oil production will then be possible. That’s my own definition of mid term in this context.

          It ought not be too time consuming to get production started up again, because the roads, pipelines, etc are already in place, and they know WHERE the oil, or tar sand, is located, it won’t be a scratch job. Most likely some existing equipment can be repaired or refurbished and put back to work in a few months, once outsiders are willing to risk their people and money in Venezuela again.

          • I’m not sure that much investment will be possible with the Chavistas in charge. You simply have no idea of the death and destruction they are causing. If a new government does take over the surviving Chavistas will probably start a terrorist movement. This isn’t the type of environment where we can invest at a decent pace.

            I guess you do realize most of Venezuela’s new developments are in 7-8 degree API reservoirs which require a very complex and expensive development project?

            • Dennis Coyne says:

              Hi Fernando,

              Any WAG as to when such investment might be possible (be reasonably optimistic), 2026 maybe?

              • Right now I am at a complete loss. The situation reminds me of Europe just before WWI.

                And who knows how all the players involved will react? Who will win the USA election? What will happen to oil prices?

                This morning I’m seeing a growing amount of communications proposing violent action from players on all sides. Maduro gave a speech in which he stated “the people” (meaning his well armed brown shirts) should start a rebellion if he lost a struggle against the National Assembly.

                Miguel Rodriguez Torres, former Interior Minister and a “4F” (that’s a badge of honor code in the Chavista ranks) declared he was opposed to Maduro, and is said to be talking to senior military to initiate a coup, which could trigger Chavista versus Chavista civil war.

                The brain drain is awful, the crime rate is astronomical. I think it could be possible to say the government will fall, and within three-four years it would be safe enough for major investments.

                But as time goes by I also see Venezuela turning into something like South Sudan, Lybia, or Somalia.

                This is why Obama’s foreign policy has turned out to be so very very awful. He’s encouraging a very violent outcome and dictatorship by blowing kisses at Raúl Castro.

                • Dennis Coyne says:

                  Hi Fernando,

                  I disagree with you on blaming the situation in Venezuela on Obama. Perhaps it is partly Cuba’s fault, but I think the focus should be on Venezuela itself and bad leadership there.

                  All problems in Latin America are not the fault of Cuba, I think their influence may be less important than you believe.

                  I do agree that things are bad in Venezuela, hopefully they can get back to normal. Do they have an impeachment process in Venezuela?

                  Usually democracies have some legal method for removing a bad executive from power, besides a military coup.

                  • Dennis, I’m not blaming the situation in Venezuela on Obama. I’m stating that Obama’s policy towards the Castro dictatorship encourages Maduro and his gang.

                    I’m sorry, but most of you get your information from tainted sources, that is the CNN, Fox News, CNBC, NY Times, Huffngton, etc. Unfortunately, these sources, either from the left or from the right, are mostly brain dead. Most of them supported the Iraq invasion, and tend to back a truly awful USA foreign policy. This blinds you and deceives you, and also makes you unable to accept alternate versions of what’s really going on.

                    When it comes to Cuba and Venzuela I access direct sources. I get emails, messages, visitors, phone calls, etc. and is clear to me the Obama policy has indeed fueled the extremism we are seeing in Maduro since the December 6 event.

                    I could see the turn in Maduros attitude after he visited Havana around Xmas 2015. That turn towards much harsher repression and a hard ball attitude which is taking him to a self coup (a Fujimorazo) was the line he was fed by Raul and Alejandro Castro. The key advocate for violence is Alejandro, castro’s eldest son, who coordinates all the security services, including the forces they have within Venezuela. Alejandro wants to inherit power, and have Venezuela held within the Cuban sphere. And as far as I can tell Obama is cooperating. You just have a lot to learn. And I’m afraid you simply lack the resources to come up to speed. There’s so much you won’t ever know….

                    So where does this take us? As of this morning I sense that violence is coming, the regime has a 70 % of overcoming resistance, will install a harsh Castro style dictatorship, and in future years it will attempt to seek foreign investors to try to get out of the hole. They will concede the unthinkable, such as foreign arbitration. But they will remain corrupt, riddled with narcos, with ignorant Cubans who can’t grasp how a modern project is run trying to boss things from the shadows. And they won’t deal with the emerging problem they have with water influx in the faja. Which means their heavy oil reserves may have to be discounted by 2/3 as far as I can see. And Venezuela will simply never account to much. A wreck run by a hybrid communist narco state, it will be like a pustule on the planet’s face.

                  • Dennis Coyne says:

                    Hi Fernando,

                    It may be more difficult to maintain a dictatorship in Venezuela, as Venezuela is not an island. It is up to the Venezuelans to throw out the Cubans, it is their nation.

                  • Venezuela’s constitution does have an impeachment process. The Democratic Unity faction is trying to kick it off. The clause states that 20 % of voters have to sign a petition, then there’s a vote, and if the majority AND as many as voted to elect the president want the president out, he has to go.

                    The catch is that such a recall referendum can only take place after the first three years of a six year presidential term (condition met). And if there’s less than 2 years left, the vicepresident takes over.

                    The information I have is that Raúl Castro, who runs Maduro, decided the referendum would be delayed by rigging the process, and Maduro would designate a VP more capable than Maduro, then let the recall work. Right now several Chavista factions are jockeying for that VP slot, the current VP is a placeholder. They have to get Raúl Castro to agree, and he is waiting. The front runner is Miguel Rodriguez, a retired general who was in charge of repression until recently.

                    What does island versus not island have to do with the ability to use a repressive secret police/brown shirt/military machine to keep a dictatorship in power? Myanmar, North Korea = terrible dictatorship for 60 plus years,

                    However, do take a look at the map and go along Venezuela’s borders. My company made contingency plans to evacuate personnel from Venezuela, and the conclusion was that land extraction was extremely difficult. It’s mountains, jungle, swamps, you name it.

            • Wake says:

              Fernando

              Always enjoy your comments on oil and on politics which presents to me a passionate and informed and different view

              The us as far as I know does not have a great track record for successful intervention or influence in Latin America. Maybe chile is an exception I don’t know

              Is it your opinion that the us could do anything now about vene? Could have done so before?

              I thought the us leaned a bit back in the bush days when Chavez was coming to power but ultimately did little and I am not sure what should have been done now or then?

              • Wake, a lot of what goes on in Venezuela is directed by the Castro dictatorship. This is well known to me because I lived in Venezuela and I saw the Cuban takeover. Some of my observations were very direct, first hand and are unequivocal. Some are second hand from direct sources. This tells me the USA intelligence services know the Cuban interference and control system in Venezuela. This information can easily be passed on to news media. But the USA gas been quite silent about it. Instead, Obama chose unilaterally to pander to the USA left wing and to corporate interests, and essentially surrendered to Castro. USA foreign policy is in a shambles, it has been in decay since Clinton, accelerated towards disaster under Bush, and Obama simply continued down the descending slope. So the USA is now incredibly weak as it mostly relies on military action and continues to make stupid move after stupid move. Venezuela is tied to the hip to Cuba, and everything Obama does is counterproductive.

                • Paulo says:

                  While Venezuala is certainly corrupt, and Chavez/Maduro criminally so…it’s not exactly anything new. If previous Govt and institutions showed any modicum of restraint and responsibility in the past, Chavez would never have risen to power and control. I remember in 1994 teaching Auto-CAD for grade 12s. (BC Canada) One of my students was a delightful exchange student from Venezuala. Her family was beyond belief wealthy with Govt influence and power behind them. She showed me pictures of her family’s palatial estate and their cooler clime getaway. I remember thinking how opposite it all was to what common people had. After Chavez took power I wondered what happened to her family? I understand Fernando’s anger. I used to work with a refugee from Rhodesia whose family had everything seized. Nevertheless, the blame for Venezuala’s condition goes back to the 1800s, and made even worse with the development of oil. It ain’t just the fault of the ‘commies’.

                  From: http://www.cato.org/publications/commentary/corruption-democracy-venezuela

                  “Venezuela has been characterized by the persistent presence of political and financial corruption in public administration. In 1813 and, later, in 1824, national hero Simon Bolivar felt it necessary to issue decrees defining corruption as “the violation of the public interest.” He established the death penalty for “all public officers guilty of stealing 10 pesos or more,” including “those judges who disobey these decrees.” In 1875, the finance minister at that time confessed, “Venezuela does not know to whom it owes money and how much. Our books are 20 years behind.” One hundred years later, the General Comptroller under Pres. Luis Herrera would describe the state of the country’s finances in almost identical terms, as “a system totally out of control.”

                  In the early 20th century, the long dictatorship of Juan Vicente Gomez was plagued by high corruption, but it was limited to the dictator’s immediate collaborators. A similar situation prevailed during the military dictatorship of Marcos Perez Jimenez, from 1948-58. This situation of administrative disarray was replaced during the 1960s by a period of high transparency in the management of public wealth at the hands of democratic presidents Rómulo Betancourt, Raúl Leoni and Rafael Caldera. During these years, Venezuelan democracy became the political model to be imitated in Latin America, comparing favorably with the dictatorships of the left and right that prevailed in those years, and becoming a haven for thousands of Latin American political exiles looking for freedom.

                  In the mid 1970s, the management of national assets deteriorated significantly, as the country experienced a sudden oil windfall that tripled fiscal income. The ordinary men in charge of the government were exposed to extraordinary temptations. Faced with such riches, Pres. Carlos Perez established a program called “The Great Venezuela,” a tropical version of Mao Tse-Tung’s “Great Leap Forward” in China that ended in financial and social disaster. The government poured close to $2,000,000,000 into industrial projects designed to convert southern Venezuela into another Ruhr. At one point, the country was home to more than 300 state-owned companies, none of which was profitable. As a result of the significant government expenditure and insufficient enforcement of regulations, corruption spun out of control. Up until then, graft had been restricted to the ruling elites, but now many Venezuelans started to participate in the abuse and misuse of public funds. By 1980, the country had fallen into debt to the international banks, victim of the so-called “Dutch disease” that affects Third World petrostates that depend almost solely on hydrocarbon exports for national income.

                  From 1980 onwards, Venezuelan corruption has remained high. Particularly grave was the administration of Pres. Jaime Lusinchi from 1984-94, which saw some $36,000,000,000 pilfered or stolen mainly through a corrupt exchange control program, according to an estimate by Venezuelan sociologist Ruth Capriles at the Caracas Andres Bello Catholic University. Soaring corruption during the Lusinchi period resulted from several factors, including weak political institutions, lack of administrative controls, too much money circulating in the financial system of the government, and, above all, populist leaders promoting a welfare state in which hard work and social discipline were not encouraged. In 1997, the Caracasbased nongovernment organization Pro Calidad de Vida estimated that some $100,000,000,000 in oil income had been wasted or stolen during the last 25 years.

                  As the 20th century came to an end, Venezuela was ripe for significant political change. The main contenders in the 1998 presidential election—paratrooper Hugo Chavez and former Governor of the State of Carabobo, Henrique Salas—promised radical political change. Venezuelans perceived Chavez as someone who looked and spoke like them and could, therefore, represent them better. His electoral promises were crucial in winning the votes of the majority.”

                  respectfully….Paul S

                  • Nick G says:

                    In the mid 1970s, the management of national assets deteriorated significantly, as the country experienced a sudden oil windfall that tripled fiscal income. The ordinary men in charge of the government were exposed to extraordinary temptations

                    This is a great discussion of the corrosive impact of oil money on democracy.

                    Oil has a lot of negative impacts and external costs…this is just one of them.

                  • Dennis Coyne says:

                    Hi Nick,

                    It applies to any commodity, not just oil.

                    We could just as easily point to copper, lithium or any mined resource as causing a problem for any economy that does not diversify beyond a single commodity product.

                  • Nick G says:

                    We could just as easily point to copper, lithium or any mined resource as causing a problem for any economy that does not diversify

                    I suppose. But…I can’t really think of any candidates for such a problem. Can you think of any countries with such dependence on a single commodity besides oil?

                    I’m not really thinking of diversification/Dutch disease, though that’s a good point. I’m thinking good old fashioned corruption and centralization of political power. KSA is the prototype here, while Russia is coming up close behind.

        • Hickory says:

          One of these decades people in both Cuba and Venez (and Fernanado) will need to stop blaming the US for their failures, and get on with making good choices for their own future.

          • JJHMAN says:

            Well said, Hickory. The notion that we should treat Cuba as some sort of ultimate bad guy while we do business with China, Saudi Arabia and Pakistan constantly amazes me.

          • I speak as a us citizen.

            Obama lacks a working brain when it comes to foreign policy. He is being overtly friendly with the Castro family dictatorship, aiding its economic survival, and this encourages Maduro to also turn into a monstrous dictator. Neither the USA nor the EU benefit from having two enemies of the state actively working to undermine USA interests. And I won’t even touch his failures in Iraq, Syria, or in dealing in a reasonable fashion with Russia.

            • Survivalist says:

              What’s your recommended alternative, invasion, sanctions? USA does business with plenty of SOBs. Always has. Always will. It’s realpolitik. Why should Cuba or Ven be any different?

              • At this late a date? Now after Bush and Obama screwed up everything so it’s nearly unsolveable? Good question.

                The information about Cuban interference and near takeover of Venezuelan institutions needs to be described. This should be coupled with a statement that the USA is willing to maintain diplomatic relations wth Cuba and Venezuela, but state that existing economic sanctions on Cuba will not be eliminated, and that instead the USA will seek to have the European Union, Canada, and other nations join the sanctions regime so as to put pressure on the Castro dictatorship to cease and desist its interference in Venezuela’s internal affairs.

                This should be coupled with an expansion of the list of corrupt and outlaw Venezuelan officials and cooperators, so as to allow confiscation of their properties and bank accounts in USA banks. The current list should include about 400 persons. Right now it includes seven.

                In other words, the venecuban Mafia needs to get a strong signal that their business plans won’t be allowed to prosper.

            • Dennis Coyne says:

              Hi Fernando,

              Obama has made some mistakes, but US foreign policy towards Cuba for the past 55 years was not successful in removing Castro from power. Perhaps you think we hadn’t given the policy enough time to work? 🙂

              • No Dennis, the answer isn’t to bend over and encourage dictatorship and human rights abuses at a time when the fate of Venezuela hangs on a thin thread.

                When the nation is in a direct conflict with an external enemy, and the actions taken to date don’t achieve the desired purpose, the better response is to change tactics. But to anybody with a sense of history and ethics, the answer isn’t to surrender, and go to Havana to suck on the genitals of an 84 year old dictator.

                That may be acceptable to you, but to me it’s the typical behavior of a has been country whose leadership is rotten to the core, lacks ethics, lacks honor, and doesn’t have any common sense.

                • Dennis Coyne says:

                  Hi Fernando,

                  Your comments should be toned down if you want to continue to participate here.

                  If you think a continuation of the embargo is the best policy, that is all you need to say.

                  I won’t discuss politics with you in the future.

          • Caelan MacIntyre says:

            I think these kinds comments here are all full of shit because the state is full of shit.
            And I don’t mean shit in a nice, sort of composty way, either.

    • AlexS says:

      Ron says: “The rest of the world, that is less these four countries, peaked in January of 2008 and since that date, they have declined by over 4,000,000 million barrels per day.”

      Russian C+C production is up 1.1 mb/d in 1Q16 average from 2008 average, and up 760 kb/d in 1Q16 average vs. 2010 average.

      • Yes Alex, I realize that. Also there are several other countries that have increased production since 2008, Kuwait, UAE, etc. However the combined production of all those countries are still down 4 million barrels per day since 2008. The reason picked those four countries are they are the only ones that have shown tremendous growth in the last few years. The spurt in growth in many countries that we have witness during last 15 years or so is over. That was my point.

        All really dramatic growth since 2008 have come from those four countries. Yes, other countries, including Russia, have shown growth since 2008 but none t the extent that these four countries have shown.

        The question I was posing is: Will the dramatic growth we have witnessed in these four countries continue or will it wane?

        Such dramatic growth in all other countries, in my opinion anyway, is over. And that includes Russia.

         photo Russia_zpsfmirjbce.jpg

        • Doug Leighton says:

          Tad Patzek probably agrees.

          “Since 2005, the increase of global production has been numerically equal to the increase of U.S. oil production, which in turn has been dominated by oil production from the Eagle Ford and Bakken. This means that the output of all petroleum projects outside of U.S. has stagnated; production growth in some projects has been exactly cancelled by declines of other projects. In other words, we are near the peak of crude oil and lease condensate production in the world. And this 10-year stagnation of global production happened despite the record investment in upstream E&P of up to $700 billion per year before the last oil price collapse.”

          http://patzek-lifeitself.blogspot.ca/2016/03/is-us-shale-oil-gas-production-peaking_16.html

          • Dennis Coyne says:

            Hi Doug,

            The problem with using a Hubbert curve to make predictions for LTO is that this early in the game it just doesn’t give reliable results. The current peak in LTO output is due to low prices, not geology.

            If the oil price remains $40/b forever, Patzek’s analysis will be correct.

            I do not think the price of oil will remain under $40/b for the next 10 years, do you?

            • shallow sand says:

              Dennis.

              Would the Hubbert Curve model be accurate once development has passed a certain point?

              For example, go to Enno’s shale profile.com site and look at DeWitt Co., TX and Mountrail Co., ND.

              I understand these counties have the most productive wells on record in the EFS and Bakken, respectively. However, activity has wound down considerably, as it appears that most of the best locations have been drilled and completed.

              Won’t the shale plays end up looking like many of the rest of the fields that fit the Hubbert curve model, absent an EOR breakthrough or refracks on a huge scale?

              We are just impatient. The shale fields are vast, cover massive acreage. But, with the high declines, they will likely, in hindsight, fit the Hubbert curve, IMO.

              • Dennis Coyne says:

                Hi Shallow sands,

                I don’t think the Hubbert curve works that well for individual fields, for a region, say all of Texas it might, but for the Bakken or Eagle Ford or individual counties, I doubt it. I look at the Bakken/Three Forks as a whole and typically annual production divided by cumulative production needs to be less than 10% for a reliable HL estimate. We are not close to that, in the Bakken in Dec 2015 it was at about 25%. Part of the problem with HL is we are fitting a line to a curve and the curve gets flatter as the cumulative gets larger and the URR estimate grows.

              • John S says:

                Shallow & Dennis,

                No one will ever mistake me for a mathematician, so I can’t really critique Patzek’s or Dennis’s work. But I have spent a lifetime in the oil and gas business and every single play I have ever worked has limits.

                These limits are defined by geology/engineering concepts constrained by realistic capital investments controlled by honest, measurable financial metrics presented without any intent to manipulate or deceive.

                While I am not qualified to critique or judge, I think Patzek and Art Berman are generally correct in their LTO and shale gas conclusions.

                Every play or prospect I have been involved with always reaches a point where a reasonably competent geologic/engineer staff and management manager recognizes the point of no return and that further investment ceases.

                I am not that confident in the financial/banking /MBA and Wood Mckenzie type consultants that presently infest our business because they are spending OTHER PEOPLES money and not there own. And they always seem to get paid on the front end and the back end of every deal.

                I .dont know what will happen to Chesapeake, Whiting, Continental, Rice, Range, or any one of the other hundreds of companies in the LTO/Shale Plays. But experience tells me that what has gone on for the last 10 years simply cannot go on much longer.

                I think there will be a lot of orphan wells, pickled pipelines, and mothballed plants joining the stacked rigs, frac tanks and water haulers, cement and wireline units.

                But much worse will be the hoards of furious landowners, mineral owners, pensioners, environmentalists and legislators and regulators looking for a rope and a deep dark hole to bury the SOB s they blame for the mess they left behind.

                • shallow sand says:

                  Yep, John, and those of us operating stripper wells in the same manner as we have for the past decades could get thrown in with this mess.

                  The earthquake issue is the worst one, possibly even worse than the low prices that have their feet on our windpipes.

                  We dispose of 80-90 barrels of water for every barrel of oil we produce, and this has been going on here, if you can believe it, since the 1920s.

                  After WW2, through use of makeup water from ponds and gravel beds, extra water was added to the producing zone, and field production increased by four times.

                  Today, very little makeup water is used, mostly just produced water re injected in the producing zone, or in some instances, in a slightly deeper zone, in the case of leases that still have a strong natural water drive.

                  Our concern is that we will be lumped in with the shale, who are disposing of high volumes, very deep, at very high pressure. We are shallow, at low pressure and have disposed of water in this manner for 90 years, but do you think legislators will differentiate?

                  This is one of the reasons I say figuring “breakeven” is ridiculous. These aren’t certificates of deposit! This is an industry fraught with politics, environmental concerns, volatile product prices, competition with NOC’s and large, multinational corporations, and now, more than ever, Wall Street Sharks.

                  Why would anyone have a break even goal?

                  As for the Hubbert curve, I am not the best at math either. However, these wells do not seem to settle out till they hit below 2,000 BO per month. Considering most produce between 15-30,000 BO in the first month, when most of the locations have been tapped, there will be a pretty steep drop, maybe not fitting a curve precisely, but steep nonetheless.

                  I know TX reporting is slow, but DeWitt has to be dropping pretty substantially. Mountail definitely has since 12/14.

                  • Toolpush says:

                    Shallow,

                    There is a lot of difference in pumping fluida into a permeable formation, under the fracture pressure, and injection wells that operated above fracture pressure.
                    If they banned water injection altogether. There goes all your secondary oil recovery projects. So surely, above or below fracture pressure would become the boundary for any regulations being put in place.
                    The funny thing is, cutting re-injection wells (CRI) are considered the most environmentally friendly ways to dispose of all drilling products offshore. These wells all operate well above fracture pressure, and they were all the go in Sakhalin Island, which is right on the ring of fire. The platforms were built the survive very intense earth quakes. Makes the mind boogle if these CRI wells are closely related to earthquakes!

                • Mike says:

                  Absolutely spot on, John. But you do know what happened to those companies; they were stupid, and they were greedy. The shale oil industry is dead meat; the boom is over. Some of us knew it was going to occur the day it started. Too costly, decline rates too high, too unprofitable even at 95 dollar oil. That is the worse rock imaginable to be hanging America’s energy future on.

                  Very few “analysts” here, so desperately needing to predict the future, have a clue about how the oil and natural gas business actually works. Its a hobby to them. They have none of their own money in it, they have no skin in the game. They have no actual experience paying the bills. Mother Nature always, always plays a role in the big scheme of oily things and all these ridiculous assumptions about the role shale oil, and shale gas will play in our energy future often reach absurdity. Those predictions make the hair on my head stand up most of the time.

                  The oil business is like Texas weather; wait a minute and it will change. Never count on the forecasts, prepare for cold rain and hope for sunshine. Nobody gets it entirely right, ever. Grin and bare it.

                  • shallow sand says:

                    Mike, one thing I’ll point out is the severity of this particular bust.

                    We are now 22 months from the top of 6-14. The price is 1/3 of that and has been half or less of that for all but about 3 of the last 17 months.

                    Look at Q1 earnings estimates for US public companies. They are ALL projected to lose money. They have all lost a boatload since Q1 last year.

                    What a mess. The nightmare that just won’t end.

                    I sure hope those guys decide to do something 4/17. Just at least enough so we can make a meager profit off these dang wells.

                  • likbez says:

                    While I am not qualified to critique or judge, I think Patzek and Art Berman are generally correct in their LTO and shale gas conclusions.

                    Very well said. Thank you !

                    Very few “analysts” here, so desperately needing to predict the future, have a clue about how the oil and natural gas business actually works. Its a hobby to them. They have none of their own money in it, they have no skin in the game. They have no actual experience paying the bills. Mother Nature always, always plays a role in the big scheme of oily things and all these ridiculous assumptions about the role shale oil, and shale gas will play in our energy future often reach absurdity. Those predictions make the hair on my head stand up most of the time.

                    You Hit The Nail On The Head. This was a trap. Opinions may whether designed trap or accidental trap but there is no question it hit conventional production hard…

                  • Mike says:

                    Dennis, as you so often do in your rush to make predictions about the future you discount oil prices, extenuating circumstances, and Mother Nature entirely. You assume simply because oil supply is going to decline that prices will recover and allow the drilling of 35,000 more stinking shale wells in America. Where is that money going to come from to drill those 35,000 wells, Dennis? If you think 80 or 100 dollar oil prices will do it, which you predict, very recent history proves otherwise. We have just gone thru an eight year period of very high, very stable oil prices and the shale industry is dead broke and on the verge of total financial collapse. Clearly you do not fully grasp the extent of that financial collapse.

                    I think also you completely discount the extent to which areas of highly oil saturated areas in the big 3 resource plays are already drilled out. To drill all these imaginary shale wells you think will occur, operators will be moving into flank areas where productivity will be less on a well by well basis and profitability even lower. Please refer to Enno’s good work regarding the behavior of shale wells the past 2 years in the best areas of the Bakken and Eagle Ford and tell me I am wrong. And do not confuse how DUC completions have clouded the shale oil “productivity” BS that everyone totally unfamiliar with how the oil business works, has leashed themselves to. Rigs just drill holes in the ground, nothing more. Shale oil productivity per well is going down, in spite of so called new technology and mega frac’s.

                    The USGS screwed the pooch on the Monterrey shale and I don’t think they know their ass from a hole in the ground, personally, on what it will take to economically recover “proven” reserves from shale oil plays. Neither does the EIA or anybody else. I think that’s hard for folks that make their so called, “living” predicting the future, but that’s just the way it is. LTO in my learned opinion will have practically nil effect on the energy future of our country, and our world unless they can reduce their costs yet another 35-40%. That will not happen.

                    If you wish to include shale oil resources in your never ending need to predict the future you need to please make a concise plan for how it is all going to get paid for. There are no do-overs in the oil business and your plan for the future of shale oil must begin with the past and paying back nearly 300 billion dollars of existing debt.

                    Mike

                  • Dennis Coyne says:

                    Hi Mike,

                    The problems in the LTO sector are due to low oil prices. So far there is no evidence that EUR has been decreasing in Bakken/Three Forks or the Eagle Ford and note that in my models I assume that the new well EUR will decrease as the sweet spots become saturated.

                    The average Bakken/Three Forks well (as of 2014 and 2015 wells look the same or better so far) will pay out at 36 months at oil prices over $90/b.

                    There will be relatively low activity in these plays (probably less than 1800 wells drilled annually in the ND Bakken and Eagle Ford) until oil prices rise above $80/b. This might not occur until 2019 when supply may be outrun by demand.

                    Note that the 35000 wells is the total including the 11,000 wells already drilled in each of these plays, so another 24,000 wells. In the Eagle Ford, at the peak 12 month drilling rate, about 3000 new wells were being completed in 12 months (12 months ending Feb 2015).

                    If oil prices remain low forever, there may be only 8000 more wells completed or maybe only 4000, nobody knows, though you would certainly know better than me.

                    My expectation is that oil prices higher than $100/b will return in 2019 or 2020, but I am often wrong on oil prices.

                    Note that it was the EIA that estimated Monterrey LTO resources incorrectly, not the USGS.

                    At the end of 2014 2P reserves in the Eagle Ford were approximately 5.7 Gb and proved reserves were 3.8 Gb. The average Eagle Ford well has an EUR of about 200 kbo and about 11,000 oil wells have been completed. If all 11,000 wells are average that would imply 2.2 Gb of output, another 8000 average wells would be needed to get to 3.8 Gb. The EUR will no doubt decrease over time so more than 8000 wells would be needed (maybe 12,000 wells).
                    If 2P reserves are produced, then 17,500 new wells need to be completed and maybe 26,000 new wells due to falling EUR over time, that would result in a total of 37,000 wells completed in total.

                    It will not happen at $40/b, on that point we may agree. If your contention is that it will not happen at oil prices over $90/b, I would disagree. My guess is that you believe oil prices will never rise to that level and be sustained in the future, if that guess is correct, I disagree. Oil will rise to above $100/b (2016$) by 2020 at the latest (my WAG is 3Q 2018).

                    Oil prices will remain above $100/b until recession(GFC2) hits between 2025 and 2030.

                    On predicting the future, lots of people do this, IEA, EIA, Wood MacKenzie, Rystad, BP, Exxon, Shell, Jean Laherrere, and Rune Likvern, just to name a few.

                    In the grand scheme LTO will make very little difference, we are talking about 35 Gb out of a World URR of 3400 Gb, so roughly 1%. This small resource has certainly messed things up and things might be better if the RRC and NDIC tacitly worked together to keep output under control.
                    The RRC already has the authority to restrict output, the NDIC could be given that authority and could follow the lead of the RRC. The rules would be simple, if the RRC restricts output by 5%, the NDIC does the same.

                • Dennis Coyne says:

                  Hi John S, shallow sand, and Mike,

                  All three of you know 1000 times more than me (probably more than that) about the oil industry.

                  Patzek argues that a Hubbert Linearization can give some idea of the peak, but he is wrong. A plot of annual production divided by cumulative production (aP/CP) vs CP tends to be a curve rather than a straight line. Many different Hubbert curves can be fit to the cumulative data.
                  Chart below shows this for ND Bakken/Three Forks.

                  • Dennis Coyne says:

                    So it is clear to everyone which of these curves is correct?

                    Is it 4 Gb, 7Gb,or 10 Gb?

                    Hint: the USGS thinks it is about 11 Gb, for the URR of the North Dakota Bakken/Three Forks.

                    Also the proven reserves of the Bakken Three/Forks at the end of 2014 was 5.5 Gb and cumulative production was 1.2 Gb, so that implies a minimum URR of 6.7 Gb.

                    2P reserves are about 8 Gb,which implies a URR of 9.2 Gb if there is no reserve growth or future discoveries.

        • Dennis Coyne says:

          Hi Ron,

          If you take my big 14 and subtract the output from your big 4, we are left with the flat 10, whose output as a group has been relatively flat from 2010Q1 to 2015Q3.

          This larger group of 14 nations will probably be able to keep output relatively flat from 2016 to 2020 after that we might see some decline, as Alex pointed out most of the decline from my “ROW” (World minus big 14), about 2 /3 of it from 2010 to 2015 was due to political conflict in Libya, Syria, Yemen, and Sudan. So the scenario I presented might be too conservative.

      • George Kaplan says:

        Alex – how are Russian numbers verified? Do you think there may be an incentive for them to over estimate at the moment if there is a possibility of agreeing a freeze next week? Or they could be reporting accurately but making sure they are flat out (i.e. defer any maintenance and workovers, keep chokes at maximum for this month).

        • AlexS says:

          George,
          There is a large number of oil producers in Russia, including vertically-integrated companies, small and mid-sized companies, JVs and consortiums with foreign participation.
          Traditionally, each company is reporting daily output to the Energy Ministry, which can be ultimately verified when oil is supplied via large pipelines, which belongs to Transneft. Large companies also report production volumes for each subsidiary.
          Preliminary monthly-average production data, based on daily reports, is usually reported in the beginning of next month, and final data about 3 weeks later.

          The key source of growth in the past couple of years were mid-sized Russian integrateds, Bashneft, Gazpromneft and Novatek, which started production from new fields, and operators with foreign participation (mainly offshore Sakhalin island).

          Maintenance and workovers are usually made in mid-summer (July), so 1Q numbers do not reflect any delays.

          As regards the output freeze agreement, the first deal anticipated keeping production not higher than January levels. Russian production in February was marginally lower, and in March marginally higher (+2 kb/d) than in January. Russian officials have said that slightly higher monthly production does not matter, as it is average output for a certain period, that should not exceed January levels.

    • Dennis Coyne says:

      Hi Ron,

      There are other nations besides these 4 that you select that could increase output in the future, such as Brazil, Iran, Angola, Libya, and Venezuela. Further increases may come from Canada and Iraq, but I doubt Saudi Arabia will increase output by much, they will maintain output, the USmay return to 2015 levels of output when prices recover, but will only be able to maintain that level for 4 years at most before decline begins, but as long as oil prices remain high enough for continued drilling (above $90/b after 2017) the US decline will not be very steep.

      Using your Big 4 (US, Canada, KSA, and Iraq) and ROW2= World minus Big 4, the decline rate for ROW 2 is about 1% per year from 2010 to 2015Q3 using EIA quarterly data. Increases from Iraq and Iran will offset declines from Canada and the US to some degree and it is doubtful that World output will decline by more than 2% for any 12 month period and if so it will be temporary, the overall 5 year trend will be 1% or less from 2015 to 2020 due to rising oil prices.

  8. Silicon Valley Observer says:

    What I want to know is when is depletion going to kick in. It seems like the stuff just keeps coming out of the ground, and I understand this is due largely to secondary and tertiary recovery. But that that should result in an even sharper decline at some point, right? So when does that happen? Saudi Arabia seems just keep rockin’ along.

    • Greenbub says:

      I second that question.

    • Dave P says:

      I third that question. Saudi is an enigma, I too wonder how long they will maintain their production for. Looks like ‘Twilight in the Desert’ was a tad premature.

    • Depletion kicks in as soon as we produce the first barrel.

      The question should be “when will we be unable to offset depletion by adding new sources or implementing more enhanced recovery projects”?

      Excellent question. We aren’t finding new fields to offset depletion, so the new sources are mostly heavy oils, light oils and condensates from lousy quality rocks, and a bit of enhanced recovery. Most of these require prices higher than say $75 per barrel.

      Therefore, when the industry sees a future price environment above say $80 per barrel, activity is sufficient to offset the ongoing depletion. This doesn’t apply to every region or country, but it’s good for the world. And if industry actors think the price will be a steady $120 per barrel, they go nuts investing. So as I mentioned before, the industry moves mostly on future price expectations. The stronger players have a long term horizon, weak ones have a 90 day horizon because they lack cash flow. And I don’t know anybody with the ability to predict how this motley bunch will behave.

    • It seems like the stuff just keeps coming out of the ground, and I understand this is due largely to secondary and tertiary recovery. But that that should result in an even sharper decline at some point, right? So when does that happen?

      Observer, you don’t seem to have gotten the word. Peak oil is a myth. Decline will never happen! Peak oilers have been wrong in ever prediction they have ever made. Therefore we can logically conclude that ever prediction of peak in the future will also be wrong. Or is this faulty thinking?

      I have argued in the past, that if an event must happen, then every year that passes without it happening just brings the actual event one year closer. Therefore we can conclude that every wrong prediction just increases the chances that the next one will be correct.

      Consider a packed bingo parlor. There are 75 possible numbers on a bingo card. As each number is called out without anyone calling “Bingo” it increases the chances someone will call bingo on the very next number.

      The problem is we do not know how many possible numbers there are on the peak oil bingo card. As the price of oil goes up more numbers are added to the card and as the price falls numbers fall off the peak oil bingo card. I have predicted that 2015 will be the bingo year for peak oil. But I could be wrong. In that case it will be 2016… or 2017… or… But the chances of peak oil happening become far greater with each passing year that it does not happen.

      Just as the numbers on a bingo card are finite the number of barrels of oil in the ground are finite. Therefore it must happen. And because we have figured out, via infill drilling, how to keep every giant field producing right up until the end, the end when it does come, will be likely sharp and dramatic.

      • R DesRoches says:

        One place to look to get a head up on where production is headed is to look at changes in rig counts.

        Since the start of the year, internateral rig counts, X North America is down 110 rigs, and since the start of 2015 they are gown by 323 rigs. This is a 25% reduction according to Baker Hughs data.

        In about a years time we will get a real feel to what the world’s decline rate is.

      • Oldfarmermac says:

        “Just as the numbers on a bingo card are finite the number of barrels of oil in the ground are finite. Therefore it must happen. And because we have figured out, via infill drilling, how to keep every giant field producing right up until the end, the end when it does come, will be likely sharp and dramatic.”

        This is precisely why I worry that Dennis and other guys who are predicting a fairly slow and steady decline in oil production are too optimistic. Not only is the resource in the ground limited; as each barrel is pumped, each succeeding barrel becomes a little more expensive to extract. I am not at all sure that production can be maintained even at prices in the hundred dollar range very long.

        Cutting back on production taxes will help keep production online as old fields play out, but the tax revenue will have to be made up elsewhere.

        As I see it, it’s a race between the technology ambulances running out of gas on the way to the tech hospital, and depletion/ overpopulation/ overshoot. Some of the ambulances will probably make it to some of the hospitals. Some places there AREN’T any ambulances. I think maybe we have a shot at making it more or less whole but very skinny, like a spring bear, here in Fortress North America, and a few other well situated places with lots of remaining resources, and not too much in the way of population overshoot. But I wouldn’t bet big money on it.

        • Dennis Coyne says:

          Hi Old Farmer Mac,

          It all depends how far we push the envelope to keep output high, if we get the World average extraction rate from proved producing reserves up to US levels of around 13% in an attempt to either increase output or maintain a plateau in output for as long as possible, then decline will indeed be steep.

          My scenarios assume humans are not that dumb, probably a dumb assumption. 🙂

          Scenario below assumes we are not smart and try to maintain output until 2035 with World extraction rates rising to 12.5% by 2040 and then remaining fixed at 12.5% (about the US level in 2008), current World extraction rates are about 8.4% of producing reserves (estimated at 334 Gb at the end of 2014). In this scenario annual C+C decline rates rise to 2.7% in 2041 and fall back to about 2% by 2050, they level off at 1.86%/year from 2060 to 2080.

      • Dennis Coyne says:

        Hi Ron,

        The decline for individual wells and individual fields might be sharp and dramatic at first, but these decline rates then tend to subside, in addition the timing will not be simultaneous so the gradual nature of the number of wells and fields arriving at the steep part of their decline curves will tend to level things out. If all drilling suddenly stopped, we would have dramatic decline, but that would require some outside event such as World War 3 or Great depression 2, I am not arguing those cannot happen, only that in their absence the “Seneca decline” proposed by some is not very likely.

        I know you do not agree, but based on Hubbert Linearization and estimates by the USGS (the average of the 2) and using a physical model to simulate future output, decline under 2%/year looks likely unless we stay on a plateau until 2035 (which I do not think is a likely scenario).

      • Dennis Coyne says:

        Hi Ron,

        Most of us are not arguing that there will be no peak and decline, one can agree that the peak is 2015 and then see an undulating plateau in output from now until 2025 with decline after that at under 2 %. I would argue that peak oil is not a myth, but that the assumed Seneca cliff requires some severe shock to the World economy to cause it. It has never been explained why such a shock must occur, I agree it is likely, but it will not be permanent (probably a 5 to 10 year period of either major War or economic depression (or both) maybe in the 2030 to 2040 time frame.

        Under those conditions we would see C+C output fall steeply due to low GWP (Gross World Product) and lack of demand for oil along with low oil prices.

        Such a shock may be the kick in the pants the World needs to start a serious transition to other forms of energy, if that occurs the World economy will gradually recover (perhaps by 2050), at that point fossil fuels will be less of a problem as the ramp up to other forms of energy will keep demand for fossil fuels at low levels and fossil fuels will be priced out of the energy market by cheaper wind, solar, hydro, and nuclear power.

        • Oldfarmermac says:

          Hi Dennis,

          My fondest hope , given that I am a realist, or at least try to be a realist, is that we get a series of Pearl Harbor Wake Up Events sufficient to be ” the kick in the pants the World needs…..”. I define a PHWUE as one sufficient to really get our attention, and one that really hurts, so as to be taken seriously rather than forgotten, but not so injurious that it substantially diminishes our ability to act.

          In the event we get into a major hot war, or experience a really major economic downturn, BEFORE renewables are scaled up sufficiently, before we improve energy efficiency, etc , managing the transition may be impossible because of our tendency to make short term decisions contrary to our long term interests.

          A shooting war that keeps tankers in port for a few months without killing very many people would be an ideal wake up event. Ditto a successful surprise terrorist attack on a truly major oil hub, one important enough to put a crimp in oil supplies before it could be rebuilt.

          A TAKEOVER of an oil exporting country by an outfit such as ISIS that decided NOT to export to spite the infidels, etc.

    • TechGuy says:

      My Thoughts on KSA Production:

      1. Ghawar started with a Oil column of ~1300. I believe by 2005, the Oil column shrunk to about 100 feet. Today its about 20-25 feet. The remaning Oil is floating on water and KSA is using horizontal drilling to extract it. In some regions of Ghawar they are on their second or third string of horzontal wells as the water column flood above the wells, and they had to drill above to get back into the Oil column.

      2. KSA and restarted production in existing wells that have already been depleted decades ago. Better tech and mapping information permitted them to sweep up trapped oil in these wells.

      3. KSA is now using advanced Oil recovery in Ghawar and other fields (CO2/Nitrogen injection) in order to free up trapped oil.

      4. Saudi Americo, posts tech articles (quarterly) on their website. They usually don’t include which fields they are discussing, but with a little bit of effort, its not to difficult to determine which fields discussed. This is where I found the three above items. I posted excerpts on this blog over the past couple of years from SA tech articles.

      5. KSA is the primary driver into the turmoil in Syria. KSA is sitting on vast NatGas fields underneath their oil fields. However, producing NatGas from these fields would cause severe Oil production issues, so they won’t tap the NatGas until their Oil fields are tapped out. KSA needs to path to get its NatGas into Europe, which requires a pipeline through Syria. So if they are pressing to remove Assad from power, I suspect that KSA production problems aren’t too far into the future.

      FWIW: Its just not KSA that is the problem. Most of the global production has been maintained from old depeleted wells, using new tech to sweep up trapped oil. Obviously this can’t be continued indefinitely. I fear that at some point all of the major fields will begin to see sharp declines as remains of trap oil is extracted, an newer technology isn’t going to extract Oil that doesn’t exist. With the extremely low oil prices, no one is developing any new fields (deep water, arctic, etc). By the time oil prices recover that makes it profitable resume these expensive projects it will be too late and there will likely be permanent crisis. It may take 5 to 7 years to develop new project to produce Oil. 5 to 7 years is a long lag time, which depeletion continues to march on.

      That said, its possible that other problems trump Oil production problems, such as, the Debt crisis or the demographic crisis (aging populations). We are very close to another major debt crisis as gov’ts start going bankrupt (ie rest of the PIGS – Portugal, Spain, Italy), China, Japan, Most of South America, and perhaps a lot of US cities and even US states (Puerto Rico, Illinois, Pennsylvania, West Virginia, and perhaps California).

      Iran & KSA appear to be gearing up for war. both nations are buying military equipment and are running multiple proxy wars. I believe KSA is now has the 4 or 5 biggest military budget for 2016. Both KSA and Iran also have a limited number of nuclear weapons. Should the proxy wars turn into a hot war, then it really doesn’t matter how much oil is left to be produced.

      • George Kaplan says:

        Excellent comments, though I’m not sure about the nuclear weapons. Do you think Burgan is as at risk as the other ageing super giant fields? Do you think there is a significant risk of internal disruption (i.e a palace coup or popular uprising), before an eternal war?

      • clueless says:

        Great info techguy. Based upon your thoughts, what do you think that the average cost per barrel is for KSA oil?

        • shallow sand says:

          I have wondered this for awhile too.

          They appear to handle so much water.

          As I have stated, handling water is a major expense in producing oil.

          I wonder how much chemical KSA has to use and as well how much electricity.

          I also wonder what pressure is required on the injected water.

          There are very few water floods in the US with LOE much under $15 per BOE. Most are well over $20. Same applies to steam floods, CO2 and polymer floods.

      • Rune Likvern says:

        Thanks TechGuy.
        What happens as the “old” big fields that provided decades of oil comes to an end of their economic life, shortened by the collapse in the oil price and the lasting low oil price?

        Generally the discoveries that wait in line for development are smaller, so to keep the level and/or grow becomes THE Red Queen race.

        Then throw in that several of the majors have had a Reserves Replacement Ratio (RRR) of less than 100%, meaning reserves are depleted faster than they are being replaced.

      • Dennis Coyne says:

        Hi Techguy,

        Let’s say Ghawar begins to decline, that is one field, I imagine that you believe it is unlikely that all the large fields in the World will begin their decline phase simultaneously. So let’s assume they do not. For simplicity we will assume Ghawar produces about 5 Mb/d and that it will decline at 3%/ year (similar to US before LTO production started from 1985-2004), we will also assume each year the equivalent of one Ghawar begins to decline until all World production is eventually declining at 3% per year. For simplicity we will assume all fields decline at 3% (in reality some will be more than this and some will be less and the rate won’t be constant over time. This is a very simple model.

        Spreadsheet at link below:

        https://drive.google.com/file/d/0B4nArV09d398ZXY4Q2V0c1VWd3M/view?usp=sharing

        Chart below has World C+C output in Mb/d on left axis and annual decline rate (dashed line) on right axis. It is assumed in this scenario that a nuclear war in the middle east does not occur.

        • TechGuy says:

          Hi DC,

          I expect than when the Oil column dips some where between 10 feet and 3 feet, Production is going to collapse at a much faster rate than 3% per year, Perhaps as high 10 to 20% per year. I think as the remaining Oil column shrinks its going to be much harder to extract oil since it will be difficult to steer laterals to follow the uneven remaining oil column. The water cut will grow increasing problematic, and drilling will need to increase to keep laterals on near the top of the oil column.

          My understanding average large fields are declining at a rate of 5% to 7% per year. Horizontal and other advance drilling\extraction tech has prevented significant production declines so far, but this trend isn’t sustainable. At some point I believe we will see shocking decline rates no matter what tech is developed, or how much the Price of Oil increases into.

          That said I don’t have a crystal ball or a time machine that shows me what is going to happen.

          George Kaplan Asked:
          “Do you think there is a significant risk of internal disruption”

          Yes. But I think KSA would likely go to war first as a diversion to internal unrest. Ron Patternson would be a better source than me, since I never visited or worked in KSA. Ron has. So far KSA is using brutal tactics to prevent protests and uprisings.

          Saudis unveil radical austerity programme
          https://next.ft.com/content/a5f89f36-ad7e-11e5-b955-1a1d298b6250

          Clueless asked:
          “Based upon your thoughts, what do you think that the average cost per barrel is for KSA oil?”

          I don’t have a clue. I would imagine production costs are constantly rising.

          Rune rhetorically asked:
          “What happens as the “old” big fields that provided decades of oil comes to an end of their economic life, shortened by the collapse in the oil price and the lasting low oil price?

          yes, that was the point I was leading to. That said: Will economic and social problems become a crisis before Oil production collapses begin? Lots of nations are downing in debt, have aging population with no or inadequate retirement savings, and younger labor pools unequipped (educated/skilled) to meet the needs of businesses. I can’t image that the global economy can be sustained for much longer (EU, Asia & South America in recession & the US teetering on the end of another recession). Since when in history have major industrial powers have negative interest rates?

          Dave P asked:
          “I know this is probably an impossible question but how long do you think it will take to deplete the remaining oil column?”

          I dont’ have a clue. I believe the most of the Ghawar formation has a profile where its narrow at the bottom and much wider at the top. There is more volume at the top of the formation than at the bottom. So the decline in oil column depth is not linear.

          Perhaps this article will provide you a guess (probably some time after 2018)
          Saudi Arabia to Sell Stake in Parent of State Oil Giant by 2018
          http://www.bloomberg.com/news/articles/2016-04-01/saudi-arabia-to-sell-stake-in-parent-of-state-oil-giant-by-2018

          • George Kaplan says:

            TechGuy

            What is being seen is consistent with previous predictions concerning giant fields, summarised here:

            http://resourceinsights.blogspot.co.uk/2013/04/aging-giant-oil-fields-not-new.html

            For example:

            “The 2009 study focused on 331 giant oil fields from a database previously created for the groundbreaking work of Robelius mentioned above. Of those, 261 or 79 percent are considered past their peak and in decline.”

            “The average annual production decline for those 261 fields has been 6.5 percent. ”

            “Now, here’s the key insight from the study. An evaluation of giant fields by date of peak shows that new technologies applied to those fields have kept their production higher for longer only to lead to more rapid declines later. As the world’s giant fields continue to age and more start to decline, we can therefore expect the annual decline in their rate of production to worsen. Land-based and offshore giants that went into decline in the last decade showed annual production declines on average above 10 percent.”

            The increased use of in-fill drilling (e.g. moving horizontal producers up dip) and IOR/EOR techniques was foreseen with it’s effect on prolonging the plateau, we are yet to see if the sudden collapse that was also predicted. The thing that was missed in the predictions around 2009 to 2013 was a flood of free money and with it the ability of the oil industry to ramp up non-conventional production, and I’d also say for Iraq.

            • Doug Leighton says:

              Great post George: an excellent summary of PO describing rapid ongoing production decline from most key fields that has been temporarily deferred by enormous pulse of infill drilling and EOR paid for via free money leading to current situation. What else do we need to know?

        • Dennis, Ghawar is not one oil field, it is five. That is not even counting Fazran. There are Ain Dar, Shedgum, Uthmaniyah,
          Hawiyah, and Haradh.
          Four of the five Gahwar fields are in decline and the fifth, Haradh, is on a plateau.

          To even suggest that Ghawar “might” begin to decline shows an astonishing ignorance of Saudi oil production capabilities.

          As I have repeated many times on this blog, Saudi has been able to mask the decline of its old giant oil fields by bringing old oil previusly mothballed fields back on line. These fields are Shaybah, Khurais and Manifa.

          Dennis, for God’s sake, to even suggest that Ghawar might go into decline is preposterous. Ghawar has long been into decline. I am shocked that you are ignorant of that fact.

          I have no idea what Ghawar’s current production numbers are because it is a Saudi state secret. But I would guess somewhere in the neighborhood of 3 million barrels per day. But if it were not a state secret and Saudi were proud of the numbers, then it would be in the neighborhood of 5 million barrels per day.

          But it is a state secret and it is not, in my estimation, anywhere near 5 million barrels per day.

          • AlexS says:

            Ron,

            Below is a table from the EIA’s Saudi Arabia country analysis (as of September 2014).
            http://www.eia.gov/beta/international/analysis.cfm?iso=SAU
            The original sources of the data are Saudi Aramco and “Arab Oil and Gas Journal”

            From the EIA report:
            “Although Saudi Arabia has about 100 major oil and gas fields, more than half of its oil reserves are contained in eight fields in the northeast portion of the country…The Ghawar field has estimated remaining proved oil reserves of 75 billion barrels”

            The EIA estimates Saudi Arabia’s oil production capacity (ex NGLs) at around 12 mb/d, including ~300kb/d in the Saudi part of the Neutral zone.
            The latest estimate by the IEA is 12.26 mb/d

            • more than half of its oil reserves are contained in eight fields in the northeast portion of the country

              More than half no less. Well hell, I cannot argue with that.

              Alex, all your listed fileds come to 11.75 million barrels per day. And that is more than half. Wow! Alex, do you really believe that shit?

              That does not include Berri? How could they not count Berri? Or Safah? Or any of the other fields that would be giant fields in any other country? If you add them all up it would likely come to at least 15 to 20 million barrels per day. Which is a joke of course. Saudi is now producing flat out.

              Alex, Ghawar can in no way produce anywhere near 5.8 million barrels per day. But then if you believe anything that is printed on the internet then…..

              If 11.75 is more than half then they likely figure around 20 million barrels per day is possible. Yeah right!

              Incidently, the EIA agrees with Saudi Arabia on their proven reserves of 266 billion barrels. Which says nothing other than “We take Saudi’s word for everything.

              • AlexS says:

                Ron, I am actually rather sceptical about EIA’s international statistics. Obviously, I’m not saying that those numbers are correct.
                Do you think they may have included NGLs (given that KSA produces more than 2 mb/d of NGLs)?

                • Alex, the EIA does have a tendency to include NGLs in their estimates. That is likely here since Saudi is producing nowhere near what they say their their major fields are capable of.

                  But no one has any idea what each individual field in Saudi is producing. They have only Saudi’s word for it. Which is worth about the same as a bucket of warm spit.

            • AlexS says:

              BTW,

              The recent increase in Saudi Arabia’s oil production was largely due to higher utilization of production capacity.
              The last large increase in capacity was in 2009, when Khurais field capacity was increased to 1.2 mb/d.
              The start of the Manifa field in 2013 and its ramp-up in 2014 largely offset declining production at the mature fields.

              Saudi Arabia’s oil production and capacity (mb/d)
              source: IEA (capacity), JODI (production)

          • Dennis Coyne says:

            Hi Ron,

            I do not know the output of Ghawar, nor it’s decline rate as we have no data. If the output is 3 Mb/d, it is less of a factor than if output was 5 Mb/d. Yes there are several fields that are grouped together and called Ghawar. All fields will decline eventually, the “might” is only about when those declines occur. The simple illustrative model is to show what happens when all fields don’t start their decline at one moment in time. The 5 Mb/d was chosen simply because at one time “Ghawar” supposedly produced 5 Mb/d in 2009 (according to the Wikipedia article). What is your source for your 3 Mb/d estimate?
            If we assume a 6.5% annual decline rate since 2009 we would be at 3.4 Mb/d in 2015. At some point Saudi Arabia as a whole will begin to decline, when this will happen I do not know. Just as in the US where there has been extensive infill drilling and secondary, tertiary recovery methods employed and decline rates have remained under a 3% annual rate, the same is likely to be true of other large producing nations with a combination of on shore and offshore projects.

            A lower URR oil shock model (3000 Gb including 500 Gb oil sands) still has an annual decline rate under 2%/year.

        • George Kaplan says:

          Dennis,

          Your analogy of the USA with Ghawar is not applicable. Aggregates of differently aged individuals do not behave like an oversized average of those individuals. A country does not represent a basin, a basin does not represent a field and a field does not represent an individual well.

          The best analogy for Ghawar is probably Cantarell, they have both been developed with the best available secondary and tertiary recovery methods. Cantarell production dropped like a stone once those techniques were exhausted (about 15% per year in 2006 to 2008). My guess is Ghawar will go (or is going) even faster as the IOR/EOR techniques and software models available for its development are more advanced and it is onshore, making their application easier. Daqing might go the same way. Samotlor has been declining at around 5%.

          Burgan is probably the best placed of the super giants as it has natural water drive and didn’t use secondary recovery until 2010, and still not much, so there is a lot of potential to accelerate production and arrest the decline (at the expense of rapid decline later of course). Note however that wiki indicates 14% decline there, but with no citation so maybe just a guess.

          • Dennis Coyne says:

            Hi George,

            I am comparing US with Saudi Arabia. I expect when Saudi Arabia begins to decline the annual rate of decline will be 3% per year or less.

            Cantarell was pushed much harder than Ghawar, relative to reserves and is an exceptional case. In any case I do not know what will happen to the fields that make up Ghawar, I don’t have any data so I will not speculate any further. World output will be determined by the output of all fields, Ghawar is important, but if Ron’s estimate is correct, it is 4% of World output.

            The 3000 Gb scenario above with 2500 Gb of C+C less oil sands (or extra heavy oil) and 500 Gb of extra heavy (XH) oil is based on Jean Laherrere’s 2013 estimate of XH oil and a Hubbert Linearization of C+C-XH from 1993 to 2015 in chart below.

            • George Kaplan says:

              Dennis – you state “For simplicity we will assume Ghawar produces about 5 Mb/d and that it will decline at 3%/ year (similar to US before LTO production started from 1985-2004)”, and then say “I am comparing US with Saudi Arabia. I expect when Saudi Arabia begins to decline the annual rate of decline will be 3% per year or less.”. Which one is it, because they aren’t both correct?

              “Cantarell was pushed much harder than Ghawar” Please provide details of how you know this.

              • Dennis Coyne says:

                Hi George,

                The “simple model” was intended to show that if all fields don’t begin to decline at the same time decline is gradual at first. Note that the model does not include any new field developments or increased drilling to reduce decline rates.
                The 3% rate of decline was chosen as an average rate for field decline because the only large oil producing nation (more than 4 Mb/d at peak) which has clearly entered the decline phase is the US.

                Cantarell(35 Gb) is a much smaller field than Ghawar (140 Gb) but its maximum rate of production was much higher relative to reserves. Maximum production at Cantarell was 2.1 Mb/d and at Ghawar 5 Mb/d.

                Cantarell’s URR is 4 times smaller than that of Ghawar, if Ghawar had been pushed to a maximum output rate of 8.4 Mb/d, it would have pushed to the same degree as Cantarell.

      • Dave P says:

        Thanks Techguy, that was an interesting post. I know this is probably an impossible question but how long do you think it will take to deplete the remaining oil column? If it is correct that it took 10 years to drop from 100 to 25 feet (assuming this is correct too) then that doesn’t bode well for future production from Ghawar over the next decade.

        • Cracker says:

          Dave P

          Much as I love Dennis’ charts, I just don’t see his 3% continuing very long, if Ghawar is indeed down to a thin layer of oil over water. There could just be a clunk as the field is shut down after a short period of steeper decline.

          The next five years should tell a lot if the oil column is now that thin. 5 mbopd can’t continue forever, nor can 3% decline in a permeable reservoir under water flood. When the water mostly reaches the top, the oil stained water becomes too expensive to separate out and production stops at greater than a 3% rate.

          Jim

          • Dennis Coyne says:

            Hi Cracker,

            There will be fields that decline more than 3% and fields that will decline less, the average will roughly match the US decline (the most mature large oil producing nation) from 1986 to 2004 which was less than 3% per year.

            Ghawar is several fields, Tech Guy’s comments probably do not apply to all the fields of Ghawar.

            People also seem to forget that new fields will continue to be developed and infill drilling and EOR will continue in many fields. These factors will reduce the rate of decline for overall World C+C output.

      • Toolpush says:

        Techguy,

        Your point #5 intrigues me.

        5. KSA is the primary driver into the turmoil in Syria. KSA is sitting on vast NatGas fields underneath their oil fields. However, producing NatGas from these fields would cause severe Oil production issues,

        I assume you are referring to the Kluff nat gas field under lying the Ghawar oil field. I know the Kluff field was being produced, but not sure if it was near its potential or very restricted flow. I remember a discussion with some Exxon reservoir people, on the liquids being produced, and how to define them. Oil or condensate. The Saudis chose condensate as they were not counted in the export quotas at the time.
        Are you saying that Kluff is in communication the Ghawar? If they were surely there would be pressure issues in the upper field.
        I believe there is communication in the water table between Burgan and Safaniya, but that is a different issue.
        It is hard to see where the production of an under lying gas field would affect an over lying oilfield, apart from a few drilling issues of under pressure thief zones, which can be dealt with by casing design, mud properties, and maybe even a little managed pressure drilling if required.

        • TechGuy says:

          Toolpush asked:
          “Are you saying that Kluff is in communication the Ghawar? If they were surely there would be pressure issues in the upper field.”

          I was just referred to what I read in Saudi Americo’s tech articles. If I recall, correctly, several fields in KSA had NatGas reserves. The article(s) I recall reading referred to delaying production of NatGas to avoid impacting Oil production. I don’t recall the exact details, and I don’t believe that the article(s) mention which fields they are delaying NatGas Production. These Saudi Americo tech articles do not disclose which fields they are about.

          Toolpush wrote:
          “It is hard to see where the production of an under lying gas field would affect an over lying oilfield, apart from a few drilling issues of under pressure thief zones”

          I would image drawing down the NatGas would alter the levels were the Oil is located. Since most of the Oil is now extracted via horizontal wells. I am speculating on how it impacts production. Perhaps there are more details in the articles than I recall. You can read them as the are publicly available on SA’s website.

          • Toolpush says:

            Techguy,

            Thanks for the feedback. Do you have a link to where these reports are located?

            As for gas communication. If the reservoir has a gas cap, then this gas cap can’t be drawn down without effecting the pressure in the reservoir, and therefore oil production. The fact that most if not all the fields have water injection to maintain well bore pressure, we can assume pressure maintenance is at a premium.
            Now if as you described and I know the Kluff field conforms to this line. The gas is in a separate trap, separated by it’s own cap rock from the oil, then there can’t be any communication. If there was, the gas would ride to the high oil reservoir, and as the gas in at a greater depth than the oil, is will also have a pressure. If this higher pressure was allowed to communicate with the upper reservoir, then the upper reservoir would become over pressured, and this over pressure would have been discovered in the exploration wells.
            So I will be very interested to read their explanation to gas production being held back from under lying gas reserves, rather than any gas bubbles sitting on top of the oil currently being produced.

            PS I think I found it
            http://www.saudiaramco.com/en/home/news-media/publications/saudi-aramco-journal-of-technology.html

            • TechGuy says:

              Regarding ToolPush Question about NatGas reserves in Oil Fields:

              Yes, you have the correct link. I don’t recall which article had discuss delaying natGas production from their oil fields, I read through over a dozen their Tech Publications.

              • Toolpush says:

                Thanks Techguy,

                I have found where Kluff has been widely discussed, but not other gas fields, though I have only scratched the surface. I can see I have a lot of reading to do, but I know I will learn a lot by the time i am finished.
                One little point I noticed. The unconventional gas they talk about, seems to be in carbonates! Yet to see any shale mentioned, but i will keep going. Closer to Austin Chalk than Eagle Ford.

      • Nick G says:

        Ghawar started with a Oil column of ~1300. I believe by 2005, the Oil column shrunk to about 100 feet. Today its about 20-25 feet.

        Hmmm. So in the 54 years from 1951 to 2005, it used about 22 column feet per year (1200 divided by 54) – likely this number would be higher lately. That would suggest that it should have used at least 220 feet in the last 10 years. Why did it only use up 75-80? And if it literally only has one year of production left, why no sign of decline?

        • Dennis Coyne says:

          Hi Nick,

          The simple explanation is that the column is not uniform, maybe the shape is an inverted pyramid or cone, also the rate of production has not been uniform over time so lots of variables. We have very little data and certainly the idea of a big “pool”of oil is quite a bit simpler than reality.

  9. Hickory says:

    Nice overview Dennis. Looks to me like the big variables that are hard to predict here include
    -possible new supply disruptions due to instability/chaos from places like Saudi, Russia, other Gulf states vs supply return from places like Libya, Iran, Venez.
    -abrupt decline in demand due to severe recession among big consuming states (I’m not predicting this, but it is surely within the realm of significant possibility)
    -abrupt declines from previously steady producers due to giant field depletion- (I’m talking Ghawar here)
    -escalating decline in production as a result of financial chaos/ mismanagement, and the resultant lack of funding for E & P, in places like USA, Russia. There are many versions of this option, with Venez just being one example.

    My best guess is that higher price for crude doesn’t begin to cut demand worldwide until it is over somewhere in the $75-100/barrel range, in today’s dollars.

  10. Greenbub says:

    From AlexS, last post:

    “A cut in production was not discussed as it is hard to implement and may lead to a sharp jump in prices, causing a new wave of output activation at more costly fields,” one of the sources said.

    The Russians don’t seem to give much credence to the glut in storage, I guess?

  11. Euan Mearns says:

    The oil just keeps on gushing. I wonder to what extent the GOM is performing like the North Sea, partly offsetting declines in LTO?

    Oil Production Vital Statistics March 2016

  12. Oldfarmermac says:

    PLEASE NO REPLY

    I am reposting a link that EZriderMike posted in the non oil thread a couple of days ago in the new one, since it was at the very tail end and most likely overlooked by most of us.

    I believe the hard core oil guys will find reading it for insight VERY worthwhile.

    There is a lot of food for thought in it when it comes to understanding the market for oil in particular and energy in general over the next few decades.

    The statistics in it are mostly from BP, and probably as good as any anywhere. The political conclusions are the authors alone.

  13. Pingback: World Crude plus Condensate Decline Rate | Energy News

  14. Enno Peters says:

    Thanks for the post Dennis.

    I have a new post on the overall shale oil production in the US
    here.

    It combines data from all the earlier posts on the individual basins, and extra analysis capabilities.

    • Silicon Valley Observer says:

      Enno,

      The graph on your site seems to indicate the start of a fairly symmetrical production curve, with the decline roughly matching the slope of the increase. Is that what you see?

      • Enno Peters says:

        Observer,

        No, I don’t expect the sides to be symmetrical. If completion activity turns out to be closely correlated with drilling activity, meaning that there will be a strong drop in new wells being brought online in the first half of this year, than there is likely to be quite a steep drop as well. But with every month the decline rate will become a little less.

        If you choose to group production by “Month of first flow”, you will get an impression of the underlying layers (legacy production), and the decline rates. You can see that closer to the bottom the decline rates are much less.

  15. Entropy101 says:

    Higher oil prices are unsustainable and will only lead to a faster transition into renewable energy sources. Production costs in kWh between fossil and solar are currently about equal, with solar costs still dropping. Wind is at approximately the same point. Battery costs per kWh are also dropping fast and with several large factories in development, will drop faster. When the oil price will increase, it is economically not interesting anymore to generate power with fossil fuels. When this transition starts, it will quickly spread to the automotive industry, since it will be far cheaper to own a electric car instead of a car with internal combustion engine.

    The coal, oil and gas industry will be dead in the water in five to ten years in respect of power generation.

    • GoneFishing says:

      Entropy, see my reply to your comment over on the non-petroleum open-thread.

    • Fred Magyar says:

      Yep, I think that is exactly what is happening already! If the price of oil tries to rise again it will be like a game of whack a mole. Every rise will just make the transition to all alternatives faster.

      I think Tony Seba’s latest talk posted in the non oil thread below shows what disruption is doing. Expensive oil can no longer compete with alternatives, that’s at today’s prices and without subsidies for alternatives. Transportation disruption and a moving to driverless and non automobile ownership models will further depress the price of oil in the future.

      It is fossil fuels that have become unsustainable and no longer economically viable. TESLA got 14 billion dollars in orders in their first week of launching their new Model 3. Sure, they may not be able to deliver on that promise but every other major automobile manufacturer and quite a few new tech companies are all moving to 100 % electrics with the goal being driverless and shared transport.

      The genie is out of the bottle and it isn’t going back. I don’t think it will be necessary for the economy to go into recession, demand will just continue to fall at an accelerating rate.

      • TechGuy says:

        Fred Wrote:
        “Yep, I think that is exactly what is happening already! If the price of oil tries to rise again it will be like a game of whack a mole. Every rise will just make the transition to all alternatives faster.”

        It will not. Renewable businesses will continue to go bankrupt. The majority of individuals are too poor to switch over, and renewable business are largely sustained on Gov’t subsidies or special gov’t incentives to prop them up. Since most industrial gov’ts are insolvent its very unlikely that gov’t investments will be sustained.

        Bankruptcy Looms For Spain’s Green Energy Giant
        http://www.npr.org/sections/parallels/2015/12/02/458127741/bankruptcy-looms-for-spains-clean-energy-giant

        SolarCity: Changing the World or Going Bankrupt?
        http://ophirgottlieb.tumblr.com/post/139620230719/solarcity-changing-the-world-or-going-bankrupt

        SunEdison Plans To File For Bankruptcy
        http://www.foxbusiness.com/markets/2016/04/04/sunedison-plans-to-file-for-bankruptcy.html

        Ivanpah Solar Plant May Be Forced to Shut Down
        http://www.wsj.com/articles/ivanpah-solar-plant-may-be-forced-to-shut-down-1458170858

        FWIW: I think that next coming economic crisis will kill off renewables as more gov’t are forced to adopt austerity to pay for the wave of retiring boomers and deal with mountains of debt accumulated.

        Also the downturn in Oil prices has not impacted electricity prices. Electricity prices have continue to rise even as Oil prices have declined

        https://www.eia.gov/forecasts/steo/report/electricity.cfm

        Although I think the EIA is underestimating future prices, because of of the ~19GW in Coal plant shutdowns (as of Dec 31, 2015). I think prices increases will accelerate, especially all Coal plants will need to be shutdown by the end of 2023. The US is now on a major boom to replace Coal with natGas turbines. The costs for these new plants will be passed onto consumers.

        Natural gas surpasses coal as biggest US electricity source
        http://bigstory.ap.org/article/59a30fadd58e42f08280e4cdd198653c/natural-gas-surpasses-coal-biggest-us-electricity-source

        “power companies have been installing more natural gas turbines at their plants as they make them more flexible and retiring some older coal-fired facilities. They have long switched between natural gas and coal, depending on commodity prices. However, new regulations that aim to restrict the emission of greenhouse gasses, and the risk that more are on the way, have added pressure to make the switch.”

        The issue I see with all this NatGas Consumption is that eventually prices will soar, causing problems for retirees to pay heating costs (natGas fired heating systems) and also he cost of electricity will soar, likely leading to rolling blackouts and power company bankruptcies.

        • Hickory says:

          I agree with your concerns Techguy-
          “most industrial gov’ts are insolvent its very unlikely that gov’t investments will be sustained.”,
          “economic crisis will kill off renewables as more gov’t are forced to adopt austerity to pay for the wave of retiring boomers and deal with mountains of debt accumulated. ”

          I have a disagreement with DCoyne regarding debt. I see our current ‘developed’ nations debt and entitlement load as way over the top, and see this as a direct threat to the countries ability to be prosperous enough to fund energy transition/adaptation.

          • Dennis Coyne says:

            Hi Hickory see

            https://www.bis.org/statistics/totcredit/tables_f.pdf

            Total credit to nonfinancial sector divided by GDP times 100 for the G20 in the range of 223 to 235 for the last 5 quarters and 220 to 230 from 2010 to 2014 (at market exchange rates).

            I agree central banks need to move away from negative interest rates as this may cause financial instability. Central governments should focus on long term investments to improve productivity and either reduce taxes or increase spending to aid monetary policy with some fiscal stimulus (applies to advanced economies). Monetary policy cannot solve the slow economic growth, other long term policies are needed.

            see also

            https://www.bis.org/publ/qtrpdf/r_qt1603a.htm

            • TechGuy says:

              DC wrote:
              “I agree central banks need to move away from negative interest rates as this may cause financial instability. Central governments should focus on long term investments to improve productivity and either reduce taxes or increase spending to aid monetary policy with some fiscal stimulus (applies to advanced economies). Monetary policy cannot solve the slow economic growth, other long term policies are needed.”

              The reason why gov’ts are switching to negative rates is to keep insolvency at bay, For instance, Japan is now hopeless buried in debt. Even a modest interest rate in Japan’s gov’t bonds would lead to a default as the interest payments required to service Japan’s debt would be very difficult.

              The industrialize world has painted themselves into a corner which there is no way to fix without creating another great depression. Negative rates, QE and other Central Bank shenanigans is simply a method to delay a crisis. But delaying will just make the crisis worse as the amount of debt, mal-investment continues to build.

              As far as gov’t induce “stimulus”, it just further exacerbates the problem, as gov’t try to “save” or prop up falling industries. For instance in the USA, the gov’t bailed out airlines and car companies back in 2009. We really don’t need to sustain commerical avation, or car companies. Gov’ts almost always make “political” investments, choosing winners and losers (usually based upon campaign contributions, unions, or cronyism), which does not help the economy. Another example is the housing bubble, that was manifest by the US Federal reserve, the US HUD dept. and the GSEs), which of course lead to a big worldwide crisis.

              In the private sector, business have been using low rates to prop up stock prices, via buybacks. If I recall correctly, business borrowed over $1T in 2015 for stockbuy backs. Some companies are now facing credit downgrades from excessive borrowing for stock buybacks. There is no real growth and there is no need to make any investments in factories, since there is already excessive capacity. The only significant investments companies are making is in automation which is decreasing the demand for labor, and aiding a demand destruction death cycle. Futher gov’t regulations (ie ACA -Obamacare, $15 min. wage, etc) is going to spend up automation and outsourcing as companies struggle to maintain a positive cash flow.

              Fred Magyar wrote:
              “The entire global economic model is currently unstable. That is not the fault of renewables technology it is the fault of an infinite growth model based on finite fossil fuels.”

              Fred, I never blamed renewables. I am just stating that a global economic crisis is going to kill it off. Yes, there will be surviving businesses in renewables, but the amount of investment will not permit a transition from fossil to renewables. The majority of individuals, business and gov’t are broke and can’t afford to make a transition.

              I would expect the energy industrial as a whole to suffer major problems, including, fossil, renewable, utilities, etc. However, I believe renewables will face the brunt of failures, for the reasons I stated in my early post on this topic. Higher energy prices isn’t going save renewable businesses.

              • Dennis Coyne says:

                Hi Techguy,

                The government investments I speak of are general infrastructure, perhaps you think we don’t need roads, railroads, public transportation, or water, but I would disagree.

                I also disagree with the reason for negative interest rates, this has been done to try to stimulate the economy, but negative prices lead to strange economic behavior, so that “goods” become “bads”.

                Governments need to think long term.

                To avoid deflation once real interest rates get close to zero, monetary policy should no longer be used.

                Central Banks would be better to leave rates at some low level (Fed funds equivalent at a real rate of 0.25% at minimum) if inflation is at 2% or less and force the legislature to use fiscal policy (taxes can be reduced if one does not like government spending) to try to prevent deflation.

              • TechGuy says:

                DC Wrote:

                “The government investments I speak of are general infrastructure, perhaps you think we don’t need roads, railroads, public transportation, or water, but I would disagree.”

                That would not fix the problems. It does not solve the underlining problems: Demographics – aging work force with unfunded retirement liabilities (pensions, gov’t entitlements), as well as as unsustainable debt loads for individuals and businesses. For the most part, the US would likely have to bring in foriegners to do the work since the majority of workers in these infrastructure are nearing retirement age, and the majority of younger workers aren’t interested in manual labor.

                DC wrote
                “[I] disagree with the reason for negative interest rates, this has been done to try to stimulate the economy, but negative prices lead to strange economic behavior”

                Nope, low interest rates do not stimulate growth in a debt saturated economy. The only thing low interest rates has “stimulated” is stock buybacks and mal-investments. As I stated there is already excessive production capacity and no need to expand further. Low interest rates is just a tool to kick the can down the road. Stimulous that would have helped is to lower the burden on business and individuals (lower taxes, less regulation, and let zombie\dinosaur business fail so new, smaller, agile business can replace them that would ignite more inovation) US businesses are not competitive due to the higher cost of living and excessive regulation. The more mandates the gov’t levies on business the more it drives business to automate and offshore.

                “Governments need to think long term.”
                LOL! yes that would have helped, perhaps 10 to 20 years ago. Politicans are only concerned about the next election.

                DC wrote:
                “Central Banks would be better to leave rates at some low level”

                They have no choice. Gov’ts, businesses and individuals are largely insolvent. But it doesn’t matter how low rates go. All it can do is delay the next crisis, as low rates just exacerbate economic problems. Low interest rates is causing Pensions (private & Public) to become insolvent as they can longer obtain enough interest on capital. Near retirees need to keep on working and already retirees need part time jobs since there retirement savings aren’t sufficient. It is also forcing capital into high risk and unsound investments that will certainly end in tears.
                As Issac newton’s third law physics applies to economics: “For every action, there is an equal and opposite reaction”

                • Caelan MacIntyre says:

                  I would add that (un)governments are just that– not real democratic governments, just the appearance of such– and a drag, to put it mildly, on pretty much everything, including themselves.
                  They are a form of an increasingly kludgy and bloated proprietary (hierarchical) social-operating system technology.
                  Essentially, Dennis, among others, seems to be stubbornly, even mindlessly, suggesting that, with yet a few more tweaks and kludges here and there, we can continue to use that kind of software that’s continuing to fall under its own weight and crushing everything underneath.
                  Bugs? Errors? Crashes? There is nothing better.

                  Repeat after mee…
                  Alternative energee
                  A rooftop with a pee-vee
                  A driveway with an ee-vee
                  Things with be hunkydoree
                  You will eventually see
                  Just turn on your tee-vee
                  Turn up to vote for mee
                  And burn up your monee

                  This is why oil is being used the way it has been used and why we have to have a blog like this. (And apparently why our periodic Mike is ‘crankee’.)

                  The legal system that the pseudogovernment runs on of course encodes how BAU runs and is to (dis)function.
                  …And so we await its likely decline and/or crash and blue screen of death…

                  “We have shown that anarchy, like matter, never disappears-it only changes form. Anarchy is either market anarchy or political anarchy.
                  Pluralist, decentralized political anarchy is less violent than hierarchical political anarchy. Hence, we have reason to hypothesize that market anarchy could be less violent than political anarchy.
                  Since market anarchy can be shown to outperform political anarchy in efficiency and equity in all other respects, why should we expect anything different now?” ~ Alfred G. Cuzan

                  • TechGuy says:

                    DC Wrote:
                    “According to BIS debt service levels relative to income for the World are at manageable levels, there are some countries where debt is too high, others where it is low. The average level is not a problem at present.”

                    I am not sure of your sources, but all of the news articles I’ve seen in the past couple of years contradict your statement about the BIS. First Example from a quick Google Search

                    BIS Warns of a Global Debt Crisis and a Lack of Policy Response Options
                    http://positivemoney.org/2016/03/bis-warns-of-a-global-debt-crisis-and-a-lack-of-policy-response-options-time-to-update-the-boes-policy-toolkit/

                    If the world had “managable” debt loads, then interest rates would have been normal (ie about 5%) instead of near zero or negative.

                    DC Wrote:
                    “Yes the demographic transition will be an issue, we need to look to Japan and Europe to see how to best solve this problem, controlled immigration might help”

                    Immigration is going to exacerbate the problems, because immigrants are almost all unskilled & uneducated. US workers are already under educated/under skilled to meet the demands of the labor force and have difficulty find permanent jobs. 95% of new immigrants will need wealth fare and gov’t subsidies to survive in the EU, or the US, because they aren’t going to find permanent jobs. Many will also be forced to a life of crime as a means to survive. Immigration worked in the 19th and early 20th century because at the time ~95% of the jobs were unskilled/low skill jobs. Back then, workers worked in factories doing simple operations. Today’s factories are automated and require workers to have good computer skills and be able operate multiple different systems.

                    DC also wrote:
                    “Note that fiscal stimulus should only be used when unemployment rates are high (above 6%), otherwise OECD nations should get used to slow growth”

                    This is largely what has got us into a crisis. Recessions are a normal economic process. Recessions are the periods when mal-investments get fixed. Failling business models come to an end and are replaced with better ones. When gov’t “stimulate” or prop up failing business is does permit the natural course of the economy to clean and heal itself. Stimulus and gov’t intervention, exacerbate mal-investments leading to every bigger crisis. If the gov’t didn’t mettle in the economy recessions would happen as necessary but are less likely to develop into systemic crisises.

                • Dennis Coyne says:

                  Hi Techguy,

                  According to BIS debt service levels relative to income for the World are at manageable levels, there are some countries where debt is too high, others where it is low. The average level is not a problem at present.

                  I agree monetary stimulus does not work, but central banks keep trying anyway, when fiscal stimulus is what is needed. Note that fiscal stimulus should only be used when unemployment rates are high (above 6%), otherwise OECD nations should get used to slow growth, if population is flat, we would expect only 1.4% growth in real GDP on average and this may fall to 1% over time.

                  Yes the demographic transition will be an issue, we need to look to Japan and Europe to see how to best solve this problem, controlled immigration might help, but eventually the problem will be a Worldwide problem which will need to be solved.

                  • Hickory says:

                    Dennis, I look at things differently. You say that the average global debt level is OK currently. I suppose you mean that it is ‘serviceable’. But I see many big countries transitioning to a phase where it won’t be serviceable- like Japan and Italy.

                    Rather than resorting to controlled immigration to grow their way out of the debt coffin [as a Krugman inspired management technique] I see their status as one of massive economic and population overshoot (debt fueled).

                    A painful downsizing is what is in order, and it will happen no matter what formula they attempt to avoid it. These countries are just two of the biggest and first to approach this down-slope, but many others are not far behind.

                    They are kind of analogous to the rust belt of N. America over the past 40 years. Overshoot will result in painful downsizing. More severe though. China will approach this phase within 30 years.

                    Something I believe we can agree is the need for USA to build out a nationwide high voltage DC transmission grid- and that would be debt worth taking on.

                  • Dennis Coyne says:

                    Hi Hickory,

                    The Japanese are limiting immigration and Italy would like to, but it is proving difficult.

                    I agree that the solution to gradually reducing economic output as population declines is difficult, one solution might be higher estate taxes and/or closing tax shelter loopholes. The extra revenue could be used to support “social security” type programs. Focusing on per capita growth rates rather than total GDP growth would be a good idea IMO. Italy’s GDP per capita has been falling since 2007, from 1990 to 2007 Italy had been growing at close to the World rate of 1.4%.

                    Since 1990 Japanese real GDP per capita has been growing at only 0.7% per year, about half the World rate.

                    I looked at 5 nations (Jpan, UK, France, Italy, and Germany) and found the GDP per capita of all 5 from 2000-2014 using UN estimates and World Bank Data for GDP per capita in 2005 US$ and then took the natural log to look at growth rates.

                    For these 5 nations real GDP per capita growth rates are 0.65%/year from 2000 to 2014. The World rate is about 1.4%/year from 1970 to 2014 so the demographic transition may lead to lower GDP per capita growth rates as more nations approach the demographic transition.

                    Chart below,

                  • Ulenspiegel says:

                    Dennis,

                    with all due respect, to combine Japan with 4 EU countries and calculate their per capity growth is in IMHO nonsense.

                    You have completely different situations in respect to net immgration/mortality surplus and the ability to provide jobs for the immigrants.

                    You would learn something if you discussed these countries on a individual base and compare them. A 5-country-average is useless.

        • Fred Magyar says:

          It will not. Renewable businesses will continue to go bankrupt.

          Yes, some will but many others will survive! And even more oil and fossil fuel businesses will go bankrupt too.

          Here’s a list of 19 for starters

          http://www.investorvillage.com/uploads/77263/files/OXFORD19CODEBTHITLIST.pdf

          The entire global economic model is currently unstable. That is not the fault of renewables technology it is the fault of an infinite growth model based on finite fossil fuels.

          Alternatives will survive without subsidies and even without government incentives and support.

          • Caelan MacIntyre says:

            Yes, Fred, and alternatives, even ideal ones, could be in the forms of; home/local-distillation/breweries (ethanol); pressed vegetable and nut oils; bee-keeping (sugar, wax, pollination from healthy bee populations); ‘growing your own’; lots of sun-facing glazing/building-orientation (passive solar heating); real local community, self-sufficiency and businesses (butcher, baker, candlestick-maker); equality-as-alternative-to-hierarchy (what a concept!); natural and super-insulated homes (maybe with more people in them, like extended families); and, pirated, re-adapted leftovers (car parts, etc.) from the old BAU/GAU daze.

        • Nick G says:

          Renewable businesses will continue to go bankrupt.

          Of course. The US had 100s of car companies to start – as the industry matured, 99% went bankrupt or were bought by the survivors.

          And some have been hurt by public policy reversals, like Abengoa, which was hurt by retroactive reductions in subsidies (which were excessive to start with – the fault of bad planning by the Spanish government).

          “It’s still too early to tell what will happen to employees of Abengoa’s U.S. subsidiaries, most of which remain profitable, according to the firms. If the parent company goes bankrupt, they could be spun off or sold.”

  16. R Walter says:

    If only three percent of all oil in place can be extracted and there are 2500 gb that are retrievable, then the amount of oil in place that can be extracted is 0.03 of the total, which equals 2500 gb. (edit)

    .03x=2500 gb

    x=83,333 gb original oil in place.

    There are in existence 83,333 giga barrels of oil in place in the earth.

    Only 1250 have been burned, 1250 or so to go, leaving 82,083 giga barrels still there. Just have to figure out how to get them out of the ground.

    In the mean time, it will still grind to a halt, albeit, the time frame is unknown, but close to 45 years or so is the amount of time when all of the oil that can be extracted will be gone. Just some crumbs to find somewhere.

    Might as well prepare for doom. har

    • Dennis Coyne says:

      Hi R Walter,

      The typical recovery from conventional fields is about 35% on average (oil guys can correct this if I am wrong) so if there were about 1500 Gb of conventional oil (2P reserves+ reserve growth + discoveries) we would expect about 4300 Gb of oil resources that get left in the ground. With great effort we might get the recovery rate for the World on average up to 40%, which would result in another 200 Gb, out of a URR of 2800 Gb so about a 7% increase in overall URR. This is an optimistic estimate in my view, I think recovery rates have been pushed about as high as they will go, the reserve growth I have assumed already includes such changes, adding any more is double counting.

      The 3% number you used only applies to LTO where recovery rates based on the Bakken/Three Forks estimates, for those resources a 5% recovery rate would be optimistic, some of the more optimistic projections of Bakken/Three Forks output suggest a 24 Gb URR with a recovery rate of 6%. OOIP for Bakken Three Forks is about 400 Gb. If you believe the recovery rate will be 6%, I have a nice bridge to sell you near Manhattan… 🙂

      • R Walter says:

        Seems as though a known quantity of oil fields and estimates of the known amounts in those oil fields around the world is necessary to make for a better than good guess to arrive at numbers that make good sense; what BP does in the long run for us all. However, it is better to overestimate and be far off the mark, everybody feels better. har

        I guess I tend to use hyperbole when estimating how much oil there is. It is a giant-sized earth out there in space. Wildly high exaggerated estimates make for something other than the same old same old. If I am off by a factor of 180, off by a country mile, then it is all wrong. And even if it is all wrong, the finite amount that can be pumped from the ground will one day be not enough. However, right now, there is too much oil; that’s not an exaggeration. I am using Donald Trump’s estimates of his total wealth as a guide. You know that is going to be far off of the mark. lol

        The irony, the agony and the ecstasy. The Glory that was Greece and the Grandeur that was Rome, the saga continues.

        It would be better to produce 94,000,000 barrels per day than to produce more than 95,100,000 bpd and consume 95,100,000. If you want a price increase, it is better to run short by 100,000 bpd. One million barrels short around the world would cause a spike in prices. Empty storage is going to cause a price increase. If there is less oil in storage, something is going to give.

        Better to have too much storage than not enough, just let it run dry, empty storage can be a money maker. Stop the pumps, deliver what is in storage, when the call comes, sorry, don’t got none. Texas could do it in a week, the market would make a sharp turn. Wouldn’t that make more sense?

        You should get your run of the mill garden variety price increase.

        95,100,000 barrels consumed each day is really too much. It can be decreased by not pumping as much oil.

        Oil consumption is at ludicrous speed and approaching plaid, if you really want to know.

        At the low price of 35 dollars per barrel, it is being burned even faster than at plaid speed. Bargain of the century and a dreaded slog to the end.

        Remove it from storage, don’t fill it up again and you’ll have a price increase.

        Jesse Livermore figured that one out when he was running nuts and bolts in Bastin. Gamed the system long before the system was gamed. Got a seat on the NYSE with two grand in his pocket. A one of those ‘how’d he do that?’ questions.

        Just rambling.

  17. The Baker Hughes International Rig Count is out. International oil rigs continue to fall. They fell 25 rigs in March. That is 257 rigs below March of last year and 361 rigs below their all time peak in July of 2014.

    That is oil rigs only and this count does not include USA, Canada, any of the FSU countries or inland China.

     photo International Rig Count_zpsq5uwenhs.jpg

    • George Kaplan says:

      Only one rig in Denmark, their O&G business isn’t looking great with the cancellation of Hejre project last week. They only produce about 100 kbpd now and it’s been falling at about 8% per year since peak, with another big drop in February (may be unplanned maintenance on HalfDan, their newest). On the gas side they might have to shut down Tyra which is over 50% of production soon because of reservoir subsidence. Might be a foretaste for other countries over the next few years; but they still have the best data site:

      http://www.ens.dk/sites/ens.dk/files/oil-gas/oil-gas-related-data/montlydata/mp20162ofu.htm

  18. Silicon Valley Observer says:

    As I see the rig count drop and then the inevitable production decline, it makes me wonder how much of the decline is due to economics and how much is due to geology. If I stop drilling because the field is tapped out, an increase in the price of oil is not going to make me start drilling again. (yes, I know, a very high price might make me try to squeeze out a few more barrels).

    Plus it has been only North America that has allowed world production to increase for the past five years or so. These numbers are for everybody else in the world who seem to be pumping as fast as they can. If they drop a rig my opinion is that it is more likely to be for geological reasons than economic. Time will tell — when prices go back up we will see if the rig count recovers.

    Ron, is there any indication as to which countries are dropping rigs fastest over the past year?

    • Oil rig change over the past one year:
      US+Canada -440 or 55%
      Egypt -10 or 35%
      Kuwait -9 or 21%
      Saudi – 13 or 16% (Saudi gas rigs up 16 or 33%)
      Argentina -37 or 38%
      Brazil -17 or 40%
      Colombia -28 or 90%
      Ecuador -13 or 81%
      Australia -7 or 78%
      Indonesia -18 or 64%

      Colombia, Ecuador and Indonesia are the big shockers here. They are down to 3, 3 and 10 oil rigs respectfully.

      • Stavros H says:

        The Baker Hughes rig count clearly indicates that an outright COLLAPSE in global oil production is about to occur in the coming 3-year period or so. The longer the oil price remains stuck so low, the greater and more prolonged this production collapse will be.

        It seems to me that current production (surely in the US) is largely maintained via previously drilled but uncompleted wells (this probably plays a large part in other regions as well) This large inventory of previously drilled wells is the result of the extremely high prices of 2011-14.

        I may be wrong, but my feeling is that the only way the world will not experience a massive shortage of oil by 2018/19 will be if Iran/Libya can get back to their previous highs in time.

        • Tom says:

          Stavros,

          You have support from Rystad Energy who predicts 100$ / barrel in 2020.
          In a conference in Oslo yesterday they said (some extracts from a Norwegian news article):
          “Last year we [the world] started production of similiar to 8 billion barrels. At the same time, we used 34 billions. That, I think, is a reason to become quite worried, says CEO in Rystad Energy, Jarand Rystad.
          – if the oil price continues to be 30$ /b, the production deficit will be around 10 mb/d in 2020, 8-9% of the world’s total oil demand.
          – in February, all oil companies lost money. High costs combined with the low oil price gives the lowest profitability ever.”

          ——

          It may be right that the decline rates of oil production may be low in average, but I doubt it will be linear. In case the decline will be higher, say 5% in one year, the world will struggle. I also think the oil price will be volatile, but gradually increasing and thus remove some of the poorest out of the oil market. Can the production of renewable energy be increased fast enough?

          • Jef says:

            Think of the so called “renewable energy” especially as it is applied to replacing FFs, as the same economic impact as $100+ oil.

            It solves nothing.

            • Dennis Coyne says:

              Hi Jef,

              An important difference is that economies of scale will decrease the cost of renewables as they ramp up in output.

              If the external costs of fossil fuels were included in their price, renewables would be cheaper in most cases. Higher energy prices will also lead to greater energy efficiency, which is the second best way to reduce the environmental impact of energy use. The lowest impact is accomplished by using no energy, but that is difficult to achieve.

          • TechGuy says:

            Tom Wrote:
            “You have support from Rystad Energy who predicts 100$ / barrel in 2020.”

            Yes, but by 2020, Drillers will probably need between $120 to $150 to develop new projects. I suspect that the costs to support drilling will remain above what consumers and business can afford, thus limiting new production. I think even when Oil prices do recover, Oil companies will be reluctant to start new projects because of too much price volatility, worries about the stability of the global economy, and perhaps credit and liquidity problems.

            My guess is that we probably will see price near $100 before 2019. I suspect the US federal reserve will resume QE well before 2020 that refloats commodities. The US is near or in recession its only a matter of time before it resumes QE. Once the US is back in the QE business, the rest of the industrial world will follow or expand their own QE programs. Odds also favor more turmoil in the Middle East that increases the “risk factor” in Oil prices.

            • Tom says:

              TechGuy

              I think projects will gradually be started with higher oil prices. There are many factors here. I bet most oil companies have a list of fields they want to develop with different break-evens. It must be difficult to decide when to start developing a field as it is complicated to predict the oil price, for 1, 5, 10, 20, 50 years ahead when needed eg. for complex field developments such as large challenging offshore projects.

              However, what I cannot understand is that oil companies are a “herd of sheep” and start developing fields at the same time and press the brake pedal all together at the same time. It is (partly) the reason for the huge volatility in oil price. The oil price volatility hurts the oil companies as labour and equipment get more expensive in times of high oil prices, and lots of competence is getting lost in times of low oil price. In the next cycle with high oil price it is a race to employ the best candidates again. It takes time to build a good working culture and as some class B personell is hired just to fill some positions, the projects will be developed slower, with lower quality, which in turn will drive the costs even higher… Sigh, so many examples of this.

              Why can’t any oil company be brave enough to invest in idle times, get the best people, low drill rig rates, low manufacturing prices etc? Then hopefully the field will be ready to produce when the oil prices are high again. It would decrease oil price volatility and probably increase the E&P Co. results.

              Is it due to lack of cash / too much debt? It surely should be possible for the (rich) oil companies to save some money in the good times. It is of course different strategies for an offshore field and a shale oil play, but I sometimes really wonder how smart the E&P co. strategies are.

              Sorry, I got carried away here.

              Some other factors for when drilling may start are expections to oil prices (analyses & psychology), political pressure etc. One factor we should not forget is that the costs for E&P has been reduced a lot the last year and a half. I may be wrong but it seems that some contracts on the NCS (eg Maintenance & Modifications) have been postponed and not awarded until the prices have come down to “acceptable” levels. But they were awarded eventually, even in these though times 🙂

              • George Kaplan says:

                A lot of risks were taken with light oil and gas in 2010 to 2014 and look what happened there.

                The decision process is asymmetric, bad decisions get punished, good decisions are difficult to identify and the person who made the right (or wrong) decision has probably moved on by the time the consequences are seen.

                Oil companies answer to shareholders and their focus is mostly three months ahead to the next quarterly report. If they lose too much money the CEO gets replaced, he doesn’t get hired back five years later because his decisions suddenly are shown to have been correct all along.

                They have internally approved, and usually secret, oil price predictions on which they make decisions. Usually these are lower than what actually happens, but last year probably not. They also run risked analyses at lower prices (sometimes higher as well but nobody takes much notice of these).

                The people that get to the positions to make the big money decisions in the majors are rarely risk takers these days, they are good at keeping their heads below the parapet, not getting bored, knowing the official company line and, most important, giving good powerpoint presentations. Once a budget is set, which will usually include a large contingency up to 50% extra, then the budget holder is expected to work within it, going back to ask for more can be a career killer. Therefore conservatism is the name of the game.

                • George Kaplan says:

                  I should have added – the predictive models used to set prices and to analyse a project’s finances are all very similar from company to company, therefore they all tend to make the same decisions at the same time. Projects are on 3 to 7 year cycles, department budgets are on 12 month cycles. They tend not to get changed once approved. Dead times in a feed back system (which is what oil supply/price/demand/project cost dynamics represent) always lead to instabilities.

              • TechGuy says:

                Tom Wrote:
                “I think projects will gradually be started with higher oil prices. There are many factors here. I bet most oil companies have a list of fields they want to develop with different break-evens.”

                The reason why I don’t think that will happen is because well before the oil price crash major oil companies began to cut CapEx and cancel expansion. For instance back in 2013, Exxon-Mobile and Shell both canceled over a $100 Billion in new projects. The second observation is that some of the oil majors choose to start buying up the smaller fish for reserve replacement. For instance Shell bought BG Group instead of investing in its arctic drilling projects. Third we see many Oil majors doing stock-buybacks beginning in 2013 before the Oil price collapse. (ie return capital to investors instead of investing in new projects). Bottom line: the world breached “Cheap” Peak Oil.

                Tom Asked:
                “Why can’t any oil company be brave enough to invest in idle times, get the best people, low drill rig rates, low manufacturing prices etc?”

                1. Most are public companies, and must present a short term budget and development plan that keeps investors happy.
                2. They seen the writing on the wall. The Global economy is drowning in debt and its unsustainable. The odds that the global economy can support expensive oil is close to zero.
                3. They are likely going save capital and buy the assets of Bankrupty Oil business for pennies on the dollar. Its much easier to just replace reserves that some else invested in and that you can buy below investment costs. If a failed Oil business invested $1B in a oil project and you can buy it for $100M, you likely going to make a boat load of money, with almost no risk, and very little capital investment.

                Tom Wrote:
                “However, what I cannot understand is that oil companies are a “herd of sheep” and start developing fields at the same time and press the brake pedal all together at the same time. ”

                Mostly because investors threw Billions at oil companies, especially the shale drillers. Now that investors too the punchbowl away, they have no way to continue business as usual.

  19. Watcher says:

    Concerning refinery gain.

    Viscous oil processed into less dense products creates a volume gain blah blah.

    LTO isn’t that viscous. Gain from it should be less?

    • AlexS says:

      “LTO isn’t that viscous. Gain from it should be less?”

      Exactly. During the years of LTO boom, despite some increase in refining volumes, refinery processing gains have remained generally stable

      U.S. refinery inputs and processing gains (mb/d)

  20. eugene says:

    Assumptions, opinions based on nothing but another opinion, predictions and guesses. Old saying “if wishes were fishes”. My “opinion” is nobody knows. Whichever guess is correct, that person will be considered some sort of genius.

    Personally, I break it down to groups. 1. Economy will grow forever. 2. Technology will improve forever and all will be happiness forever 3. Run for the hills, form small groups and hunker down 4. Ignore any factor ie debt, climate change, energy limitations that don’t fit the picture I like 5. Believe anything some agency says will happen. 6. Ignore limitations of any kind 7. Anyone more negative than me is a doomer and not worthy of attention

    My advice choose your agenda, defend it to your death and pray like hell to whatever god you believe in that your are right.

    • Oldfarmermac says:

      Eugene, you did ok except you forgot number eight.

      All of the above. 😉

      And a few more.

    • likbez says:

      My “opinion” is nobody knows.

      What do you mean “nobody knows” ? This is just silly. There is no black and white picture here. Reality is more nuanced. As Rumsfeld said:

      As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.

      For example “peak oil” belongs to “known known.”

      Earth ultimate carrying capacity for humans belong to the same category and depends on availability of cheap hydrocarbons.

      Climate change issues are known unknown,

      And so forth.

      • Bob Nickson says:

        Earth’s ultimate carrying capacity is known?

        What is it?

        • Well the exact number is not known, but it is known that it is a whole lot less than the current population of the earth today. Were that not so the earth’s ecological system would not be declining so drastically. That is rivers are drying up, inland seas and lakes are drying up, deserts are expanding, species are going extinct at a rate not seen in 65 million years, rain forest, dry forest and boreal forest are disappearing, ocean fisheries are disappearing, coral reefs are disappearing and I could go on forever.

          Just a guess but I would estimate the earth’s long term carrying capacity of human beings is somewhere in the neighborhood of one billion people. That is the carrying capacity without destroying the rest of the ecosystem.

          That of course has nothing to do with how many people could support for a couple of hundred years with the aid of massive amounts of fossil fuel while totally destroying the earth’s ecosystem.

          • Nick G says:

            it is known that it is a whole lot less than the current population of the earth today

            I’d be curious to see serious studies of that. The closest thing I’ve seen are analyses of “foot print”. If you remove fossil fuel from the analysis then human foot print is below the level of carrying capacity, not above.

            • Good grief, you cannot be serious!

              It is is the overshoot of the human population that is destroying the earth, not fossil fuel. If it were possible, and I am sure you think it is, for the earth to support 7.3 billion people without the aid of fossil fuel, then the destruction of the ecosystem would just continue right on, unabated. Deserts would keep expanding, forest would continue to be cut, fisheries would continue to disappear, rivers and lakes would continue to dry up and species would continue to go extinct.

              Really Nick, I am shocked that you think fossil fuel is the culprit. True fossil fuel did enable the population to explode. But it is too many people that is destroying the earth, not fossil fuel.

              There is no doubt that fossil fuels and petroleum products like fertilizer and pesticides are part of the problem. But if we were to depend on an earth without petroleum then the problem would just get worse. We would have to clear more land to produce food without chemical fertilizers and pesticides. More irrigation would be required so rivers and lakes would dry up even faster.

              As for studies, good god, there have been hundreds of them. Here is just one:
              Earth has lost half of its wildlife in the past 40 years, says WWF

              The number of wild animals on Earth has halved in the past 40 years, according to a new analysis. Creatures across land, rivers and the seas are being decimated as humans kill them for food in unsustainable numbers, while polluting or destroying their habitats, the research by scientists at WWF and the Zoological Society of London found.

              “If half the animals died in London zoo next week it would be front page news,” said Professor Ken Norris, ZSL’s director of science. “But that is happening in the great outdoors. This damage is not inevitable but a consequence of the way we choose to live.” He said nature, which provides food and clean water and air, was essential for human wellbeing.

              “We have lost one half of the animal population and knowing this is driven by human consumption, this is clearly a call to arms and we must act now,” said Mike Barratt, director of science and policy at WWF. He said more of the Earth must be protected from development and deforestation, while food and energy had to be produced sustainably.

              The steep decline of animal, fish and bird numbers was calculated by analysing 10,000 different populations, covering 3,000 species in total. This data was then, for the first time, used to create a representative “Living Planet Index” (LPI), reflecting the state of all 45,000 known vertebrates.

              Human consumption and destruction of habitat are the reasons species are going extinct, or at least 93% of the cause. Climate change is responsible for the other 7%.

              • Hickory says:

                I concur Ron. I read a report indicating that the combined mass of [Humans, their livestock and pets] comprises well over 95% of the total mass of all animal life on the land and in the the air. This analysis did not attempt to include the mass of ocean life or insects, since these numbers are not known with reliable accuracy.

                In essence, we have plowed and clear-cut every fertile inch from the edge of the driest desert to edge of the tundra, and then gathered all the productive capacity for our selves. And when we couldn’t afford to take the last inch, we developed a bizarre debt scheme to fund that too.

                Frank Zappa said something about putting a fork in it and flipping it over.

              • Nick G says:

                if we were to depend on an earth without petroleum then the problem would just get worse. We would have to clear more land to produce food without chemical fertilizers and pesticides.

                That assumes that we have to expand the production of bio-fuels. We don’t. We don’t need 90% of our current FF liquid fuel consumption, and the rest can be replaced with synthetic liquid fuel.

                It also assumes that we need FF to produce fertilizer and pesticides. We don’t. We can greatly reduce use of both, and the remainder can come from non-FF sources.

          • Bob Nickson says:

            I don’t fundamentally disagree with your viewpoint, but it is clear that the human carrying capacity is entirely dependent upon human practices.

            An industrial civilization of 7 billion humans all driving Hummers on Interstates while eating Big Macs would have a far different ecological impact than one of 7 billion industrial humans riding PV powered electric assist bikes on multi-use trails through suburban food forests and permaculture gardens, and utilizing electric rail for long distance travel.

            Personally I think one billion would be a nice number for a stable global population level, and I believe that all of the challenges of sustainability and quality of life we face would be much easier to address with a lower population.

            But I don’t think that the human carrying capacity of the Earth can be considered a known known. It simply isn’t.

            • Hickory says:

              Very true Bob. It all depends on how those people lived. For example, if they were all vegetarians who lived simply, the carrying capacity might be closer to 2 billion.
              Problem is, getting down that way ain’t going to be smooth.
              Its not a process I am eager to be swept up in. But we all will/are.

            • But I don’t think that the human carrying capacity of the Earth can be considered a known known. It simply isn’t.

              You’re nitpicking Bob. No one is claiming to know what the human population carrying capacity is down to the actual number. And it all depends on whether you think other species have a right not to go extinct. You may not be able to know what the human carrying capacity is but you sure as hell can know what it ain’t.

              And as for human behavior, humans will behave in the future as they have always behaved in the past. You may rail and rant about human nature being at fault but you sure as hell will never change it.

              • Bob Nickson says:

                humans will behave in the future as they have always behaved in the past.

                Quite true. Human nature dictates that the majority of us will conform to social norms, but social norms are subject to change, sometimes radically.

                I now use less than half of the fossil energy than I once did. My electricity is now 100% renewably sourced. Within ten years I hope to be 100% fossil fuel free at the personal level. For transportation, I hope to be fossil energy free by the end of the year.

                20 years ago, this would not have even been possible without severe reduction in my quality of life. My quality of life has not diminished in any way. In some ways, it has improved.

                I would not be particularly surprised if within 25 years, zero emissions are mandated for all new cars, and zero net energy and/or passive house standards are mandated for new homes in the U.S. Those things will occur much sooner at the state level, and in some other countries.

                And I don’t think I’m being nit picky. I agree that all evidence suggests that the current population level, with current human practices, is catastrophically unsustainable. That is completely different from saying the human carrying capacity of the Earth is known. It isn’t.

                What changes in human ecologic, economic, agronomic, and reproductive practices will occur this century is also not known, and those would determine the other.

                I’m not convinced that your statement: “We would have to clear more land to produce food without chemical fertilizers and pesticides. More irrigation would be required so rivers and lakes would dry up even faster.” is correct.

                It is demonstrated fact that organic/bio-dynamic agricultural methods can have higher yields per acre, and with lower water inputs than industrial ag. I.A. yields more per unit of labor, but that is entirely different, and it is possible the disparity of that metric could be narrowed in the future.

                Also, permaculture methods can reverse desertification.

                There is plenty to be pessimistic about, but to abandon all hope and fatalistically resign ourselves to catastrophic collapse accomplishes nothing, and would likely be self fulfilling prophecy.

                Meanwhile, I’m enjoying tending my own garden, and enjoying the delicious yield. A little less lawn and a lot more food each year. Progress, one little step and one little learning curve at a time.

                • TechGuy says:

                  Bob Wrote:
                  “I now use less than half of the fossil energy than I once did. My electricity is now 100% renewably sourced. Within ten years I hope to be 100% fossil fuel free at the personal level.”

                  My guess is that your still very heavily dependant on the infrastructure, food distribution as well as income from a very fossil fuel dependent economy. Unless your are self-sufficient, ie living on a farm, growing every calorie you and your family consume, then you’re fooling yourself that you aren’t depend on fossil fuels.

                  I also doubt your electricity is 100% from renewable. Most if not all Green electric providers are scams designed to pray on people believing every watt they use is from a renewable source. There is no separate grid for renewable power. The operators of distribution system (ie power lines) buy bulk power from plants that can meet their demand needs. At best a tiny amount of the bill you pay really originated from renewable power. Most of your bill goes to pay for natGas, Coal, Nuclear or whatever the Distribution operator used.

                  The only way your 100% renewable, if your power is renewable is if your off-grid and produce all your own power via renewable systems. Even then your not likely to be 100% since you still need batteries (not green or renewable) and will require a backup generator when there is excessive overcast and/or lack of wind.

                  • Bob Nickson says:

                    TechGuy wrote:

                    “My guess is that your [sic] still very heavily dependant [sic] on the infrastructure, food distribution as well as income from a very fossil fuel dependent economy.”

                    Yes, of course I am. I’m improving what I have direct control over first, but this includes purchasing decisions.

                    “I also doubt your electricity is 100% from renewable. […] There is no separate grid for renewable power.

                    Yes, of course there is no separate grid.

                    I pay a $0.02/kWh premium for green power, purchased in 100kWh chunks.

                    The utility states: Funds received from participating customers are used to purchase renewable energy from regional renewable energy facilities equal to the purchase.

                    You can call this a scam if you like, but if 100 MWh’s of renewable power is subscribed by customers, at least this amount is guaranteed to be purchased from renewable providers. If 100% of customers subscribed, 100% would have to be renewable produced.

                    At the very least, it sends a market signal.

                    Eventually I will install PV, and I will produce more than I use at a personal level.

                    The main point is that we now have options and opportunity that previously did not exist, and they will continue to expand in the future.

                    We have net zero houses and EV’s and we can power them with PV. Aside from any ideology, I just think that is fucking cool.

              • Nick G says:

                You may not be able to know what the human carrying capacity is but you sure as hell can know what it ain’t.

                No, you really don’t. Vegans living on 20% of the earth’s land area would be sustainable, even at 8 billion people.

                And as for human behavior, humans will behave in the future as they have always behaved in the past. You may rail and rant about human nature being at fault but you sure as hell will never change it.

                If so, then the ecosystem around us is doomed, whether the population is 10B or 1B. 1B humans can easily exterminate all the other species and turn the entire planet into a monoculture English garden. Or a desert.

                Population isn’t the problem, it’s our current approach to our ecosystem.

                Why do I make a point of that?

                Because population is a red herring. It’s both very, very slow to change, and it’s not the real problem.

                The real problem is cultural and economic resistance to change, which is a set of political and social problems.

                It’s time for us to tackle those problems, instead of putting our head in the sand and saying nothing can be done.

                • Hickory says:

                  Good points Nick. Its a good example of putting the best foot forward into a dire situation.
                  I hereby nominate you to the 1 billion club. May you prosper (and hopefully some Hummer jerk doesn’t steal your harvest and your daughters).

                • Nick, I crafted a long and detailed reply to your above comment. Then I said to myself, “Crap! Why the hell am I doing this? No, such a comment does not deserve a reply.

                  Your comment reflects the opinions of someone who is totally ignorant of the desperate state of the world and the human predicament. You actually seem to believe the problems with human nature can be fixed.

                  Your post was the last straw. I am outta here. I will no longer debate people who have no clue whatsoever as to what is going on in this world.

                  I am really glad I to be giving up this blog. I wish Dennis the best of luck with it.

                  • Hickory says:

                    Hey Ron. I sure hope you keep posting here. I very much appreciate your perspective. And I’m certainly not alone on that.

                  • Dennis Coyne says:

                    Thanks Ron.

                    I agree with Hickory that your perspective is important.

                    I disagree with Nick that population is not a problem, lower population will help, as will better policy.

                    Your contention that human nature will not change is correct, but society has certainly changed in my lifetime and I imagine change will continue.

                    Is it enough to guarantee a positive outcome (where positive means no sudden collapse of human population due to ecological disaster)? Certainly not.

                    As population peaks and declines (at whatever rate it occurs, it will not be smooth sailing IMO) environmental degradation will eventually be reduced.

                    With proper policy it could happen in 200 years (reducing population to 1 B). That would certainly be a step in the correct direction imo.

                  • Nick G says:

                    I disagree with Nick that population is not a problem

                    That’s not what I meant. I agree population is a serious problem, especially for developing countries.

                    It’s just not the most important thing for policy makers (or individuals) to focus on. Many countries have already reduced their fertility to desirable levels. Most countries are getting there. And population reduction is a slow process.

                    We can have much larger, much faster impacts by reducing FF consumption, improving wildlife habitat protection, reducing “criteria” pollution as well as GHGs, etc.

                    Population is a distraction. If we’re serious about it, we’ll be doing things to help developing countries (like educating women, and getting rid of kleptocracies in places like KSA), and we should be doing those things anyway.

                • Nick G says:

                  You actually seem to believe the problems with human nature can be fixed.

                  Actually, I admit that I do. You’ve known good people. I hope that you feel that you’re one of them. They (and you) are no different genetically from the rest of the population – just a bit luckier in their upbringing. Humans are genetically programmed to care for an extended family, and that family can extend to all of humanity, and all of life, for that matter.

                  But even that isn’t necessary to what I’m talking about – just enlightened self interest.

                  Look at China: they tackled their overpopulation problem. They didn’t “change human nature”. They just decided, on a national level, to fix their population problem. And they did.

                  • Look at China: they tackled their overpopulation problem. They didn’t “change human nature”. They just decided, on a national level, to fix their population problem. And they did.

                    I know I said I was out of here, but the above statement just blew me away. But it makes my case. Nick, you haven’t a clue as to what the overpopulation problem looks like. China is an overpopulation basket case.

                    All Dried Up

                    CHINA endures choking smog, mass destruction of habitats and food poisoned with heavy metals. But ask an environmentalist what is the country’s biggest problem, and the answer is always the same. “Water is the worst,” says Wang Tao, of the Carnegie-Tsinghua Centre in Beijing, “because of its scarcity, and because of its pollution.” “Water,” agrees Pan Jiahua, of the Chinese Academy of Social Sciences. “People can’t survive in a desert.” Wang Shucheng, a former water minister, once said: “To fight for every drop of water or die: that is the challenge facing China.”

                    China has not solved their overpopulation problems. China’s water tables are dropping by over three meters per year. The Yellow River only reaches the sea during a few months a year. They are choking on smog. They import more and more of their food every year as water scarcity causes their food production to drop every year.

                    China has not solved their population problem. It is still growing. And even if their population stopped growing today, their food problems would still increase every year because of their severe water problems.

                    China is massively overpopulated. They are a population basket case.

                    And the very idea that human nature can be changed is stupid beyond belief. The proof is that so very few people even understand the population problem. And some people still believe it can be fixed.

                    For the last time. I am fucking out of here. Bye now to all.

                  • Nick G says:

                    The point is: China has indeed taken massive action to reduce fertility. You suggest that nothing can be done to change social problems, and yet China has made massive social changes.

                    And, of course, you illustrate why population is a red herring: China has done everything humanly possible to fix it’s population problems (short of having no children at all and killing half of those living), and yet it still has all of it’s other problems.

                    China’s water problems, like water problems in other countries, are eminently fixable. They start, as in other countries, with not wasting enormous amounts of water in agriculture. That’s not a population problem, it’s an economics and social problem.

                  • You suggest that nothing can be done to change social problems,…

                    Bullshit! I said human nature cannot be changed. But just as I suspected you don’t know the difference between human nature and social problems. Indeed, if you think human nature can be changed then you have no idea what it is.

                    And to think that China is even close to solving its population problems shows a naiveté that is beyond the pale. Or water problems either for that matter.

                    China’s water problems, like water problems in other countries, are eminently fixable. They start, as in other countries, with not wasting enormous amounts of water in agriculture.

                    If China stopped “wasting” water on agriculture they would fucking starve! Even with their massive irrigation they still have to import huge amounts of food to feed their massive population. Jesus you amaze me Nick.

                  • SatansBestFriend says:

                    I can’t reply to Ron’s post directly. As the reply link doesn’t show up.

                    Ron, don’t stop posting.

                    I think Dennis is gonna do a good job. I think he brings a fresh perspective and impressive analytical skills.

                    And no intelligent person should care what I think.

                    I think your posts are legendary. Had a big influence on my thinking.

                  • Caelan MacIntyre says:

                    “You actually seem to believe the problems with human nature can be fixed.” ~ Ron Patterson

                    “Actually, I admit that I do. You’ve known good people. I hope that you feel that you’re one of them. They (and you) are no different genetically from the rest of the population… Humans are genetically programmed to care for an extended family, and that family can extend to all of humanity, and all of life, for that matter.” ~ Nick G

                    Then say (and believe and do), ‘pure democracy/equality’, Nick– assuming your own human nature can bring yourself to– or maybe you don’t actually believe or understand what you just wrote.

                    Otherwise, as Ron suggests, it won’t work– in ‘Prison China’, or anywhere else.

                  • Nick G says:

                    I said human nature cannot be changed. But just as I suspected you don’t know the difference between human nature and social problems. Indeed, if you think human nature can be changed then you have no idea what it is.

                    What the heck are you talking about? I’m primarily talking about the ability of large numbers of people to solve large problems. If you want to go off on a tangent about the development of empathy for widening circles of humanity and life, we can talk about that as well, though I suspect it’s irrelevant to the primary conversation here, and will just drive us all crazy. Basically, I have no idea what you’re talking about when you say “changing human nature”. Altering DNA?

                    And to think that China is even close to solving its population problems shows a naiveté that is beyond the pale.

                    China has dramatically reduced it’s fertility rate. That’s what “fixing population” looks like, and in the medium long run it wil reduce population dramatically. That’s all that can be done, short of lining up half the population and executing them. They’ve proved that a very large country can take decisive action to change fundamental human behavior. What’s a more fundamental human behavior, especially to someone oriented towards evolutionary psychology, than fertility?

                    If China stopped “wasting” water on agriculture they would fucking starve!

                    Nah. First of all, they waste enormous amounts of water irrigating rice and expanding meat production, when they could produce foods that use much less water. 2nd, there’s nothing wrong with importing food from places that naturally have more water. Finally, just like almost all other countries with water problems (including regions in the news lately with water problems, like Brazil and California), the practice of not charging consumers (including farmers) something (anything) for water means that there is enormous waste in every phase of water consumption: industrial, commercial, agricultural and residential.

                    It’s an old, basic thing: how do you create a shortage in something? Make it free.

                  • What the heck are you talking about? I’m primarily talking about the ability of large numbers of people to solve large problems.

                    I said human nature! If you don’t know what that is then you should look it up. Have you never heard of Google?

                    Human Nature

                    Human nature refers to the distinguishing characteristics—including ways of thinking, feeling and acting—which humans tend to have naturally, independently of the influence of culture.

                    Damn. I thought everyone knew what human nature meant. Guess not.

                  • Caelan MacIntyre says:

                    “It’s an old, basic thing: how do you create a shortage in something? Make it free.” ~ Nick G

                    ‘It’s an old basic thing: How do you waste/trash something? Steal it.’

                    “Consequently, resources that have traditionally been managed communally by local organizations have been enclosed or privatized. Ostensibly, this serves to ‘protect’ such resources, but it ignores the pre-existing management, often appropriating resources and alienating indigenous (and frequently poor) populations. In effect, private or state use may result in worse outcomes than the previous management of commons.”
                    ~ Wikipedia, entry on the Tragedy of the Commons

                    “The Eden that Europeans described when they reached North America was not a wilderness, but a well-managed resource, a complex combination of nature and culture, ecology and economy, a system so subtle and effective that it eluded the settlers who saw only natural wealth free for the taking. The result of this land grab in North America is that only 2% of the land is now wild, its major rivers are polluted, its lakes have caught fire, and its forests are dying from the top down. The tragedy of this commons was that it never really was a commons after colonization, but was surrendered to plunder, privatization, and exploitation in the name of Manifest Destiny and progress.”
                    ~ Intelligent Agent.com

                    “The process of enclosure has sometimes been accompanied by force, resistance, and bloodshed, and remains among the most controversial areas of agricultural and economic history in England… historians argue that rich landowners used their control of state processes to appropriate public land for their private benefit. This created a landless working class that provided the labour required in the new industries developing in the north of England…”
                    ~ Wikipedia

                    Neofeudalism… signifies the end of shared citizenship… As such, the commodification of policing and security operates to cement (sometimes literally) and exacerbate social and spatial inequalities generated elsewhere; serving to project, anticipate and bring forth a… ‘neo-feudal’ world of private orders in which social cohesion and common citizenship have collapsed… Out of such a marriage of business and government, a symbiosis emerges between the commercial sector’s own private security forces and the local government’s police forces, with repressive outcomes shaped by profit-driven definitions of deviance and a commodification of social control…”
                    ~ Wikipedia

                  • Nick G says:

                    Human nature refers to the distinguishing characteristics…humans tend to have naturally, independently of the influence of culture.

                    Oh, ok, you mean our genetic inheritance. Well, ok, I agree we’re not likely to change that anytime soon.

                    How is that relevant to the discussion? You seem to assume that all of the short sighted things humans are doing are caused by our genetics. Again, look at the example of China, reducing fertility dramatically. You might thing that child-bearing was directly determined by genetics. Obviously, it’s not.

                  • Nick, I was talking about human nature. Human nature is responsible for the population explosion.

                    China’s population problem cannot be fixed. It cannot be fixed because is is already into deep overshoot, about three or four times what the land can support without drawing down on the countries natural resources, like water, land and everything else required to produce food.

                    In China Air Pollution Causes 4,400 Deaths In China Every Single Day

                    That’s every day Nick. 4,400 deaths every fucking day! And you think China’s population problem has been solved? Good God man, what planet do you live on?

                  • Nick G says:

                    Human nature is responsible for the population explosion.

                    Then we’ve proved that human nature can be changed, because the high fertility that caused the population explosion has been dramatically reduced in most of the world. China is the poster child.

                    is already into deep overshoot, about three or four times what the land can support without drawing down on the countries natural resources, like water, land and everything else required to produce food.

                    You’ve produced no proof of that. It has water scarcity. Could it get along with it’s reduced water supplies by changing the way it handles water supply and consumption? Absolutely.

                    China has struggled for years to control its air pollution problems, which are primarily caused by the burning of coal in factories and power plants, as well as vehicle use.

                    So? It needs to get rid of coal and oil-powered vehicles. We already knew that.

                  • Could it (China) get along with it’s reduced water supplies by changing the way it handles water supply and consumption? Absolutely.

                    Rolling in the floor laughing my ass off. Nick, your stupid ideology is so far removed from reality it is hilarious.

                    Northern China is desperately short of water. The Yellow River only reaches the sea during the rainy season because they use the water for irrigation. The water tables in the area are dropping by 10 feet per year. But if they just changed the way they handled this water they could fix this problem. The Yellow River would flow to the sea year around and the water tables would start to rise.

                    Somebody please, fly Nick to China so he can tell these stupid Chinese how to fix their water problems.

                  • Nick G says:

                    No need, they already know.

                    “In order to produce one unit of GDP, China uses seven to fifteen times more water than OECD countries. Water prices in China do not reflect the reality of supply and demand. China’s average water price is 70% to 80% below water prices in countries with no water shortage.

                    http://www.ichinaforum.com/interviews/solutions-chinas-water-crisis

                  • Caelan MacIntyre says:

                    “China uses seven to fifteen times more water than OECD countries. Water prices in China do not reflect the reality of supply and demand.” ~ Nick G

                    Nick G, your comment sort of indirectly supports Ron’s contention.

                    Human problems are multifold and systemic, and there are different ways to solve the same ones, with some ways not necessarily being the best, nor should their ‘successes’ necessarily be used to suggest that, either…
                    For example, there’s the idea of prevention before the fact…

                    “Governments… are reactive not proactive. And essentially it means that whatever they do, they’re… extrapolating past trends forward and not anticipating trend changes.So that’s like driving your car, flooring it, while looking only looking in the rear view mirror. It’s practically a guarantee of a really nasty accident. Plus the people who are in power tend to have the most invested in the status-quo. They tend to have benefitted greatly from that. These are not the people you are going to look to to change that kind of system… I don’t expect anything good from the top down…” ~ Nicole Foss

                    China may have reduced its fertility rate, but so what. It’s still a whopping population still popping out people and still apparently hurling toward Westernization with all its trappings, and there’re still countless other current and future problems left.

                  • TechGuy says:

                    Fertility rate is meaningless. It would not matter if humans stopped immediately having any children at this point (Zero new children as of today) The World is already in deep overshoot, as the remaining resources are being consumed at an alarming rate. We are also destroying the environment (ie water/land/air pollution).
                    To top it off, The existing population is transforming from impoversed rural agricultural life, to western lifestyles (Moving to cities, buying cars, smartphones, eating more, eating more fish, meat). Everyone wants to live the Western livestyle. You can’t put that genie back in the bottle! Once people have been exposed to a better life, they never want to go back to destitute poverty.

                    Part of the explosive growth in Asia was caused by the Western outsourcing and moving production to Asia. Capital, resources from western nations poured into Asia, lighting the bond fire on Asian Consumerism. Today China and india each have about the same size middle class as the US does (between 100M and 150M people). All these new Middle classers are buying cars, flying on planes, generally consuming considerable more resources.

                    Of course declining Oil and Gas is going to put an end to the party. Then comes the pain: Financial crisis, war, famine, and panademics. Since humans are incapable of managing themselves appropriately, nature will sort it all out instead.

                  • Nick G says:

                    The World is already in deep overshoot, as the remaining resources are being consumed at an alarming rate.

                    Well, sure, if we keep relying on fossil fuels. Which is a bad idea.

                    Of course declining Oil and Gas is going to put an end to the party.

                    Well, it’s an end to the party for investors and employees in the oil, gas and coal world. It will be an improvement for everyone else.

                    Fossil fuels are expensive, polluting and risky. They were a pretty good idea 100 years ago, but now…we’ll be far better off without them.

                  • TechGuy says:

                    Nick Wrote:
                    “Well, it’s an end to the party for investors and employees in the oil, gas and coal world. It will be an improvement for everyone else.”

                    LOL! Sure, what ever you tell yourself so you can sleep at night.

                  • Nick G says:

                    what ever you tell yourself so you can sleep at night.

                    I lost sleep back in the 1970’s when I first read the Club of Rome LTG report…but I’ve learned stuff since then.

                  • Survivalist says:

                    A good dose of hunger will be fixing the population problem really soon. It’s already well underway. That’s how the system works. Always has. Always will. If Nick wants to hang out with the masses and ‘change people’ I wish him luck. I might ask him ‘to what end?’ though. I’m heading to the hills. Disassembling the bridges that lead up to where I’ll be will result in a boat access only area. There’s a few small towns and villages around. Lots of cottage country that’ll be abandoned by the weekenders from the city. The lack of bridges will take care of that. I’ll spend my days fishing until I too succumb to famine.

                  • Nick G says:

                    A good dose of hunger will be fixing the population problem really soon. It’s already well underway.

                    It’s hard to tell. Around the world, we’re eating too much food: three times as many people are dying from obesity as are dying from hunger.

  21. daniel says:

    Am i just too dumb or does this article make no sense at all? http://oilprice.com/Energy/Crude-Oil/Shocking-Photo-Nearly-30-Oil-Tankers-in-Traffic-Jam-Off-Iraqi-Coast.html

    If everybody is overproducing why tie up your tankers like this. I could understand this jam in an offloadingpoint, but not at a loading point

    • aws. says:

      Contango

    • Heinrich Leopold says:

      Daniel,

      Looks like China is importing a lot of oil as there is also a traffic jam in Qingdao, China.

      http://oilpro.com/links/detail/30965/photo-nearly-30-oil-tankers-traffic-jam-off-iraqi-coast

      This is very good news for the Chinese and World economy.

      • Daniel says:

        Indeed good news and a tanker jam which I can understand 😀

      • AlexS says:

        China has recently allowed imports of crude oil by small independent “teapot” refineries. So tanker jams do not necessarily mean an increase in final demand.

        From Reuters:

        China teapot refiner oil buying spree creates tanker jam at Qingdao

        Thu Apr 7, 2016
        http://www.reuters.com/article/us-china-oil-tanker-traffic-idUSKCN0X419L

        A surge in oil buying by China’s newest crude importers has created delays of up to a month for vessels to offload cargoes at Qingdao port, imposing costly fees and complicating efforts to sell to the world’s hottest new buyers.
        China’s independent refiners, freed of government constraints after securing permission to import just last year, have gorged on plentiful low-cost crude in 2016. This has created delays for tankers that have quadrupled to between 20 to 30 days at Qingdao port in Shandong province, the key import hub for the plants, known as teapots, according to port agents and ship-tracking data.

    • This could happen simply because a loading buoy manifold or pipeline popped a leak, and they didn’t have the equipment ready to do a quick repair. Iraq has been increasing export volumes. What could have been a minor issue two years ago could be a big problem at this time.

      • Daniel says:

        Thanks guys for the answers – I love this page, somebody is always there with some great insights. Maybe I am naive now, but why wait for weeks to be able to load if you are in the gulf anyway. Why don’t you divert (Iran springs to mind for instance)

  22. Rune Likvern says:

    Several of the chosen 14 big producers in this post are in general decline. The high oil price in recent years slowed and temporarily reversed some of these declines.

    As Ron shows 4 producers, lead by the US, provided most of the growth in recent years while oil prices averaged around $100/b (average of 2010 – 2014).
    US has been and will be in decline for some time. EIA projects a decline from 9.43 Mb/d in 2015 to 8.19 Mb/d in 2017.
    It would very much help the scenario (flat global production to 2025) in this post appear probable if the countries and what major developments and their status that will provide the growth (and their growth profile) towards 2025 was presented.

    The only way to get close to a good estimate about the production going forward will be through a detailed bottom up analysis (country by country) that includes the reserves both sanctioned and likely to be sanctioned for development.

    • Dennis Coyne says:

      Hi Rune,

      Is there a list of sanctioned developments for the entire World?

      I don’t have access to private databases that would have that information.

      The IEA forecasts flat output for non-OPEC in 2016 in the March Oil Outlook.

      https://www.iea.org/oilmarketreport/omrpublic/currentreport/#Supply

      In the IEA 2015 Medium Term oil market report, non-OPEC C+C+NGL was expected to increase by 2.3 Mb/d from 2016 to 2020.

      • Rune Likvern says:

        If you look for such a list, likely Wood Mackenzie, Rystad Energy or others have such available for a subscription.

        The other approach (which is as good) is to go to public, (oil) companies [annual reports are an excellent source], industry operated websites for information about developments and estimates on reserves and nameplate capacities for their developments. Public sites, like DECC, NEB, NPD have forecasts for the next few years.

        IEA in their Medium Term Outlook for 2016 sees a build in Non OPEC all liquids output from 57.1 Mb/d in 2016 to 58.9 Mb/d in 2020, that is 1.8 Mb/d.
        In other words IEA has revised down their expected growth since their 2015 Medium Term Oil Market Report.

        I will not be surprised if there comes more revisions to the downside of the forecasts in the near future.

        I believe the decline in US output, led by tight oil, will take most by surprise (we are not there yet). Then add deferrals and scrapping of developments and fields that have had their economic life shortened due to the lasting, low oil price and that will be shut in, plugged and abandoned.

        A more up to date take on the situation,
        http://www.bloomberg.com/news/articles/2016-03-22/drillers-can-t-replace-lost-output-as-100-oil-inheritance-spent

        • Dennis Coyne says:

          Hi Rune,

          There are a lot of oil companies in the World and many do not report publicly (some of the NOCs). My understanding is that subscriptions to the private databases are very expensive. The Norwegian Petroleum Directorate (NPD) does an excellent job giving specific information on sanctioned projects. Most other government agencies don’t do as good a job.

          You are correct that the IEA has revised its Medium Term outlook to an 1800 kb/d increase in World supply from 2016 to 2021 and this might be revised downward in the future, perhaps to zero or even negative as in the scenarios I have presented.

          A well by well bottom up forecast would be nice. Hopefully someone will do that soon 🙂

          • Dennis Coyne says:

            Hi Rune,

            I misread your comment, you said the 2016 IEA medium term forecast for non-OPEC would increase by 1.8 Mb/d for all liquids. The presentation I watched suggested 4 Mb/d increase in liquids supply and about a 1.5 Mb/d increase in OPEC output, they also expect about a 400 kb/d increase in biofuels, so if this is ignored we would have a 3.6 Mb/d increase of C+C+NGL output from 2016 to 2021. They didn’t break out NGL so I don’t know the C+C increase.

  23. aws. says:

    Beyond the Shale: Aboard the Price Rollercoaster

    Carbon Tracker Intiative, April 2016

    The flaws in the business models of some of the largest US shale producers are becoming clear. Growing levels of debt are unsustainable, and there is a risk that investors could face a bumpy ride as sector equity finance surges in 2016.

    Plunging hedging revenues, coupled with high net debt and falling output, have punished struggling US shale oil and gas companies, with stragglers more likely to default on debt under a longer period of low oil prices.

    Despite the recent oil price collapse, the analysis shows that equity investors appear to be throwing caution to the wind, piling back into the sector with some $8.9 billion of equity issued already in the first quarter of this year – a more than 10-fold increase on the final three months of 2015, and the highest quarterly level since 2011 at least.

  24. John S says:

    The article linked below is interesting for those interested in oil and gas lease practices but the article is not exactly disclosing any revolutionary thinking. Mineral owners have been very creative and successful in negotiating OGLs with industry for the last 100 years or so to get larger shares of the revenue.

    But from my experience, Sellers don’t set prices. Buyers set prices.

    I think the train has left the station…..

    Read more: Oil-rich Texas university seeks to unlock more wealth from shale acres – MRT.com: Top Stories http://www.mrt.com/business/oil/top_stories/article_4f36277c-fc2f-11e5-ba32-cb945b368997.html#ixzz45D0vGUjf
    Under Creative Commons License:

    • Reno Hightower says:

      Great find John. They are going to price themselves out of the market. I’ve seen it way too many times before

  25. Enno Peters says:

    The following graph shows the average 2 year oil return per quarter in which the wells started.
    It includes all the horizontal shale wells from the US analysis I just posted. These 8 counties have produced the most shale oil, in total 63% of the total from this set of 30.000 wells.

    What this nicely shows in my opinion is that the huge returns from the early wells in Mountrail (ND) & De Witt (TX) appears so far not to be replicated elsewhere.

    • Rune Likvern says:

      Enno, thanks for sharing.
      That chart is awesome!
      I wonder what caused the 2013 uptick in Mountrail.

      • Enno Peters says:

        Rune,

        These are the 4 biggest fields/pools in Mountrail, and the graph shows the 18 month oil return (just to have a bit more data vs the 24 month). So it looks like 57 wells in the Parshall had a very good output. After this, the wells in Parshall have deteriorated, at least so far.

    • Dennis Coyne says:

      Hi Enno,

      Those early well from DeWitt(2010-12) and Mountrail(2007-2008) are fairly low in number, probably less than 2000 wells total, is that correct?

      • Enno Peters says:

        Hi Dennis,

        If you go to my site, and look at the “Total oil production” tab, and then select the grouping “County”, you can see the total production (of horizontal wells) over time for each county. By hovering your mouse over the graph, you can get the information you’re looking for.

        E.g. Mountrail has 219 hor. wells by Dec 2008, and De Witt has 190 hor. wells by Dec 2012.

        • Dennis Coyne says:

          Hi Enno,

          Thanks. So those early Mountrail wells up to 2010 (first flow) total 674 wells.

          The Dewitt wells total 190 with first flow from 2010 to 2013, so only about 900 of these “monster wells” and the really big ones from Dewitt there are only 190 of the 18,000 total well in your first chart above or 1%. The Mountrail wells from 2008 to 2010 for first flow) are more significant in number at about 3.6% of the wells in that 18,900 group and 2.2% of all wells in your database.

          These are the wells they use for those investor presentations to develop the well profile for the “typical well”. 🙂 Thus the investor should consider wells in the 97th percentile as typical. 🙂

          Interesting stuff thanks.

  26. R Walter says:

    http://www.bnsf.com/about-bnsf/financial-information/weekly-carload-reports/pdf/20160402.pdf

    Week 13 BNSF reports 7,233 rail cars of petroleum.

    Week 13 of 2015 had 10,174 petroleum cars.

    Coal hauled by the BNSF was down more than 20,000 rail cars compared to 2015.

    • Heinrich Leopold says:

      R Walter,

      Total carloads are down -21% from last year – including – 54% for metallic ores and -44% for coal.

      I wonder how this compares to a booming US economy facing escape velocity in dire need of interest increases.

  27. Yetanother Mike says:

    What they’re telling hipsters in Houston about the Awl Bidness:

    http://www.houstonpress.com/news/things-are-bad-for-the-oil-industry-and-theyre-going-to-get-worse-8292034

    Plus Willie D’s advice column for you Geto Boys fans….

    • clueless says:

      Not your fault Yetanother – but, I cannot stand news articles.

      “This time around, when the shale-driven U.S. oil renaissance reached its height, capital expenditures clocked in at more than $240 billion. And while the oil bust of the 1980s was stretched out over a five-year decline, the current bust has taken place only over the past year and a half.

      However, the capital expenditures have already been slashed by $97 billion. That’s only a 59 percent cut,”

      So, the math does not work. 97/240 = 40.4%. So, I assume that the expenditures have been slashed “TO” $97 [NOT “BY”]. So the decrease is $143 billion to $97 billion, which is 59%. Who in the hell knows what the writer meant? I can only guess.

  28. Rune Likvern says:

    My recent analysis on LTO in Bakken……..it has primarily been and will be about the financials
    http://fractionalflow.com/2016/04/06/the-bakken-lto-extraction-in-retrospect-and-a-forecast-of-near-future-developments/

  29. Heinrich Leopold says:

    There is an interesting article by Art Berman about natural gas containing important charts.

    http://www.artberman.com/natural-gas-prices-should-double/

    It looks like the natgas market becomes very volatile this year.

    • Longtimber says:

      A typo on the graph Comparison of NG Storage Levels?
      Perhaps the Bottom Green line 2013 should be 2014..

    • Toolpush says:

      Heinrich,

      Art’s price predictions should be interesting to watch. He has the price of gas going up in a straight line between now and early next year. Going from today’s around $2, to over $4 by Jan 2017.
      If his predictions are correct, it will be worthwhile watching the quantity of gas consumed by the power industry. At $3 mcf, I believe they will be using a lot less gas, than at sub $2 mcf. At $4 mcf coal plants will be looking like the second coming and LNG exports plants may be as active as the LNG plants have been for the last 3 or 4 years!

      • Heinrich Leopold says:

        Toolpush,

        In my experience as investor from other investments, markets dry out slowly and the price bottoms out over a quite long time forming a bowl. These are the classical signs that the market has painted itself into a corner.

        Notwithstanding, the price breaks out after a long period like we had in the natgas market and shoot out when nobody expects it. I continue to think that the natgas market is a fantastic opportunity and prices will break out to unbelievable heights. The doubling of natgas prices is in my opinion an understatement. At some point any market has to face reality.

        There is too much hype in this market not matched by fundamentals (think at Enron). At this time it was impossible to argue with all the experts talking about a new economy. For successful investors it is necessary to sit out all the self styled experts and strike when the time has come.

        What most people do not understand in the oil and gas market is that there is a time lag between drilling and actual production. The current high production at low drilling rates is just misinterpreted as more efficient drilling. Drilling rates are currently at all time lows accounting for the time lag.

    • Silicon Valley Observer says:

      How low can you go can you get?

      Also, I don’t get Dennis’ contention that only an outside event such as a world war can create a seneca cliff. Of course, a definition of what comprises a seneca cliff would be useful. Let’s get away from that and just talk about what rate of decline in oil production would be sufficient to throw the world into a tizzy. I think something as low as 3% annually would be enough. After a few years at that rate we would be in a bad situation. Doesn’t require a huge drop. And with rig counts declining as fast as they are, I could imagine such a drop. And furthermore, I don’t see the rigs coming back as quickly as they are being dropped even if prices do recover to the $100 level.

      I believe we have entered the end game.

      • Oldfarmermac says:

        I can’t see any compelling that drilling wouldn’t pick up quickly again if oil went back to a hundred bucks and supplies got chancy with inventories declining fast.

        The biggest two problems would be the hands on guys retiring, but enough money will entice them to work again, if not actually pulling levers and turning wrenches, then standing over trainees, one on one if necessary. The other thing would be the money. In a real pinch, governments will provide emergency financing or loan guarantees to drillers and steam roller some environmental regs.

        But I do think peak oil is either here now, or will be here within the next two or three years.

        It might take a while for exploratory drilling to pick up again, I am thinking about new wells in producing fields and fields already explored but not yet well developed.

        • Silicon Valley Observer says:

          Drilling will increase at higher prices, no argument there. But I don’t see rig counts going up as fast as they are now coming down. Two reasons:

          1. Geology – drillers need prospects and as more and more fields go dry they aren’t going to drill them again. It took $100 oil to get Bakken going, I think it will take even more than that as sweet spots are tapped out. And once oil gets to that level, the economy will push demand back down.

          2. Finances – It’s hard for me to imagine money flowing back into drilling the way it did in the past few years. Wall Street follows fads and the tight oil fad has run its course. There will still be money for selected investments, but the terms will be tougher, the scrutiny will be greater, and the opportunities fewer.

          • likbez says:

            Silicon Valley Observer,

            There will still be money for selected investments, but the terms will be tougher, the scrutiny will be greater, and the opportunities fewer.

            Exactly. “Carpet drilling” can’t return without return of “loan abundance” regime. And the latter is gone for good. The trend in production is not their friend anymore. As Arthur Berman said “EIA forecasts that [natural] gas prices will increase to $3.31 by the end of 2017 but that is overly conservative because it assumes an immediate and improbable return to production growth once the supply deficit and higher prices are established.

            The same thinking is applicable to subprime oil.

          • Watcher says:

            If a government must have oil and the price won’t allow it to be produced at a profit, it will still flow.

            In a world where the rationale behind money has been destroyed, money won’t be allowed to determine if the citizenry eat.

            • Oldfarmermac says:

              Hi Watcher,
              While I don’t often agree with you, I flat out agree in this case.
              IF a country has oil within its borders, and oil is in very short supply, the money necessary to make it flow WILL BE MADE AVAILABLE.

              A hell of a lot of people in this forum seem to forget that national governments have ENORMOUS powers that can and will be brought to bear in the event of really serious threats to their economies.

              We can play all the word games we want. We can say the oil is produced via subsidy if that pleases some folks.

              It matters not a hoot to the producers if they get part of the money from their customers and the rest from their government, either directly, or via having taxes lowered, etc.

              They will operate at a profit, and produce oil, OR ELSE they will operate as nationalized assets, with the men on the job in uniforms, watched over my military police if necessary.

              As long as oil is ESSENTIAL, and it CAN be produced, it WILL be produced, one way or another.

              If there is no oil within the borders of a country capable of supporting the invasion of a country that does have oil, then such an invasion is a foregone conclusion.

              There might be some substantial delays involved in getting production up again, if it falls off sharply and suddenly, catching the bureaucrats by surprise.

              At some point it might be impossible for even a powerful central government to force oil out of the ground, but that point is still a long time off.

              In that case, folks who know how to train cows to pull plows will be in great demand.Cows are plentiful compared to horses, lol.

              Anybody fortunate enough to own such a cow will bring her inside every night, and stand gaurd over her with a gun every day, to keep starving city slicker refugees from eating her on the spot.

              Such scenarios will not come to pass in our neck of the world woods,at least not anytime soon, barring extraordinarily bad luck, such as a flat out WWIII.

          • Heinrich Leopold says:

            Silicon Valley Observer,

            Russia and Saudi Arabia gave signals that they want to have a price of no more than USD 45 per barrel as this prevents high cost oil to gain market share for some time.

            Thus, Saudi Arabia prefers to export 10 mill bbl/d at USD 45 per barrel rather than 5 mill bbl/d at USD 90 per barrel. Saudi Arabia has still 2 mill bbl/d as reserve capacity, which will take some time to come to the market, yet I think the Saudis are ready to use this. USD 45 per barrel is a comfortable price for Saudi Arabia and Russia.

            As a conclusion, it could take – depending on the Saudis – a long time until prices can go up again, which is clearly a disadvantage for shale. It is now up to the shale production to reduce capacity and bring prices up again.

            • likbez says:

              Russia and Saudi Arabia gave signals that they want to have a price of no more than USD 45 per barrel as this prevents high cost oil to gain market share for some time.

              Looks like this is what the West wants Russia to want, not what Russia wants :-). I think in reality Russia wants $80 or higher, but with capex reduced most Russian oil companies for some short period might be content with $50-$60 range. See interview of the President of the Union of oil and gas Industrialists of Russia Gennady Shmal (http://peakoilbarrel.com/open-thread-petroleum-oil-natural-gas/#comment-565010 ):

              A: If we are talking about a fair price of oil globally, I believe this is $80 per barrel. Keep in mind that a significant part of oil – about a third – is produced offshore, where the cost can be high. And there is a deep-water shelf, for example, in Brazil, where one of the first well cost more than $300 million. Subsequent wells would of course cost less, around the half the price, but still very expensive. Therefore, the capex of this oil extraction is high enough. The breakeven price of our oil production without taxes is around $10 per barrel, nationally. But when we include taxes, we get around $30 per barrel. But this cost is not no tragedy for us. I remember a time when a barrel of oil was less than $10. Then we dreamed about the price rising to $20.

              When the three-year average cost of oil was above $100 per barrel, we got too used to it. But the high price has one big drawback – it can negatively affect demand and stimulates production. And that’s what basically happened.

              Therefore, now our oil companies might be now content with the price around $50-60 per barrel.

              And I think in general, globally it would be OK price for both producers and consumers. Even for the United States that would be an acceptable price. Canadians with their oil sands would need a higher price – up to $80. But as the Canadian oil going to the United States, anyway, losses can be compensated with the domestic shale production and they would have to come to a common denominator.

      • Dennis Coyne says:

        Hi Silicon Valley Observer,

        I agree 3% decline would be a problem, 1-2% annual decline the World might be able to adjust to. I have never seen any definition of a Seneca cliff, but the charts I have seen suggest an annual decline rate of more than 5%, similar to what the World experienced from 1979 to 1984, but continuing for a longer period such as a decade or more.

        I do not understand the Seneca Cliff scenario. World extraction rates from producing reserves have been on an increasing trend since 1994. For a Seneca cliff scenario to occur, not only does this trend of increasing extraction rates need to stop (all of my scenarios assume a gradual reduction in this trend to zero and some scenarios have a gradual decrease in the extraction rate after 2020), it needs to reverse sharply and fall to extraction rates that are lower than in 1950.

        Now the story seems to be that the rapid oil output decline causes economic output to collapse. My argument is that we need some explanation for why extraction rates will change course. An economic collapse would do it, but then we need to explain why an economic collapse would occur and importantly we cannot use a fall in extraction rates as our cause for economic collapse.

        We could suggest debt would be the cause, or poor central bank policies, or an aging population, or damage to the environment, there are many possibilities. I will readily admit that any of these things are possible, I just don’t think they are highly likely in the next 5 years, after the peak becomes clear and high oil prices fail to increase oil output (I expect this to occur between 2020 and 2025), then a severe recession becomes more likely in my view.

        Chart below has a Seneca Cliff scenario which might occur if there is some shock such as a severe recession or major war.

        • Silicon Valley Observer says:

          Dennis,

          A world production decline rate of 1% would be a crisis, 2% would be a catastrophe in my opinion. Do you really think the world could adjust to with 5% less oil over a five year period? Or 10% less? What happens after ten years?

          We don’t need a 5% or greater decline rate to create economic chaos – 1% or 2% will do over a long enough period. Yes, there have been times in the past when world oil production declined, but it always came back — the declines were temporary. It will be a very different situation when the decline is continual.

          Excuse my ignorance but could you clarify for me what the definition of extraction rate is? What is the numerator and what is the denominator? I’m guessing it has to with increasing the URR. Do you think that just because EOR has been increasing since 1994 that it will continue to increase? Trends change.

          • Dennis Coyne says:

            Hi silicon valley observer,

            I agree eventually decline will cause a crisis. I expect decline to be slow at first and then gradually increase, at some point the economy won’t be able to adjust and an economic crisis will occur, this will reduce demand for oil, possibly by enough so oil prices will fall, which would then reduce output until the market balances. The crisis would result in some serious thinking about transitioning away from oil and putting policies in place to achieve that.

            Extraction rate is oil produced this year divided by producing reserves at the end of the previous year times 100. For a scenario with low decline rates from 2018 to 2023 the producing reserves for a C+C less oil sands URR of 2500 Gb is below.

            A recession would be likely by 2030 in this scenario and would then result in a drop in extraction rates, but I did not include that event in this scenario (it is also possible that improved fuel efficiency and the move to hybrids, plug-in hybrids and EVs might reduce demand, though not very likely to be enough IMO).

  30. likbez says:

    What was not discussed here is the importance of low oil price regime for maintaining neoliberal "status quo". I think it is important for all members of this forum to understand the connection between "cheap oil regime" and neoliberalism. Among issues that make low oil price regime of paramount importance we can mention:

    1. Cheap oil reverses the flow of capital toward Western countries representing a steroid injection that keeps Western economies from sliding into another phase of "Great Recession". The US oil industry is just a collateral damage here. In other words the current low oil price regime might be viewed as a desperate attempt to reverse “Secular Stagnation” of Western economies. To reignite growth via low oil prices as “financialization” does not work anymore. See also https://en.wikipedia.org/wiki/Financialization

    http://www.amazon.com/Financialization-World-Economy-Gerald-Epstein/dp/1845429656

    http://larrysummers.com/secular-stagnation/

    http://www.economist.com/blogs/buttonwood/2014/11/secular-stagnation

    2. High oil prices represents a direct threat to neoliberal globalization. For example, it directly threatens ransnationals shipment of goods and oil prices above $80 make some goods production in China less profitable (office furniture) due to shipment costs. To save fuel container ships are running at lower speed when oil prices are high adding delays in transatlantic shipments (several days). Also the avia transportation of fresh fruits and vegetables became more expensive as well, which destroys competitive advantage of globalizing fruit production.

    My impression is that the US elite is now really afraid that the level of world control reached after the dissolution of the USSR might escape from their hands. Also like British people in the past the US people now started suffering from the economic consequences of their elite imperial policies. And that makes the USA less governable by the old neocon elite (simplifying, Bush and Clinton families) that were in power since 1980th. Emergence of Trump and Sanders as viable candidates for POTUS are just two side of the same coin.

    3. Low oil prices represents a powerful sanctions regime against "resource nationalists" that oppose neoliberal globalization such as Russia. In this sense pathological animosity of the USA elite toward Russia is just another variant of desire to knock down one of the last remaining opposing forces for neoliberal globalization, or as they used to say in Rome "Carnage should be estroyed".  Nothing personal, this is strictly business. It also increases chances of regime change in Russia although currently there is no such powerful fifth column as Western Ukrainian nationalists represented in Ukraine (and who ensured the success of the coup to overthrow corrupt Yanukovich government, replacing it with no less corrupt Poroshenko government; "As in Franklin Roosevelt famous quote "He May Be An SOB But He’s Our SOB”), which could ensure the success of a "color revolution".

    See also The Engineered Decline in Oil Prices as Economic Warfare

    In fact, the present dramatic fall in the price of oil might well be a part of a long-term plan to force the ‘nationalist’ part of the Russian elite to submit to the Transnational Elite’s (TE) rule, despite the aspirations of the overwhelming majority of the Russian people… This was clearly shown when this majority enthusiastically welcomed the only real counter-attack so far against the continuing and intensifying attack by the TE against Russia, i.e. the re-integration of Crimea.
    … … …
    As Engdahl put it, “we now see as evidence that clearly indicates there was a CIA coup d’état backing Boris Yeltsin to be the man of Washington, so as to dismantle the Russian economy entirely after 1990”.[10] It was in this sense that one may talk of a collapse of the USSR, … which led to the destruction not only of the socialist revolution but of the Russian economy itself.

    4. Two of the most common words found in accounts of the events leading to 2008 financial
    collapse are avarice and hubris. Usually these are used to refer to individual malfeasance, but a
    more interesting possibility is that they also define a neoliberal economic culture. The same words are applicable to the shale boom. In more ways that one, this was a subprime oil boom.

  31. likbez says:

    Dennis, can you please retrieve my comment eaten by the spam filter. Thanks

  32. 70%H2O says:

    If we would separate US+Canada from the Big 14 all the growth would be in the US+C, the “Big 12” would decline. Am I right here?

    • Dennis Coyne says:

      Hi 70%H2O,

      No, the Big 12= Big14 minus US+Canada increased output from 2010 to 2016 by about 484 kb/d each year.

      • Rune Likvern says:

        Dennis says,
        ”No, the Big 12= Big14 minus US+Canada increased output from 2010 to 2016 by about 484 kb/d each year.”

        Yes, and the message is?
        This growth happened as the oil price remained at $100/bo for years.

        • Dennis Coyne says:

          Hi Rune,

          No message, just answering the question asked.

          I do not assume that growth will continue. In my post I offered one scenario where the Big 14 do not grow at all and another where growth is slower than 2010 to 2015 by a factor of 5.

      • 70%H2O says:

        Thanks for clearing that. But these numbers still confirm all growth happen in just a few nations.

        • Dennis Coyne says:

          Hi 70%H2O,

          Looking at all 100 oil producing nations, about 50 were flat (11 nations) or increasing (39 nations) from 2010 to 2015, the other 50 were decreasing.
          Over the 2010 to 2015 period a group of 89 countries (excluding top 10 increasing C+C output nations and top 11 decreasing C+C output nations) had almost no change in output (an increase of 5 kb/d). The top 10 increasing group had an increase of 9373 kb/d and the top 11 decreasing group of nations had a decrease of 4195 kb/d. For this decreasing group, 5 nations were responsible for 67% of the decrease (Iran, Libya, Sudan, Syria, and Yemen). For the remaining 1.4 Mb/d of decline from 6 nations, most of it comes from UK, Norway and Mexico with a combined total decline of 950 kb/d (69% of the 6 nation total). Future changes in output may be determined primarily by changes in output in about 21 nations.

          • AlexS says:

            “For this decreasing group, 5 nations were responsible for 67% of the decrease (Iran, Libya, Sudan, Syria, and Yemen). ”

            In all 5 cases production was decreasing due to supply disruptions, i.e. politics rather than geology.

            • 70%H2O says:

              Regarding Yemen I think you are putting the cart ahead of the horse. Yemen has an unsustainable population and are overproducing everything. Their water and oil is running dry. This causes political issues, and there are now a civil war with KSA as an interested neighbor. I mean the political problem is the result of production declines, not the other way around. My eyes have been on Yemens problem long before they begun shooting each other and this is the pattern I see.

            • AlexS says:

              70%H2O,

              Read the article below:

              Security fears crippling Yemen’s upstream industry: GlobalData

              http://www.worldoil.com/news/2015/10/01/security-fears-crippling-yemen-s-upstream-industry-globaldata

              LONDON — The continuing deterioration of security conditions in Yemen has led to several international oil companies withdrawing from their operations in the country, with a once-significant source of global supply being reduced to marginal volumes, according to an analyst with research and consulting firm GlobalData.
              Oil production in Yemen peaked at 441,000 bpd in 2001, but this decreased to 125,000 bpd in 2014 and is forecast to fall to as low as 30,000 bpd in 2015.
              According to Ali Al-Killidar, GlobalData’s analyst covering oil & gas, production was completely offline for long periods in previous years as a result of frequent attacks on the country’s oil and gas facilities and strike action by oil field personnel.
              “In 2014, a coalition of tribes took control of the country’s main checkpoints and refused oil companies access to their fields, significantly impacting operations in Hadramawt, an eastern province, which contributed to more than half the country’s oil production,” Al-Killidar explained.
              Inexperienced operators

              Yemen’s government has recently reported losses from the attacks exceeding $4 billion in the past three years. A total of 34 oil and gas firms have left Yemen in recent years, and it is likely that local inexperienced operators will be left to manage what remains of the oil industry.
              The damage caused to Yemen’s oil and gas infrastructure and industry reputation will take at least five years to return to pre-conflict levels, with production first expected to arrive from fields with the largest remaining reserves in 2019.
              “As of August 2015, of the 13 producing blocks, only the Jannah and Damis blocks were known to be producing. Yemen LNG came online in 2009, and while the country contributed 330 Bcf in 2013, Yemen’s gas infrastructure has been subject to persistent attacks,” Al-Killidar continued. “Production became untenable in April 2015, a month after Saudi Arabia started its bombing campaign, when the plant’s operations came to a complete halt after Yemen LNG declared force majeure.”
              GlobalData states that the international oil companies that have pulled out of their operations in Yemen include Total, DNO, Calvalley Petroleum and CNOOC.
              “A controlled security situation is looking increasingly less likely to happen any time soon, as Houthis continue to increase controlled territory from the northwest and Al-Qaeda, who recently captured the Al-Shihr oil terminal, are advancing from the southeast,” the analyst concluded.
              ———————————–
              Here a chart using EIA’s data on unplanned supply outages in Yemen (kb/d)
              source: EIA Short-Term Energy Outlook, April 2016 and previous issues

            • Dennis Coyne says:

              Hi AlexS,

              I agree, I looked for them based on you insight, I also included Iran because they had a large decrease for political reasons as well.

              No doubt the declines can also influence politics, so what is cause and what is effect can be a bit of a chicken egg problem and seems unanswerable.

              I think we can all agree there are both political and decline issues in some of these nations, but for Libya and Iran especially the problem is primarily a political one, in the cases of Syria, Sudan and Yemen things are less clear cut, imo.

              • AlexS says:

                “I think we can all agree there are both political and decline issues in some of these nations, but for Libya and Iran especially the problem is primarily a political one, in the cases of Syria, Sudan and Yemen things are less clear cut, imo.”

                Dennis,

                it is absolutely clear, that in the cases of Syria, Sudan and Yemen the problem is a political one,and supply outages have nothing to do with depletion of oil fields.

                Did you read my post above on Yemen?
                Do you know what is going on in Syria?
                Finally, the conflict between Sudan and South Sudan is the only reason for supply outages from this region.

  33. Silicon Valley Observer says:

    I have to laugh at the argument that today’s low oil prices are something Saudi Arabia wants in order to (1) punish LTO producers in the U.S or (2) punish Russia or (3) punish other OPEC producers or (4) punish (insert contry name here). There is no way SA wants low prices and their economy is suffering. They are burning through their foreign reserves. So why are the continuing to produce flat out as Ron insightfully informs us?

    Because they have no choice! They need every dollar they can get and they don’t control the price of oil. If they export less the price of oil will go up somewhat, of course, but not enough to increase their net take. In other words, their profitability would go up but their total profit would decrease.

    Now it’s true that SA has made statements that make it look like this is part of some strategy, but I believe that is all just public relations. Putting lipstick on a pig, if you will (apologies to Muslim readers). If prices remain low we could be looking at some big time internal and regional disruption as poor Saudi’s (and there are lots of them) become desperate and the privileged Saud class finds their standard of living declining. Saudi Arabia has been a pillar of stability (yes, repressive stability) in the mid east for decades. If that changes many bad things could happen.

    But please, stop with the talk that SA wants low oil prices.

    • Econ says:

      If KSA cut production by 3 million barrels per day (for example), I’d bet my life savings that oil prices would at least double to say 70 or even 80 USD per barrel – and I think that is being conservative. That cut would totally eliminate the current rate of oversupply.

      That sacrifice would reduce their volume of oil exported by about 30%, but revenue from that oil would double – with that production providing greater profit margins as well for the same given revenue.

      I don’t think it is accurate to say that a) they couldn’t control the price of oil at least directionally, and b) that their total profit would decrease – it simply wouldn’t, it would increase. How else did OPEC work in the past if that was not the case?

      • Silicon Valley Observer says:

        Well, you can make your bet and I’d make mine. When I say control the price of oil I mean CONTROL the price — not just influence it. Any producer can influence the price at some marginal level. But Saudi Arabia is seen by many as holding the key to world prices. So your assertion is that KSA could cut back and increase the price sufficiently to more than make up for the lost exports. So why aren’t they? To hurt the US frackers? To hurt Russia? To hurt Iran? I just don’t but it. They are burning through their foreign exchange reserves at a blistering pace. And if they someday decide to cut production and increase world prices, won’t that just bring back the other producers?

        It’s all my opinion, of course, and we are all entitled to one, but I don’t see how KSA is operating on some kind of brilliant strategy.

        • likbez says:

          Silicon Valley Observer,

          I have to laugh at the argument that today’s low oil prices are something Saudi Arabia wants in order to (1) punish LTO producers in the U.S or (2) punish Russia or (3) punish other OPEC producers or (4) punish (insert contry name here). There is no way SA wants low prices and their economy is suffering. They are burning through their foreign reserves. So why are the continuing to produce flat out as Ron insightfully informs us?

          KSA used predatory pricing to drive down oil prices. This is undisputable. It takes two for tango and they were supported by growth of US shale production and the heavy artillery of the USA MSM claiming “Oh my God, oil glut, oil glut !” as well as disingenuous statistics from EIA and IEA (both controlled by the same people).

          It looks that oil glut did occurred, mainly due to condensate overproduction for the second half of 2014 and the first half of 2015 and this fact was used to drive oil prices from over $100 to below $30 or three times. Wall Street guys are called “masters of the universe” for a reason.

          That put most oil producing nations in a very precarious situation with several countries balancing of the wedge of bankruptcies. This also was equivalent to huge monetary stimulus for the Western and Asian economies. For the USA it was equivalent to the continuation of the Fed stimulus program.

          Probably around 600 billion per year worldwide were redistributed from oil producing nations to oil consuming nations.

          KSA actions also created tensions between two groups of OPEC nations — Gulf monarchies and everybody else to the extent that OPEC now exists only formally (not withstanding that cheating OPEC quotas was widespread practice even before).

          In February the situation looked really grim for oil producing nations and Russians became really concerned that Wall Street manipulators (aka paper oil producers) will manage to drive oil to $20 (you can almost sense the level of panic in Sechin speech in London http://www.rosneft.com/attach/0/57/51/pdf_10022016_en.pdf )

          Our message about the gap between the financial instruments of the oil market which, in fact, determine the prices and specifics of the actual industry development has been clearly confirmed. The financial market observes its own interests, and they are often abstracted from the problems of sustainable development of the industry. In this market, prices can both fall to the “bottom” where any development or stable functioning are impossible, and climb to unreasonably high levels.

          Financial players have tools that allow them making profit on both rise and fall in prices. Today, the financial technique implies that decisions are often made by robots at the trading platforms, and the programs managed by them impersonally respond instantly to such short-term changes of the situation or information on the oil reserves movements;

          Link of the price dynamics with the parameters of production is primarily important to the producers who have a long-term horizon of decision-making, investment and implementation of major projects, and the consumers who are also interested in predictability. In the past year, we saw developments in which producers were split up, and some of them announced a “price war” setting up a mission to oust “ineffective” suppliers from the market and take their place at the market, in fact, this price war should have determined who is “ineffective”.

          In these circumstances, it is quite expected that the financial market players went bears while the related (if not affiliated) think tanks helpfully prompted lower and lower price benchmarks to the market.

          Who was the main beneficiary of the current crisis? Apparently, not consumers because the retail prices fell by less than 20% on average, but rather financial players who, by the way, have not redirected $250-300 bln investments released from oil sector into projects in other sectors of the economy so far.

          Slide 5. Explosive growth of shale oil production in the US in 2013-2014 ceased in 2015

          As we know, the explosive growth of shale production in the US in 2013-2014 became another crucial factor, and even the “trigger” of the crisis.

          In 2013-2014, this growth was probably unprecedented in the world history in terms of its scale and pace. We have already noted that this reflected the advantage of the developed
          US market with its financial instruments (large-scale hedging of risks, availability of cheap investment, propensity of investors to take prompt decisions, use of land pledge and encumbrances, etc.), and its capacities in drilling, service and transportation.

          In late 2014, some of the leading oil producers from the Middle East followed the example of the US strategy in increasing oil production.

          As the result, the problems of excess oil on the market, long-time decline in oil prices, falloff in capacity of commercial shale oil production in the US have become worse.

          Slide 6. OPEC actions gave backing to imbalance in the oil market

          There is every reason to believe that these producers have deliberately created and continue to maintain a surplus of supply over demand claiming their commitment to the policy of low prices. The consequences of this policy, even if it is changed or adjusted, will have affect for a certain time.

          Slide 7. Positions of major speculators in the oil futures markets

          We have to admit we underestimated the fact that the financial market players have no restrictions in dealing with their sheer financial objectives and are ready to “test” any price levels – for example, 27$ in January – down to $10 per barrel as it was recently announced by a reputable investment structure. What is it if not “an invitation to the irresponsible game” for an unlimited price drop?

          That’s why all those talks about freeze started in February — this was a meek attempt of damage control of KSA reckless gambit from which other oil producing nations suffered greatly (and Saudis decided to get on board of this initiative for a simple reason that events got out of control and they also feel really threatened by the possibility of $20 oil).

          The most interesting is the fact that Saudis cooperated with Russia (whom they consider their enemy). Russia in turn decided to cooperate with KSA not out of good will toward KSA. They consider Wahhabism a mortal threat for Russia and you can get in jail if you just get Wahhabi literature in Russia, to say nothing about openly declaring yourself to be adherent of this dominant in KSA sect (it is considered to be criminal organization in Russia). That tells us something about the precarious situation in which oil producing nations has found themselves in February.

          In any case, in February it looked like oil producing nations will be taken for a ride by Wall Street for 2016 and probably 2017. And financially raped.

          That’s why this freeze agreement was announced and it helped to push prices slightly higher even before it full ratification which might occur in late April despite all the efforts by the West to torpedo the agreement (and somewhat duplicitous behavior of Iran, which it seems does not understand that producing 4 Mb/day at $30 is equivalent to producing 2 Mb/d at $60).

          Russia also launched a national program of development of their petrochemical industry which will eventually reduce the amount of oil available for export, even if production remains flat.

          Saudis did the same and actually on much larger scale. So their internal consumption will be rising faster then their production capacities.

          To get out this KSA induced fiasco with oil prices this cocky and impulsive new Saudi prince is now trying to save his butt pretending to be Margaret Thatcher of Saudi Arabia. He is trying to launch the program of privatization of state assets including part of Aramco to lessen the draw of foreign reserves due to budget deficit (currently around $100 billion a year; KAS needs around $90 per barrel to balance the budget; Russia needs around $60).

          So either with gentle encouragement of Obamoids or on their own initiative this new prince ( who actually rules the county instead of his father king who is suffering from dementia ) essentially destroyed around one third of the country foreign reserves, engaged in destructive war in Yemen, deteriorated relations with the major geopolitical rivals such as Iran (via war in Yemen and the execution of Shiite cleric) and Russia (by supporting and financing (indirectly) Syria jihadists) and got nothing in return.

          Moreover he managed even to cool relations with the USA — the major beneficiary of his actions.

          That clearly demonstrates the grave danger inherent in absolute monarchy — a lot depends on the man at the top.

      • AlexS says:

        Econ says:

        “If KSA cut production by 3 million barrels per day (for example), I’d bet my life savings that oil prices would at least double to say 70 or even 80 USD per barrel – and I think that is being conservative. That cut would totally eliminate the current rate of oversupply.

        That sacrifice would reduce their volume of oil exported by about 30%, but revenue from that oil would double – with that production providing greater profit margins as well for the same given revenue.

        I don’t think it is accurate to say that a) they couldn’t control the price of oil at least directionally, and b) that their total profit would decrease – it simply wouldn’t, it would increase. How else did OPEC work in the past if that was not the case?”

        In 2015, KSA’s crude exports averaged 7.4 mb/d. If they cut production by 3 mb/d, that would represent a <30% decline in output, but their exports would decline by 40%.
        Oil price may indeed rise from the current $40 (Brent) to some $70-80, assuming that other producers do not increase output and do not take Saudi Arabia' market share.
        At $80, Saudi Arabia's oil revenues would rise by 19%, at $70 – by only 4%

        7.4 mb/d x $40/bbl = $296 million/day
        4.4 mb/d x $ 70/bbl = $308 million/day (+4%)
        4.4 mb/d x $ 80/bbl = $352 million/day (+19%)

        But:

        1) Oil price would not immediately rise to $70-80 after the output cut. Thus, in 2009, it took several months for oil price to reach $70 after OPEC decided to cut output.
        That means that the average oil price over the 12-month period after the output cut would be lower than $70.

        2) In 2009, there was no LTO sector, which could relatively quickly increase output (with some 3-4 months lag for the DUCs and 6 months for new wells), take part of Saudi market share, and exert a downward pressure on prices.

        3) Other high-cost producers would also feel much better with higher prices and would be able to keep stable rather than declining production levels.

        Overall, prices would anyway rise, but the effect on KSA's oil revenues will be close to zero, and it will lose its market share

        • likbez says:

          Alex,

          Overall, prices would anyway rise, but the effect on KSA’s oil revenues will be close to zero, and it will lose its market share

          That’s looks like somewhat incorrect thinking. Saudis can actually dictate the conditions for the whole OPEC and do it with several other nations sharing the burden. So their loss would be less, and their gain more. Actually, if I remember correctly, at one point Iraq proposed 10% cut (0.4 Mb/d for itself) of major oil producing nations (OPEC+ Russia).

          KSA just did not want to do that.

          • shallow sand says:

            I really don’t know what to think about whether KSA has taken the right course since Thanksgiving, 2014.

            I am positive KSA never anticipated it would fetch less than $40 per barrel for its oil from 8/15 to date, and less than $60 per barrel for its oil from 12/14 to date.

            KSA has burnt through a ton of cash. I read every public company headquartered in the US in the oil and gas industry lost money in January and February, 2016. That should make OPEC members proud.

            I read Russian companies are still making money, but the purchasing power of their currency is much less than it was, so a hollow victory. I assume US companies would be doing better on P & L if US employees were making $500-1000 per month, a drum of corrosion inhibitor cost $300, etc.

            Bitterness is growing as the bust drags on, I’m about done with debating this stuff. All who rely on oil as a major source of income, be it a foreign nation, or a family, are screwed if oil stays low. Pretty simple really.

            As for LTO, the jury is no longer out for me, at least. LTO has almost destroyed the balance sheets of noteworthy companies like Marathon Oil, Hess, ConocoPhillips, Apache and Anadarko, just to name a few.

            Continental Resources was a successful private company, with low debt, for decades. Now it owes over $7 billion. Is it better off now? I guess it still has a hefty market cap. I wouldn’t own it, personally.

            Oh well, hopefully we will see some price relief in the coming months. I’m ready to move on to something other than fretting about this stinking bust.

            • AlexS says:

              “I read Russian companies are still making money, but the purchasing power of their currency is much less than it was.”

              shallow sand,

              Their revenues are mostly in dollars, and 90% of costs are in rubles. So the decline of the ruble’s rate versus the dollar is very positive for the Russian companies, as it partially mitigates the negative effect of low oil prices.
              http://www.bloomberg.com/news/articles/2016-04-08/goldman-sees-russian-oil-output-rising-amid-doha-freeze-talks
              ——————————–
              “LTO has almost destroyed the balance sheets of noteworthy companies like Marathon Oil, Hess, ConocoPhillips, Apache and Anadarko, just to name a few.”

              Which means that OPEC decision not to cut output was correct. One year more of relatively low oil prices ($40-50) and LTO will not be a threat to other producers.
              The excess supply will be eliminated by that time. And even if LTO output starts to recover, its annual growth rate will never return to previous high growth rate of 1 mb/d.
              Potential 300-400 kb/d annual growth in LTO output will be much less than 1.2mb/d projected growth in global demand.

              • shallow sand says:

                AlexS. I do not dispute Russian companies are cash flow positive.

                My point is, what do Russian oil and gas industry workers make in salary and benefits, in relation to their US peers?

                If it is substantially less, is this why, in part, Russian oil and gas companies are still cash flow positive?

                I do not know the answer, maybe you could provide some information in that regard?

                • AlexS says:

                  shallow sand,

                  Yes, salaries in Russia are generally much lower than in the U.S., not just in the oil industry.
                  Especially, if they are measured in dollar-terms, rather than in real purchasing power.

                  Locally produced equipment, pipes, other materials, electricity, services, etc. are also much less expensive, especially after the depreciation of the local currency.

                  Finally, and particularly important, Russia produces higher volume of C+C with a much less number of wells. The number of new wells drilled annually is also several times less than in the U.S.
                  Old conventional onshore fields are on average less mature. There is almost no stripper wells. There is much less (high-cost) deep offshore production. And almost no LTO output.

                • They earn less. They also spend less.

                  • shallow sand says:

                    AlexS. Thanks. I always appreciate your comments on this site.

                    I do not know a lot about Russian oil and gas production, but it does appear to me that a combination of lower costs, and less mature fields, is keeping Russian oil and gas companies generally profitable, despite the downturn.

                    Maybe too simplistic, but there was a time, from 1986-2004, where we would have been cheering $40 WTI. A combination of lower production volumes, combined with much higher costs, make $40 WTI a money loser in most onshore US fields, or at least not enough for new wells. I guess maybe Russia is just where the US was 30 years ago? 30 years ago, $40 WTI would have been very profitable in most US onshore fields.

                    Fernando, I also agree on the spending part, but I doubt you will find many places more consumer spending driven than the US. But I am going to refrain from further comment on this topic, as last time I discussed it, I put both feet in my mouth. And we need to stick to the oil topic. LOL!

              • Dennis Coyne says:

                Hi AlexS,

                If the lack of capex spending in 2015(-24%) and 2016(-17%) estimated in the IEA 2016 Medium Term Oil Market report causes output to drop in 2018 and beyond, OPEC output increases of 900 kb/d will not be able to fill the gap and I would expect oil prices to spike to well over $85/b.

                What would prevent the LTO sector from ramping up output if oil prices returned to $100/b or more?

                The infrastructure is in place and wells drilled will be profitable at those prices, I could see the big 3 LTO plays ramping up at 950 kb/d in a years time once oil prices reach $100/b.

                That will not be a problem for OPEC because supply will barely match demand due to the lag between the oil price rise and the increase in production from deep water and oil sands investment. LTO output may surpass its previous peak, but only by 500 kb/d or so. Increased demand (3.6 Mb/d by the end of 2018) and decline in Mexico, UK, Norway, and elsewhere will leave plenty of room for any output increases from Canada, Brazil, and OPEC (mostly Iraq, Iran, and UAE).

                If oil prices remain low there will not be financing available to the LTO sector, but I doubt the supply will be there to keep oil prices low.

                The IEA’s $80/b in 2021 assumption depends on and increase in US output of 1300 kb/d from 2015 to 2021, after a drop in LTO output of 800 Kb/d in 2016 and 2017.

                I believe the IEA thinks LTO will keep oil prices at around $80/b, but if we assume 200 kb/d of the US increase comes from the GOM, we would need an average increase in LTO of at least 1900 kb/d over the 2018 to 2021 period to match the IEA forecast. The IEA could be incorrect about their forecast, but if it is right I think the $80/b assumption may not hold, I think at least $90/b would be needed. I will be wrong if well costs fall and $80/b might be enough in that case, but financing may still be problematic at that oil price.

                • Dennis Coyne says:

                  Hi AlexS,

                  I made a mistake above. In the IEA 2016 Medium Term Oil Market Report the estimate for US LTO increase from 2018 to 2021 is 1500 kb/d, so your estimate matches theirs exactly (367 kb/d increase each year for 4 years). Probably not a coincidence.

                  This only is about a 800 kb/d in LTO output in 2021 compared to 2015, I expect most of the other 500 kb/d increase is expected to come from the GOM, but I also expect conventional onshore plus Alaska to decline by about 500 kb/d through 2021 so an 800 kb/d increase for US output through 2021 seems more realistic IMO.

                  If the 1.2% /year increase in oil demand is correct and 2015 liquids demand was 94.6 Mb/d, then this implies 106 Mb/d demand in 2021. The IEA also predicts liquids supply growth of 4 Mb/d from 2016 to 2021, when this is added to 2015 supply at 96 Mb/d, we come up short by 6 Mb/d in 2021. By at least 2019 a significant rise in oil prices is likely to occur, this might boost liquids supply a little and will mostly reduce demand as it will take time for supply to respond to higher oil prices. I also think the 4 Mb/d of liquids supply growth is optimistic, we will do well to maintain 2015 output levels, possibly we could increase World output by 2 Mb/d at most (much of this will be condensate and NGLs). If peace breaks out in Libya, Syria, Iraq, and the rest of the Middle East and Africa, then perhaps we might see a 4 Mb/d increase in liquids output with oil prices at $100/b or more.

                • AlexS says:

                  Dennis,

                  Here is a chart from the IEA MTOMR 2016

                • AlexS says:

                  In my view, IEA’s forecast is more realistic than that of Rystad Energy.
                  Rystad expects virtually flat LTO production this year and growth to 8 mb/d (US+Canada LTO) by 2020.

                  • Dennis Coyne says:

                    Hi AlexS,

                    I agree the IEA forecast for LTO in your chart above (from the 2016 medium term oil market outlook) looks reasonable. Though I think they are a little optimistic about US overall US liquids growth of 1300 kb/d from 2016 to 2021. We have about 800 kb/d from LTO and probably 500 kb/d of decline from onshore non-LTO plus Alaska, we might see a 500 kb/d increase from GOM, but that would just offset declines elsewhere in the US and we are left with an 800 kb/d gain in US liquids output, possibly the “missing” 500 kb/d of liquids is from NGL output, but the IEA should discount the NGL barrels by 30% due to their lower energy content, so this 500 kb/d becomes 350 kboe/d.

                    Reporting by mass is much better as a metric tonne of NGL has a similar energy content as a metric tonne of crude.

            • likbez says:

              ShallowS,

              Bitterness is growing as the bust drags on, I’m about done with debating this stuff. All who rely on oil as a major source of income, be it a foreign nation, or a family, are screwed if oil stays low. Pretty simple really.

              That’s exactly my feeling about the situation. Thank you.

              • Fred Magyar says:

                I don’t know for sure about the rest of the world but I am 110% convinced that at least in Brazil the current political crisis is a direct result of promises of prosperity to underprivileged by an ignorant and corrupt political class that bet the fortunes of the country on the price of oil remaining high.

                Well, they lost the bet!

                Anyone anywhere who is still betting on a general economic recovery based on oil is going to lose. There may be still be a few winners here and there but I suspect they will be ever fewer and ever further apart.

                BTW there is one thing that really get’s my goat and that is, that almost without fail, everyone still seems to equate ENERGY only with oil.

                I suspect that as time goes by that might begin to change!

                • Oldfarmermac says:

                  Hi Fred,

                  It will seem like a hell of a long time coming even to people like you and me, people who think in terms of the big picture, but the days of oil as the king of the hill are numbered.

                  But ten years is not really very long at all. Ten years from today, a quarter or more of new cars will be electrics or plug in hybrids, and the proportion will be growing every year.

                  Most of the people in this forum are heavily invested into a mental world wherein oil is THE key resource.

                  Hopefully we won’t run too short of it too soon for them to eventually change their minds.

    • Heinrich Leopold says:

      SVO,

      I still differ with your opinion and I am in good company:

      http://www.forbes.com/sites/panosmourdoukoutas/2016/03/27/saudi-arabia-sets-a-20-40-price-range-for-crude-oil-for-now/#3c1cb7554a6b

      …..Why would a price spike above $40 be a bad thing for Saudi Arabia?

      Because it would provide a life support to American frackers who have undermined the pricing power of the Kingdom these days, as was discussed in a previous piece here.

      But there’s another, more important problem: high crude prices can help Russia and Iran raise the funds they need to support insurgent movements that threaten the Kingdom’s regime………

      http://oilpro.com/post/23672/iran-steps-up-market-share-battle-freeze-talks-near

      Saudi Arabia and Russia are by no means at the end of their finances as can be seen from their still unabated drilling activity, buying refineries in the US, investing in Europe…:

      http://oilpro.com/links/detail/30982/gazprom-to-invest-european-lng-facilities

      It is the shale industry which is at its knees.

      Please stop trying to prevent other people to express their opinion.

      • Silicon Valley Observer says:

        Heinrich, your assertion that I am trying to prevent people from expressing their opinion is insulting as well as misplaced. I did nothing of the sort. Also, I certainly don’t consider Forbes to be good company on pretty much any subject. SA’s foreign exchange reserves dropped from about $740 billion in Oct 2014 to about $590 billion today, having dropped $9 billion in February alone. I’m not saying they are on the ropes yet, but the Kingdom is scaling back on social welfare payments. They are running a massive budget deficit. Anyone who thinks this is part of some brilliant strategy is misguided.

        Your assertion that unabated drilling activity is a sign of financial strength is not supported by the link you provided. That’s about investing in LNG facilities. What does that have to do with oil production?

      • likbez says:

        …..Why would a price spike above $40 be a bad thing for Saudi Arabia?

        Because it would provide a life support to American frackers who have undermined the pricing power of the Kingdom these days, as was discussed in a previous piece here.

        The predatory pricing initiated by KSA in mid 2014 was not directed against the USA frackers and in no way directed at establishing $30-40 per barrel price band. They viewed US frackers as a useful balancing mechanism (and this was stressed several times by high level Saudi officials), that allow to establish and maintain $70-$80 or so price range. and that probably was their initial intention. But they quickly lost control to Wall Street, which has other plans.

        And they think that this price range is also OK for the world economy. I can’t find quotes now but there were such quotes by Saudi oil minister.

        Looks more like while they initialed the price slump, they were quickly taken for a ride by “paper oil producers”, who promptly assume control and drove the price to the current price band. And intend to maintain it as long as possible (look at all “low oil price forever” propaganda in Western MSM).

        That’s why Saudis were forced to ally with Russia in “freezing production” scheme.

        • clueless says:

          likbez – “Looks more like while they initialed the price slump, they were quickly taken for a ride by “paper oil producers”, who promptly assume (sic) control and drove the price to the current price band.” This theory makes the “paper oil producers” God like.

          Since the early 1970’s I have heard almost nothing except that the “paper oil producers” have artificially made oil much more expensive than it should be. Of course, during that same period of time, with respect to farm products, all I heard was that the “paper farmers” were artificially making farm product prices cheaper than they should be. They must all be Gods.

          Thus, I have never paid attention to what “paper” people are doing. Rather, I try to look at the fundamentals. For example, assume that we are “paper” traders [with access to billions of $’s], and we think that the price of oil should be $70. But, we get together and hatch a plan. At $70 we will sell short billions of $ of oil contracts and that will force the market down and force Saudi Arabia and Russia to keep cutting their prices and we will make a fortune. That sounds like a reasonable plan – NOT!!

          It is like when oil got to $70, you bet me a billion $’s that prices would go down and I took your bet, thinking that they would not go down. So you told OPEC and Russia about our bet and they took your side.

        • likbez says:

          This theory makes the “paper oil producers” God like.
          In a way they are. That’s what the term “Masters of the Universe” imply.

  34. Duncan Idaho says:

    Drillers Can’t Replace Lost Output as $100 Oil Inheritance Spent

    http://www.bloomberg.com/news/articles/2016-03-22/drillers-can-t-replace-lost-output-as-100-oil-inheritance-spent

    (up for debate)

    • Doug Leighton says:

      Pretty much agree. Any recent production increase was a result of investment before oil prices plunged just as any investments sanctioned today will take a few years to see production. This combined with the current oil price (and serious depletion in most major reservoirs) means oil production news will be horrendous in the 2017 to 2020 time period. Bottom line: reduction of investment resulting from today’s lower prices will start being felt in a few years.

      • Doug Leighton says:

        Of course the LTO spending fiasco which continued (continues) even after the oil price collapse is a special case that has already been discussed ad nauseam.

      • Silicon Valley Observer says:

        I like the analogy of spending the inheritance. Like spending money on a shopping mall that nobody goes to — you don’t get that money back. Artificially low interest rates have allowed LTO companies to justify very iffy projects with extravagant promises of high returns. It worked for a while, like any good scam, but now is ending. Will it ever come back? Not at the previous scale, I think. But until the serious depletion you refer to shows up, I think things will just muddle along with a slow decline. After that things will get interesting.

  35. Greenbub says:

    “…State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain a production capacity of more than 12 million barrels per day, 2 million barrels above its current rate.

    For Kuwait and the U.A.E., the goals are even higher. Kuwait plans to raise production capacity by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from about 3 million.”

    http://www.bloomberg.com/gadfly/articles/2016-04-10/saudi-arabia-oil-gambit-moves-to-phase-two

    • Reno Hightower says:

      It’s almost as if they are trolling the oil traders.

    • likbez says:

      “…State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain a production capacity of more than 12 million barrels per day, 2 million barrels above its current rate.

      This is a typical Bloomberg “low oil price forever” propaganda trick. BTW Saudi Arabia produced on average 11.6 million bbl/d of total petroleum liquids in 2013.

      The question is who and when in Aramco said that (taking into account their growing depletion rate and changes in quality of extracted oil — trend toward producing more of heavy oil) ? And what will be NGL share in this new production? Actually oil is only 9.5 of 10 Mb/d total CC+NGL production now:
      http://www.saudiaramco.com/en/home/about/key-facts-and-figures.html

      Production and reserves
      •Recoverable Crude Oil & Condensate (billions of barrels): 261.1
      •Recoverable Gas (Associated and Nonassociated) (trillions of standard cubic feet): 294.0
      •Crude Oil Production (annual/billions of barrels): 3.5; (daily/millions of barrels): 9.5
      •Crude Oil Exports (millions of barrels): 2,544
      •Delivered Sales Gas and Ethane Gas (trillions of standard cubic feet): 4.1; (trillions of Btu, British thermal unit per day) Sales Gas: 8.4; Ethane Gas: 1.4
      •NGL from Hydrocarbon Gases (millions of barrels): 471.3
      •Raw Gas to Gas Plants (billions of standard cubic feet per day): 11.3, up 3% compared to 2013
      •Refined Products Production (millions of barrels): 561
      •Refined Products Exports (millions of barrels): 168

      According to EIA Saudi Arabia consumed 2.9 million barrels per day (bbl/d) of oil in 2013, almost double the consumption in 2000 (in three years). Chief Executive Officer of Saudi Aramco, Khalid al-Falih, said that domestic liquids demand was on pace to reach more than 8 million bbl/d of oil equivalent by 2030 if there were no improvements in energy efficiency.

      There are currently no plans to increase oil production capacity. Saudi Arabia’s long-term goal is to further develop its lighter crude oil potential and maintain current levels of production by offsetting declines in mature fields with newer fields.

      • AlexS says:

        likbez,

        “more than 12 million barrels per day” is estimated C+C production capacity, and
        2 million barrels per day – estimated C+C spare capacity

    • I have friends who worked in Kuwait until recently. They tell me the Kuwaiti bureaucracy is horrendous, they could increase capacity if the industry were reorganized and restaffed, but the culture leads to deferral of decisions, almost zero initiative, zero imagination, and a good dose of sloth. It’s a state oil company with nepotism and zero urgency.

      • AlexS says:

        From Bloomberg:

        Kuwait Targets Oil Output at 43-Year High as Freeze Talks Loom
        April 11, 2016
        http://www.bloomberg.com/news/articles/2016-04-11/kuwait-targets-oil-output-at-43-year-high-as-freeze-talks-loom

        “Kuwait is targeting production of 3.165 million barrels a day later this year or in 2017, up from a current 3 million barrels a day, Chief Executive Officer Jamal Jaafar said Monday at a conference in Kuwait City.
        Oil markets will be oversupplied throughout the first half of this year but will start to re-balance in the third quarter, Jaafar said.
        Kuwait Oil is looking at six offshore areas to drill its first undersea wells and plans soon to offer contracts for the work, he said, without specifying dates.
        Kuwait will also start a project this year with Royal Dutch Shell Plc to capture carbon dioxide at oil fields and re-inject it underground to produce more crude, he said. Kuwait Oil is tackling more difficult crude formations to increase production”

        • AlexS says:

          More on Kuwait oil production targets:

          Kuwait sticks to capacity targets of 3.165 mil b/d in 2017, 4 mil b/d in 2020: execs

          Kuwait City (Platts)–11 Apr 2016
          http://www.platts.com/latest-news/oil/kuwaitcity/kuwait-sticks-to-capacity-targets-of-3165-mil-26414956

          Kuwait expects to raise its oil output capacity to 3.165 million b/d by the end of this year as upstream development projects continue to move ahead, adding 165,000 b/d to the current 3 million b/d, the emirate’s top upstream official said Monday.
          The country’s medium-term target of raising output capacity to 4 million b/d by 2020 remains in place, Kuwait Petroleum Co. CEO Jamal Jaafar said on the sidelines of an oil and gas summit in Kuwait.
          However, while that production target formerly referred strictly to crude, it now includes condensate, he said.
          That is because Kuwait is switching the focus of upstream development program from oil to gas, which the OPEC producer needs to feed its growing refining, petrochemical and industrial sectors as it seeks to capture more value from its oil resources while diversifying its economy and reducing state dependence on revenue from crude exports.
          “The future focus will be on Jurassic gas,” Kuwait Petroleum Corp. CEO Nizar al-Adsani told delegates during his keynote presentation.
          Currently, a number of long-planned upstream oil facilities projects are moving ahead.

      • AlexS says:

        Iraq:

        “Crude output in Iraq, OPEC’s second-biggest producer, reached a record 4.55 million barrels a day last month from 4.46 million barrels in February, the country’s state-run Oil Marketing Co. said Sunday in an e-mailed statement.
        Production in southern Iraq, where most of the country’s biggest fields lie, will remain unchanged this year amid cuts in investment, Ali Haddad al-Fares, head of the energy committee of the Basra regional council, said Monday in an interview in Kuwait City. Iraq is targeting total output to reach 6 million barrels a day by 2020, with most of the increase to come from the Basra region, he said.”

        source: http://www.bloomberg.com/news/articles/2016-04-11/kuwait-targets-oil-output-at-43-year-high-as-freeze-talks-loom
        —————————-
        [Iraq’s] Exports increased to 3.81 million barrels a day in March from 3.23 million the previous month, the state-run Oil Marketing Co., known as Somo, said in an e-mailed statement

        source: http://www.bloomberg.com/news/articles/2016-04-10/iraq-boosts-oil-production-to-record-before-talks-to-cap-output

        —————————
        “Iraq said on Thursday that exports from its southern ports had hit almost 3.5 million barrels per day by April, up from an average of 3.29 million bpd in March,”
        Source: http://www.reuters.com/article/us-global-oil-idUSKCN0X503E
        ———————————————-
        Iraqi crude output continues to grow, but at a slower pace from 2017

        April 06, 2016
        http://www.rystadenergy.com/AboutUs/NewsCenter/PressReleases/iraqi-crude-output-forecast

        Rystad Energy analysis shows that Iraqi crude oil production for 2015 was approximately 3.9 million per barrel, up by 12% from 2014. The 2016 production level is expected to exhibit similar growth as in 2015. From 2017, the growth rate will slow down to an average year-on-year increase of 4%, predominantly as the first phase of the redevelopment of mature oil fields has now been completed.

        My comment: Rystad apparently overestimates Iraqi growth in 2016

        • Dennis Coyne says:

          Rystad Energy seems pretty reliable. As a private company, I would think they don’t feel the same pressure of public agencies to produce rosy forecasts.

          For industry experts, do you agree with Rystad’s forecast for Iraq?

          It seems a bit optimistic, given the security situation in Iraq.

          • AlexS says:

            Dennis,

            Rystad data and forecast for Iraq slightly differ from the IEA and EIA data.

            According to Rystad, Iraqi crude oil production for 2015 was approximately 3.9 mb/d, up 12% from the previous year, and is expected to increase by a similar percentage this year.

            The IEA and EIA estimate Iraq’s output in 2015 at 3.99mb/d , and 4.05mb/d, respectively, both up 20% from 2014.
            The two agencies do not provide projections for 2016.

            Iraq has cut investments in the oil industry this year, so 12% growth in 2016 may be a bit too high.
            According to the IEA and EIA, average production in January-February was 4.33 mb/d, up 8.4% and 6.8% from last year’s average.
            Iraq’s official numbers are higher:
            4.77 mb/d in January; 4,46 mb/d in February, and 4.55 mb/d in March.
            Official data apparently does not take into account a temporary shut-down of the oil pipeline linking Iraq’s northern fields in Kurdistan with Turkey.

            As regards longer-term prospects, there is no doubt that Iraq has a huge resource potential, mostly in the already developed fields. But there are numerous above-ground issues which are restraining production growth.

            Iraq has cut its projections for 2020 from 12 mb/d to 9-9.5mb/d and now 6 mb/d, which still seems too optimistic.

            As you can see from the chart above, Rystad Energy’s forecast for 2020 is ~5.3 mb/d.

            The IEA projections for 2020 from the Medium-Term Oil Market Report 2015 was 4.73mb/d.
            I do not have the MTOMR-2016.

            Iraq crude oil production forecast
            source: IEA MTOMR 2015

          • AlexS says:

            The IEA expects Iraqi crude oil production to exceed 8 mb/d by 2040

            source: World Energy Outlook 2014 (same forecast for 2040 in the WEO 2015)

            • likbez says:

              AlexS,

              Question to you: Are you sure that Iraq will exist as a single state in 2040?

            • Dennis Coyne says:

              Hi AlexS,

              Thank you. I also do not have access to the 2016 Medium Term Oil Market report. I found a presentation on Medium Term Oil Market report for 2016 with limited details.

              http://csis.org/event/ieas-medium-term-oil-market-report-2016

              The Current Medium term oil Market report is forecasting only 300 kb/d growth for Iraq from 2016 to 2021 from 4 to 4.3 Mb/d and about 900 kb/d of capacity growth for all of OPEC (split between Iran, Iraq and UAE).

              I am doubtful about that forecast for Iraq to 2040, high oil prices might make it possible and it is 24 years in the future so after 2020 become very hard to guess. I imagine if demand holds up that oil prices will be $150/b (2016$) in 2025, economic recession or a strong move to electric cars and plug-in hybrids might keep demand down, along with other social changes to match supply and demand.

              • AlexS says:

                Dennis,

                I think the IEA’s forecast is too conservative for 2020.
                As regards 8 mb/d by 2040, Iraq’s huge and low cost resource base is sufficient to reach this level under any realistic oil price scenario.
                But there are limiting above-ground factors, which are difficult to predict.

                • Dennis Coyne says:

                  Hi AlexS,

                  It is the above ground factors that will keep the forecast from being met in combination with low oil prices.

                  When you say the IEA forecast is too conservative do you mean in general or for Iraq specifically.

                  I think with the low oil prices and the delays in many projects in response, that it will be difficult to get the 3.6 Mb/d of C+C+NGL growth the IEA expects by 2021.

                  If you mean the Iraq forecast is conservative then we agree. If you mean that you expect World C+C+NGL output increase to be significantly more than 3.6 Mb/d from 2016 to 2021, then I would not agree, I will be surprised if we get a 2 Mb/d increase above 2015 output levels by 2021.

                  • AlexS says:

                    Dennis,

                    Yes, I mean that the IEA’s forecast for Iraq’s oil production by 2020 is too conservative

          • likbez says:

            Despite increasing oil production Iraq is practically a bankrupt nation. Like it should be after the invasion: neocolonial status ( achieved via the invasion ) implies debt slavery.

            Whether it splits in two states or not remains to be seen, but the central government no longer controls Iraq Kurdistan and a large part of Sunni territories occupied by ISIS (that might change, but might get the county further in debt; US arms are not cheap). So there are some Libya style political processes in place in Iraq (warlords, kidnapings, widespread absence of electricity and sanitation).

            http://www.iraqinews.com/features/iraq-not-bankrupt-facing-war-financial-crisis-says-abadi/

            • AlexS says:

              Likbez,

              It is always difficult to predict political developments in the Middle East.
              But I think, even if Iraq splits in three parts, Kurdistan and Basrah region will be producing oil. And there is almost no oil in the Sunni territories.

              • likbez says:


                But I think, even if Iraq splits in three parts, Kurdistan and Basrah region will be producing oil. And there is almost no oil in the Sunni territories.

                True. That’s what Iraq war was about and what neocolonial status implies: a gas station with impoverished population and huge external debt.

                Unless attacks on oil infrastructure became a part of war tactics (“Scorched earth” military strategy) like happened in Libya.

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

                • AlexS says:

                  There was a couple of attacks on oil terminals in Libya, but not on production facilities.

        • Anonymous says:

          Iraq has told the foreign oil companies like Eni to reduce capital this year, and they expect only just about to maintain production. In fact at the moment exports look to be in decline for next month. Genel cut reserves and production expectations in their Kurdistan fields. The government have cut maximum production figures from 12 mmbpd to 9, to 7 and still going down. There’s a major water injection project in progress though which might change things around, but against that there is increasing lawlessness in the south and the country is bankrupt, so any gains need outside investment and lots of it.

          Last year Morgan Stanley predicted a peak in 2018:

          http://www.worldoil.com/news/2015/9/03/iraqi-oil-output-declining-as-of-2018-in-morgan-stanley-s-view

          The quoted reserve figures (discovered and undiscovered) vary from 70 billion to over 200, but since a big find in late 2014 things have been quiet in exploration (perhaps there are few rigs now since the price collapse).

          Overall – anyone’s guess, if Rystad can make money by sticking a wet finger in the air good luck to them.

  36. AlexS says:

    Bloomberg on Chesapeake:

    Chesapeake Pledges Almost Entire Company as Debt Collateral

    April 11, 2016
    http://www.bloomberg.com/news/articles/2016-04-11/chesapeake-energy-amends-4-billion-credit-agreement-due-in-2019

    Chesapeake Energy Corp. pledged almost all of its natural gas fields, real estate and derivatives contracts to maintain access to a $4 billion line of credit

    Chesapeake amended a secured revolving credit agreement that matures in 2019 with lenders, who agreed to postpone the next evaluation until June 2017, the Oklahoma City-based company said in a statement Monday. Such reassessments normally occur twice a year. In exchange, Chesapeake pledged “substantially all of the company’s assets, including mortgages encumbering 90 percent of all the company’s proved oil and gas properties” as collateral, according to a regulatory filing on Monday.

    Last month, Chesapeake exchanged 17.26 million new shares for about $73 million in senior notes and has said it is targeting another $500 million to $1 billion in assets sales

    The lenders’ agreement will provide Chesapeake “time to ride out a low commodity price environment,” Citigroup Inc. analysts led by Marisa Moss said in a note to clients on Monday. The company probably will issue a secured, first-lien term loan to retire its remaining 2017 and 2018 bonds, the analysts said.

  37. 70%H2O says:

    This 3 week old grist-article claim 50% of US oil production is fracked shale. Is this correct? I’d be surprised by the numbers if so.

    http://grist.org/climate-energy/half-of-u-s-oil-is-now-fracked-but-it-might-not-stay-that-way/

    • AlexS says:

      According to the EIA, in January 2016 LTO accounted for 47% of total US C+C production.

      • 70%H2O says:

        This was totally new to me. I have learnt from TOD and here that LTO declines fast. This makes it look like shale fracking have hidden the decline in conventional crude, with a sand castle of quickly evaporating LTO. That could be bad news for the US in a future when less and less oil become available on the world export market.

        • AlexS says:

          The share of LTO has marginally declined from 49,1% in June 2015 to 46.8% in January 2016.
          Lower 28 states conventional output declined almost as much as LTO:
          down 303 kb/d and 345 kb/d, respectively. from March 2015 to January 2016.
          Alaska production has remained generally flat, while GoM output is increasing.

      • shallow sand says:

        AlexS. One thing to keep in mind is how EIA treats the Permian Basin. There is a considerable amount of conventional crude production that is included in the Monthly Drilling Productivity Report.

        Not sure if what you quote above includes all of PB, or just hz wells?

        Regardless, the US is now very dependent upon hz, high volume fracked wells for its domestic oil supply.

        • AlexS says:

          shallow sand,

          My numbers are from an EIA report, which uses the numbers from DrillingInfo. I think their estimate of US LTO production is the most accurate.

          By contrast, Drilling Productivity Report shows oil production for 7 regions, which includes conventional production. The biggest share of conventional is indeed in the Permian basin.

          Combined oil output in 7 DPR regions was 5.19mb/d in January 2016.
          LTO production, according to the EIA/DrillingInfo report, was 4.29 mb/d, or
          46.8% of total US C+C production

          .

          • shallow sand says:

            AlexS. I am sorry. I should have known you already knew that re Permian Basin.

          • AlexS says:

            I had already posted this chart, which combines data from the two reports.

            Permian basin C+C production by key shale formations + conventional

  38. Amatoori says:

    Just had a quick look at EIA drilling report. https://www.eia.gov/petroleum/drilling/ Eagle Ford is dropping hard and fast if you believe in their projections. Now back at 2014 level of 1.200 Mbbl/d They need to start drilling fast. They been having 250 rigs working since 2012 until 2014, now 50. Oh lord it aint going to be pretty. https://www.eia.gov/petroleum/drilling/pdf/eagleford.pdf Permian seam to be rolling over now as well.

  39. ezrydermike says:

    $40.36

    10% climb in the last week

  40. Oldfarmermac says:

    For what it is worth here is some more commentary about the internal Saudi political situation.

    There are some facts mentioned worth noting, but I doubt the opinions offered are any more likely to turn out to be correct than my own, or the opinions of any other members of this forum, lol.

    It’s worth reading in any case.

    http://www.cnbc.com/2016/04/11/the-30-year-old-saudi-who-could-scuttle-oil-deal.html

    • likbez says:

      I like the following comment from CNBC site:

      xdir • an hour ago

      The gambler prince has crashed the Saudi economy and is too arrogant to change course…

  41. The EIA’s latest Drilling Productivity Report has US shale oil production down by 114,000 barrels per day in May. On an annualized basis that is 1,368,000 barrels per day. That is huge.

    Notice that the rate of decline is now increasing every month. It took a while, until December 2015, for the decline to really get started in earnest. But now it is clearly underway. It appears that the decline will now clearly be far greater than a lot of people estimated. Well, that is if the EIA has any idea of what they are talking about.
     photo Total Shale_zpsse1xwfg7.jpg

    • likbez says:

      Hi Ron,

      Notice that the rate of decline is now increasing every month.

      Looks like an important trend.

    • Silicon Valley Observer says:

      That is truly striking. Can’t wait to see how this plays out.

      • Tom says:

        I more and more suspect that geology is a significant part of the LTO production decline. The production curves for each major shale and total of all US LTO play (ref. Enno Peter’s http://shaleprofile.com/) are starting to look like bell curves. Also, top producer EOG seemed to stop its growth in June 2014 and that’s before the oil price decline. Rune Likvern in his recent post @ fractionalflow mentions that some sweet spots in Bakken are becoming satured with wells. In fact it looks like Bakken stopped the production increase between July – Nov 2015 which in my eyes is a bit too early to blame it solely on the oil price.

        Maybe Verwimp and Paztec are right? Now it is probably a combination of oil price and geology, but to me it seems that geology is a significant part of it.

        • Silicon Valley Observer says:

          I find the geology argument makes sense to me. You can poke only so many holes into the ground before things start to dry up. We have systematically run through our last significant source of oil in just a few years. After that what? I guess we will find out.

        • Dennis Coyne says:

          Hi Tom,

          Geology and oil price both will play a part. There are a lot of wells left to be drilled in the LTO plays at $85/b or more. When prices rise and financing is available (or stronger companies buy up bankrupt shale company’s assets and self-finance, more wells will be drilled, probably 35,000 total wells in both the Bakken and Eagle Ford if oil prices remain above $90/b from 2018 to 2022, not sure about the Permian, I don’t have as much data there, I think maybe 5000 horizontal wells so far there, maybe another 15,000 or so there? No idea on the Niobrara, but Enno may have some idea.

          • Tom says:

            Dennis,

            How do you estimate that 35000 wells can be drilled? What well productivity to you expect for these wells?

            Thanks

            • Dennis Coyne says:

              Hi Tom,

              Just a guess, based on NDIC reports, Drilling Deeper by David Hughes and work that Rune Likvern has produced. We might be able to drill 40,000 total wells in the Bakken/Three Forks and about 35,000 in the Eagle Ford, not really sure on the other plays.
              Note that these are total wells drilled, to date there have been about 10,000 to 11,000 wells completed in the ND Bakken and Eagle Ford, so about 24,000 wells in each play to be drilled.

              The wells drilled so far (most of them the early wells were less productive) have an EUR of roughly 210 kb in the Eagle Ford and about 320 kb in the Bakken. As a rough estimate you can assume the average EUR of the remaining wells will be about 158 kb in the Eagle Ford and 240 kb in the Bakken as EUR will decrease as sweet spots get fully drilled. That would result in a 9.3 Gb URR for the Bakken and 6.1 Gb for the Eagle Ford, so these estimates are pretty conservative. USGS estimates 11 Gb for the ND Bakken/Three Forks (mean estimate).

              • Tom says:

                Hi Dennis,

                Thanks.
                In Wikipedia for Bakken
                https://en.wikipedia.org/wiki/Bakken_Formation

                USGS 2013 estimate: 7.6 Gbo (undiscoverd oil)
                EIA 2011 estimate: 2.0 Gbo (proved reserves)

                Why do you have a preference for the USGS estimate?

                • Dennis Coyne says:

                  Hi Tom,

                  The USGS is staffed by geologists, the EIA is not.

                  Remember you need to add cumulative production plus 2P reserves to undiscovered TRR to estimate the URR, in Dec 2012 about 0.6 Gb had been produced and 2P reserves were about 4.3 Gb, so we would add 4.9 Gb to 79% of 7.6 Gb for a total in the North Dakota Bakken/Three Forks of 10.9 Gb.

                  The other 21% of the undiscovered TRR is in Wyoming.

    • Dennis Coyne says:

      Hi Ron,

      Very interesting. I replaced the DPR for the Bakken and Eagle Ford with “Red Queen” Models with wells added from Feb 2016 to Jan 2017 at one third the peak rate. The other 5 plays I used DPR data.
      I noticed since March 2015 that in the other 5 plays that increases in the Permian and Utica were offset by declines in the other 3 plays so that from March 2015 to May 2016 the decline of the 7 shale plays matches the Bakken and Eagle Ford decline pretty closely. I show what might happen from May 2016 to Jan 2017 in the Bakken and Eagle Ford with one third of the peak wells added over that period.

      For the other 5 plays decline may add another 250 kb/d of decline for the remainder of the year, so possibly a fall to 4600 kb/d for the 7 shale plays in Jan 2017 from a peak of 5500 kb/d in March 2015.

  42. likbez says:

    Professor Hamilton on “low oil price regime” effects on the USA economy (“secular stagnation” theme):
    http://oilprice.com/Energy/Energy-General/Why-Low-Oil-Prices-Havent-Helped-The-Economy.html

    …calculations suggest that while there was a modest boost in spending in the second half of 2014 and first half of 2015, it was significantly less than would have been predicted from the historical relation between spending and energy prices. Moreover, any boost seems to have completely vanished by this point, with actual consumption even a little below what would have been predicted had there been no drop in energy prices at all.

    …there can be little debate that lower oil prices have meant a major hit to the incomes of U.S. oil producers. One place that this is starting to show up in the GDP numbers is in capital expenditures. Spending on mining exploration, shafts, and wells was contributing $146 B at an annual rate to U.S. GDP in the second and third quarters of 2014. By the end of 2015 that number was down to $65 B, a drop of about half a percent of GDP.

    • Fred Magyar says:

      …calculations suggest that while there was a modest boost in spending in the second half of 2014 and first half of 2015, it was significantly less than would have been predicted from the historical relation between spending and energy prices. Moreover, any boost seems to have completely vanished by this point, with actual consumption even a little below what would have been predicted had there been no drop in energy prices at all.

      As I mentioned up thread I have a real problem with this notion that ‘OIL’ IS ‘ENERGY’!
      http://peakoilbarrel.com/world-cc-decline/#comment-565766

      Sure, we can burn oil to produce heat energy… BUT!

      Definition: Energy is the capacity of a physical system to perform work. Energy exists in several forms such as heat, kinetic or mechanical energy, light, potential energy, electrical, or other forms.

      According to the law of conservation of energy, the total energy of a system remains constant, though energy may transform into another form.

      OIL is NOT the only game in town!

      • Brian Rose says:

        Fred,

        The important distinction regarding the economic impact of lower oil prices is dependent upon where you are within that price cycle.

        1. Savings aren’t immediately spent as they accumulate slowly. Psychologically, people don’t even realize their bank account is $3 higher this week. Were far less conscious animals than we like to think. After 18 months, and $1,400 of savings I am STILL not consciously aware my purchasing power is $1,400 higher than it would have been, BUT things begin to FEEL a bit more stable – I worry about overdrawing my account less often, I (rather unconsciously) purchase upgraded meals or more premium products more often, I feel comfortable finally purchasing a new clothes washer I’ve needed. I don’t know WHY necessarily, all I know is, my gut tells me I can afford this or that.

        2. Lots of gas savings go to people who aren’t economically restrained anyway. People who drive the most often also fall into the higher income brackets. This leads to higher savings rates and paying off debt (as we’ve seen). This is ALSO mostly unconscious. People notice they have a bit extra in their bank account, and decide “Hey, I can make an extra mortgage, credit card, or car payment”.

        3. Those who stand to benefit the most from lower prices also disproportionately fall into the category of people who use mass transit… and therefore receive no benefit. Cities and municipalities are saving millions of dollars, but this just makes their bonds a safer investment, and doesn’t increase consumer spending.

        4. Much of the positive impact isn’t felt until rising prices return. Rising prices occur after the period of accumulated savings, so you’re receiving that society wide benefit, but ALSO rising prices directly create a host of good economic data – the energy industry starts hiring again, ancillary industries start hiring again, it creates rising prices in other commodities, and eventually in nearly all products… which leads to increased revenue for most every company in the market. Within 2-4 quarters an “earnings recession” turns into solid earnings growth, markets follow suit, people feel optimistic, and they still have the tail wind of overall lower prices to subconsciously fuel that feeling of consumer confidence.

        Basically, we’re only just about to begin the period of the cycle where all the good stuff happens. We’ll have a period of 12-24 months where things feel relatively peachy for the entire economy and markets. Once or if prices rise too much, and consumers are pinched, then we’ll be transitioning into a painful period where high prices cause a genuine recession (as opposed to today’s low prices causing merely an “earnings recession”).

  43. AlexS says:

    Brent pierces $44, hits five-month high on reports of oil output freeze deal

    Tue Apr 12, 2016
    http://www.reuters.com/article/us-global-oil-idUSKCN0X800I

    Global oil prices hit fresh five-month highs on Tuesday, piercing $44 a barrel and extending earlier gains after a report that top producers Russia and Saudi Arabia have agreed to freeze output ahead of a much-anticipated producers meeting on Sunday.
    Russia’s Interfax news agency quoted a diplomatic source in Doha saying that Russia and Saudi Arabia reached a consensus on Tuesday about an output freeze and that the final decision will not depend on Iran.

    • GoneFishing says:

      Could be they really can’t produce that much more economically at these prices. The real question is not their total production, but how much are they going to export in the future?

      • likbez says:

        GoneFishing,

        The real question is not their total production, but how much are they going to export in the future?

        A very good question. Thank you !

        All oil producing countries with even rudimentary brains among their non-comprador part of the elite (and were this part of elite is in power as in Russia, China, Iran, Brazil but not in Iraq, Argentina, Mexico, etc, were neoliberals are in power) and without civil war on the territory now started accelerated development of petrochemical industry.

        This is probably the most important consequence of this oil price slump.

        They all want to export more refined products and products with substantial added value (plastics, composites).

        Two countries for which exports will be most negatively affected are KSA and Russia. From what I read Russians are now really furious and fuming. I wonder whether some heads rolls for bad preparation to oil price slump on both government and executive level. Even Putin prestige is now under threat. The pressure on him “to do something” is enormous.

        KSA adopted the same policy and started the same process earlier then Russia (where the elite was asleep at the wheel, in this respect). KSA also has larger currency reserves to finance this new industrial plants. They probably will be able to process all heavy crude that is more difficult to sell really soon.

        In a way, the last price slump might serve as a nail into the coffin of “gas station for the West” neocolonial model that was cultivated for oil producing countries during “triumph of neoliberal globalization” years (let’s say from 1991).

        • Oldfarmermac says:

          I believe it will be possible to judge whether the Saudi government is acting rationally as soon as oil prices go up substantially again.

          IF they are rational managers, they will start building solar farms out the ying yang so as to save their oil for export at a very substantial profit, rather than burning it to air condition the country.

          For now, they may believe that political considerations are more important than making a good profit on their oil. They may be right about that.The only people in a position to judge are the ones with the real inside dope, and they aren’t saying much , at least not in public.

        • AlexS says:

          “All oil producing countries … now started accelerated development of petrochemical industry.
          This is probably the most important consequence of this oil price slump.
          They all want to export more refined products and products with substantial added value (plastics, composites).”

          This process started at least 10 years ago and has nothing to do with the drop in oil prices. See, for example, the chart below:

          Russia’s crude oil and refined products exports (million tons)

          • likbez says:

            Alex,

            No so fast. I remember that Sechin on one of International conferences had proudly pumped his chest explaining how good a player Russia is in a sense that they are just exporting raw oil instead of refined products. This guy dumped huge amount of money into Arctic shelf instead of building refineries and other chemical plants which would help enormously in 2015.

            Can you please compare that with KSA dynamics. Because that will tell us how backward in this respect Russians were up to this day in comparison with Arab sheikhs.

            The recent refinery built in KSA (0.4 Mb/d):

            Yanbu Aramco Sinopec Refining Company (YASREF) Ltd. King Salman and Chinese President Xi Jinping inaugurate YASREF Refinery Riyadh, Saudi Arabia, January 20, 2016 The Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud, the King of Saudi Arabia and His Excellency Xi Jinping, the President of the People’s Republic of China today jointly inaugurated the Yanbu Aramco Sinopec Refining Company (YASREF)refinery. https://lnkd.in/eCBZ4PZ W.J

            • AlexS says:

              I do not know what you remember, but there are statistical facts.
              The share of refined products in Russia’s oil and product exports increased from 25-30% in 2000-2005 to 41-42% in 2014-2015.
              In volume terms, exports of refined products increased by 174% (almost 3 times) between 2000 and 2015.
              Given that Russia has sufficient primary distillation capacity, there was an intensive modernization program.

              Saudi Arabia has also been developing refining capacity and currently covers all its domestic needs. In 2015, refining products accounted for 13% of total crude and products exports.

              Saudi Arabia’s crude and refined product exports (mb/d)
              source: JODI

              • AlexS says:

                As you mentioned Sechin, here is a brief summary of Rosneft’s refinery modernization program:

                “Rosneft is implementing the most ambitions modernization program in RF: more than 30 construction projects, reconstruction of re-refinery units. The Company’s refineries are implementing the modernization program that implies significant increase of the refining depth and improvement of the produced petroleum products (all motor fuels will correspond to the European environmental class Euro-5).

                The capacity of the modernization program projects:

                primary processing – 12.0 million tons/year;
                conversion processes – 23.6 million tons/year;
                reforming processes – 35.9 million tons/ year.
                At present, within the framework of implementation of the program, reconstruction and construction works are being performed with respect of the following:

                reforming, isomerization, alkylation plants for production of high-octane gasoline components;
                catalytic cracking plants for production of high-quality gasoline components and oil conversion rate increase;
                hydrocracking plants for production of high-quality diesel fuel components, jet fuel and oil conversion rate increase;
                hydrotreatment plants for compliance with the requirements of the Technical Regulations of the Customs Union in terms of sulfur content in the products.”

                http://www.rosneft.com/Downstream/refining/Refinery_Modernization_Program/

  44. likbez says:

    EIA STEO for April, 2016:

    •U.S. crude oil production averaged an estimated 9.4 million barrels per day (b/d) in 2015. It is forecast to average 8.6 million b/d in 2016 and 8.0 million b/d in 2017, which are both 0.1 million b/d lower than forecast in last month’s report. EIA estimates that crude oil production in March 2016 averaged 9.0 million b/d, 90,000 b/d below the February 2016 level.

    • clueless says:

      The biggest point for me is that if indeed 2017 production is 8 million b/d in 2017, that is 4- 5 million b/d below some forecasts made at the beginning of 2014 for 2017.

  45. clueless says:

    “Alex Beard, head of oil at Glencore Plc, was less bullish about the recovery, noting that the global market added over 300 million barrels of crude and oil products into storage in the last 18 months.” From a Bloomberg article.

    Glencore is one of the largest traders/miners in the world. If he is right, it would seem as though excess supply for the past 547 days has averaged about 550,000 b/d. If so, I would be more bullish, not less bullish.

    • likbez says:

      If we classify rabid supporters of “low oil price forever” regime, I would say that No.1 is Zerohedge, and No.2 is Bloomberg. With FT, Economist, and WSJ behind.

      Both in this particular area acting as, in essence, a filthy propaganda outlets for “masters of the universe” behind the screen.

      In case of Bloomberg for GS, in case of ZeroHedge I do not know for whom they are shilling.

      That does not exclude them from providing some useful information, but you need to be able to read between the lines and distinguish useful information from propaganda.

      • shallow sand says:

        likbez. Other than publishing some of Art Berman’s articles, Forbes should be included in your list.

  46. aws. says:

    Wells Fargo Misjudged the Risks of Energy Financing

    Asjylyn Loder, Bloomberg, April 12, 2016 — 12:01 AM EDT

    “The perception was the risk was reasonably low,” Dennis Cassidy, co-head of the oil and gas practice at consulting firm AlixPartners in Dallas, said of reserves-based lending across the industry. “The volume and velocity of deal flow was such that it was a rubber stamp. They were not scrutinizing price assumptions and forecasts. Everyone was open for business. It was full on, full throttle.”

    This time is different. The growth of the high-yield bond market allowed drillers to take on far more debt than in past booms, leaving them more vulnerable to default. The emergence of shale technology allowed companies to expand reserves and the loans backed by those properties.

    Some of those loans may now be underwater. JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley would need an additional $9 billion to cover souring oil and gas loans in the worst-case scenario, Moody’s Investors Service said in an April 7 report. Lenders could lose 21 cents on the dollar on defaulted exploration and production loans, four times more than the historical average, Moody’s said.

    • Silicon Valley Observer says:

      Once again we learn that the finance industry is feckless. Economists who would claim that businesses are run by informed people with rational expectations and risk aversion is crap. They’re just greedy monkeys. Why? Because being a greedy monkey pays. When things are going well nobody wants to listen to the guy preaching caution. And when everything tanks you can just say, well, everyone was doing it — and if it’s bad enough, you get bailed out by the Feds. Capitalism. Efficient markets. The invisible hand. Rational expectations. What a bunch of crap.

    • AlexS says:

      Related:

      Oil Drillers Feel the Pain as Banks Slash Their Credit Lines

      http://www.bloomberg.com/news/articles/2016-04-12/oil-drillers-feel-the-pain-as-banks-slash-their-credit-lines

      Lenders including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are slashing credit lines for struggling energy companies. It’s a tacit acknowledgment that energy prices aren’t coming back, and represents an abrupt turnaround from last year when banks were lenient on struggling drillers in the hope that better times were coming.
      Since the start of 2016 lenders have yanked $5.6 billion of credit from 36 oil and gas producers, a reduction of 12 percent, making this the most severe retreat since crude began tumbling in mid-2014, according to data compiled by Bloomberg.

      And it isn’t over yet. Banks are in the middle of a twice-yearly review of energy loans, where they decide how much credit they are willing to extend to junk-rated companies based on the value of their oil and gas reserves. With crude hovering near $40 a barrel, drillers’ assets are worth far less than they were two years ago.

      Banks are cutting their oil and gas exposure in part because they are facing pressure from regulators and investors to rein in risk.

      “The banks are walking a tightrope,” said Spencer Cutter, a credit analyst with Bloomberg Intelligence. “They don’t want to push the companies into bankruptcy, but on the other hand they’re getting a lot of heat from regulators and investors. They can’t keep kicking the can down the road like they did last year.”

      A bank that denies credit to a company could find itself liable for damage to the borrower, said David Feldman, a restructuring lawyer at Gibson Dunn & Crutcher LLP.
      “Lenders are very torn because it’s a difficult call,” Feldman said.

      Borrowers are feeling the pinch. At least 15 companies have seen their credit lines cut, including Whiting Petroleum Corp., Rex Energy Corp., and Halcon Resources Corp. Goodrich Petroleum Corp.’s lenders cut its credit line in January to $40.3 million from $75 million, limiting how much the cash-starved company could draw. The oil and gas driller gave creditors until May 6 to vote on a reorganization plan.

      Last month, in exchange for waiving Energy XXI Ltd.’s loan covenants, lenders led by Wells Fargo cut the company’s credit line to $377.7 million, the amount the oil producer had already borrowed under what had been a $500 million facility. The lenders also required Energy XXI to cash out its oil hedges and use the money to pay down the loan, according to Securities and Exchange Commission filings.

      Banks are setting aside more money to cover losses on energy loans. Wells Fargo, which had $17.4 billion in outstanding oil and gas loans at the end of 2015, set aside $1.2 billion to cover potential losses. JPMorgan, which had $14 billion in outstanding oil and gas loans, said in a February presentation that it will boost its energy loan loss reserves to $1.3 billion in the first quarter, a $500 million increase from the end of the year.

      Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America and Citigroup could need an additional $9 billion to cover souring oil and gas loans in the worst-case scenario, Moody’s Investors Service said in an April 7 report. Still, the lenders would be able to absorb such losses out of one quarter’s earnings.

      • Silicon Valley Observer says:

        Thanks AlexS, great article. I think this comes under the general heading of closing the barn door after the cows are gone. Which is normal operating procedure for banks. I laugh at the idea that banks are walking a tightrope. Of course they are — they built the tightrope and jumped onto it happily. The only question for the banks at this point is how do you unwind this thing without killing it, and themselves, in the process.

        • AlexS says:

          Silicon Valley Observer,

          The banks will certainly not kill themselves.
          $9 billion to cover bad oil and gas loans (in the worst-case scenario) is not an
          insurmountable amount for 5 biggest banks.
          The situation is much worse for the shale companies, their shareholders and small bondholders.

          • TechGuy says:

            AlexS wrote:
            The banks will certainly not kill themselves. $9 billion to cover bad oil and gas loans (in the worst-case scenario) is not an insurmountable amount for 5 biggest banks.”

            Wells Fargo alone has over $32 Billion in exposure to Junk Oil & Gas loans

            Wells Fargo Finally Reveals Its Dire Energy Exposure: $32 Billion To Junk-Rated Oil And Gas Companies
            http://www.zerohedge.com/news/2016-04-14/wells-fargo-has-problem-32-billion-junk-rated-energy-exposure

            If I recall correctly overall, US Banks have a total expose of between $180B and $250B in Junk energy company bonds. Also consider that US banks likely have exposure to overseas energy companies.

            All this week the FOMC (US federal Reserve) has been in an emergency meeting. This is likely connected to Yellen’s visit with Obama on Monday. That said I don’t know if this is related to US Bad energy Loans. It might be related to Puerto Rico’s default on ~ $75B in debt. or could be something else. The last time the FOMC held a multiple day emergency meeting is when Bear Sterns collapsed. I guess we’ll find out next week.

            FYI: Federal regulators declare US major unprepared:

            Regulators: 5 Big Banks Get Failing Grades for Crisis Plans
            http://www.nbcnews.com/business/business-news/regulators-5-big-banks-get-failing-grades-crisis-plans-n555316

            • AlexS says:

              TechGuy,

              Not all loans are “bad”. Not all issuers of junk bonds will go bankrupt. Only a small part of oil companies’ debt is maturing in 2016-17. And this debt is spread between a large number of banks, other financial institutions, retail bondholders, etc.
              Of course, some banks are more exposed than others. They will suffer, but the big ones will survive. Probably some local banks in Texas may fail, like in the 80s, but this is not a big threat to the banking system.

              Bloomberg on Wells Fargo:

              Wells Fargo Sets Aside $1.7 Billion for Souring Oil Loans: Chart

              http://www.bloomberg.com/news/articles/2016-04-14/wells-fargo-sets-aside-1-7-billion-for-souring-oil-loans-chart

              Wells Fargo & Co. has $17.8 billion in outstanding loans to the energy sector. The bulk of the banks’ exposure is to oilfield service companies and producers, two sectors that have seen the most financial stress. Wells Fargo said Thursday it has set aside $1.7 billion to cover potential oil and gas losses. The bank had net charge-offs in energy of $204 million in the first quarter.

            • AlexS says:

              P.S.
              The amount of bad loans is large, but not unprecedented

              From Bloomberg:

              “Soured loans to companies jumped 67 percent at the three biggest U.S. banks in the first quarter, the latest sign that corporate credit quality is eroding after energy prices plunged.
              At Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co., bad loans to companies reached their highest levels since at least 2013. For now, weakness is mainly confined to oil and gas and related industries, executives said.
              Troubled loans have broadly been declining at big banks for years, and at JPMorgan and Bank of America, are LESS THAN 1 PERCENT OF TOTAL ASSETS.”

              http://www.bloomberg.com/news/articles/2016-04-14/soured-corporate-loans-surge-at-biggest-u-s-banks-on-oil-plunge

              • TechGuy says:

                FWIW: I see a wave of defaults coming. Not only there pending Oil & gas Bankruptcies, but there are are also coal bankruptcies (Peabody went BK yesterday), as well as non-energy businesses failures (ie us business dependent on sales to Asian markets) We are also seeing the beginning on Muni-Debt defaults (ie Puerto Rico). I think we’ll see more Cities forced into default (Chicago is a prime candidate). There is also probably at least $100B in bad student loans. I recall reading that about 12% of all student loans are in a state of delinquency.

                I don’t think it will come all down at once, it it will continue to build until a tipping point is breached which will like set off another big crisis like in 2008/2009. I am not sure if we will see a crisis this year, but its coming. I think there is at least $500B in high-risk loans that will eventually go bust over the next few years, unless the gov’t or Fed starts bailing them out again (which is very likely).

                That said, I would expect most of the Oil & gas junk bonds to go bust. Most of the Nat Gas and Shale drillers loaded up with high yield loans (10% to 12%) in order to delay a bankruptcy after the prices for Oil & natGas collapsed. Unless the ME goes into a full war, I don’t see energy prices making a sufficient recovery in time to save their bacon. Shale drillers (Oil & Gas) never really mad any money to begin with even when Oil was above $100bbl. They just kept on borrowing and expanding.

                Banks have a bad habit of not properly managing risks. I very much doubt that the small amount of reserves banks are setting aside are anywhere near sufficient. As I posted earlier, regulators declared they the large US banks are total unprepared for another crisis. Obviously regulators believe a crisis is coming otherwise they won’t have raised concerns. Recall that during the Housing crisis, Banks held similar amounts to handle bad loans, which which ridiculously insufficient. It wouldn’t surprise me to see the Big 5 US banks eventually get nationalized in the next five years or sooner, or the Fed accumulating another $2T to $4T in banking loans, or depositor bail-ins.

                As I stated earlier, the Fed has held emergency meetings every day this week. Something big likely happened, but public won’t know until they managed to find a way to handle it. My best guess is the Fed and/or Obama will make an announcement on Sunday, unless its a really big problem and the emergency meetings continue into next week.

  47. Heinrich Leopold says:

    Chinese oil imports continue to surge 13 % above last year in volume terms (see below chart). The huge difference between the volume and dollar value of oil imports suggests a massive catapult jump of oil prices when the cycle turns up again.

    However this may take up to two years, depending on how successful market participants are able to balance the market.

  48. AlexS says:

    Pioneer to Add Up to 10 Drilling Rigs Once Oil Prices Rebound

    http://www.bloomberg.com/news/articles/2016-04-12/pioneer-to-add-up-to-10-drilling-rigs-once-oil-prices-rebound

    Pioneer Natural Resources Co., an oil and natural gas explorer, will add five to 10 drilling rigs if crude prices rebound to $50 a barrel, said Chief Executive Officer Scott Sheffield.
    West Texas Intermediate, the U.S. benchmark crude, should reach that threshold by the end of the year or in early 2017, Sheffield said at an industry conference in New York on Tuesday.
    Pioneer expects “a major drop” in U.S. production in the third quarter and is not yet adding more hedges, Sheffield said.

    ====================================================
    Comment:

    One of the shale industry leaders needed to show that it is doing well and is ready to increase drilling activity after a rebound in oil prices.

    But they are very cautious: the price trigger is $50, not $40-45, like many experts were predicting.
    (What about new LTO breakeven prices at $25-30?)

    And they will be adding rigs not before year-end or early 2017. which means that a modest recovery in LTO may start not before mid-2017, at best.

    • Enno Peters says:

      Alex,

      Thanks.

      Helms during his last update also mentioned that he expects rigs to return in ND only after one year of oil prices above $60.

      • AlexS says:

        Thanks Enno,

        I think that $60 sounds more realistic. There could be a marginal increase in rig count at $50, but not sufficient for a rebound in oil production.

    • Ves says:

      “But they are very cautious: the price trigger is $50, not $40-45, like many experts were predicting.”

      Alex,
      I think what is happening is that wells that were borderline at $40-45 have been relentlessly drilled in the last 2 years when we had oil between $26-$40. And that wells are gone now, so now they are progressively moving drilling target between $50-60. But as of now someone is still drilling these $50-60 borderline wells when price barely reached $42 and with significant help of freeze talk.
      So by the end of this year or beginning of next year when the price is $50-55 the wells that could have been drilled at that price are already have been drilled. At that time they will announce the next target of $70 when they will pull the rigs from the yard and so on. So they will never reach the desirable price where the rigs will be back because target price will always be ahead of prospective wells that are available.
      But what else they can say to the gullible investors during investors call or conference except we are cautious because we know what we are doing 🙂
      At this point it is hard for them to do anything with such high declining wells.

      • likbez says:

        Ves,

        Looks like you discovered a yet another variant of Red Queen race: race for sweet spots 🙂

        In any case, the USA shale industry is now against the wall and without government intervention they will be decimated no matter what will be the form of price curve in 2016 and 2017. The forces that try to prolong “low oil price forever” regime are still quite strong and will not give up without a fight.

        • Ves says:

          Shale is in a position of zugzwang, as they say in chess since November 2014. That is, whatever action it takes it will be wrong.
          Their “race to sweet spots” is mainly prolonging agony for everyone else and not solving their model if it ever existed.

          • likbez says:

            Ves,

            The deflation of a bubble is clearly a zugzwang style situation. And shale bubble in no exception. Great insight ! Thank you.

    • shallow sand says:

      AlexS. Sheffield also said some things about adding rigs 2-3 months ago, right before a dilutive public stock offering.

      The offering was successful, then PXD proceeded to pull all rigs from all basins, except for their core acreage in the Permian, near Midland. Pulled all rigs in EFS, all Southern Permian and all other areas.

      Clueless pointed this out at the time and he was spot on, IMO.

      I think these statements have to be taken with a grain of salt. I assume OPEC and Russia have now realized this, and are relying much more on what the shale companies are doing than what they are saying.

      • likbez says:

        I think these statements have to be taken with a grain of salt

        You have to cast a wider net and compare sources – while disinformation is what is usually floating around in such cases, even the most obvious propaganda always reveals more than they want to be revealed.

        That’s why Russians used to read Pravda – they knew it was state propaganda but they also knew it contained information that can be extracted by those, who have enough IQ to be able to read “between lines”.

      • AlexS says:

        shallow sand,

        I agree with you.
        Shale guys are now in a delicate situation.
        On the one hand, they need to show their shareholders and lenders that they are still able to grow.
        On the other hand, they want to show their commitment to capital discipline.
        Meanwhile, combining these two goals is nearly impossible.

        In my view, the most important in Pioneer’s CEO’s statement is not that are ready to add 10 rigs in 2017 (who knows what can happen over the next 9 months), but that they will not be adding new rigs this year, despite oil prices reaching the $40-45 range.

      • AlexS says:

        P.S. It would be interesting to see shale companies’ output guidance for 2016, when they will announce 1Q results.

        Below is their current guidance from 4Q15 results
        source: http://marketrealist.com/2016/04/analyzing-us-oil-gas-producers-output-guidance/

        • shallow sand says:

          AlexS.

          I assume your chart is BOE. 4 of the 6 with production gains produce primarily gas.

          Many companies actually will have lower oil production, but increasing gas production, especially those operating in OK. CLR is an example.

          The Bakken is the most “oily” shale basin, yet will likely have among the lowest number of completions in 2016.

          • Anonymous says:

            Not listed above but Energy XXI just filed chapter 11, $2.8 billion debts to be written off. Linn Energy and Sandridge might be next in line.

          • AlexS says:

            shallow sand,

            Yes, this is oil & gas. For example, CLR’s guidance for 2016 is 200 kboe/d, like the chart shows.
            This includes 60% crude oil (120 kb/d) and 40% natural gas

            Continental Res. oil & gas production guidance for 2016

  49. Heinrich Leopold says:

    The weekly status report came just out.

    http://ir.eia.gov/wpsr/overview.pdf

    The weekly decline stands now at -31 kb/d which is annualized 1.6 mill b/d. In my view decline rates will now accelerate until oil prices – and more importantly drilling – are up. So, it is also my opinion that the next rise in US liquid hydrocarbon production will not be up before summer 2017.

    Interesting also that ‘other supply’ (including fuel ethanol and processing gains) is down 70 kb/d. So, the market works and lays the foundation of a price recovery.

    • dclonghorn says:

      Schlumberger has announced that they will be reducing work in Venezuela because they have not been paid.

      http://www.bloomberg.com/news/articles/2016-04-12/schlumberger-to-pare-services-in-venezuela-on-lack-of-payments

      They are owed almost a billion. I wonder how that works. They say if you owe a bank a million and can’t pay, you have a problem. If you owe a billion, the bank has a problem. I wonder if they will actually pull out or be forced to continue to provide services to protect their receivables.

      Maduro has been alledging that the US is seeking to scrap the OPEC freeze plan.

      • Oldfarmermac says:

        Turning loose of a tiger once you have him by the tail is a tough proposition.

        My guess is that if Schlumberger were to just announce a pullout, Maduro would seize any and alll company assets in country, and the billion in paper receivables would bring about one cent on the dollar, maybe five cents on the dollar max, in the financial market.

        Maduro’s pet judges would probably belatedly discover that Schlumberger is guilty of countless crimes, and fine the company TWO billion. LOL

        With a little luck, the opposition will get into power and do a better job running the country. It is hardly conceiveable they would do worse.

  50. AlexS says:

    Most E&P Efficiency Gains Tied to OFS Pricing Concessions, Not Better Drilling, Says Schlumberger CEO

    Carolyn Davis March 21, 2016
    http://www.naturalgasintel.com/articles/105768-most-ep-efficiency-gains-tied-to-ofs-pricing-concessions-not-better-drilling-says-schlumberger-ceo

    Another myth is the drilling efficiencies being touted by E&Ps. Yes, drilling has gotten better, but most of the price gains touted by E&P management are related to pricing concessions extracted from the OFS sector. OFS operators simply are fighting for survival and are doing what it takes to keep customers — cutting prices as much as they can and even taking losses. Once activity begins to pick up, OFS pricing mostly will reverse, he said.
    “The fact remains that the industry’s technical and financial performance was already challenged with oil prices at $100/bbl, as seen by the fading cash flow and profitability of both the IOCs and independents in recent years,” Kibsgaard said.
    “Over the past decade, our industry has simply not progressed sufficiently in terms of total system performance to enable cost-effective development of increasingly complex hydrocarbon resources. This can be seen by the escalating industry cost per barrel.”
    The U.S. land rig count peaked in October 2014, and the “rate of disruption” across the energy sector has led to a “full-scale cash crisis.”
    “The latest data points have, in recent weeks, sent the oil price up toward $40/bbl, and we would expect the upward trend to continue as the physical balances tighten further in the coming quarters,” said Kibsgaard.
    “In spite of this, we maintain our view that there will be a noticeable lag between higher oil prices and higher E&P investments given the fragile financial state of our customer base, which means that there will be no meaningful improvement in our activity until 2017” .

  51. Silicon Valley Observer says:

    This article brought something to my mind:

    http://www.bloomberg.com/news/articles/2016-04-13/nyc-pension-weighs-liquidating-1-5-billion-hedge-fund-portfolio

    After the 2008 stock market crash it was big news that many public employee pension plans were severely underfunded. While the stock market’s return has eased that underfunding, it didn’t erase it. Pension plans have unrealistic assumptions about asset growth in order to show that they will be able to pay off unrealistic future obligations. The incentive to maximize return is huge, and what better way than to invest in hedge funds and their risky portfolios. The oil sector is a major part of that portfolio.

    Now the pension funds are getting cold feet — and those are might big feet. What will their walking away from hedge funds to to the funding that LTO producers need? I see this as the tip of the ice berg as risk premiums rise and risk avoidance grows among the market as a whole.

  52. likbez says:

    Marathon Announces Sale Of Nearly $1 Billion In Assets

    http://oilprice.com/Energy/Crude-Oil/Marathon-Announces-Sale-Of-Nearly-1-Billion-In-Assets.html

    …The divestments include all of its E&P operations in Wyoming plus a pipeline there, together worth $870 million without the closing considerations

    …There are not a lot of companies clamoring to spend upwards of $1 billion to expand their operations, so the markets are no doubt curious to see who feels confident enough to make such an acquisition.

    …Marathon Oil is acting like a cautious company, and so it should be, after posting a net loss of $869 million for 2015, from a profit of $1.16 billion a year earlier, accumulating debt of $6 billion by the end of 2015.

  53. Survivalist says:

    Looks like OPEC in the Middle East/GCC is drilling for all they’re worth. It’s interesting that production is flat’ish despite record infill drilling.

    http://www.reuters.com/article/us-arabia-oil-kemp-idUSKCN0XA1LA

    This all makes me very nervous about the future. From what I understand infill drilling may keep production flat for longer but it steepens the decline in the future. Is that correct? Are there any historical examples of infill drilling steepening decline curves? Are there any historical examples of what may take place in the gulf once all this infill drilling has shot it’s bolt?

    • Fabio says:

      I agree. And remember, as impartial as John Kemp might try to be, this is Reuters…if they agree to say that an elephant is in the front garden, then it’s probably already in the living room.

  54. Heinrich Leopold says:

    A short article at bentekenergy.com meets exactly my point for the US natgas market:

    …….
    How Long can Production Hang on without Rigs?
    Wednesday, April 13, 2016 – 5:24 PM
    …….rigs in the Appalachian region continue a downward march, reaching another all-time low of 37 rigs for the week-ending April 8; ….The low drilling activity causes concern for the viability of continued production growth in the Northeast region…..

    The US natgas market is anyway firing on just one cylinder (Marcellus/Utica). And this region also suffers extreme low drilling activity. Shale gas has to beat the massive legacy decline of 18 bcf/d and year (which is 3 mill boe/d every year to be drilled) and also compensate for the decline of conventional gas production, which I estimate to be at least 6bcf/d and year. Texas production just reached 18 bcf/d from over 24 bcf/d not so long ago.

    US production reached 70.7 bcf/d yesterday, which is roughly down 5% year over year. Giving the enormous decline of drilling activity, I expect much steeper declines.

    It will be very interesting to see what happens over the next year. In my view the natgas market has reached its Enron moment.

    • Reno Hightower says:

      That is just dry gas. Associated gas is taking a beating as well. My guess is a lot of the Texas declines are associated gas and conventional gas.

    • John Keller says:

      I am with you HL. We also have demand rising this year. New chemical/fertilizer/methanol plants will be opening up all year. Train 2 of Sabine is being commissioned. Train 3 will be starting up late 2016/early 2017. A new pipeline to Mexico from New Mexico goes into service this summer. Imports from Canada will continue to drop with reduced production there.
      The warm winter has only prolonged the rebalancing which will make the spike even greater.

      I have seen this movie before. In the early 2000’s gas was cheap and we went out and built a bunch of gas fired generation. Then everybody (including Greenspan) worried about not having enough gas, so we built import LNG import terminals. Then we have a lot of gas, so we build export terminals and a bunch of new industrial users for gas. I think we will soon be short gas. People might have forgotten how volatile this commodity can get.

      • Heinrich Leopold says:

        John Keller,

        The US gas market is very interesting as export and import capacity is very limited in comparison to the market size. So this makes the US natgas market a show case for supply/demand spikes to the upside and the downside.

        I remember as well as even Greenspan worried about the gas market in 2000. This has been also the birth of the shale gas concept as conventional gas reserves in the US were running out. This underlies also the importance of the shale gas concept for the US economy.

        This time there comes another variable to the market and this is the rapid substitution of coal in electricity generation through wind and solar. We have seen this in Germany over the last ten years when huge oversupply of electricity caused negative electricity prices, followed by extreme shortage of electricity and high spot prices.

        Natgas is the only lever to compensate for this volatility in the short term. I have just checked the weekly rail transport number for coal and it is down -44 % from last year. So the policy goal is clearly to get out of fossil fuels and coal is first on the list of environmentalists. So, natgas has to compensate for the volatility created by wind and solar and has to cover the loss of enormous base load electricity as well.

        There is now a massive leverage built into the natgas market not only through the investment cycle and low drilling rates, but also from the wind and solar capacity added, the closure of coal power factories, the new export capacity…

        Volatility has been so far to the downside, which many analysts view as a stable market. Yet the current mix of variables suggests that this can work also to the upside of prices.

  55. AlexS says:

    This chart from DrillingInfo shows a sharp reduction in new well starts in the U.S. from around 2700 in October 2014 to some 350 in March 2016.
    The decline sharply accelerated in the past few months.
    In that situation the pace of the decline in U.S. oil production will largely depend on completions of the DUCs

    • AlexS says:

      In the Permian basin, the decline in well starts was slightly less than the U.S. average, but still very significant.
      The share of horizontal wells have gone from 38% (in March 2014) to 68% of all wells drilled.

      source: http://info.drillinginfo.com/permian-basin-west-texas-oil-renaissance-continues/

    • Enno Peters says:

      Alex,

      Very interesting graph.

      That’s an astonishing drop, and quite larger than the drop in rig count over the last year.
      “Well start” here means the start of drilling a new well?

      • AlexS says:

        Enno,

        I also noticed that the decline in the number of well starts exceeds the decline in rig count. Probably, that reflects increasing share of horizontal wells (which take longer time to drill).
        Drillinginfo does not explain what they mean by “well start” (open the link above), but I guess that’s the start of drilling a new well.

        Also note, that this is probably oil and gas wells

        • Enno Peters says:

          Thanks Alex, that indeed looks like the definition used.

          Interesting article.
          I did find the statement “One region where unconventional formations are still hot, horizontal or vertical is the Permian. ” hard to square with the graphs provided though. It looks like the Permian is also cooling down.

  56. Heinrich Leopold says:

    The sharp reduction of drilling activity shows already some effect on oil production and there are tentative signs of market stabilization:
    https://www.iea.org/oilmarketreport/omrpublic/
    http://oilpro.com/post/23776/falling-us-production-not-doha-move-oil-markets-to-start-stabiliz

    • Watcher says:

      A new definition. Stabilization now means increase.

      A $1 drop would be market devastating volatility.

  57. Oldfarmermac says:

    I don’t think anybody has posted anything about this yet today. New deep water rules are finalized.

    http://www.nytimes.com/2016/04/15/us/politics/us-issuesnew-rules-on-offshore-oil-and-gas-drilling.html

    The industry as usual is screaming bloody murder.

    The environmentalists are insisting the rules don’t go half far enough.

    http://www.bloomberg.com/news/articles/2016-04-13/exxon-says-25-billion-rule-will-sink-deepwater-oil-drilling

    Murder is too strong a word but some smaller companies in the industry are probably going to have a very hard time of dealing with these new rules, and the new rules may really be tough enough that some oil already discovered will be left in the ground unless prices shoot WAY up.

    It seems more likely than ever that unless prices go up sharply and soon that oil production will fall far enough within the next year, or two at the most, to FORCE the price of oil up.

    And then it will take some time for investment and drilling to pick up again.

    If I had money to gamble, I think I would buy a couple of oil options.

    Hopefully some of the hands on guys will have something to say about just how tough these rules really are.

    • Greenbub says:

      Luckily, you have access to a horse. Once they ban fracking and offshore drilling, oil is going to get mighty scarce.

      • Fred Magyar says:

        … oil is going to get mighty scarce.

        Which I happen to think is a really good thing! It’s going to force a lot of people to rethink how they live and view the world.

        This is about all I will need for transportation, BTW that’s an electric trailer, won’t need a horse… 🙂

        Now I’m hoping we don’t kill off all the coral reefs before we stop burning fossil fuels.
        Things are looking pretty grim at the moment.

        http://www.nature.com/news/coral-crisis-great-barrier-reef-bleaching-is-the-worst-we-ve-ever-seen-1.19747

        • Greenbub says:

          Is that kayak made of plastic?

          • Fred Magyar says:

            Dunno! That one might be fiberglass. My own kayak is most definitely made from a petroleum based plastic. I purchased it new in 2000 and it is still going strong. That’s a lot of miles of paddling. If at some point it should sustain major damage it is 100% recyclable. I guess it could be made of walrus hide.

        • JW Campbell says:

          Electric trailer?? Who makes it??

    • Heinrich Leopold says:

      OFM,

      The message is clear:

      First coal, than oil and gas.

      As there is an alternative to coal, there is no alternative to oil and gas yet. Will be interesting how this will play out.

      • Nick G says:

        There are no applications for oil and gas that can’t be replaced. Liquid fuels are unusually convenient for roughly 15% of their current uses (e.g., long-distance aviation and water shipping, seasonal agriculture), and synthetic liquid fuels are indeed more expensive (if you don’t include the costs of pollution, security/war, supply risk, etc), but they are viable.

  58. Oldfarmermac says:

    This link is a longer one ( not for sound bite fans ) going into some substantial detail concerning Russia as an energy exporting country, and what it means to the rest of the world politically and economically.

    Read it for insight. There is a LOT of food for thought in it. Russia may soon peak as as oil producer, but gas production is another story. Russia may now turn out to be the swing producer in some respects.

    Russia can sell pipeline gas cheaper than we yankees can sell LNG overseas for instance.

    http://www.huffingtonpost.com/the-conversation-us/russia-a-global-energy-po_b_9693032.html

    • shallow sand says:

      I read that the Russian governmnet is selling a 19.5% stake in Roseneft and looking for a “non-greedy” partner for the interest.

      Russia also says do not expect prices to rise after Doha meeting.

      I believe we discussed this back in February. The goal is not necessarily to return prices back to 2011-14 levels, but to stop the speculators driving the prices into the $20s and below.

      I wish they shale guys would say they need $70 to survive. Then OPEC and Russia would be ok with $60, and $60 WTI would be just fine by us for quite awhile.

      • Watcher says:

        Wait, you’re playing the speculator card?

        I thought those HFT engines were all that was putting it at $110.

    • Hickory says:

      OK, now that I am president/dictator of the USA, I have decided to have a canoe trip vacation with Putin followed by an announcement that Russia is being offered senior membership position in NATO.

  59. daniel says:

    Nd directors cut is out. “Only” ca.4000 bpd drop (?) at quite a few less producing wells. I am sure a better post on this will follow by ron, etc

    • Heinrich Leopold says:

      daniel,

      The FED production index for oil and gas came also out today. It covers production data for March. The crude oil index fell year over year 6% at a monthly rate of close to 3%.

      The year over year production change leads the production index quite strictly by 9 month. So, if this correlation holds, production will be down around 30% by year end.

  60. Enno Peters says:

    I have a new update on the oil production in North Dakota, here.

  61. FreddyW says:

    Hi,

    Are you going to post an update on Bakken production? I have some graphs I can share. Otherwise I can post them here.

  62. R Walter says:

    https://www.dmr.nd.gov/oilgas/stats/historicaloilprodstats.pdf

    2015 2 32998182 1178506 11800 2796 100

    2016 2 32431670 1118333 12705 2553 88

    Month 2 of 2015, 2016, the largest number is the barrels of production for the entire month.

    Looks like a decline rate of 12 percent in one year there at the barrels per day column (the far right numbers) and a increase of well numbers at about 8 percent.

    905 more wells to pump about the same amount of oil.

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