The EIA has published International Energy Statistics with Crude + Condensate numbers for September 2014. As most of you know I only follow Crude + Condensate because I believe that biofuels and natural gas liquids should not be part of the peak oil equation.
The data in all charts is thousand barrels per day with the last data point September 2014.
World oil production was up 1,270,000 barrels per day in September. This was somewhat of a shocker. I had expected production to be up about .9 mbd but not this much.
Non-OPEC nations accounted for 833,000 bp/d of the increase.
And OPEC nations accounted for 438,000 bpd of the increase. The EIA said OPEC produced 32,734,000 barrels per day of C+C in September. OPEC’s “secondary sources” said OPEC produced 30,560,000 barrels of Crude Only in September. OPEC’s crude only production had dropped to 30,053,000 bpd in November, or over half a million barrels per day lower.
Just who were the big gainers and losers in September? They are listed below in thousand barrels per day. All others had no change. “Other” is the combined production of all small producers.
Canada was the big gainer, up 420,000 bpd. I have no idea how the EIA came up with such an increase from Canada. Perhaps someone can enlighten us with a comment.
That huge spike upward just looks strange. I am not yet ready to accept it and I expect it to be revised downward in the next report.
The number 2 gainer, Iraq was up in September but according to the OPEC MOMR they showed little change in October and November.
The huge gain in UK production was just a return from a lot of maintenance downtime.
The number 4 gainer, Libya, according to the OPEC MOMR was up in September and up a little more in October but dropped 250,000 bpd in November.
The number 5 big gainer in September was the USA, up 168 bpd in September. I believe the US still has some increase in production to come but this will be the last big gainer. That is the last increase of over 100,000 barrels per day for a long while…if ever.
For what it’s worth, JODI also has the US up by 170,000 bpd in September, but JODI has the US down by 155,000 bpd in October. The EIA’s Petroleum Supply Monthly is due out Tuesday December 30th with the USA’s October production numbers. However the EIA’s Monthly Energy Review is already out with November production numbers. There they have US production up by 91,000 bpd in October and up another 108,000 bpd in November. So they are already trying to make a liar out of me.
However the Monthly Energy Review is notorious for over estimating US production numbers. Their data is revised every month, usually downward. The Petroleum Supply Monthly is always far more accurate as they count production from each individual state. Though their numbers are also often revised.
China’s slight increase was nothing out of the ordinary, just up and down noise that can be expected from a mature producer. Daqing, China’s super giant is in decline.
Brazil is one nation that has been showing a steady increase for the last few months. But expect them to level out at just a bit above their current production in the next few months.
India’s gain was just a recovery from August’s huge decline. It still looks like they are in a slow decline.
Russia, up slightly in September but headed lower in 2015, or so everyone believes, including Russia.
Kazakhstan has again fallen below 1.6 million bpd. They will be lucky to hold their current production level until Kashagan comes on line sometime in 2017.
Total: Kashagan Oil Project Will Resume Production by 2017
Is this the last hurrah for world oil production? Will we look back and see September 2014 as the all time peak in world oil production? Perhaps but the IEA has world total liquids up slightly in October but down by 340,000 bpd in November.
Baker Hughes North American Rig Count
Rig count: US rig count dwn 35. Canadian rig count down 135.
The Non-OPEC Charts page has been updated along with the page World Crude Oil Production by Geographical Area with September data.
Note: I send an email notice when I publish a new post. If you would like to receive that notice then email me at DarwinianOne at Gmail.com.
Ron & Jeff,
I find this interesting. According to the IEA’s Monthly OMR report, In September, Saudi Arabia produced 10.1 mbd of total oil products, while consuming 3.5 mbd, exporting a net 6.6 mbd. Russia, on the other hand, produced 10.95 mbd in September, while consuming 3.8 mbd, leaving a net 7.15 mbd of net exports.
Russia with a population of 146 million is exporting a little more than a 0.5 mbd than Saudi Arabia, whose population is 29.6 million.
Saudi Arabia actually hit a new peak of consumption in July at 3.6 mbd. The one aspect of the oil market that most analysts fail to understand is the decline of NET OIL EXPORTS as explained by Jeff Brown.
steve
Interesting. They must not rely much on oil for heating in Russia. A little cursory browsing didn’t turn up any useful info. Anybody got any stats on Russian fuel use for anything – transportation, home heating, etc. I imagine there’s district heating in the cities, but do they burn coal, gas, wood, what else for all the heat they obviously need?
In any event, you make an interesting comparison, Steve.
They mostly use natural gas for heating, AFAIK. Gazprom also supplies much of the natural gas used throughout Eastern Europe, as well as Germany and even Italy.
The EIA shows Saudi total petroleum liquids production (+ other liquids, EIA) at 11.6 mbpd for September, 2014, which is the same number that they show for 2013 annual Saudi production. The EIA put their 2013 annual consumption at 2.9 mbpd, putting 2013 annual net exports at 8.7 mbpd (versus 9.1 mbpd in 2005).
The 2013 annual numbers for Russia are 10.5 mbpd production and 3.3 mbpd consumption, putting 2013 net exports at 7.2 mbpd. Russia has been at or below 7.2 mbpd of net exports since 2007.
The only thing more overlooked than net exports in my opinion is CNE (Cumulative Net Exports) depletion.
I estimate that Saudi Arabia has already shipped, through 2013, about 40% of their post-2005 CNE, and I estimate that Russia has already shipped, through 2013, about 22% of their post-2007 CNE. (CNE estimates based on the rates of decline in their ECI Ratios, the ratio of production to consumption.)
I thought the Saudis are still using oil for a substantial part of their electricity generation, but are trying to slowly replace it by natural gas and solar – apparently so far with limited results (?).
Maybe you can put it that Saudis are using that oil to extract more of the oil.
Red Queen Syndrome.
Oil is the biggest industry they have.
Saudi Arabia has officially recognized the necessity and cost effectiveness of solar electricity, for quite some time. They’ve had big plans for quite some time.
They seem to be having a very hard time actually building it. Perhaps the oil industry just can’t stand the idea of internal competition, despite it clearly being in the country’s best interest.
Their close neighbors seems to be doing a bit better…
Perhaps the lower cost to use natural gas rather than solar power is driving them, possibly because the desert dust covers the panels, and they lack water to wash them. These conspiracy theories about the oil industry merit a paper in a Psychlogy Journal. Maybe I’ll write one next week.
Actually, it looks like they plan to use both:
http://www.arabnews.com/featured/news/682436
Not bad, 550 MW using natural gas, 50 mw using solar. I bet they are laying km of black hose in the desert to preheat the water before they go to boiler feed pumps. I doubt they would use solar panels.
These conspiracy theories about the oil industry merit a paper in a Psychlogy Journal.
And, yes, there’s quite a lot of research on the topic:
“Why do some nations, such as the United States, become wealthy and powerful, while others remain stuck in poverty? And why do some of those powers, from ancient Rome to the modern Soviet Union, expand and then collapse?
… Countries that have what they call “inclusive” political governments — those extending political and property rights as broadly as possible, while enforcing laws and providing some public infrastructure — experience the greatest growth over the long run. By contrast, Acemoglu and Robinson assert, countries with “extractive” political systems — in which power is wielded by a small elite — either fail to grow broadly or wither away after short bursts of economic expansion.
Elites resist innovation because they have a vested interest in resisting change — and new technologies that create growth can alter the balance of economic or political assets in a country.
“Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people,” Acemoglu and Robinson write. Yet when elites temporarily preserve power by preventing innovation, they ultimately impoverish their own states.
… “Most consequential ‘policy mistakes’ are by design,” Acemoglu says. “These leaders are choosing policies that don’t maximize economic prosperity, because their objective is different: to hold onto power or simply enrich themselves.”
http://web.mit.edu/newsoffice/2012/why-nations-fail-0323.html
A case in point: Fox News is doing it’s best to kill the Chevy Volt in it’s cradle with relentless attacks, filled with misinformation and cues to it’s followers that “we” don’t drive EVs.
This despite the fact that Fox News pretends to be patriotic, and the Chevy Volt has a dramatic potential to help the US car industry and reduce US dependence on oil imports.
A wealthy elite is willing to hurt the economy and forego general growth (by preventing a transition away from Fossil Fuels) to preserve it’s privileges.
There are newer wealthy who have no vested interest in fossil fuel-related products. But they haven’t done a lot so far to influence politicians on energy and environmental matters.
While Musk seems to be a prickly fellow, I hope Tesla expands its influence to start swaying more folks to alternative energy technology.
Also, although some of the folks in the “sharing” economy aren’t particularly nice either (e.g., Uber, Airbnb), their business models might encourage a breakdown of centralized energy generation and production.
The tipping point hasn’t yet hit DC, and many politicians there are doing their best to protect old business models, but hopefully at some point the money will shift to something else.
I meant a breakdown of centralized energy generation and transmission.
Musk is also connected to Solarcity.
Musk has said many times he’s more interested in accelerating the trend to EVs and renewable than he is in making money…
So far I see nothing to back these conspiracy theories. Fox isnt an oil company. I don’t live in the USA, and I’m not up to date with the electric vehicle direct subsidies. Here in Spain they aren’t worth buying. Hybrids seem ok, but the battery performance has to be given time to prove itself.
Re: EVs
If you take a look at Edmunds.com, you’ll see that the Nissan leaf is the cheapest vehicle on the road to own over five years, even excluding the tax credit/subsidy.
The Prius, and it’s NIMH battery, has been on the road for 15 years, so I think the battery has proven itself.
Fox isn’t company, it’s just a wholly owned subsidiary. By that I mean, that it’s an arm of the US Republican Party (Google Roger Ailes), and the US Republican Party is owned by the oil industry.
Re: conspiracy theories,
It’s not really a theory – if you follow the history of the Koch brothers, it’s right up there in the open. I’ll add another comment or two with additional information when I have the time.
“The Republican Party is owned by the oil industry” sure sounds like a conspiracy theory.
If you like.
So, let’s ask a question that tells us whether someone is listening to reason, or listening to Fossil Fuel investors (or works in the industry).
Line up all of the politicians who identify themselves as US Republicans. Ask them if Climate Change is a serious risk. These days about 1 in a thousand will agree.
Q.E.D.
Of Interest: Unconventional gas in USA – The Big Fix debated. “Natural gas now produces 27 percent of the electricity generated in the United States, and the percentage is rising.”
http://www.nytimes.com/2014/12/23/science/natural-gas-abundance-of-supply-and-debate-.html?_r=0
We largely abandoned oil for electric generation after the 70’s shock, now we’re going out on a different limb, while of course busily chopping it off behind us.
100 years of supply indeed. And even if it were true, what then?
Hydrogen can use some of the same infrastructure as gas. I suspect the “what then” will be Hydrogen. Natural Gas is mostly Hydrogen anyway.
Today’s hydrogen is obtained from natural gas with about 80% efficiency according to Wikipedia. Hydrogen Production
It makes no sense to produce hydrogen from natural gas since it would be more efficient just to burn the gas.
The alternative is to produce hydrogen from water. That is a big loser. It takes more energy to separate the hydrogen from water than you get when you burn the hydrogen, turning it back into water. But even after you get it separated from the water you still have to compress it, transport it, store it, pump it into a car or whatever, then use it in a fuel cell. After the whole trip is over you get about 20 percent of the electricity to turn the axle as you spent way back at the source to turn the water into hydrogen.
The question proposed by clifman, was what happens in 100 years after the gas runs out. So obviously, we wouldn’t be making hydrogen out of gas.
I suspect it will be some new technology such as this:
http://newsoffice.mit.edu/2011/artificial-leaf-0930
However there are some “demonstration” projects, and others planned that use excess wind power to produce hydrogen. As this energy would be wasted anyway, I don’t think the efficiencies really matter that much.
http://www.hydrogenics.com/about-the-company/news-updates/2014/02/18/excess-wind-power-turned-into-gas-in-denmark-using-hydrogenics-technology
These demonstration projects don’t demonstrate feasibility. The cost is extraordinarily high, and the technology isn’t applicable. I live in Spain, where the government ran a huge debt encouraging renewables, and there is a huge infrastructure. The grid is fed about 35 % by nuclear and coal, 25 % wind and solar, and the rest is hydropower or natural gas turbines. The key is to have sufficient standby gas turbines to back up the wind, because it’s intermittent. Electricity is very expensive, and this discourages industry, thus it’s one of the causes for high unemployment (although the main cause is the convoluted labor laws and the asphyxia of high taxes and an incredible bureaucracy).
Clearly, Spain has had a bad experience from solar & wind. But why?
As far as I can tell, both Spain & Germany (and Italy, to some extent) invested a lot of money into subsidizing solar. They spent more money than they expected to. Why?
Because the cost of PV fell more quickly than expected, investors piled into the market faster then expected, and (at least in Spain) there was substantial fraud and mismanagement.
But, many Germans are happy with the project because they understood that this investment was intended to bring down the cost of PV. The fact that it worked better than expected is good, not bad.
Germany, of course, can afford a large investment into PV much better than Spain.
Finally, in Germany the increase in electricity price has as much to do with unrelated taxes as renewable charges. I don’t know about Spain.
So, the bottom line is that you shouldn’t over-generalize from Spain’s bad experience.
That’s my understanding of Spain’s experience with solar – if you have other info in the form of links/sources, that would be interesting.
The Germans who are happy with the solar performance just lack the proper education and know how. However, german publications are gradually opening the eyes of the public. I saw an interview in a left wing german paper the other day, very critical of their solar program. Spain’s program was absolutely and incredibly stupid. They copied the german program.
No, pretty much the whole country, including the engineering and scientific a leader of Germany, are committed to this program.
Do you happen have a link/source for the article? I often see references to articles in Der Spiegel in this context. They seem to have a vendetta against wind and solar – they’ve published a series of articles with a great deal of misinformation. You may have been misinformed by them.
“A leader” should be “elite”.
Gotta proof read.
Gotta proof…
There are plenty of Germans proud to have led the world into a PV age.
Spain did not copy the German program exactly. They made several huge mistakes.
(1) they didn’t have a reservation system or planned reductions in the feed-in tariff (FIT).
The bureaucrats assumed it would be years before PV was at their goals (and fiscal limit) of 400 MW. When the PV industry blew past this limits, the government was slow to cut off the FIT, so Spain got 3,500 MW of PV in 2 years (2007 & 2008) instead of 400 MW in 5 or 6 years.
n.b. 2008 was the big crash.
(2) when they realized things were way larger than they wanted, the government shut things down abruptly, leaving many Spanish PV companies broke.
(3) the Spanish govt set their FIT levels higher than Germany, even though they have as much as twice the sun. With such crazy high tariffs, all kinds of con artists and incompetents got into the action.
Please explain. I understand that hydrogen, being such a small element, isn’t easily contained and escapes existing seals; also makes metals brittle. How would you produce (liberate) hydrogen? The majority is now made using an energy-intensive process to liberate it from the fossil fuel natural gas, no?
Google “hydrogen production” and you’ll be an instant expert or recall a grade 10 project in electrolysis. Remember: H2O and salt and two wires from a battery = hydrogen + Cl2)? However, most hydrogen (∼95%) is produced from fossil fuels by steam reforming or partial oxidation of methane. As far as I can see a so-called “hydrogen economy” goes with warp drive, right Scotty?
You put a dollar’s worth of energy in and get 20 cents worth of energy back. That is Why a hydrogen economy doesn’t make sense.
Cost is not always the deciding factor.
Let’s take cars as an example. Let’s assume that in the future there is a businessman that is required to travel several hundred miles in a day. He has the choice of using a battery electric car, or a hydrogen car. The hydrogen car gives him the advantage of longer range, and quicker refueling times. So even though the battery electric car is cheaper, and more energy efficient, the hydrogen car may still be a better benefit to his business, despite the higher cost.
One can always dream up scenarios where the cost is not the important thing but a few possible cases will not influence the overall market. The big picture, the overall economic picture, will be what determines whether the hydrogen car is built or not. And the big picture says it is a lousy idea. There will never be a so-called hydrogen economy. It is just a very bad, very uneconomical idea.
I agree with Ron overall. It may be possible to build fuel cell cars for a while- until natural gas gets to be scarce and expensive.
The only way there will ever be a hydrogen economy is if there were to be enough surplus wind and solar or other intermittent renewable power to dump it into industrial plants designed to electrolyze water.It is rather unlikely to extremely unlikely so much wind and solar capacity would be built that there would be enough surplus electricity to manufacture free hydrogen in quantities large enough to REALLY matter.
Somebody upthread pointed out that hydrogen is hard to handle and store. This is true. It leaks right thru steel pipe. Building out a hydrogen distribution system would cost a fortune by any measure.
And given that we already have an electrical grid….. my bet is on batteries eventually being the all around cheaper alternative storage mechanism.
Fuel cells imo are destined to be a niche technology. It may be a pretty big niche but they are unlikely to compete with batteries head to head. Heavy trucks can be built to run efficiently directly on lp gas. So can larger farm tractors and larger construction machines such as bulldozers.
This is off the shelf and on the market technology that actually already makes sense dollar wise if you live in a place where lp gas is readily available and bring your big truck home every night.
If natural gas stays cheap in comparison to diesel compressed natural gas may well be the fuel of choice for truckers wherever it is available in a few more years.
With diesel at four bucks ( not right now of course) compressed natural gas would be competitive today if the trucking industry would adopt it. But apparently most truckers have been afraid to spend the bucks for fear diesel would come down again.
Sure enough diesel DID come down.
Being somewhat of a gear head I like to keep up with such stuff and it appears that a year ago you could have recouped the extra cost of a new heavy truck built to run on either cng or diesel within three years max assuming diesel and natural gas prices had held about steady.
This is enough of an advantage that trucking companies are going to be unable to ignore it depending on the relative price of natural gas and diesel going forward.
Lots of tractors used to be sold in the midwest ready to run on lp gas but they went out of fashion when lp went up in comparison to the much more convenient diesel fuel three or four decades ago.
“The only way there will ever be a hydrogen economy is if there were to be enough surplus wind and solar or other intermittent renewable power to dump it into industrial plants designed to electrolyze water.”
Well maybe but hydrogen isn’t generally made by electrolysis. You might be recalling some old high school science experiments? Not that hydrogen has a hope in hell in creating a “new economy” in any reasonable time frame: Well, maybe along with fusion and warp drive. Ask Scotty (or Data) for an informed opinion in 3014/15-ish.
Mac, if you care, check out “steam reforming” which, as I recall, yields ammonia, as well and hence, possibly fertilizer??? You’d know all about that I’d imagine.
Hi Doug,
I am familiar with the basic processes involved in manufacturing ammonia and such of course – not the details but the basic reactions and the stuff going in and coming out.
I should have made it clear that I was thinking about a time far enough into the future that input materials such as coal and natural gas would be very expensive relative to today’ s prices.
I am under the impression that steam reformation of coal is nowadays an obsolete process or nearly so. I know it was once used extensively to manufacture so called town gas.Dangerous stuff with a hell of a lot of CO in it.
This would have the effect of substantially lowering the relative price of hydrogen produced by electrolysis compared to getting it by steam reformation or stripping it out of any material such as wood or crop residues.
The thing about stripping out hydrogen is that it consumes a lot of energy while at the same time it consumes something that can just be fed directly into a furnace or a boiler.I expect such materials as so called waste wood to be rather valuable within the fore seeable future.
It has been years since I looked into the specific way the chemical industry manufactures nitrates etc but to the best of my knowledge these days the process uses natural gas as both the energy source and primary feedstock.
At one time iIrc electrolysis was commercially used to get the hydrogen needed to manufacture ammonia. This was way on back there and other processes soon proved to be more economic.In those days the ammonia went into manufacturing explosives for military use mostly rather than fertilizers.
When it comes to industrial chemistry I (used to at least ) know the basic outlines of the processes involved in manufacturing all the important agricultural inputs.Probably about as much as the average baker knows about growing wheat. In other words not very much but at least what was needed and where the plants were in a broad way.
I don’t bother keeping up any more being retired now.
A working farmer needs to know at least the bare outlines of the industrial chemical industry in order to understand his supply problems. Knowing that natural gas is going up is reason enough to buy your nitrates early if you have the cash. Nitrate prices lag the natural gas market but nitrates always go up when gas goes up.
Knowing the plants are overseas ( some manufacture has returned stateside recently ) and supply is therefore vulnerable to disruption due to war or embargoes etc is pretty important. You could get caught short if don’t stock up early.
Coal to liquids, to make syndiesel is more practical, if they get around the co2 emissions problem.
Exactly: CTL is very practical except for the CO2 problem. Sequestration is somewhat expensive, but it would work. Of course, that’s still using fossil fuels, and people like to ask the theoretical questions about what to do when FF runs out.
It’s a pretty theoretical question, given the enormous amounts of FF in the ground, and how long they would last if they were used in much smaller amounts.
What you said is true, but the question proposed by clifman is what happens when the gas runs out? No natural gas, no LP gas, no oil. That day will certainly come.
So we have 3 basic working technologies now:
1. Hydrogen
2. Batteries
3. Biofuel
Biofuel works fine. The problem is trying to scale up to the current levels of liquid fuel consumption. E.g. , you would have to plant every arable acre (500 million) in the US with corn in order to produce 140 billion gallons of Ethanol.
Batteries work fine too. The drawback is the limited range, and relatively long recharging times. Imagine a battery powered big rig delivering goods across country. It would have to make many multiple stops, and spend many hours recharging.
Hydrogen vehicles solve both problems. The supply of hydrogen from water is virtually unlimited. And Hydrogen vehicles have longer range, and shorter refueling times than battery vehicles.
No doubt in the future, there will be better batteries. And perhaps genetically engineered plants that yield huge quantities of Biofuel, that solve the respective problems. Time will tell.
I just re-watched this “documentary” recently, and wondered what you all thought about it:
https://www.youtube.com/watch?v=S56y0AzwdVk&list=PLPRaak5gqMIj0zN7pDN-0PfBwyb6P-ypZ
Here is the playlist on youtube
http://www.graphenea.com/blogs/graphene-news/7915653-graphene-batteries-and-supercapacitors-to-power-our-world
whos to say betterys wont get more efficent
the biggest breakthrough today in technology i think is graphene it may end up being one of the greatest tools used to lesson the impact of peak oil
but of course its not gonna fix all the problems we are gonna have and its still many years off im betting
Jeez! Has everybody forgot that there are lots of thermal machines that run on just HEAT? You don’t need any hocus-pocus. Take any old biomass whatsoever and just burn it. To hell with the corn and alcohol and all that. Use weeds.
Then you take that heat and run it into, for example, a closed cycle gas turbine. Very powerful, very efficient, very well understood and proven. If you prefer a stirling, use that, or lots of other things, like combined cycles.
Or, if you are timid, take your pile of weeds, pyrolyze it, and run that gas into your diesel.
And put the carbon back into the ground where it belongs.
It’s a nice film. But I disagree strongly with the happy ending. And the start of the problem won’t be as fast as the say, ofcourse. High speed trains and large container vessels in a post oil world, running on algae? Don’t think so.
Working technologies? Four, the foot, five wind for sailboats and six water though some areas lacking these might be screwed, but so these things go. No more carboning London Bridges off to Arizona like they did during the age of affluenza, for example.
“Imagine a big rig delivering goods across the country.”
Meh. Why bother? Buy local, keep that wealth local.
“The supply of hydrogen from water is virtually unlimited”
And nuclear power is too cheap to meter, and there’s more sunshine than some marketing drone could blow up your aHEY HEY KIDS!!! but you know that pesky reality thing just won’t go away. And, hey, look, humanity is plunging like a pricked bull right along the path outlined by the limits to growth folks a few years ago. Good fun!
John,
Fuel cell vehicles are EVs. They just have a small battery.
Well, H2 will always be much more expensive than electricity, so it seems inevitable that fuel cell vehicles will eventually have larger batteries and be chargeable.
So, you have an Extended Range EV, and the only question is: which makes more sense, an ICE (with biofuels, residual oil or synthetic fuel) or a fuel cell? Given that it won’t be used for more than 10-15% of miles driven and that fuel cells have very large capital costs, I think the answer is clear.
No need to build out an expensive hydrogen distribution system because hydrogen could be generated on site were needed- you just need power and water.
But, I agree there are lots of problems with making a hydrogen economy work.
Hydrogen is an energy storage mechanism that has a storage problem.
Someone must have been able to store it, or they wouldn’t have been selling these all over the world for the past year:
https://www.hyundaiusa.com/tucsonfuelcell/
It’s not impossible. Its just tricky, and the real issue is the point of use. The ‘gas tank’. A big carbon block etc. There are solutions. They are just something of a kludge.
Future EV’s may likely have a longer Range than H2. kWh density per unit of volume of Hydrogen is not exciting unless it’s liquid or under extreme pressure. Then it’s really exciting. You can add more batteries to get range, so it’s likely to get back to economics and future battery costs. Liquids fuels at room temperature such as Ethanol or Ammonia may be a competitor.
I dont think hydrogen can use any methane infrastructure. Wrong metallurgy, wrong seals, wrong compressor parameters.
I think you are wrong.
http://www.sciencedirect.com/science/article/pii/S0360319906004940
This is the abstract which is all I can get of the article on using hydrogen in existing gas infrastructure.
xxxxx
In this paper, the transport and distribution aspects of hydrogen during the transition period towards a possible full-blown hydrogen economy are carefully looked at. Firstly, the energetic and material aspects of hydrogen transport through the existing natural-gas (NG) pipeline infrastructure is discussed. Hereby, only the use of centrifugal compressors and the short-term security of supply seem to constitute a problem for the NG to hydrogen transition. Subsequently, the possibility of percentwise mixing of hydrogen into the NG bulk is dealt with. Mixtures containing up to 17 vol% of hydrogen should not cause difficulties. As soon as more hydrogen is injected, replacement of end-use applications and some pipelines will be necessary. Finally, the transition towards full-blown hydrogen transport in (previously carrying) NG pipelines is treated. Some policy guidelines are offered, both in a regulated and a liberalised energy (gas) market. As a conclusion, it can be stated that the use of hydrogen-natural gas mixtures seems well suited for the transition from natural gas to hydrogen on a distribution (low pressure) level. However, getting the hydrogen gas to the distribution grid, by means of the transport grid, remains a major issue. In the end, the structure of the market, regulated or liberalised, turns out not to be important.
xxxx
Reading the abstract alone tends to incline me to believe than hydrogen is never going to be transported in existing natural gas pipelines or used as a straight up substitute for natural gas in very many situations.
Seventeen percent is enough of a blend to distribute a lot of hydrogen but so long as you still have to have eighty three percent or more ng…. what is the point except to get any odd amounts of H2 to market as a blend?
H2 is troublesome even at low pressures. Compress it enough to store it or transport it in quantity and it goes right thru any kind of affordable pipes and tanks like water thru a screen.
A lot of people are working on storage though and there might be breakthroughs in terms of affordable storage within the next few years.
John B, here’s a quote from the paper you cited:
“Mixtures containing up to 17 vol% of hydrogen should not cause difficulties. As soon as more hydrogen is injected, replacement of end-use applications and some pipelines will be necessary. Finally, the transition towards full-blown hydrogen transport in (previously carrying) NG pipelines is treated. Some policy guidelines are offered”.
In real life a paper doesn’t really mean much to people like me. I’m retired now, but I used to sign off on designs and documents for industrial projects, and my training included a keen awareness of the critical need to avoid explosions and setting people on fire.
Thus I write his as a prior authority who had to think a lot about these things, and I can assure you it will take a lot more than a Mickey mouse paper to convince me to feed 15 % hydrogen into a 30 year old 30 inch diameter gas pipeline working at 1000 psi. Senior engineers who are responsible citizens don’t sign off on things that easy, and thank God we exist to keep your behinds fairly safe.
Here’s another quote:
“only the use of centrifugal compressors and the short-term security of supply seem to constitute a problem for the NG to hydrogen transition”
A transition to 2 % hydrogen, John. That’s not worth much. Hydrogen is a tricky molecule. So tricky many companies prefer to buy it from others, this way they reduce the amount of hydrogen gear they have to put inside their plant fence line. It’s much safer to ship electricity using a high voltage line.
John B – kinda, sorta.
But saying natural gas is mostly hydrogen is like saying table salt is half chlorine, a toxic/corrosive gas – so completely avoid salt.
The “Power to Gas” movement in Europe is checking into adding some hydrogen (or methane from CO2+H2) to the natural gas “grid”, to use the existing gas pipelines, etc.
http://en.wikipedia.org/wiki/Power_to_gas
This is an old idea, that never quite seems to pan out.
Some issues:
* hydrogen embrittlement of metals – not a showstopper, but any given pipeline/compressor/tank/etc. must be verified as resistant or replaced.
But in Germany, their old gas systems were built for “town gas” (manufactured gas, using the water-gas shift reaction from coal, so it had 50% H2 in it).
* the Wobbe index – measures how similar things burn, put too much H2 in nat gas and people’s stoves… act funny.
* underground porous rock storage – you’re feeding H2 to bacteria in the rock, they make H2S (hydrogen sulfide), H2S is toxic and corrosive. And your gas disappears.
* the lightweight steel tanks in current nat gas vehicles are limited to 2% H2, and they are embrittlement susceptible.
Some articles:
http://www.gerg.eu/public/uploads/files/publications/GERGpapers/HIPS_-_the_paper_-_FINAL.pdf
http://www.nrel.gov/docs/fy13osti/51995.pdf
Bottom line, you’re limited to replacing 10% +/- of the methane with hydrogen before things get a bit weird –> more costly.
And in a world soon to hit peak gas, why invest in a “renewables” solution that declines as fossil fuels decline?
I don’t get it….
I would like to get a (used) Tesla Roadster and the new 400 mile range battery/aero/tyres upgrade.
http://www.treehugger.com/cars/elon-musks-xmas-gift-roadster-30-upgrade-400-mile-range-model-s-upgrade-come-eventually.html
I am getting a near-passivehouse place for myself,
(backup heater required by code),
but even in the UK one can get by without a furnace:
http://www.treehugger.com/green-architecture/cropthorne-autonomous-house-survives-english-winter-without-furnace.html
“I don’t get it…”
I think the Hydrogen proponents are anticipating a solid state direct solar water splitting device (artificial leaf). Something like this:
http://pubs.acs.org/doi/abs/10.1021/nn5051954
So that in the future, Hydrogen production is as cheap and scalable as electricity from PV.
And this looks like it might be more fun than the Roadster:
https://www.youtube.com/watch?v=FrGFjAlawmg#t=239
In the future our descendants will be riding antigravity belts.
searching for the group at Berkeley, I find their fancy new device is 0.12% efficient. “about as efficient as most plants”.
Hopefully you’ve followed the biomass saga – biomass just isn’t efficient enough vis-a-vis available land area –> sufficient enough to sustain modern levels of civilization. PV and wind are technically sufficient.
Every 5 years or so, someone else reinvents the direct solar cell to hydrogen… doodad. The earliest I know of is Roger Kilby of Texas Instruments has a patent filed in 1975 to split hydrogen bromide with a solar cell made of spherical silicon and store the hydrogen and bromine for later use.
http://www.google.com/patents/US4021323
All these combined photovoltaic (PV) and electrochemical cells have the same two big issues:
(1) when you put a bunch of extra junk in the solar cell, efficiency goes down – so you’re better off having a plain/mass-produced–>cheap PV panel feeding an optimized electrolyzer that can also suck up excess wind, hydro, … power.
(2) PV modules last 20-30-40 years, and need to last that long to have good economics. Electrochemistry electrodes have all kinds of side processes going on, and they don’t last near that long. (e.g. how long do most batteries last?)
Putting things in the sunlight is brutal – UV has enough energy to break chemical bonds. Fancy structures are going to break down. Plant leaves repair themselves on an ongoing basis.
Commodity PV panels benefit from economies of scale and the learning curve. Specialized PV does not.
Witness Soitec, a concentrating PV maker, is in trouble.
http://www.greentechmedia.com/articles/read/CPV-Hopeful-Soitec-Latest-Victim-of-the-Economics-of-Silicon-Photovoltaics
List of the dear departed CPV makers at end of that article.
I have no doubt that a fair bit of hydrogen will be produced in the future from solar and wind, etc., but mostly for industrial chemistry, like the Vemork ammonia (for fertilizer) plant from 1911.
http://en.wikipedia.org/wiki/Vemork
But as an energy carrier, hydrogen is pretty inefficient and troublesome.
The answer is fairly straightforward:
Fossil fuels will be gradually replaced by wind and solar, with nuclear probably staying roughly level.
Batteries will gradually replace the bulk of liquid fuel for transportation, with niches supplied by biofuels and a very, very long tail of oil production. Eventually synthetic fuels will be produced using surplus electricity – they’ll be expensive compared to oil but affordable because they’ll just used used for niches.
Hydrogen could be used for niches, like seasonal grid backup. Seasonal grid backup could be provided by electrolysis, with the H2 stored cheaply underground. The round-trip efficiency would be low, but it wouldn’t matter much because the input power would be cheap, and such a solution would have a very low capital cost – far lower than something like pumped storage or chemical batteries (which rely on use over many daily cycles to amortize their high capital cost). Seasonal backup would only be needed rarely, as an overbuild grid would mostly be in surplus (except that power would be much cheaper during periods of surplus because of the zero marginal cost of renewable power).
17 moving parts for a Tesla P85. vs thousands for a ICE. efficiency is a big advantage
David Hughes just sent me the chart below. Converting the monthly Canadian crude oil production, using 6.2898 barrels per ton, we get the following production for Canada, in kb/d:
Jan-14 Feb-14 Mar-14 Apr-14 Canada Crude Oil 3,436 3,462 3,55 3,431 May-14 Jun-14 Jul-14 Aug-14 Sep-14 3,338 3,402 3,448 3,389 3,489The EIA has Canada at 3,867,000 barrels per day, 378,000 bp/d higher than Canada has them.
I’m guessing it’s a data entry error.
When would we know that for sure?
Would they admit it was an error or just “revise” down?
Okay, could not get the data formatted correctly but here is the chart:
Unlike just about everywhere else, Canada has known, no crap, no interpretation, no doubt HUGE reserves. It is there. A time will come when it doesn’t matter how much it costs to get it. They have it and if they MUST have it, they WILL have it.
Which is why Suncor is different from Exxon. They HAVE reserves. Exxon is eating theirs up.
Not if it requires more energy to extract/process than you get out. What is the EROEI now, about 3? Is that enough surplus to maintain/replace the infrastructure and maintain society at BAU levels?
Don’t matter. Not a bit.
If you can’t get food to NYC, you drill the oil no matter what its cost in anything. No government could possibly get re-elected if they let cities starve rather than get oil that is there. Hell, they’ll have guys with shovels out there paid with printed money if that’s what it takes to get food to the cities.
This is not a calm, aloof scenario with sophisticated analysis. If people are going to starve without oil, then you get the oil, even if the energy required is calories from sugar.
Watcher ought to use a sarcasm indicator sometimes. EROEI does matter and he knows it.
But it is true that so long as the oil can be extracted and shipped at just about any price it will be done if necessary to avoid collapse.
I do not know what the eroei for tar sands oil is but so long as it can be marketed using only tar sands oil itself as the basic energy input it won’t really matter. ALL that will matter is that the process can be kept running at a monetary profit or that society can afford the necessary subsidy.
It seems to be the case right now that most of the energy used in the mining and processing of tar sands oil is gotten by burning local natural gas which is dirt cheap compared to oil on an energy content basis.
I could be as wrong as wrong can be but I nevertheless believe that the estimates of the required ereoi ratio of five or nine or whatever that you hear coming from different sources is based not on physics or physical laws but on the ASSUMPTIONS used in the calculation of the necessary ration.
The process of mining tar sands requires only a little in the way of NEW steel to maintain production since the old machinery in the mines can be recycled. The percent of the energy input that goes into the mining devoted to steel and manufacturing machinery to use in the mines is actually rather small compared to the energy content of the oil produced.
. If the process is highly automated and the machinery lasts a long time ( and mining machinery is quite durable) then if it takes the energy in one barrel to produce THREE – well you still have the two barrels out of three net on a rough basis and if it sells for more than the cost of operating the mine it will continue to go to market for as long as the price and the cost structure continue to hold.
The amount of energy that goes into the miners shoes and housing and food is obviously trivial in relation to the amount of oil produced per worker.
The amount of energy that goes into manufacturing a two hundred ton truck is trivial in relation to the amount of energy in the oil in the sand that truck will haul over the next fifty years.And it will be kept in service someplace or another that long.
A good agriculture shop teacher way back when I was a student in high school wrote ASS U ME on the chalkboard and left it there permanently. The idea was that you never assume the gun is empty or the gas tank full or the wheels chocked or the antifreeze in the radiator or that the wind will not start blowing right in the middle of cutting down a tree.
Never assume the cop is not in his favorite spot behind the bill board before you floor the gas to show a buddy how good your car accelerates.
Never assume that your girlfriend won’t go thru your phone and your email sooner or later.
Never assume that clever and persistent engineers won’t figure out ways to do things cheaper. Those mine trucks will be operating autonomously a long time before cars on the road are driving themselves and once the tech is perfected and installed- it will run for a tenth the cost of a driver. Maybe a hundredth. The auto driver system will not need breakfast or supper or a hot bath or a bed to sleep in.And it won’t have an accident due to fatigue either.No medical insurance no pension no paid holidays. No safety meetings. Never oversleeps. Calls in sick a lot less often than an obsolete flesh and blood trucker.
The factory of the future will have only two employees on hand on a regular basis. One will be a man to watch the gauges and look for troubler and call the mechanics if needed. The other will be a dog whose job is to make sure the man doesn’t touch anything.
I just don’t think anybody knows how high eroei has to be for any given energy industry to be viable.
Assume can and does make asses of u and me. Dead asses sometimes.
Believe it or not, a company I worked for had a feasibility study done to use nuclear power to generate steam for heavy oil production and process needs. If the emissions issue gets in the way I believe we will see nuclear plants built next to the upgraders.
Syncrude in the past reported that it used 1/6 boe of natural gas to produce 1 barrel of Synthetic Crude Oil (SCO). That puts the EROEI in the 4.5 to 5.0 range, after accounting for some diesel fuel to truck the oil sands around and electricity to run the plant.
The natural gas is used in the coker units to reduce the carbon content of the bitumen feed by about 16%. I barrel of bitumen produce 0.84 barrels of SCO. According to Canadian Oil Sands, the largest partner in Syncrude, a barrel of SCO contains 48% distillate vs 37% for WTI. Also it only has 1% bottoms vs 8% for WTI. On an energy basis, a barrel of SCO may contain slightly more energy than a barrel WTI, judging by the larger fraction of distillate.
As an aside, SCO from mining operations are on average only 8% to 9% more GHG intensive than average barrel refined in the U.S. according to an November 2012 IHS CERA report,
The mines are quite efficient compared to SAGD, but I’ve yet to see the fuel cost to haul the sand and replace the surface back to initial conditions.
As regards oil upgrading, there are processes which allow the heavy ends to be upgraded (ie they don’t make coke). I would love to lead a small team to design a combination nuclear plant and full upgrader to make a really nice 38 degrees API syncrude. We would get more syncrude barrels than bitumen feed barrels. Call it upgrader gain. Neat, isn’t it?
Well there’s your overshoot on global production estimates.
Probably should include rendered pig fat and duck fat in the crude inventories. Lard and duck sauce are just as important and maybe even more than crude oil. lol
The CNE, cumulative net export model, the extrapolation, is the number one indicator of a ineluctable reduction in future production/supply. Paints a bleak picture.
When the oil was a crisis during Jimmah Carter’s administration, coal consumption was advocated to reduce dependence on foreign oil, now coal is the dirty dog in the fight. Funny ol’ ride in this world.
Have to blame President Carter for the increase in the use of coal for an energy source. Hypocrites and double standards are the cause of cognitive dissonance.
You are blaming Pres. Carter for the USA’s-current use of coal? I’ll bet it all that your main news sources are Alex Jones, Limbaugh & The Blaze.
$53.xx. But you know, the large established companies will buy the small ones, because they are going to want even more unprofitable wells than they already have.
“Hello, Janet? Hi. How’s the weather in Washington? Great. That’s great. Hey, we have an idea to present to you. Do you have a minute?”
“Yes, that’s right, Janet. Greece. They cost us another $1 on WTI today. What? No, we don’t want you to bail them out. But there are some true blue Americans up there in North Dakota who’d like to see some fresh green ink. What d’ya say?”
Is this the end ?
Looks like Christmas to me. Give it time.
They did drill a few holes on Christmas Day, though…
The boarding of flights out of Williston are filled with oil workers who aren’t coming back. Boom is over for now. Workforce to decline by 20,000 by June, imo.
Good deals on furniture on the boulevards and alley ways I hear. Happened in the mid-eighties and it is happening again, however, this time, there are going to be 9300 more wells that need to be worked one way or the other, shut them down or keep them pumping. The infrastructure is there, so there will be a workforce in place.
Williston has an airport?
http://www.flywilliston.net/
Sloulin International
Yup. identifier ISN. Longest runway 6600 feet. Plenty for Gulfstream IV or CRJs, American and United have service there.
What would be cool is fracking a well right under that runway. There are wells pumping at OKC.
Well, you’re in luck because Statoil has a well whose horizontal leg runs directly underneath the runways at the Williston airport. It was drilled in 2011: File # 20282, WILLISTON AIRPORT 2-11 1-H.
Note that work has been ongoing for the last few years now to build a big, new Williston airport somewhere a little farther out of city limits. 2015 is supposed to be the year when plans are finalized. Aside from being too small to accommodate the dozens of daily flights, commercial and private, now coming into and leaving Willistion, the land the current airport sits on has become too valuable to use for an airport. Plus, the city really likes the idea of building a big convention center and hotel within close proximity of a new airport. They are tired of Bakken-related economic development conferences going to Bismarck, Minot, or Denver due to lack of meeting space in Williston.
Satellite view of the airport terminal from this past September.
Hey, is that a trucker urinating on the ground there under that Bombardier starboard horizontal stabilizer?
Black Sunday May 2, 1982
http://www.coloradoindependent.com/119367/black-sunday-lessons-from-30-years-ago-coloring-colorado-oil-shale-debate-today
I think they are talking about something entirely different here. This is the “Green River Shale” they seem to be talking about. This not the same kind of shale they are drilling in North Dakota and Texas. This Colorado stuff is not oil at all but kerogen. And they don’t drill it, they mine it.
Though the Shell operation, abandoned just a few years ago, did produce some oil but it was totally uneconomical. They put electric heaters down holes in the ground and heated the kerogen for three of four years, then they could drill it for oil and gas.
I had lunch with Shell’s heater guy a few years ago, and jokingly asked him if he was planning on using nuclear power to generate the electricity for his electrodes…he looked at me, held up two fingers, smiled, and said “I think we’ll need two”.
There are still some companies working on extracting oil shale. I wouldn’t write it off just yet.
http://www.redleafinc.com/about-red-leaf
I can’t make any sense out of this chart. I can’t even reproduce the handle of the person that posted it without hunting up a new alphabet. Any enlightenment will be appreciated.
None of the labels make any sense at all without additional context or explanation – at least not to me.
MAYBE the dates are days in dec 2014 ? Maybe the up top label that reads Bakken start drilling should read Bakken wells started by date ? Maybe ”count wells” is not a command but should read in ENGLISH ”well count”?
Mac, they are the number of drilling starts on those particular days. On the 15th of December 12 rigs started drilling a new well, on the 16th of December 8 rigs started drilling new wells and so on. The data comes from here Current Active Drilling Rig List.
He just searched on the dates and counted the starts on that particular day. The format is European, day before month.
Миша = Misha, in Latin script.
Baker Hughes Rig counts are in. They are posted above at the bottom of the post. Or you can go to the link.
Rig count: US rig count down 35. Canadian rig count down 135 to 256 from 391 one week ago. That is a drop of 35% in one week.
US Oil rig count down 37, gas rig count up 2. Oil rig count 1499 down from 1609 about two months ago.
Baker Hughes North American Rig Count
“Lower oil prices are UNABIGUOUSLY POSITIVE for American and it is Russia who will be the only one hurt.” — Lawrence Kudlow, PB, 2014 (Professional Buffoon)
Hang on to your ass then…
I keep telling y’all. Economic apocalypse is forbidden for all time in the future.
2008 was a precedent of unequaled magnitude. If numbers on a screen say people are about to die, the numbers will be changed. If the recent articles are true and the shale industry’s destruction is about to re-smash the entire economy, it won’t be allowed. Simply that.
You’ll have to dig to see what is done, because media won’t understand it or report it as such, but something will be done and wagons will be circled around normalcy as everyone declares normal still persists, despite the measures just taken.
Williston Light Sweet posting on Plains Marketing site today $37.19.
Light sweet on Flint Hills Resources is $35.25. I noticed on both sites there are sour prices that are in the low $20s or teens and one price on Flint Hills that was around $8. Can someone explain what wells produce that crude? Is it old conventional wells? Are some wells in ND back to producing $8 oil? If so, WOW!!
Flint Hills Resources 12/29/2014 bulletin
North Dakota Light Sour $32.86
Light Sweet 35.25
Medium Sour 28.86
Northern Area 18.50
Sour 8.50
Southern Area 45.50
Plains Marketing LP Bulletin 12/29/2014
Williston Basin Light Sweet 37.19
Sour 25.08
Anyone able to shed any light on the above?
The light sought would be Lynn Helms filing his retirement papers soon. Cushy state govt pension.
Sour gas contains too much hydrogen sulfide which makes it corrosive. In addition to being corrosive it can kill you if you breathe in too much: Nobody wants the stuff. That’s not really true, of course, but it requires special treatment and ‘sour’ is a relative term. Sour oil is oil containing a high amount of sulfur; when the sulfur level is more than 0.5% the oil is called “sour”. From my limited experience, some areas in producing fields are sour and avoided, if possible; any “real” oil guy would know.
Doug,
Unless you are being sarcastic, it sounds as you are trying to pick a fight with Shallow Sands, who by all accounts very well knows what sour crude is. I suspect he is interested in the outlyer of $8 per bbl.
To me it looks who ever is posting the prices is trying to send the message they really don’t want the stuff, or they left a digit of the front and it is a typo.
No, not trying to pick a fight, more like not understanding the comment. Maybe I ate too much turkey for Christmas.
No. Not offended. Have some wells that have big time H2S around here. Wear monitors.
I know only what I have read about ND production and would like some reliable info. Go to Flint Hills crude price bulletin. It isn’t a typo IMO. There is a sour crude who’s posting has consistently been around $45 below WTI and therefore is at $8.50 as of 12/29/14.
Just wonder what formations ND sour comes from. Readily admit my background is financial plus self-educated. No pet. engineer/geologist/chemist, etc here.
And I thought I’d never see $8 oil again. Check that one off the list!!
Doug. My background is owning WI since 1997 in wells 800′-2,500′ deep in a field discovered prior to WWI. I would not say I am as much of an “oil guy” as are several people who post. I do not have the education nor professional training. The more technical knowledge I can acquire the better.
I’d share more but this is the internet after all. I will say I never envisioned the ride I was getting on when I started with 6bbl per day 17 1/2 years ago. That 6 bbl is still at 5 bbl BTW.
$17 to $8 to $30 to $13 to $140 to $26 to $111 to $48. Geez.
Some sour grades are heavy crudes with metals and high acid content. I worked on a case many years ago, in which these contaminants were so harmful we were told the oil could not be put in the plant, period. So we kept that oil shut in.
Howdy, Doug.
I am not real but I snorted some H2S today, in fact. It is prevalent in some Cretaceous age carbonates in S. Texas and I also believe in the PB. MBP knows more about the PB than me. I was on a job once in Mississippi, we had to wear masks it was so bad. When you can smell it, it won’t kill you, When you can’t, your dead and don’t know it yet. Most of the hands working in the Eagle Ford wear sensors on their coveralls. H2S seems to increase in concentration from east to west in the EF and in McMullen County in the dry gas to condensate window it is upwards of 6-8%. If you get a whiff of that it will give you a bad headache and make you not want to drink beer for a week. H2S is indeed very corrosive and will eat holes plumb thru 35#/ft. casing. Some places in the world they have to run stainless casing and about 5000 dollars a linear foot. The Smackover in East Texas and south of Little Rock, Ark is deadly H2S; so sour you can’t hardly treat it, +15-18%. It’ll peel the paint off a barn 6 miles downwind.
One of the biggest blowouts, or one of the most infamous for deaths to well control personal, was actually in the Lodgepole formation right above N. Dakota in Canada many years ago (1980?). That well was so sour it was intentional set on fire to help burn the H2S off, and was actually capped still burning. I believe 6 people were poisoned on that well.
Nasty stuff, H2S. Smells like rotten eggs on a July afternoon.
Mike
What I am getting at is how much production in ND is at each of those grades? All I ever hear about is light sweet re ND shale, so wonder if any of the new $10 million wells in Bakken or Three Forks produce sour crude?
Better turn quick for the folks up there. I am upset with them for going crazy w the debt there and in EFS and PB, but yet also feel bad too.
$35.25 x 80,000 bbl oil = $2,820,000
$1.75 x 120,000 gas = 210,000
Gross income 3,030,000
Taxes 278,760
LOE (OPEX) 400,000
G&A 400,000
20% RI/ORRI. 606,000
Net for year one production. $1,345,240. On a $10 million well.
I don’t think any of the more than 11,000 wells drilled up there could pay out in 12 months at $35 oil.
I do not recall anyone foreseeing this. No one.
Yet Bakken driller stocks have bounced off their lows. Either a new math or a lot of inside info out there re oil price that us small fries don’t have access to.
Crazy times.
Some of it is the rising tide of the market itself lifting all boats.
Or some of it is confidence in a bailout of some kind.
Who remembers how fast prices came back up the last time they crashed?
I don’t have a good memory for numbers but it was only a three or four months IIRC before prices were well above the low again.
I am thinking now that the big boys at the super majors maybe saw this price crash coming a year ago when they started cutting so deep into capex.
The real Mc Coy top dog insiders- the guys with the big computers and access to all the data a super major is privy too – may KNOW just about how long it is going to take prices to go up again.
The banking people seem to have made fools out of themselves loaning money to the tight oil industry but we need to remember a loan officer is not loaning his own money. He just approves loans according to guidelines established by higher management.And it is not management’s own money either.
Maybe a lot of top dog insiders at the bigger banks pretty much KNOW how long it will be until prices go up again.
Personally I do not believe it is truly possible for anybody in the oil industry to truly conceal from other top dog insiders what is going on in any given company or any given country except for the minor details.
Any fool who has ever kept books at a furniture plant can tell you about how many bedroom suites are going to come out the shipping end if you tell him how many truck loads of lumber are being unloaded in receiving.
Saudia Arabia may be able to keep a lot of data more or less secret but there is no way the country can keep the companies that supply them with pipe or pumps or electric motors from revealing this information to another big customer that has a proven record of keeping such info confidential.
Professional people go in there and do work. Pros work for money and when they quit or retire nobody is ever going to convince me that half or more of them won’t spill their guts for a few thousand more bucks so long as they are confident they will not suffer any ill consequences.
There is no way anybody can keep the travels of ships secret anymore. A few hundred bucks spent on professional spying is probably enough to find out just how much of some particular specialty chemical some particular company shipped to some particular Saudi address last month.
Commercial satellite services are probably cheap enough now for a big bank to keep an eye on every truck load of pipe and concrete in the entire country.
If you have a fairly good assortment of pieces of the puzzle you can figure out what it looks like if your are a pro in the same business and are sufficiently motivated to do so.
You can have higher prices any time you want, as long as there is fuel for a single fighter jet with ordnance on the wings flying over KSA.
Shutting down high EROEI oil will only lower the price in medium-long term.
Doug,
The new unconventional production in the Permian Basin is generally light sweet crude. Older production, from conventional waterflooded fields, tends to have H2S. The upper Permian especially, since there was a large amount of Gypsum (CaSO4.2H20) in the Sabkha facies that was altered and released the Sulfur. Then the anaerobic bacteria that live in the water munch on the hydrocarbons and use the sulfur as their “oxygen.” So you get this:
CaSO4 (gypsum converts to anhydrite at depth) + H.C. –> CaCO3 + H2O + H2S
There is actually so much sulfur that there are sulfur mines near the Yates field at the southern extent of the Permian Basin. If you back calculate the amount of hydrocarbons that would have needed to move through the area and lost to the surface to deposit the sulfur in place, it is about 3 billion barrels of oil.
I just got back in town from vacation and am not sure if anyone will read such an old post, so I’ll post it again on the newest page.
So they will bailout the shale and let conventional crash? Figures.
The biggest hit seems to have come from California, down to 28 by -17 from last week 45. Not sure if this is all of one area, or spread across several basins, as it doesn’t show up in the basin breakdown.
Plus Texas is down 16, but across several basins.
Canada it the shocker, down 135 or 34%. This is their drilling season. Spring break is when they are suppose to shut down. It is going to a long cold winter for the drilling hands up there.
@Toolpush
My buddy’s son is an experienced driller in Sask. He has now been logging on BC coast since Sept. and will probably never go back to drilling, even if it improves. Logging doesn’t pay as well but working on the coast with one or two guys on the ‘rigging’ is better than working in Sask or Alta on a drill rig as far as he is concerned. My son seems to have quit electrical maint/construction just in time. He hated working in the oil sands for the most part for many reasons. He is actually doing better contracting electrical and drywall for a large company, and for local construction. I have never seen him happier, to be honest. He just got back from Mexico and started in on a new project within one day. He is ambitious and a hard worker so I think he will do well. Working for others doesn’t seem to have any security anymore, anyway, so I guess he might as well sink or swim on his own.
regards
Paulo,
I gather this is your son, that looked at working in Iraq? Strange how he went from being the wild adventurer, to installing dry wall at home. So it definitely sounds like he is better off at home, especially with the current events in Iraq. When I first started working on the rigs in the North Sea, I remember my old Irish crane driver saying, working in the oil field is just a long term casual job. The point being there is no job security in any one company. Within the industry, yes. Us oilfield workers, tend to move around a fair bit. Between companies and between places. So it is not a job for the same person who wants to spend their working life, working local and one employer for life. Just any one of the Canadian hands that was working one of those 100 plus rigs that got laid down last week.
I wish him well.
Hi again Toolpush
Yeah…the same ‘kid’…30 years young. Funny, he reminds me of myself in many ways. When he landed a steady maint job with a steady shift he went crazy with boredom. Couldn’t take it. The longest I have ever been able to take one job was 6 years.
I have an old school buddy who worked at the same pulp mill in the steam plant for 40 years. Thinking back….in my same 40 year work history I worked for 25 organizations in 4 provinces. Home base was always within a few km on the BC coast, though. I got itchy feet every spring and simply had to move on once in awhile.
We are what we are, I guess. Son heads back to Alberta in a week or two, but doing construction building apartments.
Who knows where events take us? I have always contended that being flexible with a solid work ethic is the key to success, and that security does not really exist. Look at municipal pensions these days. What was once gold plated now seems to have been written in smoke for many.
Thanks for your past words of advice. That advice was why my son did not go to Iraq….plus Dad was upset about it. I didn’t know he listened.
Paulo,
I hope I didn’t scare him too much, lol. I don’t like saying to people don’t do things, especially young people, but if you can give people the facts of a situation, they usually come to the correct solution and then it is was their idea of what not to do, and not someone eases.
Good to hear you are happy with what he decided anyway.
Yep, you never know where life will take you. Keep an open mind and go with it, I say.
Here Are The Most And Least Expensive Ways To Drill For Oil
Onshore drilling is the cheapest, benefiting many Middle East suppliers, while fracking and oil sands are most expensive, pressuring US and Canadian producers.
I have the impression, everytime I see bakken (shale) cost in analyses like this one, bakken cost is lower than in the previous analysis.
These analyses are too broad. Each of those classes has its own internal populations, and then there’s the tax and government imposed cost load variables, which tend to be quite rigid in many cases. Some countries such as Angola and Azerbaijan have flexible taxation. This will lead to tax reductions and also net reserve booking increases by oil companies operating in those countries. On the other hand we have Argentina, Venezuela, and others using inflexible tax and royalty type tax regimes coupled to really hstile operating environments. Those two in particular should see their production drop fast in 2015.
Just for laughs, topped off my tank with $5 worth of gasoline at $1.86.9/gallon on the way home from work.
Just for fun, to get the receipt to keep and show grand kids someday.
Methane…waste not, want not.
New Mexico Methane plume:
http://www.washingtonpost.com/national/health-science/delaware-sized-gas-plume-over-west-illustrates-the-cost-of-leaking-methane/2014/12/29/d34c3e6e-8d1f-11e4-a085-34e9b9f09a58_story.html?hpid=z1
Methane flaring nightime pics for many of the World’s oil=producing areas (absent Russia):
http://geology.com/articles/oil-fields-from-space/
A nice nightime pic of NorthAm from space: The Baaken and the Eagle Ford areas are clear as day:
http://upload.wikimedia.org/wikipedia/commons/3/3c/North_America_night.jpg
All that methane would have come in useful down the road…
Yes, it seams like a tremendous waste of resources to flare all that gas. Perhaps something can be done to utilize it.
http://www.wellservicingmagazine.com/featured-articles/2014/05/art-capturing-valuable-flared-gas/
And so:
Greece looms, as most focused knew it would. Snap elections req’d Jan 25. The Euro got slapped hard when the vote in Parliament failed this morning. If Greece is going to gut the Euro all year long 2015, the dollar will stay up.
Similarly, perversely, headlines are all over the place about the UK’s oil industry in collapse. This isn’t helping sterling, and presto, up goes the dollar.
More generically, 10 yr T paper is laughing at last week’s GDP and the yield is down just about 10 basis points from Wednesday. That’s a lot. It means, yup, stronger dollar. It also means (“the bond guys usually get it correct”) rampant deflationary pressures — which means eroding activity and that don’t mean consumption spike.
One more time, sportsfans. “It ain’t the drillers who are going to decide to drill. It’s the lenders. It’s all borrowed money. If the wallet gets closed, people are going home.”
http://www.usatoday.com/story/news/nation/2014/12/30/vermont-yankee-nuclear-plant-winds-down-operations/21037371/
I am not sure which I am most afraid of- having nukes or not having them.
But every one that shuts is sure going to be good for the natural gas market.If you are a seller rather than a buyer.
Since it has been almost 10 years since I first came up with the Oil Shock Model, the passage of time has been a good gauge as to how well it has modeled outcomes.
The significant finding is that it really only works well if estimates of past discoveries can be projected forward. So that the past estimates of discoveries that neglected to include the Bakken oil and Canadian tar sands oil will clearly not hit the target. As it turns out, the Shell Oil estimates of discoveries have worked out better than those of Laherrere — Shell included barrels of oil equivalent (boe) whereas Laherrere only estimated conventional crude discoveries.
For places like the UK and Mexico where the discovery estimates have been tracked accurately, the oil shock model has worked out pretty well. Just look at the decline of UK North Sea oil production that Ron plotted above and compare to what I predicted back in 2005 The Oil Conundrum
This is about as close as we can come being oil-patch outsiders, since as Fernando Leanme recently asserted “Also, I suppose you realize when we muscle up for this type of analysis we gather a lot of privately held information, which even if I had I can’t share?”.
WebHubTelescope, I find your model very fascinating, i wish i had time and math skills to dig in deeper. It amazes me what can be constructed from maximum entropy principle.
So what does your model look like if you were to revise for large shale discoveries? How much further might the peak be shifted?
The shale discoveries are a drop in the bucket, maybe 30 Gb at most out of 3000 Gb of C+C. I am including Jean Laherrere’s 500 Gb estimate of extra heavy oil fro Canada and Venezuela (oil sands) and 2500 Gb of C+C less extra heavy (XH) oil (Jean Laherrere’s latest estimate is 2200 Gb of C+C-XH).
I used Paul Pukite’s oil shock model (any mistakes are by me) to create the following scenario. Extra heavy oil is modelled with a separate oil shock model and the extraction rate shown on the chart is for C+C-XH oil (about 96% of World output in 2013). Peak is roughly 2014 to 2016, though if extraction rate is higher than I guessed in the future, the plateau might be extended.
Came across an interesting site on global water issues…
The Stream: ‘Virtual Water’ Responsible for Roman Empire Fall
The Stream, Circle of Blue, Friday, 12 December 2014 06:00
Over-reliance on traded grain and ‘virtual water’ is apparently what led to the rise and demise of the Roman Empire. Meanwhile, Saudi Arabia has recently announced that it will rely completely on imported grain by 2016.
oooh – interesting indeed.
the actual paper is at:
http://www.hydrol-earth-syst-sci.net/18/5025/2014/hess-18-5025-2014.pdf
open access, cool.
For our time, virtual petroleum exports in the context of agriculture are also important.
There is a lot of “virtual water” in the petroleum produced in North America, some of which is exported. Lots of water needed to frack shale or to wash/steam bitumen out of the tar sands.
Fracking seems to require about 1 barrel of water per barrel of oil produced.
Water, even the most expensive water from desalination, costs less than $.40 per barrel, while oil costs at least 100x as much. Usually 10,000 as much.
That doesn’t really seem like much water to me.
You are mixing up your units… Comparing volume with price when discussing water misses out on the value of water. It’ s easy to think water has little value when our perception is that it is abundant.
I’m not sure what you mean by confusing units.
I think the confusion here comes from differing ideas of “expensive”. For a farmer, paying one tenth of a penny for water is prohibitively expensive. But, that’s all it costs to create all the clean water you might want out of seawater, using reverse osmosis or even simple distillation. The oil industry obviously would laugh at the idea that 4 cents per barrel for water is “expensive”. The costs of trucking it to the drill site are infinitely larger.
Further, agriculture uses vast amount of water – thousands of times as much as oil drilling. The oil patch’s demand on water is trivial, in comparison.
That should be “For a farmer, paying one tenth of a penny per gallon for water is prohibitively expensive”
I think we will see more use of salty water for fracking operations. The systems are there to be used, but the viscosifiers are less efficient. I’m surprised we haven’t seen a shift to salty water over time.
Fernando,
You maybe my man. Everyone harps on about fracing requiring fresh water, but I have never heard why. The two main polymers that I know of in frac fluids are, Guar and PHPA. Both of these produces I have personally mixed in Salt solutions.
Guar Gum we used to use for top hole and mix direct with sew water, of which we would cross linked as well. Amazing stuff, it had a meniscus of about 3″ in the pit.
PHPA mixes in fine with KCL muds, and I can’t imagine being a problem in NaCL?
Please enlighten me. Thanks
Tool push, the viscosifiers have a lower ability to viscosify the fluids as salt concentration increases. Around 2004 I started looking into this issue (wanted to have the ability to use salt water if I had to). So, being in a large oil company we participated in research projects to investigate which viscosifiers fit which type of water, and so on. By 2008 the work had matured enough to give me the confidence that we could use very salty water if we had to. It’s just a cost and optimization issue. Bottom line: if you have a sea water supply it’s fairly easy to make the frac fluid. It can also be used to viscosify water in a polymer flood. Call one of the large service companies, by now they ought to be aware and be selling all sorts of mixes.
Fernando, thanks for this. You said: “It’s just a cost and optimization issue.” I could not agree with you more. The Eagle Ford shale play in S. Texas exists under the 2nd largest groundwater aquifer in Texas, the Carrizo Wilcox. It is vast in areal extent and subject to updip recharge. It is the largest source of human water in S. Texas.
I described a 4 million dollar Carrizo Water well in a post a few days ago that services many shale fracs within a 5 mile radius; that well is capable of producing over 14,000 BWPD and has done that every day for the past 3 years. For the record, one day of production from this well is sufficient usable quality water to provide for 6000 people. In spite of the shale industry’s extensive rhetoric about the available acre feet of water in the Carrizo, and bullshit like golf courses use more, static producing fluid levels in numerous Municipal Carrizo source wells is going down. We have had no surface recharge in 5 years. From start to finish, including now increased frac stages using more water, a single shale well in the EF can easily use up to 350,000 BW. Its under their feet, its cheap to get, no State regulatory bodies are telling them to slow down, or find a better source; its all about the money.
Its a pet peeve of my, water use in shale extraction. I have spoken with Hali engineers about this; they can gel brackish water, easily. They are not being asked to.
Mike
Thanks for the replies gents,
That all makes a bit of a mockery of what we hear elsewhere, but nobody wants to talk specifics of what chemicals or polymers are effected by the salts.
If you gents are still reading, is there any concern of the salt/brackish water reacting with and swelling the shales? Could this effect the flow through the fraced formation?
Hi, Push: I know that the Eagle Ford is very high in clay content and indeed, they are in large part, smectities. If anything, fresh water is more likely to swell those types of clays, at least that is my experience, yes? I use NH4CL, KCL, etc. all the time to prevent that very thing in my clastic sandstones. I think the shale guys are adding stuff to the frac water to prevent clay problems, like polymers, so another point well taken regarding higher chloride water as frac fluid. I think you are making a good point regarding the use of produced water, perhaps. Some of the better companies are indeed recycling produced water; they spin off the solids and away they go again. Apache in the PB is a good example of that. Not very many, however.
It might throw some light on the current price and supply situation if one of you number crunching guys would post a chart of the price movement by the day or week or month during the last oil price crash.
The more things change the more they stay the same is a useful rule of thumb to keep in mind.
My own seat of the pants thinking is evolving towards prices recovering quicker. At first I was thinking a year or so or maybe longer but given the info that has been popping up about the high variable cost of some legacy oil and the fast rate of drilling rigs getting shut down I am guessing now less than a year for sure and maybe only a few months.
A whole lot of oil seems to be going into storage but the total amount of storage space appears to be modest indeed in relation to consumption over a months time and barely more than trivial over a years time.
So as I see it the buyers are ALMOST sure to convinced the price is going up but they can’t store enough to affect the price very much over any extended period.
My guesses are based on roughly mentally averaging the news I read and the opinions of the regulars here.
Mac
The following site can let you see price movements on various timescales over different time periods. Monthly data goes back to 2003. The way down sure looked quicker than the way up last time around.
http://www.investing.com/commodities/brent-oil-advanced-chart
Hi Mac.
I’m curious about this too, and have some thoughts. I wonder about two possibilities:
1) Are Non-fuel users (plastics, fertilizer, etc.) able to process and then store petroleum products? Might they be stocking up to take advantage of the low price?
2) Are refiners able to adjust fractionation conveniently to produce more of these non-fuel uses?
-Lloyd
This is just too good to pass up passing it along. A chuckle is good for the morale and peak oil is a discouraging subject.
Ron may delete it which will not hurt my feelings at all. It is too good not to pass it along to old cyber buddies.
xxxxxx
Pfizer Announcement -A Must Read
Pfizer Corp. announced today that Viagra will soon be available in
liquid form, and will be marketed by Pepsi Cola as a power beverage
suitable for use as a mixer.
It will now be possible for a man to literally pour himself a stiff
one. Obviously we can no longer call this a soft drink, and it gives
new meaning to the names of ‘cocktails’, ‘highballs’ and just a good
old-fashioned ‘stiff drink’. Pepsi will market the new concoction by
the name of: MOUNT & DO.
Thought for the day: There is more money being spent on breast
implants and Viagra today than on Alzheimer’s research. This means
that by 2040, there should be a large elderly population with perky
boobs and huge erections and absolutely no recollection of what to do
with them.
If you don’t send this to five old friends right away there will be
five fewer people laughing in the world.
It does in a round about way throw some light on why peak oil and peak resources are such intractable problems. The focus is entirely on NOW and NEVER REMIND ME OF TOMORROW- unless you are doing so just to encourage me to party even harder TODAY.
Mac, wife said to say thanks for the laugh and asked me to pass on her wishes for a Happy New Year. I’d like to add that for myself (including Ron plus all the regulars herein).
Happy New Year Everybody !!
That is the best old folks joke I have run across recently but those of us fortunate enough to have wives or girlfriends (Any women posting must be using male handles) don’t really have to worry about forgetting. ALZ saves your oldest memories and best memories for last.
I have had a number of friends already that lived into their nineties and they all said that they NEVER stopped thinking about it.All of them except a preacher appreciated a good dirty joke till past the day they could not remember the names of old friends.
Civeo Sinks 40% After Suspending Dividends, Closing Energy Camps
Proof that drilling activity is being sharply reduced.
Dollar has turned weaker today. Little uptick in oil.
In the context of “the insiders know the real score and they know when oil is going to rebound in price”, we have this from the ultimate insiders:
“For the 2015 Saudi budget, announced on Thursday, four analysts’ oil price estimates are in a range of $55 to $63, Brent.
That does not mean Saudi Arabia necessarily expects such prices next year — Finance Minister Ibrahim Alassaf said on Thursday there was a great difference of opinion over when prices would start rebounding, with some people predicting the second half of next year and others 2016.”
Shale better plan on a MINIMUM of one year at $55 or below. The proper plans that should evolve from that is the schedule of in what week of the year which bankruptcy papers are filed.
What the heap big fellas SAY and what they believe is well known to be two different things on occasion- lots of occasions as matter of fact.
And while they may KNOW what the price of oil will be in six months ASSUMING they have made good assumptions about the economy their estimate of the economy might be off a good bit. This would not mean however that they are wrong about the devil and the deep blue sea difficulties of oil companies large and small all over the globe.
And while they may not KNOW the score I expect they have credentials at least equal to those of an assistant manager at a failing McDonalds and lots more help. 😉
Personally I always try to remember to state MY opinions about actual future oil prices as guesses based on averageing the guesses of other people in this forum and the msm with a little optimism or pessimism thrown in depending on my mood at the moment.LOL
When it comes to oil prices the only thing I am sure of is that the long term trend will continue to be UP.
OFM,
As to how knows what the real oil price will be, and who doesn’t. And who you run into when you don’t know who they are?
Back when I was travelling the world in 1986. Kicked out of the North Sea due to the crashing price of oil. My wife and I sold up and left London with a back pack each and a passport full of visas. We had independent travel visas for the USSR. That didn’t mean we could go where ever we wanted, as our complete itinerary had to be approved, bought and paid for, weeks before we departed but it did mean we didn’t have minders and someone controlling our every move. So here we are in a Moscow Hotel, mixing with what ever other foreigners that had business in the USSR at the time. Having breakfast, with a Swiss man, discussing what I did, and obviously what was going on with the price of oil. At the time it was less than $10 and going down fast. Our Swiss friend, said don’t worry it is going to go up to $10.66 or some exact figure. I took it on board but didn’t pay too much attention, as I was thinking who would know such a thing? Anyway a couple of weeks later and many miles down the road. What do I see, oil went to the exact number he quoted, then I was worried, who the bloody hell was he?
There are always some people in the know, you just don’t know who they are until it is too late.
PS. And they are quite often Swiss?
I wanted to get an idea how many new wells are needed in North Dakota to counter the decline in existing wells. I used the public NDIC data, for all wells in ND, starting production from 2010, except wells that are grouped together. So the population includes about 97% of the wells in ND.
The following overview shows how many new wells are required to keep production stable in ND, vs the actual new wells, on a monthly basis. It may be somewhat surprising to see that that fraction has dropped during the past year. This must be (as Dennis already once showed) because the total field decline% in ND is dropping somewhat, as the average age of wells keeps increasing. Well decline drops with age. This means as far as I can tell that the number of new wells in 2015 has to drop by more than half compared with 2014 for the overall field to decline. Even if that happens, I expect that the average well in 2015 performs somewhat better than the average 2014 well, as companies focus on the sweet spots during the ongoing oil price onslaught.
Gotta disagree.
That analysis has ALWAYS presumed too many static variables.
Seems profoundly wrong to me to presume that already existing wells continue to output a pre-defined decline curve when the finances have said no more drilling.
Why would we presume scarce money gets pointed at wells that don’t produce much rather than at younger wells that produce more? If you only have so many dollars approved by lenders, and thus only have so many truckers, then you don’t send them to old wells. You send them to newer wells to haul more oil, assuming they didn’t see the writing on the wall and go home to Nebraska. Then you have few dollars and few truckers, both.
And thus, the older well decline curves steepen.
I am no oil expert but I AM a rolling stone with extensive experience in trade work (as well as a university degree. )
The truckers are NOT going to go home so long as their employment lasts for TWO very good reasons.
The first one is that there are very few jobs open ANYWHERE that life is pleasant for truck drivers that pay a decent wage. The constant chatter you will hear in the msm to the effect that there is a huge unmet demand for truck drivers is true- what is not mentioned is that the trucking companies want drivers to stay out on the road a couple of weeks at a time making about half the wages mentioned in the ads while Momma is lonesome at home.
The second one is that if you quit you are not generally eligible for unemployment which means sticking around until you are actually laid off can mean twenty thousand bucks or more in the mailbox.
Independent operators are in the same situation except they are not eligible for unemployment. They know they will have a hard time finding work that is steady and pays well anywhere BUT in the oil fields.Payments on a reasonably decent eighteen wheeler including principle, interest, amortization , property tax , insurance, permits and a few other odds and ends run well into four figures. Just filling up runs from four hundred bucks or more.
If you don’t have regular work the repo man is going to be looking for you pretty quick.
Beyond that there is no reason that I can see that a trucker can’t haul a load away from any given well as any other well when the accumulated production is enough to load the truck.If it takes twice as long to accumulate a truck load then he will go half as often. In the dead of winter with the roads blocked with snow getting to some wells out towards the end of the reads could be a real problem.
But ND seems to be as flat a place as anywhere and a truck actually goes pretty good on an icy road so long as the snow is not too deep or there are no steep hills to climb.Now a good sized drift will stop almost any sort of wheeled vehicle- even a ten wheel truck with tire chains and a snowplow on it.
Watcher, try simulating what happens on any given month:
Take your dominoes, and make believe the number on the domino piece is the production in 1000 barrels per month. Assume you sell the oil to me at the well head at WTI minus $15, and each barrel costs you $10 to produce. Each well also has a fixed OPEX of $2000 per month.
Change these figures if you wish. Now figure out how many domino pieces you pick up.
Part II. On a random basis take 1 out of the 14 lowest value dominoes. This is a broken well. You need to decide whether to repair it, it costs $200 thousand to do so.
Again, change the numbers if you wish. In real life we go nuts trying to figure out fixed and variable costs. But I think you will find yourself trying to harvest as many domino pieces as are worth the effort, and the most likely reason you will see an anomalous decline is the reduction in the well repair rates. The first thing I do when things get tough is cut office costs, and sharpen the pencil on the type of repairs and maintenance we do. And of course I call every contractor in and ask for price cuts. I’ve never had to worry about bank loans, but if I had them I would call the bankers and start negotiating a loan rescheduling with extended terms.
Average monthly field decline went from 34,367 bpd in 2013 to 26,981 bpd in 2014? That just seems incredible. Production from new wells increased in 2014, it did not decrease. So even though older fields decline slower than new wells that would not be nearly enough t make up that difference.
Your figures are far, far more optimistic than those of the EIA, whom everyone thinks are way too optimistic. They say:
Monthly decline in the Bakken,
12-2012 44,086 bpd
12-2013 59,739 bpd
12-2014 75,631 bpd
I am not sure that is correct. But I think they are a whole lot closer than your figures. With the percentage of new production increasing, the legacy decline must be increasing also.
Besides what I just offered, there is the issue of 60% of total production being very young wells < 2 years old. They are still in steep decline.
But suggest the focus be on the previous point. If you are collapsing drilling because of no money, you ain't still producing from old wells at the predefined decline curve, because they have no money, either. I know you can point at the issue of "that money was already spent", but the same admin staff managing new drilling manages old drilling, and if they are fired they can't do either.
Hey Zeus, Watcher, you have got me all confused now.
If I have 500 Bakken wells producing 100 BOPD, net to my interest, after royalty, I have 50,000 BOPD earning about, what, 38.00 net per Williston barrel loaded on a rail car? That means I get a check every month for $57,760,000 smackers. Thats a M as in million. My incremental lift costs per barrel (OPEX, in shale lingo) is $8.00 a barrel, so my costs associated with my net 50,000 BOPD is a little over $12,000,000 per month. That means I am netting something north of $45,000,000 dollars a month in income.
So what in the world are you talking about when you say, “because they (old wells) have no money either” or ” that no money will get pointed at old wells?” No borrowed money needs to get pointed at old wells. They are cash cows, even at 38 bucks. If you are implying that I should shut all my old wells down, that are making me 45 million dollars a month, to borrow more money so I can drill wells that make 300 BOPD, I am sorry, that does not make sense to me whatsoever.
I am not going to shut my 500 Bakken wells in simply because the net WH price is 38 bucks. 45 million a month net income pays my corporate overhead, services by debt, I get to keep all my people, even your beloved “truckers” stay hauling and happy. With that kind of net income each month I can even keep 2-3 rigs running drilling acreage that is not HBP, waiting for the sun to come out again.
So, I think Watcher you may have just overlooked the fact that there is still a good bit of money involved in this situation from production income. Wells are not going to get shut in, they will continue to decline at whatever rate Mama Nature says they will, likely along the fancy models people have created. Little changes with regard to old wells. Legacy wells is the shale lingo, sorry.
Drilling will slow way down at 38 dollar net oil; it doesn’t make sense to drill new wells right now if my acreage positions are sound. Shale World is not coming to an end, however. If these shale guys are smart, and they are, they will take this opportunity to pay the penalties on rig contracts, stack a bunch of rigs, reduce the money outflow and deleverage. Like paying your American Express card off, finally, or way down anyway. That puts them in a better position to come ripping out the chute again in early 2016 ready to borrow mo money. When costs are way down. That’s what I would do, but then again, I am not in the shale business.
I am beginning to think this oil price collapse is like a stock car race to some people; they just go to see the wrecks.
Mike
This speculation about shutting in old wells because prices are low is getting a little nuts. This is not the first time the oil business has gone thru price turndowns and most of the shale guys are oil guys that have been around the block.
Mike
Unless you are going to lose the lease/acreage, why drill in 2015, absent a spike in oil price, especially in Bakken? A big chunk of production is in year one. Exception would be if need more bbl to take advantage of hedges.
I notice the pundits keep lowering break even. Incredible how many must be short oil given all the shouting down of the price.
Found my answer re sour crude in ND. Old vertical wells. Notice many of these shut in on ND Oct production stats. $9 oil will do that.
I agree, Shallow; I would pay the rig contract penalties and send all but one of two of my rigs to the house. That presents problems for hands, etc. but it is a necessary evil. I would take my production income and get in much better position in the next 18 months to be able to drill more shale wells later. When prices are up and costs are down.
Please take a look at the 12 month strip out for WTI and tell me what kind of hedge can be made from that. I know you know this but whomever is on the other side of the hedge wants out, and having been there, they don’t want to go back. New hedges won’t save those folks.
I heard an EOG hand today say they can make money at 40 dollars. Its morning meeting indoctrination, is all that is.
I referred to a Lodgepole blowout in Canada in a previous post; I believe the Lodgepole produces in shallow wells in very northern ND; it is very sour crude, very high in H2S. Sour crudes are of course very blendable with light sweet crudes and there is a good bit of that blending in Texas. Those poor folks up there in ND are so over a barrel with marketing their product they probably just have to take what they get or, as you say, shut it in.
Hang in there; and don’t believe everything you read on the internet. Thing’s will get better. Someday. I hope you are not an old fart like me.
Mike
I am sure there has been a lot of $$ lost on the other side of hedges. I’m not talking about hedging now, of course, but hedges put in place in 2013. It would surprise me if there is a lot of hedging going on now by producers, especially by the shale companies.
I doubt there are many that need to drill much to cover their 2015 hedges. Most probably are hedged at 60% or less of production anticipated before the crash. No reason to drill and add cheap barrels.
I think it is foolish for the shale folks to continue with the $40 or less claims. Why talk the price down even more?Would be better to speak the truth, “We will continue to produce our existing wells, but will cease further drilling until the price rebounds, as continued drilling at the current price does not make economic sense. As OPEC has ceded to US shale the role of swing producer, we are here to say that continued drilling does not make sense until WTI has returned to the$85- $90 level. We will resume development once WTI has returned to these levels.”
Wouldn’t that make more sense than telling a bunch of suits, “We are making money hand over fist at $40WTI due to rapidly advancing technologies and focusing on only our highest return drilling locations.”?
It seems the “break even” of shale continues to be about $10-15 below WTI. It was there at $90, $80,$70,$60 and current. I guess its not a lie if your best well makes a great return at $40 WTI?
I know they have to make this crap up in hopes of keeping the stock price up, but at some point it is self defeating IMO.
I’m not old but not getting any younger either.
While I’m on a rant,”We am pleased to announce we did not drill our best locations in 2011, 2012, 2013 and 1st half of 2014, but instead saved them until prices dropped significantly so we would be able to upgrade our locations, drill in only the sweetest of sweet spots and sell more oil per well at less than 1/2 the previous 3 1/2 year’s price.”
I had a long road trip today and heard two financial pundits state this logic for why prices will continue to head lower and US production will continue to increase in 2015.
I should think that a sensible company would just close out/liquidate their hedges, at this point.
Hedges are intended to protect your company in case prices fall. Well, they’ve done their job, and can be sold at a large profit which can be used to carry the company (partly) through the downturn.
Old hedges won’t affect any current production decisions, surely?
Just about everything the shale oil business says, in my opinion, is dung heap. I pay no attention to that stuff anymore. They, and the EIA and the USGS should all be held accountable for the lies someday, I think. I try and do my own arithmetic and imagine what I would do if I was dumb enough to be in the shale business, to get myself out of this pickle. I would first and foremost admit I cannot drill my way out of it at these prices. You are exactly correct.
How is production going to grow in 2015, Shallow? That is a good example of the absolute BS floating around. I am telling you first hand, we are caught up in Texas on frac’ing and I do not believe there are 650 wells waiting to be frac’ed in ND. If there are, would you frac ’em? Me neither, not right now. Frac costs will be down 35% by year end. This shale crap has declined 400 bbls. in the time it took for me to write this post. Honestly, how can production grow in 2015 at 55 dollar oil? No way, Jose.
Mike
Right now we are either seeing one tremendous head fake, or the world economy is getting ready to revisit 2008.
Who in their right mind would drill or finance the drilling of an oil and/or gas well in the current price environment?
If you disagree, please feel free to show me how the numbers will work.
Happy New Year!!
The scenario would be this.
The company borrowed a lot of money at 5-6%. You made advance long term commitments to order X train cars of sand. Now the lenders say no more. The company is still committed to take delivery of X train cars of sand that it has no high yield debt money coming in to pay for. So it is going to refuse delivery and let’s just presume there are penalties in those long term contracts so there is already a drain.
Now, those wells flowing 100 bpd are in year maybe 3 of production. They Still Owe Their Loan. Maybe $2.3 million/year for another 2 years if they issued 5 yr paper. 36500 barrels a year at $30 after royalty and taxes looks like about $1 million to me.
Your numbers work, Mike, if they paid off the loan when life was good, rather than pay executive bonuses and maybe even some share buybacks. What are the odds of that?
They don’t work if they didn’t pay off the loan. The loans are EVERYTHING. Always. Leverage amplifies gains. It also amplifies death when it approaches. The bank doesn’t care about the troubles of the universe. Neither do the HYG people.
Watcher, frac sand costs represent about 10% of the total cost of a shale well. I am not so sure there are that many long term contracts for sand but OK, we pay those penalties, and break the rig contracts and pay those penalties too; its cheaper to break contracts than drilling 10 million dollar wells that are not going to payout for 10 years, if ever, at 38 dollar oil. The penalties sting but they are not as much as you think they will be. Google Devon and its exodus from the Fayetteville and/or Haynesville.
So my imaginary Bakken wells at year 3 (pumping, not flowing) are paid out, or close to payout. Hypothetically each one of them has produced something like 200,000 BO, at $90.00 Williston oil prices. You are assuming all that money was pissed off on bonuses and G5’s and none of it was used to pay down debt. I don’t know about that, I doubt it. I understand you don’t think much of the oil business but those guys are not stupid.
I think you are wanting the shale oil industry to fail so you have ignored the money still in the system from production revenue. The situation is bleak, but not terminal. You are assuming that oil prices will never rebound and it is all over. I do not believe that is the case. The “banks,” for lack of a better word, don’t want to operate shale wells, they don’t want these guys to fail, they are going to do things to give them more time, to weather the typhoon. So, If I am the CEO of Shale R Us I am going to hunker down. It will blow over. On the other side, the shale industry is not going to be the same, I give you that. It might be better, who knows. In the feeding frenzy of the last 7 years there has been so much cost waste it would stagger your imagination. That part of it will get better, lots better. Costs will go way down eventually.
I am not sticking up for the shale industry at all, I am just not ready to bury the entire thing in one big mass grave.
Mike
“The “banks,” for lack of a better word, don’t want to operate shale wells, they don’t want these guys to fail, they are going to do things to give them more time, to weather the typhoon.”
It looks to me like about 20% of their lenders are banks, but you phrased that well in putting it in quotes.
This is not something you’ve seen before. This is high yield bonds. Junk bonds. No question they don’t want to operate wells. They Want Their Cash. You seem to think they have some interest in there being an oil business and oil flowing.
They don’t. At all. They want cash and only cash.
Here’s what I’d see the Michael Milkins of shale doing. You borrowed $10 million? Pay me. The price of oil fell? Don’t care. Pay me. Don’t have the money? Go borrow some more money and Pay Me. No one will lend to you? Well, no way in hell I let you continue to operate your business and funnel cash somewhere other than my pocket so if you ain’t gonna Pay Me, I’m padlocking your offices and your facilities. I don’t give a damn what that means. Pay Me or get the hell out.
Oh you want to go to court? Pay my lawyers. Don’t want to do that? Shut your ass down and wait for the cheapest queue at the court for your case to come up. And make no mistake here, your case is about shutting your business down and opening up your LLC so I can get your personal assets. Scared of that? I don’t give a damn. Pay Me.
That is how wall street works, Mike. No one cares a bit about your long term business cycle. Pay Me or lose it all. And pay it NOW.
I sort of buried the lead there.
The key issue of junk bonds is the phrase above “go borrow some more money”. These guys don’t give a damn about the oil business. You think you’re going to explain to them that if they shut you down, they lose out on money?
haha That’s not how the world works. The reply to that is like so?
“Don’t tell me about your flowing wells. Pay Me. Don’t care about your bullshit. Just Pay Me. If you got such a gold mine, then someone will lend to you so you can P A Y M E. Oh! They won’t lend to you? Then your bullshit is bullshit. I’m shutting your ass down and getting what’s mine. Get out of my office. Margie, move my tee time up an hour. I gotta get out of here.”
Oh, and Mike, they didn’t pay off the loans.
If they had, their balance sheets would not have exploded with debt, as they have.
But whenever I look at this and I completely KNOW what I’m seeing and what happens ALWAYS with HY paper, I simply have to stop thinking old normal thoughts and recognize reality.
Reality is . . . if this is a problem, it won’t be allowed to be a problem. It used to be . . . betting on Apocalypse is a losing bet because you can’t ever collect from a system that is wiped out.
That was the old normal admonition against expecting Apocalypse. The new normal reality is Apocalypse won’t be permitted, by decree.
Watcher, I do not think the banks or Wall Street, or whomever, have any interest whatsoever in assuming operations of a bunch of stinking shale wells. I did not imply as much. They don’t. They do know how. In your cynical scenario the junkbonders, or whatever you call them, are going to shut the shale industry down down to “get what’s theirs.” What is it do you think they are going to “get,” Watcher, besides a bunch of stinking shale wells to operate?
I am going to let you speculate the end of Shale World. My bet is it won’t turn out anything like you think, or I think, or anybody thinks.
Your depressing. Go play golf!
Mike
Don’t do golf.
And we’re 100% in agreement. It’s not going to be Apocalypse.
That’s what a printing press is for, after all.
That’s where we disagree. You believe the world is what it always has been. You don’t understand what happened in 2008.
Hmmm. Mechanism.
So how do they get what they can get. First, of course, they are going after corporate assets. The companies will declare Chapter 11 or maybe 9, and the assets divvy up. And btw THIS is why the junk guys HAVE to force this to happen. If they let time pass, the assets get divested to more and more complex chains. They have to stop it NOW.
But, okay, again, mechanism. Of course the golf course guys don’t want to pump oil. They Want Their Money. And make no mistake here — it’s THEIR money. Not the company’s (unless the govt does another GM, but I digress). How do they get THEIR money? They demand more borrowing from a greater fool lender.
The LAST thing you, as an HY lender do, is say okay, I’ll sit back and gamble on oil price and wait for these 100 bpd trickles to pay me. That gives the company a chance to maneuver and move my paper to some “bad bank” arrangement and get defaulted on with no collateral. No, you don’t wait for that. You demand more borrowing to pay you off. You want out and you want out NOW, if you’re rational and want to be oh so noble and protect your “investors’ money”.
These guys, Mike, should have stayed with regional banks. They didn’t. They went to junk paper issuance and as soon as they opened that Pandora’s Box, they were doomed. A regional bank might be willing to negotiate. hahaha you think the junk guys are going to “relax terms”? hahahha
We might also take a step back and give a nod to what you’ve been saying from day 1. It’s all crapola. The whole shale game. There may be a reason they didn’t stay with regional banks. Those banks were staffed with experienced oil lenders and KNEW it was crapola. So they dealt with Satan and now Satan is coming to town.
I cannot disagree with anything you said, Watcher; I keep saying these guys are smart oil men, they might be good oil men but they got caught up in their own lies and did not care where the money was coming from, or how much they wasted. They were absolutely certain that oil prices would stay high and they could drill their way into the promised land.
I told people 7 years ago it was not going to work. To be honest, let ’em cook.
You are certainly correct about 2008, I don’t know what happened. All I know is the same damn truck that ran over me then, hit me again 6 weeks ago. Imagine running a business where you often risk everything you have on an idea, do your engineering and geological homework, treat folks fairly, don’t borrow lots of money, mind your manners, do it all right, and within 8 weeks the price of the product you found, and was smart enough to get out of the ground, that is 50 million years old, is worth half of what it was. And you have no control over any of it. There is nothing to do to fix it. You cannot even get a pretty good answer as to who was driving the truck.
Happy New Year.
Mike
Imagine you loaned money to GM.
Your retirement money and they promised to pay you 6%/year for that money.
Then April 2009 the Administration comes in and orchestrates a reorganization so that GM enters some very carefully defined sort of bankruptcy and emerges 24 hours or so later, with all jobs intact, factories still going, but all the people who loaned them money? Wiped out.
The bankruptcy law says bond holders come FIRST. Before common shareholders and DAMN sure before employees.
Not in the new normal. In the new normal, the government decides and declares that society comes first and if the law as it stands would damage society, then that law will not be enforced.
You worry about your truck? What about the 80 year olds with no pensions who were fed from that 6% loan they made to GM?
I said I feel like I got run over by a truck. I’ve got nothing more to say to you, Watcher. Adios.
GM enters some very carefully defined sort of bankruptcy and emerges 24 hours or so later, with all jobs intact,
No. GM employees took a lot of hits, not least the elimination of a number of divisions. Remember Saturn?
What about the 80 year olds with no pensions who were fed from that 6% loan they made to GM?
You really need to take a close look at your information sources, because that’s a classic bit of propaganda, by which I mean something that precisely reverses the reality.
The reality: the bond holder’s biggest complaint was that employee pensions were not reduced more dramatically. Further, the average bond holder was far more affluent than the average GM employee.
Junk bond vulture funds take large hair cuts on international bonds. I don’t see why they won’t negotiate a reduction. But maybe they thnk they will get better cash flow forcing bankruptcy. In that pathway the property is sold at x price to an oil company and they get whatever they can salvage. In the end the result is probably similar but lawyers take a bigger slice. That’s about it.
“The reality: the bond holder’s biggest complaint was that employee pensions were not reduced more dramatically. Further, the average bond holder was far more affluent than the average GM employee.”
1) If you’re wiped out, you no longer care what the pensions are.
2) How is this relevant? Of course the bond holder was more affluent. If he was not, he’d have no money to provide the loan. The LAW says the creditors get first priority on division of assets in a bankruptcy. The debate stops there.
In the old, rational, well defined normal. In the new normal, there is no law, particularly, if a government declares that breaking that law is in the best interests of society. And so the bondholders got no priority at all in the division of assets. A decision was made to eradicate them to continue the UAW-jobs providing GM. This is not even debatable. It’s what happened.
If shale’s destruction clearly starts to smash general GDP, you can expect the same thing to happen. The HY debt will be nationalized, but a campaign will begin to define it all as consistent with a normalcy narrative and energy independence.
First, it’s nice to have a correct picture of the retirees versus bondholders.
Second, I think your badly over simplifying the bankruptcy process. Every bankruptcy is unique, and much of it is negotiated.
3rd, I just read a Forbes article by Jay Alix, the architect of the bankruptcy, who indicates that it was planned by GM, not by the government.
Mike,
The Wells will flow as long as the paychecks keep coming. Most of the Shale drillers are deep in debt and probably close to the edge and probably need every penny to meet their obligations.
. What happens when a Shale Oil company fails to meet Payroll? I am pretty sure manpower is required to keep all those wells flowing.
Mr. Tech, if I stop my drilling program I can actually manage my 500 wells with very few people. Gaugers and almost every service associated with production can be sub contracted out to 3rd parties and there will be plenty of those types still in business. I don’t own well serving rigs, I hire them out at 500 dollars an hour, or whatever, do the job, sign the ticket, and turn them loose. That is one scenario.
I think folks wanting to see a big pile up on lap 5 are forgetting the amount of money still in play at 1 million plus barrels per day from the Bakken.
Mike
Mike wrote:
“Mr. Tech, if I stop my drilling program I can actually manage my 500 wells with very few people. Gaugers and almost every service associated with production can be sub contracted out to 3rd parties and there will be plenty of those types still in business.”
I think it more than just a few people for Shale. Especially if oil needs to be trucked offsite. Subing only works if you have money to pay them. What are the odds that some of the shale drillers are already in debt with vendors and contractors? If you don’t have the cash to pay the contractor, they stop showing up to do the job. The more that driller relies on vendors, the more likely wells will be shut-in do to lack of manpower.
I suspect that a significant amount of Bakken production will be shut-in because lack of cashflow and pending bankruptcies that will take months to sort out, unless prices start rising again (and soon). Generally once the creditors get involved running the business, the bean counters look to stop all further cash losses and look to liquidate assets. During this time, those well will be shut-in until someone buys the wells. Creditors don’t want and don’t know much about the Oil business, nor do most creditors want to run a oil business. They would prefer to liquidate.
Hedge funds are starting to liquidate\dump their oil investments. This may trigger much lower prices per perhaps as low as $30-$38 bbl range (guessimate).
Just Curious, Mike would you (or one of your collegues) ever consider buying already drilled Bakken Wells? (presuming that the price is right)
Mr. Tech, thank you for asking. I am often surprised how few people actually want to understand the oil business, how it works in real life, and instead would simply rather speculate about it.
I can, in actual practice, manage production with very few personal on my payroll and so can shale oil producers. Hauling oil off a location to a pipeline LACT unit (or rail terminal), for instance, is often always done by a crude oil buyer and it is that buyer that owns the trucks that hauls the oil. An example might be, Plains, or Koch. I contract the sale of my oil to a buyer, who has long term outlets for it with various end users; and the cost of hauling that oil to market is deducted from my well head price contract.
I think there will be some shale oil operators that will be in trouble with vendors, yes sir. I think a good bit of 3rd party service to the oilfield is prepaid (the big stuff like frac’ing, and rig day rates, etc.) or, with regards to maintaining existing production, is on very strict credit terms. In fact, it seems quite plausible to me that lenders holding the long term indebtedness of a company actively engaged in shale development would require that short term accounts payable be absolutely current.
Please remember, this is not the first time the oil business has had a sudden price down turn and smart people are pretty weary about getting hung out with oil companies. Even at 50 dollar oil prices there is significant revenue coming in from a typical, mature shale well and it is in the best interest of the operator to keep paying it’s bills, or, as you say, not have service companies available to it to haul produced water away, or provide production chemicals, etc. The difficulty for very mature wells that go down for maintenance reasons is whether it makes economic sense to fix them. Mr. Leanme refers to that.
The remedy for companies providing services to the oil industry that are then not paid for services rendered is to file liens against the wells and encumber the production income thru suits and judgments. Generally speaking most people in the service business do not want to be in the production business, as you say; they will want to work with folks on longer credit terms, etc. and keep that business with that company when things get better. That is not to say that some shale companies will not be forced into bankruptcy (total liquidation bankruptcy) but wells subject to bankruptcy will not be shut in. The validity of the mineral lease is vital and if wells are shut in, the lease terminates then there is essentially no value to the production to be recovered. The first lien holder, or the 2nd or third, must comply with continuous production provisions in the lease or it has no means of recovering monies owed it.
This is not going to be pretty, none of it. But I urge against a rush to imagination about how it might end. I do not necessarily direct that comment at you, sir. The shale business is essentially a big boy’s game (EOG, CHK, COP, etc.) and they are, I believe, going to survive this 12-18 month crisis. There will be smaller folks go down the tube, yes. It is always ugly when this stuff happens, but long term indebtedness aside, I don’t think we are going to see a lot of wells lost, or shut in because of low oil prices. Very few. Nobody is going to allow that to happen, IMO.
I have bought a great deal of production in my day but, no sir, I would not buy a shale well. I do not believe in the EUR’s and at this stage in my long career do not want the headaches of pumping deep wells on rod lift that make a lot of water and that will cost an arm and a leg to plug and decommission. There will be lots of folks who will want to buy that junk, not me.
Mike
Mike just needs to decide what to do about wells going off line due to pump, hole in the pipe, sand fill, or too much water production. It can be a tricky decision whether to get on a well when the prices are so volatile. In some cases the well hardware is worth more than the oil it produces.
I read somewhere a down hole pump change or “rod job” on an EFS well costs around $80,000. Seems high to me.
Another thing to remember is the high rate of decline in the first two years. OPEX of $5 on a 200 bbl/day well jumps considerably when the well is making 30 bbl/day 2 years later.
There many wells in Bakken and EFS under 1000 bbl per month gross, per state records. That puts the working interest under 800 bbl per month. Assume $40 per bbl. After severance you are looking at less than $30,000 per month of oil income. Don’t know what recurring OPEX on these wells run, but just assume $7,000. Now we are around $20,000 or so. If a down hole failure results in the high cost I have stated above, you have wiped out 4 months of net income with merely a down hole pump failure. Note I have not included G&A.
Burlington Resources (owned by COP) is one of the few Texas shale producers that appears to have its production info, for the most part, segregated well by well. They are touted to have some of the best locations in EFS, rivaling EOG. Look at the declines on those wells if you have the time.
Someone with low decline settled production can hopefully ride this out, if there is no debt service. When the price rebounds BOPD should be close to the same, even with no CAPEX. The decline on shale is a real double whammy with prices this low and apparently headed lower. Add the balloon loan payments coming due, triple whammy.
Watcher, you do need to sit down at a table and play act how this works. I’m sure if you try a table top exercise you will reach a better understanding. and don’t worry, I’ve consulted for companies which had managers who didn’t grasp the full range of issues involved. This happens in large companies where managers grow up as say geologists, move into exploration, and then get sent to ticket punch in a production division. I’ve had to teach guys who were in the business for over 20 years because they had skipped working the ins and outs of field supervision and overall management.
Thanks for your comments Ron.
The granularity of the NDIC data is only on monthly basis. The EIA may have/estimate daily production from wells, and that would definitely give higher initial production numbers, and therefore also a faster decline.
However, because the first 2 columns in above overview are with the same granularity (calendar months), I think the deduced required well numbers are reasonable approximations.
That said, the more I think about it, the more I expect the field decline in absolute numbers to increase, and the % field decline to decrease. I can’t explain the difference with the above numbers (2014 < 2013) yet.
Hi Enno,
You are correct that the absolute value of the legacy decline will increase until output stops increasing (which may be fairly soon). The EIA estimate of legacy decline do not match the actual data from the NDIC very well. Part of the problem is that the EIA estimates include Montana Bakken, though the contribution would be fairly small from Montana.
Looking at EIA’s legacy decline estimate for Sept 2014 it was 71 kb/d, there were about 210 new wells added that month and for North Dakota the increase in out put was 53 kb/d. So 124 kb/d were added by 210 wells if the EIA estimate is correct. This translates to an average output of 590 kb/d for the average new well. The actual average new well produces considerably less than this in its first month of output, because most wells do not produce for 30 days in their first month. Actual legacy decline is about half of the EIA estimate, because they have over estimated first month output. If we use David Hughes estimate of 450 b/d for first month output of the average new well, legacy decline for September 2014 would be about 42 kb/d or about 29 kb/d less than the EIA estimate. Using NDIC data, the peak month of output is usually month 2 with about 380 b/d output, so David Hughes estimate looks very reasonable.
The EIA is optimistic about the first month output of the average new well, but this optimism leads to a pessimistic legacy decline estimate which is almost a factor of 2 too high.
Okay Dennis, lets us talk percentages. The EIA says the legacy decline is about 6.6 percent per month. I agree. What do you say?
What is legacy decline? The decline rate the first month a well produces? Or the first year average?
Legacy decline is the percent of total production all the old wells in a field are declining. It would be the absolute decline number if no new wells were added. Therefore it is the combined decline rate of all wells in a field regardless of the average age of the wells in a field.
The only difference in “legacy decline” and just “decline” that I know of is “decline” is an absolute number regardless of new wells or infill drilling. “Legacy decline” is the decline, or what it would be, not counting new production.
From the dictionary, Legacy – 2. anything handed down from the past, as from an ancestor or predecessor.
So legacy decline would be the decline from “past” or “old” wells, not counting new production from new wells.
Legacy decline is expressed as barrels per day by the EIA. Go here: Drilling Productivity Report Click on “full report” and you will see stuff like the graph below. The legacy decline is shown.
The EIA expects production from new wells to be 104,000 barrels per day in January. But regardless of what the new production will be, the legacy decline will still be 77,000 barrels per day, or somewhere near that number. So if production from new wells is only 70,000 bpd then they will have an actual decline of 7,000 barrels per day.
Got it, so you express this as the total decline rate for a well group, in percentage per month? If the curve is somewhat hyperbolic then I assume you use the average for the month?
Not really, this is the decline rate for all legacy wells, (all wells that came on line before the current month), in the entire field, that is the entire Bakken. Any number that I come up with would just be an estimate. But I think the EIA’s estimate is very close. See my chart below. That chart gives the EIA’s legacy decline rate for the Bakken and Eagle Ford
Hi Ron,
I have reconciled the EIA numbers with the NDIC data.
If we assume all first month wells produce for 30 days (where in reality the average well produces for only 15 days in the first month because the first production day can vary between the 1st and 31st day of the month), we get a result closer to EIA numbers.
Scenario below assumes new wells added per month falls quickly to 130 new wells per month by March 2015 and remains at that level and real oil prices rise from $58/b in Aug 2015 to $100/b in Jan 2027 (about 5% per year).
ERR is 9.5 Gb with 40,000 wells.
Chart with legacy decline for scenario above, the percentage decline(not shown on chart) is about 7.7%, if we use actual first month output (which is about half the theoretical value), legacy decline would be about 4%.
Hi Ron,
The legacy decline does not increase forever, at some point the number of older wells with lower anuual decline rates increases as the number of new wells added per month levels off, this causes legacy decline to level off. Enno Peters is very sharp and though I have not checked his numbers, I doubt he is mistaken.
The Bakken models based on the NDIC data that Enno has collected suggests, the annual legacy decline rate will fall over time. Model (left axis) with monthly legacy decline rate on right axis.
The decrease of the monthly legacy decline will level off too. (2nd derivative). So it might stay around 5%, no?
The legacy decline does not increase forever,
Well hell, I know that Dennis, what do you think I am, an imbecile?
at some point the number of older wells with lower anuual decline rates increases as the number of new wells added per month levels off, this causes legacy decline to level off.
True, but it is very, very obvious that we have not reached that point yet. I really don’t think you are ready to accept that existing wells are declining by between 6.5 and 7.5 percent per month as the data from Mountrail County clearly shows. That is the combined decline of all existing wells!
Enno Peters is very sharp and though I have not checked his numbers, I doubt he is mistaken.
I know he is a very smart man but the smartest men among us very often make mistakes. The EIA says the legacy decline is 2.8 times what Enno says it is for 2014. Or the reverse, Enno has the decline of the Bakken at 35 percent of what what the EIA comes up with. The EIA is notorious for their optimistic estimates. But if Enno is correct then this time the EIA goes down in history for the most pessimistic estimate in history.
But I have the hard data on the decline from Mountrail County. McKenzie still has some really good wells coming in but Mountrail’s wells were piss poor and their decline, even with 35 or so new wells in October, still dropped by 6.42%.
That is entirely consistent with the EIA’s data. They say the Bakken decline is declining by about 75,000 barrels per month. Enno says the Bakken is declining by just under 27,000 barrels per month.
A 75,000 barrel per month works out to be about 6.6 percent per month. That is about the same number I have been quoting for two years. That is about the same number the EIA and everyone else in the world has been quoting for two years. Enno’s decline of 27,000 barrels per month works out to be 2.4 percent per month. That number is fucking absurd!
Hi Ron,
The number bounces around from month to month. The legacy decline in September was about 42 kb/d for North Dakota only. The EIA estimate is very far off, it would require the average new well in Sept for the North Dakota Bakken to have produced 580 kb/d, now that is also an absurd number, David Hughes recent estimate is also a little high, a hyperbolic fit to the data gives a first month output of about 500 kb/d, for Sept 2014, if we assume all new wells produce for 30.4 days we would have a legacy decline of 52 kb/d, about 20 kb/d less than the EIA.
Note that we would need to look at the centered moving average of new wells over time rather than the actual number because not all wells start producing on the first day of the month.
When this is done, the EIA estimate actually looks fairly good, at least for Sept 2014.
Dennis,
Using the average Bakken well profile it should be relatively straightforward to knock up a computer model which can tell us the number of wells per month required to avoid any decline in output, or to keep output growing at some desired rate. I don’t know if anyone has done this, but it might be an interesting exercise that I’ll have a go at if I get the time.
Hi Sam,
It is difficult to keep output flat with a fixed number of wells, but I created a scenario with about 130 wells per month which is fairly flat, the scenario also assumes new well EUR starts to decrease by June 2016 and reaches a maximum annual rate of decrease of 7%/year by June 2017. These assumptions are arbitrary, we don’t know when the average well EUR will begin to decrease, nor how fast it will decrease. The assumptions are consistent with the USGS mean TRR estimate of about 9.8 Gb for the North Dakota Bakken Three Forks. Current proven reserves plus production are about 6 Gb in the North Dakota Bakken Three Forks, an increase of over 5 Gb since 2008.
Don’t use BPD. Use fraction of production. If the drilling rate is contant the total decline does come down. I’ve worked planning developments in areas with wells like this and we have formulas to set the number of rigs we need to keep production flat (zero decline). But if the number of rigs drilling an area has been increasing then the game gets complicated.
a couple of articles musing over the price drop…
“Bottom line: Falling oil prices and the plunging ruble are not some kind of free market accident brought on by oversupply and weak demand. That’s baloney. They’re part of a broader geopolitical strategy to strangle the Russian economy, topple Putin, and establish US hegemony across the Asian landmass. It’s all part of Washington’s plan to maintain its top-spot as the world’s only superpower even though its economy is in irreversible decline.”
http://www.counterpunch.org/2014/12/29/irreversible-decline/
“When the Saudis announced their intention not to support oil prices when they were sliding towards $90 and plunged quickly through that level, we deemed the move to be a masterstroke. It served to damage both economic and political enemies. On the economic front, the casualties would include renewables, Canadian tar sands, and the US shale gas industry. On the geopolitical front, the casualties would include Iran, Syria, Russia…. and the US.”
http://www.truth-out.org/news/item/28282-saudis-tell-shale-industry-it-will-break-them-plans-to-keep-pumping-even-at-20-a-barrel
Okay look.
If the US had control of oil prices, then for 3 years struggling out of 2009 it faced $100+, and given that control they could have adjusted them to a nice comfy $80 when $80 was most hugely needed. Bernanke commented on $100+ by denying QE was responsible and that the price was transitory.
Janet just said the low price was transitory. Bernanke was right, after about 2.5 yrs. If the same is true of Janet, it’s game over, certainly for shale and probably the US economy as a whole. 2.5 years of this will destroy shale.
Somehow people haven’t figured out that KSA can borrow whatever fiscal shortfall they might have. And you know what? They could then default on it. Just capriciously default on it. It’s just pieces of paper, printed up by someone to lend to them. If oil’s price returned to $100+, they would not need to borrow further and then why would they care if lenders are angry? How are the lenders going to foreclose? There is no court with jurisdiction. The Hague? It has no army. How do they enforce a judgement?
The world ended in 2008, folks. It’s never coming back.
Yeah, I bought a Bakken oil company stock and got burned, but it is just play money (a minor investment), so I am not losing my shirt, just getting fleeced then skinned alive, har. It just won’t matter anymore today, tomorrow, or the day after tomorrow, I can’t change what has happened. Can’t have just one basket of eggs, it might tip over. It’s all water under the bridge now, it doesn’t matter and it won’t make much difference. The company is working with a private equity that drills for oil in the Bakken and is in a sweet spot spot. The outlook is bleak, went from no debt to fifty million in a heartbeat. It won’t kill me, it’ll just make the peak oil phenomenon more profound. Production will be sufficient to maintain business as usual, but the price of oil has to increase in the future, otherwise, they’ll continue to lose their shirts. The company will be bent severely, but not break. I’ll just buy more beer and cry some more if they do, the fun just never ends.
Apparently there is a glut of oil at a hundred, ninety, eighty, seventy, sixty, fifty-five, now at 53 and nobody dares to know where the price might find new lows. A kudlow, har. Who cares if it goes to fifty if you’re not buying any anymore?
Everybody makes mistakes, you can get mired in the muck, stuck in the mud, spinning your wheels, nothing else and it will only get worse, not get better at all, a quick trip to hell in a handbasket. Time and time again it is said over and over again, that’s the way that the world goes ’round. You hunker down and hope it all goes better in the future.
You’re not going to win them all. No one person can possibly know everything, it can’t be done.
When the time comes when oil depletion becomes a mind boggling reality that there isn’t much left, the savings account is going to be down to the last withdrawal, that Bakken oil that is still there will be worth everything that it takes to get it to have it and more.
Time marches on; it never stops, never declines, never depletes, never decays, and is on the side of what’s left of the Bakken. More than meets the eye, for sure, that’s for certain.
Probably more important to harness the natural gas than it is to drill for more oil. If a low price for oil contributes the capture of more natural gas and not burning it off, it is a blessing in disguise. The price is doing work nobody else could.
At 80 million barrels per day of consumption, you’d think it would be enough and maybe a little too much.
R onald, the system has inertia. Most operators don’t get rough accounting figures for the previous month until mid month. That’s if they have a decent tracking system for money committed but not invoiced or paid out. They do fiddle with estimates, run around making spreadsheets, and eventually call meetings. But in these meetings even large companies like say Petrobras and Statoil don’t discuss how to slow down production. They discuss ways to survive, where to cut costs, issue orders to lay down rigs, and start making plans to layoff people. But the changes require months to execute. In about six months production won’t be increasing, may be already dropping, and the price will be rebounding by 2016.
Price was north of 95 for years? Why is that the proper level you think it must return to?
We live in the world of financial illusions. I don’t think we have the slightest clue what is going on. If somebody believes that in the span of 6 months price of oil dropped close to 50% because of some supply and demand issue than it means that half of the world stopped driving, shopping, working, breathing. in the span of 6 months. It is just pure delusion.
The estimated net increase in vehicles globally in 2014 was about one million vehicles per week (net increase being gross sales less vehicles scrapped), and the estimated net increase in global population is about 1.4 million people per week.
so is it illusion that price of $100 in June or $52, 6 months later? Because we can’t have it both.
why is 1.4 million/week not equated to $233 / barrel? Or $22/barrel.
Demand and levels doesn’t correlate with the aileron analogy. Imbalance creates change, not level. The theory would be when there is balance there is a level, at whatever level, and no change to that level. If you get oil down to $22 and the balance is in play, it will stay there. Ditto $250.
This just doesn’t work. At $110 oil flowed. Pop grew. It stayed up there for over 2 years. No reason it can’t stay at $50 for two years. Why would it not?
Jeffrey,
Where do you go to get those statistics? Those would be useful.
Wikipedia has the population estimate.
The net vehicle increase estimate was given to me by an oil analyst. I think that new vehicle (gross) global sales number for 2014 was something like 80 to 90 million, versus something like 50 million net.
It would be helpful to get more detail – I think the net number may be too high. The OECD net addition is probably zero, and I suspect that the OECD is the majority of auto production/consumption.
Gross new vehicles globally through 2013:
http://www.statista.com/statistics/262747/worldwide-automobile-production-since-2000/
Interesting difference between 2007, 2008, and 2009 new vehicle sales, and 2013 and 2014. Apparently the estimate for 2014 is about 90 million new vehicles.
Hi Jeff,
The demand for gas and diesel depends on how far the vehicles were driven. As far as I know we don’t have that data. We can assume that the miles driven per vehicle has not changed, but we could be wrong. Oil supply has increased and demand has increased more slowly than supply, this leads to an excess of oil supply and a fall in oil prices.
Dennis,
Why do you comment as if you’re talking to Grade 5 children? “The demand for gas and diesel depends on how far vehicles were driven. “Really? Are you thinking Jeff (or anyone else here ) wouldn’t be aware of that? Personally I think that Jeff should be insulted by your comment; I certainly would be. Actually, from reading Jeff’s comments over the years I’d have expected that YOU would be seeking HIS advice (and opinions).
Vehicle miles traveled really is the key point.
Chinese VMT is much lower and falling, due to much greater congestion. Many major Chinese cities are limiting new car sales due to congestion (and secondarily pollution).
That should be “Chinese *average* VMT”.
And, do you imagine Jeff wouldn’t be aware of that?
“Many major Chinese cities are limiting new car sales due to congestion.” Well, having lived in China for seven years (I go back there at least once a year) I’ve yet to witness this as I’ve yet to witness anyone not being able to get around the so-called one child policy. There were many times I’ve been driven two blocks (when I would have preferred to walk) because my host thought it would be more “impressive” to arrive by car, be dammed the smog. Status trumps pollution EVERY TIME.
do you imagine Jeff wouldn’t be aware of that?
I don’t know, but he didn’t mention it, so someone has to. There’s no shame in people adding information to a previous comment – no one can know everything. Ideally, this is a cooperative effort here, with a cumulative gain in knowledge.
Jeffrey and I have had many exchanges like these over the years, and learned from each other.
I’ve yet to witness this
CBC News just reported that Shenzhen is restricting new ICE sales to 80k per year (EVs to 20k). “Shenzhen follows in the tracks of Beijing, Shanghai, Guangzhou, Tianjin, Shijiazhuang, Guiyang, and Hangzhou.”
Hi Doug,
Thanks for defending Jeff’s honor. I am trying to learn here, not everyone knows as much as you.
Perhaps I and others missed the obvious reference to VMT, would you care to fill in the missing details for us 5th graders?
yup
All that was NECESSARY to cause the price to drop by half is that all the people and businesses in the world collectively cut their use of oil by only a tiny amount or not at all while production held steady or increased by just a tiny amount. By tiny I mean relative to the total usage.
This is a very well understood but nevertheless remarkable fact about supply and demand and price in the case of some commodities.
Think of it this way. If you need perishable baby formula you will buy as much as you need for your baby to the limit of your ability to pay or borrow.
But beyond the amount your baby needs- you will not buy ANY MORE unless you get it cheap enough to feed it to the cat.
There are thousands of sellers in the oil market and just about all of them are desperate to sell- not because oil is perishable but because they MUST HAVE THE MONEY.
In order to sell to customers who just don’t want any more oil than they are using anyway they have to cut the price in half to sell MAYBE ONE PERCENT MORE OIL.
I MUST SELL my apple crop for both reasons. I must have the money and apples are perishable.
Three times at least the wholesale price at my farm gate has fallen to ZERO in the last twenty five years or so. There were so many apples on the market that I could not sell mine for enough to pay for the contains and shipping. So I dumped them in a gully and fed some to the pigs and cows and gave away as many as I could.
Now there are many substitutes for apples so the upside price when the crop is small instead of large does not work so well for me as it does for an oil man. The man or woman of the house who buys the groceries can substitute dozens of other foods if apples are especially expensive any given year.
But there are almost no substitutes at all for gasoline and diesel fuel. The very modest amount of synthetic and liquid biofuel on the market is not enough to affect the price enough to notice during a shortage.So if an oil shortage develops… well the oil guys are going to be in tall cotton. My customers can switch to pears and oranges and grapes.
When the amount of oil coming to market is one percent less that customers want and are accustomed to buying …. well in that case those customers will bid the price right back above a hundred bucks again … right up to the point that some customers have to buy LESS than they really would like to.
I agree.
One quibble. When you say “there are almost no substitutes at all for gasoline and diesel fuel.”, that’s in the very short term. EVs in all their various forms are definitely substitutes for the majority of transportation needs, and they’re cheaper and better.
Mac,
It is very simple. Proponents of supply and demand have to just provide the numbers in drop of global demand or increase of oil global supply in order of 50% price change in the last 6 months. So yes please show us the numbers and I will gladly look at them. So far nobody presented that. And the noise coming from TV and insights from so called “oil analysts” it is all just BS.
NICK is right to point out that the substitute for oil problem is not NECESSARILY a long term problem.
The fifty percent drop in price due to a small drop in demand or a small excess in supply is most definitely a short term phenomenon.
And I pointed out that I was referring to the very short term.
Over any long period of time such a price collapse not only stimulates demand but also depresses supply. I will most definitely just get rid of my ESCORT and the insurance policy and taxes and tags and just drive my old gas hog four by four truck all the time if gasoline gets CHEAP ENOUGH and I might also buy a giant Chevy motor home and ”see the USA in my Chevrolet” as well.
But these are choices I have not made yet because I am not yet convinced gasoline will stay cheap.People are not going to rush out and trade their car right away for a bigger one on the basis of a few months cheap gasoline. This will happen though – over a longer time frame
VES- The numbers are RIGHT IN FRONT OF YOU IF YOU ARE ACTUALLY READING THIS BLOG AND THE BUSINESS NEWS.
There are only TWO RATIONAL EXPLANATIONS FOR CURRENT OIL PRICES.
One is that supply is up a bit and demand is down a bit alternatively supply is UP a bit MORE or that demand is down a bit MORE.
The one percent difference is small enough to be lost in the noise as far as stripping it out specifically and NO FxxxxxxxxG BODY IS INTERESTED IN DOING IT any way except maybe for economists who are not trying to get their name on tv. And maybe a few peak oil nuts like us.
Here are a FEW reasons demand JUST MIGHT BE down a bit. Heat pumps cutting into heating oil sales. Home building in the doldrums which cuts into the use of construction machinery and asphalt sales. Nukes coming back on line in Japan. Shipping in general in the doldrums. New cars being driven almost exclusively in households with more than one car that have purchased a new car. Nick has often pointed out that new cars are driven a LOT more miles than older cars. A new car gets better mileage on average. Efficiency measures implemented in oil using industries such as my own field of agriculture. Farmers these days use far less fuel per acre or per ton of output than a decade ago. Poor people not having money for that extra run to the fast food place staying home and combining trips. Whole FxxxxxG COUNTRIES in deep economic do do right up to the nose.Kids these days unable to afford cars and insurance on cars and putting their money in hot rod phones rather than hot rod cars. Young adults learning to get by without cars since they are so awesomely expensive these days.Pure electrics and hybrids cutting into gasoline sales. Industry figuring out ways to use CHEAPER natural gas as a substitute for SOME oil input.
Things slowing down in CHINA.
Now I PERSONALLY don”t have any problem all believing all these things ADDED UP TOGETHER COULD BE responsible for up to a one percent drop off in demand over the last year or so.
You are free to believe otherwise as you choose of course.
It takes the economy some time to react to changes such as these. Think a big fat old guy jogging along. It takes him five or six strides to stop. A kid jogging along side him can stop in a single stride.The economy is huge and ponderous and moves like a big ship. Changes in speed and direction take a few months to year or more to become obvious.
Now as to supply being up – I certainly am not capable of proving it but NOBODY at all seems to have any EVIDENCE it is DOWN. All the charts RON posts here for us suggest supply is actually either still growing or at least flat. I see NO evidence of a general decline in supply YET. And when it does decline it will take the price a few months to climb as inventories are drawn down and the people selling oil are able to raise their asking price and these prices work their way thru to the gas pump.
DUMPING a year’s work at a SUBSTANTIAL ACTUAL LOSS in CASH is enough to convince you of the reality of customers wanting just so many apples and no more. It happened to me and my Dad three times while I was actively involved in the family operation.
HOW MUCH MORE oil do YOU buy because the price is down?
The price will go back up as soon as ENOUGH of the producers who are running at a loss manage to shut down their businesses. This is going to take a while- at least six months according to the hands on guys who post here.Probably a year. Some producers are going to hang in till the last possible minute even running at a loss hoping for the price to go up.
In the meantime they are all trying like hell to sell into a glutted market and as we farmers put it cutting each others throats in bloody fight to survive.
EVERY SINGLE YEAR- EVERY YEAR I hear about my fellow farmers one place or another putting hard cash and a ton of sweat into growing a crop and then having to leave in it the field to rot – or even worse paying the harvest costs and then having to throw it out -LITERALLY throw it out – literally haul it to the dump or GIVE it away to get rid of it.
A guy right up the road gave away a field of pumpkins last year. NO BUYER could be found that would pay enough to cover harvest and delivery. Some local poor folks hauled maybe half of them away and sold them at flea markets. The rest rotted in the field. Now if his place had been adjacent to a cattle guy and the field had been fenced the cows would have enjoyed them but they weren’t worth enough to even haul them to feed cows.
This sort of thing has been cut and dried in basic economics textbooks for a century at least by now. ASK ANY KID majoring in economics or business administration.
Of course if you want to believe that there is some sort of cabal of bankers and business men and politicians forcing the price of oil down all COOPERATIVELY working together secretly then it is still a free country in some respects at least and you are free to do so.
PERSONALLY I believe they are working together to SOME EXTENT to take advantage of circumstances MOSTLY beyond their control. Making some lemonade given that they have lemons on hand so to speak. If the world hands you lemons you might as well make some lemonade if you can.
So maybe the Saudis are to SOME extent influenced by our Foggy Bottom ( state department ) guys when it comes to not cutting production because the big OBAMA guy wants to crimp PUTIN’s style a bit.
Hi Ves,
In the short term, a small change in the supply or demand curve will lead to a large change in price.
You seem to assume that a 1% change in supply or demand will lead to a 1% change in price. That assumption is incorrect. In the short term if supply grows by 1% and demand is unchanged, then we might see a large drop in oil prices, such as 50%.
How do you think market prices are determined? Can you explain an alternative model to the usual supply and demand model?
Hi Dennis,
Well let’s turn the tables around since you guys are always asking that whoever question something you are asking to prove it. Let me ask you few question: Do you know how the pricing is done when Rosneft sells their oil to German refinery? Do you know how the pricing is done when Venezuela sell its oil to Chinese refinery? Do you know what are the terms and the pricing when Saudis sell its oil to Korean refinery? I don’t know. But do you honestly know? No, I don’t think that you know. And I don’t think anybody on this forum knows. Yes, we all can speculate, assume, guess or whatever but ultimately we don’t know. So how can you claim that you know what certain oil price reflects at any given day?? I mean if you really knew you would be billionaire and I am quite positive you would be somewhere on the Caribbean beach and would not type post here. Let me ask you this if you knew 6 months ago that oil will be 50% cheaper with just 1% change of supply or demand why did not short the oil? Or if you really know that oil price will recover in year span and be back at $100 as many have stated already here with 100% certainty why don’t you put all you money and even sell a house to raise the cash and put on bull oil ETF? I mean it is that simple if you know for sure that this short term price crash is result of simple 1% or 5% or whatever change of supply and demand. But you not going to do that because you don’t know for sure And if you don’t know for sure then it is speculation, guess, opinion. And everybody has those.
There are actually quite a lot of substitutes for gasoline and diesel. I would think these alternatives are at least as responsible for the lower price, as the increases in oil production. It’s usually just referred to as “lower demand”.
A look at the number of alt fuel stations gives some insight.
http://www.afdc.energy.gov/fuels/stations_counts.html
Ves, it’s not supposed to be demand reduction. It’s supposed to be excess supply. Too many projects racing to meet demand, and an overshoot that’s hard to stop. On the other hand maybe Saudi Arabia is tryng to punish venezuela? See? I can come up with weird theories as well.
Fernando,
When somebody comes along and put some speculation (like Watcher) some of you immediately jump and scream “conspiracy”. I personally don’t have opinion because that financial mumbo jumbo, HY bonds that banks are paddling are not something exiting to learn. But then you come along and few others and claim that oil price will be back in 12 months to $100. Then I am thinking to myself that you might have crystal ball in your basement. But then I would think that maybe you are real conspiracy nut because how can you claim that oil will be back to $100 within 12 months by just looking in your crystal ball?
Good morning, America!
USDJPY is up 0.32% and the Euro is looking at Syriza’s polls in Greece and in total panic down 0.5%, and presto, oil south of $53. It would be worse but for the pound.
But hey, I hear EOG can operate at $40/barrel so what’s the problem? And like I said, the big companies will just buy up the unprofitable business (and HY debt) of the small companies, because they don’t have enough of that stuff already and want more.
Here are the Legacy Decline Rates for the Bakken and Eagle Ford according to the EIA’s Drilling Productivity Report. You can tell that the rates were actually calculated out through June 2014 but from that point on they were only estimated. For the past year the legacy decline rate has been averaging 6.27% per month in the Bakken and 7.85% in Eagle Ford.
Interesting. Didn’t know Eagle Ford wells died faster than Bakken wells.
“Oil Services Company Civeo Is Getting Demolished”
http://www.businessinsider.com/civeo-shares-crash-2014-12?nr_email_referer=1&utm_source=Sailthru&utm_medium=email&utm_content=MarketsSelect
In a press release, Civeo said:
‘The acceleration in November of the decline in global crude oil prices and forecasts for a potentially protracted period of lower prices have resulted in major oil companies reducing their 2015 capital budgets from 2014 levels. This has had the effect of reducing the near-term allocation of capital to development or expansion projects in the oil sands, which is a major driver of demand for the company’s services in Canada.’
Civeo provides housing accommodations for workers at oil-drilling and mining projects, primarily in Canada and Australia.
Decline Rates are MONTHLY .. Be great to see a graph of annual decline. Granted it’s only have 3 data points. Map from same EIA’s Report above. Looks like significant percentage of potential US Nat Gas production is off-limits due to NY States Fracking band. A factor in NG Price normalization?
The Barnett Shale Play is not shown on the map. In any case, my usual comments about annual natural gas decline rates:
It’s interesting to look at some regional declines in US oil and gas production, e.g., marketed Louisiana natural gas production (the EIA doesn’t have dry processed data by state).
According to the EIA, the observed simple percentage decline in Louisiana’s annual natural gas production from 2012 to 2013 was 20%. This would be the net change in production, after new wells were added. The gross decline rate (from existing wells in 2012) would be even higher. This puts a recent Citi Research estimate in perspective.
Citi estimates that the gross underlying decline rate for overall US natural gas production is about 24%/year. This would be the estimated year over year decline in production if no new wells were put on line.
Based on the Citi report, the US would have to replace the equivalent of 100% of current natural gas production in about four years, just to maintain current gas production for four years.
Or, based on the Citi report, the US has to replace the productive equivalent of all of the 2012 dry natural gas production from the Middle East, in a little over three years, in order to maintain a dry production rate of about 25 TCF/year. Over a 10 year period, we would need to put on line roughly three times the 2012 gas production rate from the Middle East, in order to maintain current US gas production for 10 years.
Or, based on the Citi report, the US has to replace the productive equivalent of all of the 2012 dry natural gas production from Russia, in about four years, in order to maintain a dry production rate of 25 TCF/year for four years.
Jeffrey, that’s not the way the equations work. Strictly speaking if the decline is exponential the equation is
Qt=Qi x e raised to the power (-rt)
Qt is rate at time t, volume per unit time. R is decline rate, fraction expressed per unit time. People like to stick a 1 in -rt and find the multiplier which they transform as a percentage rate.
To make things simple in your mind, the rate at 4 years is roughly .76 raised to the fourth power. This isn’t the right technical approach you need to use, but it’s close enough.
I’m sure Jeff is more than familiar with exponential functions and is explaining depletion in a way that is (hopefully) comprehensible to the general public. I, for one, applaud his approach. My wife, a mathematical physicist, insists that even esoteric mathematical/physics concepts can usually be understood by lay people if the teacher is skilled enough. Jeff is a skilled teacher.
The statement about four years and 24% decline didn’t jive. I think we may be getting cross threaded. I’m used to the decline expressed as a fraction. This allows us to understand it’s the r in the equation and think accordingly. Sorry if I got you a bit upset.
It might help if you read what I wrote.
Hint: The question is not to what level will existing production decline to in four years, the question I was asking was, with an underlying 24%/year decline rate from existing production, how much new production do we need every year, in order to maintain current production?
Or, as I said, it might help if you read what I wrote, and not what you think I wrote.
Every year you need to add capacity equal to 24 % of the current production, plus a bit more to account for wells and fields which reach their economc limit.
When I had to plan this out I used the reserves we had to add, and their r/p ratios to set capacity, it’s like running up the down escalator.
Somebody please tell me how to do the heavy black letters in Jeff’s comment above. I hate to use caps so much but I can’t underline or italicize here.
If I compose in a program such as Word and copy and paste here will italics and underlines etc come thru?
For italics: place before the text, without the “_” underscores. To end italics, place also without the _s.
For bold, same things using B instead of I.
That didn’t work. Let’s try this:
For italics: place “” before the text, without the ” punctuation. To end italics, place “” also without the ‘s.
For bold, same things using B instead of I.
Sigh.
What Ron said.
It’s a chevron< then a b, then another chevron in the opposite direction >.
To close the bold it’s a chevron< then a /b then another chevron in the opposite direction >.
Here it is with brackets instead of chevrons:
[b]Bold text here[/b]. That will work
If I compose in a program such as Word and copy and paste here will italics and underlines etc come thru?
No.
OPEC December Crude Output Slips as Global Prices Tumble
Output by the 12-member Organization of Petroleum Exporting Countries slipped 122,000 barrels a day, or 0.4 percent, to 30.239 million, led by declines in Saudi Arabia, Libya and the United Arab Emirates, according to the survey of oil companies, producers and analysts
haha, that’s noise. Ron reports variance like that often.
Well is the drop in Saudi production just noise or is it a function of natural decline in their giant fields? Only time will tell.
The drop is related to the closing of a 300,000 b/d field in the Neutral Zone. I can’t remember the name of the field. Ron knows it. The output is equally split between Kuwait and SA.
Kuwait-Saudi oil field shut down ‘for technical reasons’
Production from the joint Kuwaiti-Saudi oil field was shut down due to technical reasons, not oil supply, said a Kuwaiti official.
The 300,000-barrel-a-day Khafji offshore field, located in a neutral zone between the two Arabian Gulf states, was halted in October.
But it was shut down in October.
Yes, my engineer friend who works in Kuwait from time-to-time told me it was shut down because of a gas leak, an issue that was expected to take a month or two to rectify. This guy doesn’t work in the Neutral Zone but I’d guess he’s in the know. Al Khafji Oil Field is an offshore field with 15 platforms: If anyone cares, and besides oil it produces a fair amount of gas. Even though it was discovered in the 1960s development was relatively recent. A gas/condensate system was installed in 2012, I’m told.
Let’s see what the upcoming OPEC report has to offer. I find a big discrepancy between Bloomberg and OPEC
Oil prices decline even as inventories drop
Same thing happening in the US tight oil patch. Is this just noise or are low prices causing lower production?
Maybe the low prices cut KSA and natural decline cut shale hahah
Major Bloomberg article out on back channel attempts by the Administration to fix relations with Russia. Russia is not interested.
Now who is it that we think is desperate?
Most news articles are placed by PR people. This is especially true of articles about politics and government. Investigative journalism was never more than about 2% of reporting, and with MSM cost cutting it’s now about .2%.
So, when you look at an article like this, ask yourself: who placed it, and why? Is it someone trying to embarrass the administration? Or, much more likely, is it the administration placing the meme that they’re the reasonable ones, and the Russians are the irrational ones?
“So, when you look at an article like this, ask yourself….” You can’t possibly be serious Nick. This is Watcher you’re addressing now, the most cynical on the planet. If there is anyone not likely to be taken in………….
I deserve a planet of my very own.
What color is the sky on your current planet?
Just kidding- happy new year!
Oil closed 2014 at $53.xx.
Harold Hamm has changed his mind and is appealing the divorce ruling. So is his ex.
“Last month, when oil magnate Harold Hamm was ordered to pay his ex-wife $1 billion in their divorce, he called the ruling “fair and equitable, publicly thanked the judge and said he was happy to have the case behind him.”
His position is that all of CLR’s advance was due to “luck”, outside forces having nothing to do with his skill. Turns out his ex was a company executive and led the effort to sue and win lawsuits against competitors, the proceeds of which went into drilling. She agreed to this, of course, because the CLR shares owned as (she thought) marital assets increased in value and thus, so did her wealth. She feels shortchanged in that regard.
He wants the settlement agreed to thrown out. It paid her $1 billion. And it was to be stretched out somewhat (though escrowed). Smells like he needs that escrow money. That’s . . . interesting. Maybe needs it to buy up some of those small failing projects people are excited about, so he can more of those in his inventory.
http://www.businessweek.com/articles/2014-10-13/u-dot-s-dot-oil-prices-are-dropping-but-drilling-is-more-expensive
I am posting this as much for the image, than content, but article does explain what may happen to the shale plays.
This image is not what I extent to see from a Bakken drilling pad. All the other pictures I have seen, have been flat to undulating, making setting drilling pads quick and cheap. This pad is a work of art, and for sure cost a fell dollar? I am sure they would not be wanting to construct on e of these for every hole they drill. So I am sure in this type of country at least, multi well pads will be maximized.
“Back in July Goldman Sachs estimated break even at $85”. See my comments above about the miraculous the decrease in shale costs since the middle of 2014. Wish we could figure out a way to cut our LOE in half from 6 months ago. I suppose there will be less difficulty in reducing shale costs compared to conventional producers securing half off pricing on electricity, chemicals and labor. No wonder the shale folks and their backers aren’t as nervous as us conventional guys. Thanks for the post Toolpush.
That would be 3-4 million dollar pad, at least; wow!
I visited a 4 million dollar water well yesterday in the Eagle Ford trend. Three strings of casing with 7 in. OD production casing on ESP making 400 GPM of 170 degree fresh water. That well will service many, many nearby wells, but still, it was rather unbelievable. As I have said, these shale guys did not care where the money was coming from, or what things cost, and the waste has been, in my opinion, incredible. There are service companies that come out to a well location and do nothing more than take thread protectors off casing. A gate guard makes 500 dollars per day and there are pressure washing companies that stay on location 24/7 just cleaning stuff while rig hands hang out in the dog house. Toolpush wouldn’t believe it, I’ll bet. The money the shale guys spend on safety related stuff, per well, would amaze you; each rig pretty much has a full time safety supervisor.
So, on one hand, Shallow, I share your puzzlement as to how “break even” costs keep coming down and think a good bit of that is more propaganda. On the other hand, it is conceivable to me that drilling and completion costs can come way down… eventually. That is one the benefits of price collapses; folks stand back and start cutting out all the fluff.
However, I do not believe that 10-20% cost reductions in well costs is going to allow EF shale oil production to grow in 2015. And for the record, in Texas oil can get moved without deductions to WTI and typical EF wells are cheaper than in the Bakken. First hand, there is still a lot of activity out there in the shale patch in S. Texas but they are working on 2014 budgets and hedges. I think everyone expected the shale oil industry to have dropped anchor and come to a complete stop already but its really only been 2 1/2 months. It’s takes a long time to stop a big ship in open water. By February and March we are going to begin to see the full impact of 50 dollar oil, I fear.
Shallow, not to disagree with you at all (I usually can’t), but in spite of the happy faces, I think the shale oil industry is terrified.
Mike,
Surely that pad has to be for a multi well operation. It would be hard to believe they would go to all that trouble for an exploration well, or even a single production well head. What ever it is, that looks like an area that will see the first cut back, unless it is so sweet, it produces pure sugar.
As for having dedicated safety people. Welcome to the offshore world. We quite often have two dedicated safety people on board at a time. One from the contractor, and one from the client. Also for premium thread casing stings, we often have a service hand from the casing company. More as a thread inspector, or should I say seal inspector, rather than just labour for removal of protectors. With these wells drilling 20’000ft MD in 20 days, I suppose casing preparation was getting on the critical path. I assume these casing hands are also cleaning the Kendex of the the treads as well, while the drilling rates must be well over 300 ft /hr, keeping the roughnecks busy on the rig floor.
The bright side for the shale players, is that if they do have excess people employed to the get these operations up and underway, then they at least have some easy fat to cut to lower costs.
Are these shale wells drilled with water base or oil base muds? Sorry I suppose we shouldn’t call it oil base, how about Synthetic or invert mud systems? I just can’t imagine water base with such long shale sections, and especially horizontal as well.
I’m working on a 6 well pad right now. Seen laterals drilled both with invert and brine. Anyways from my very limited perspective it does like there are some pretty easy ways to trim down on the hands and extra costs of these wells.
Hello Observer,
Always good to hear from someone who is at the heart of things.
Can you tell me, with their pad drilling, do they have the rigs on skids and move them with hydraulic jacks, or are they using these now famous walking rigs?
And while you are there, what distance a part are the wellheads? I work offshore where space is critical and we put wellheads about 10ft apart, sometimes closer. Things can get pretty tight at the wellhead deck. Obviously on land, space is not such an issue, but I would be interested on how they go about things.
I’m a bit of a newbie to the fields, been working as an MWD hand for under a year. That said i’ve seen only walking rigs with hydraulic outriggers. Think spacing tends to be around 60′.
$85 was indeed breakeven in July. Funny how that happened. It was like there was a queue at the microphones for each new analyst to have his chance to quote a lower number.
The new Congress takes seats January 6. About a week after that the 2 year cycle House folks will start fundraising and when the flow from shale companies isn’t there, eyes will start to open and “stimulus” talk will start.
Great, superb photo. I’m looking at the road to get to the pad. Holy crap, can you imagine the safety regs for building that road to carry the weight it must?
Yes, great photo. Wonder if that’s a sunrise or a sunset in the background: Appropriate to pessimists or optimists — depending on your bent.
Wonder what happens to that road’s underpinnings in the rain.
I was thinking the same thing but decided it must be a semi-arid area. But you’re right. I’ve been in places where that road would be a disaster waiting. Maybe it’s a fantasy pad or something created for a movie set.
Actually, I’m sure it’s a well engineered pad (before anyone comments on my being silly). Sometimes Watcher gets my imagination going in strange directions.
The pad in that picture now has 3 wells operated by Hess (for the data hounds, file #24733, #24734 and #24735). Look at a satellite view with 47.56136, -102.91187 as lat-long coordinates. Land around the Little Missouri River and to a much lesser extent the Missouri River is full of badlands like that. Obviously makes it harder to drill wells in that area, but on the whole the amount of landscape like that is pretty small compared to the overall footprint of the Bakken. There’s a whole lot of oil to be had in some parts of the rougher terrain though.
XTO has a more impressive drilling site a couple miles to the north (47.60271, -102.9190) of that Hess pad. Even the simulated geography from Google Earth gives a sense of the grandeur of what was built there the last few years.
Thanks Reg,
That answers my question, as to it being a multi well pad.
It sorts of reminds me of OFM’s back yard, with their mountain top mining?
U.S. opening of oil export tap widens battle for global market
The action comes at a critical juncture for the global oil market. World prices have halved to less than $60 a barrel since the summer as top exporter Saudi Arabia, once a staunch defender of $100 oil, refused to cut production in the face of surging U.S. shale output and tempered global demand.
Meanwhile US consumption will probably rise and production drop soon. Impeccable timing.
If the government is approving this, why would the government also approve a bail-out? If producers are free to shop around for the best world price, what would be the justification that they also need government help to stay in business?
That would be mathematics.
I agree there will be a time lag. Keep in mind producers have only received one check that reflects the free fall in oil prices, for November oil paid in December, and if you are on a monthly average, that amount is at an oil price almost $25 per bbl higher than today. Although you know its coming, reality sets in when you get “the short check”.
One of the many headaches is tax planning. Accountant said in November we need to spend before 12/31 because tax bill is big, yet no way wanted to do that. At least section 179 was finally extended, will help for equipment purchased in first half of 2014, before stuff started to crater. Imagine a business where you are filing a tax return which contains the highest income level you have ever attained, while you are currently worried about whether you will make it through 2015. That is the way oil works, I guess has always been that way. Same thing almost to a T in 2008-2009. Hope price doesn’t hit 2009 lows, but does recover like in 2009.
And yes Mike, I was being sarcastic about the shale guys. Anyone in oil right now has to be concerned, and the more debt on the books, the more scared they surely are. I cannot get the math to work to keep the shale drilling train alive, without there being some sort of bailout. I cannot imagine that would ever occur given the views of the current administration and the majority of the public, although Watcher seems adamant and he seems to be one to be taken seriously.
A bailout seems politically inconceivable. After six years of red state politicians demi-godding against government intervention in the economy and bailouts in particular while their constituencies were to a large degree insulated from the pain suffered by the rest of the country due to the focus of their local economies on energy extraction, the notion that now, after doing everything they could to withhold vital government intervention (cutting off of food stamps, laying off teachers refusal to fund infrastructure projects etc) the moment that the economic pain might be felt by them they would have the gall to ditch their so call principles and go screaming to that low down dirty gummint to save their asses just doesn’t compute. These people have always been irony impaired but this would absolutely take the cake. Its just not going to happen.
Not so sure.
American people are quite lumpen these days:
Irony is always a two way street. If there was legislation to bailout shale, the other side would be faced with the irony of applauding its own midnight basketball style gubmint money and now attempting to ridicule red state gubmint money that feeds cities.
The ideological obstacles will be there, which is why I think the Fed is the better option. They have no political issues to face. They can make a case for “rescuing” high yield credit, and essentially nationalize the industry with absolutely no one complaining about it and about 80% not even aware it is happening. If HY paper is backstopped, the wallets open and the spice continues to flow, and all that really happens is HY credit becomes equivalent to US Treasuries, which cannot default since the Fed can fund them. And hey, this means HY becomes LY, because those interest rates won’t be high anymore, given no default risk. What shale operator would complain about borrowing at 0%?
Just remember Alan Greenspan’s foray into crisis (1987).
“The Fed remains ready to fulfill its role as lender of last resort.”
If no one else will lend to fund the spice . . . . .
Hmm a comment dropped.
I said there need be no bailout.
All you need is a rather inexpensive sortie over KSA facilities with a bomb equipped aircraft that fires effectively and the low price problem is solved.
You don’t even have to do much damage. Just the news should be worth $70/barrel.
Watcher, I deleted the nuke bomb post. I don’t like posts like that, even if it is in jest. You wouldn’t make a hijack joke on a commercial aircraft and you should not make a nuclear bomb joke on a friendly nation, even in jest. A terrorist may not know the difference. And that, if taken seriously, is most definitely advocating terrorism, far worse than anything ISIS might dream up.
Besides I have a son and grandchildren in Saudi Arabia, and advocating dropping a bomb on them just don’t sit well with me.
Please do not joke about committing acts of terrorism on this blog.
Change 1:
“…and you should not make a nuclear bomb joke on any nation, even in jest.”
Happy New Year all!
Actually I don’t think there are any terror groups with pilots trained at delivery of precision guided munitions from sophisticated fighter aircraft, maintained and fueled properly, and not incidentally with the aircraft itself. So it would not be a terror strike.
It would be a need to elevate oil price, by whoever we see needing to elevate oil price. It depends, of course, on the degree to which the recent articles tying essentially all GDP improvement from 2009 to shale are true.
But to avoid hitting your offspring (PGMs usually have excellent circular error probability stats that have created the phrase “compassionate targetting” so there was really no particular danger), lets use a bombing sortie on a tanker or three leaving the Straits of Hormuz. That should suffice for the same price bump sought — and not sought by ISIS.
wait, I don’t think I mentioned nukes in the original post. hmmm, hard to constrain targetting with those. Doubt you can resurrect to see if I remember this wrong, but pretty sure didn’t mention nukes. No need to use nukes to accomplish the price rise mission.
Okay, it doesn’t really matter, a bomb is a bomb whether it’s a nuke or not. The principle still applies.
Now that I think about it, the Basra terminals are much better targets. You could hit those with a US PGM delivered from an altitude too high to hear and blame it on a ground attack by ISIS. Presto $100/b. Much easier to blame someone other than the USAF.
Watcher, you have been posting a lot of silly shit lately. Even suggesting that the US would pull such an ignorant, stupid stunt is beyond the pale.
Try being serious for just a while. I like to think this site is a serious site, not a place where people post really stupid “what if” scenarios or conspiracy crap.
The straightforward public policy:
A revenue neutral package: a tax reduction for oil producers (like the ND tax structure) to reduce the bust phase of boom & bust, combined with a tax increase for oil consumers, to reduce the numbers of SUVs bought by consumers with no memory or foresight.
Not likely to happen, but it’s good to present what would be a good policy, in case some legislative aides happen to be reading…
If you can’t sell it, burn it down for insurance?
http://www.reuters.com/article/2015/01/02/us-enbridge-inc-fire-idUSKBN0KB00B20150102?feedType=RSS&feedName=domesticNews
When was the peak of conventional crude oil?