The OPEC Monthly Oil Market Report (MOMR) for February 2022 was published last week. The last month reported in each of the charts that follow is January 2022 and output reported for OPEC nations is crude oil output in thousands of barrels per day (kb/d). In most of the charts that follow the blue line is monthly output and the red line is the centered twelve month average (CTMA) output.
OPEC produced 27981 kb/d of crude oil in January 2022 based on secondary sources, an increase of 64 kb/d from December 2021. November 2021 output was revised higher by 12 kb/d from what was reported last month and December 2021 output was revised up by 99 kb/d compared to the January 2022 MOMR. Most of the increase in OPEC output was from Nigeria(81 kb/d) and Saudi Arabia(54 kb/d) followed by UAE (44 kb/d), Kuwait (27 kb/d), and Iran (21 kb/d). Five OPEC members saw decreases, Venezuela (-51 kb/d), Libya (-45 kb/d), and Iraq (-27 kb/d) with others having decrease of less than 15 kb/d.
In the chart below OPEC 13 crude and Russian C+C are shown, I expect that OPEC 13 crude plus Russian C + C will likely top out at about 40280 kb/d, where I assume there will be no near term sanctions relief for Iran and Venezuela (together they might add 1800 kb/d in the medium term, if sanctions were removed.) Over the next 6 months we might see 1300 kb/d added from Russia and OPEC 13. Sanctions relief for Iran might add 1300 kb/d over the 12 months following that relief and for Venezuela we might see a 500 kb/d increase over 12 months following a removal of US sanctions. Without the US sanctions on Iran and Venezuela OPEC 13 and Russian output might reach 42080 kb/d in the near term.
World supply was about 1.3 Mb/d below the Feb 2020 level in Jan 2022 based on OPEC estimates.
By the third quarter of 2022 the World Oil Market is likely to be short on supply if the optimistic supply estimates of OPEC prove correct. It is unlikely that OPEC will be able to meet the call on OPEC of over 29 Mb/d in the last half of 2022 unless there is sanctions relief for Iran and/or Venezuela. Note also the big jump in non-OPEC output from 2021Q4 (figure 5) to 2022Q1 (figure 6) of 850 kb/d forecast by OPEC, this jump seems unlikely.
What is OPEC spare capacity?
One way to answer this question is to look at the peak 12 month average output of the Big 4 OPEC producers (Saudi Arabia, Iraq, UAE, and Kuwait). This is 20748 kb/d as shown in the chart above. Jan 2022 output for these four nations was 19747 kb/d, all other OPEC nations were producing all the oil they could as they were either not subject to quotas (Iran, Libya, and Venezuela) or were producing below their Jan 2022 quotas. This suggests current OPEC spare capacity of about 1 Mb/d, far lower than the 3 to 5 Mb/d of spare capacity often claimed in media reports. Russia’s 12 month average peak for C+C was about 11300 kb/d so they might be able to increase output by about 300 kb/d from the Jan 2022 level of about 11002 kb/d.
OECD Commercial stocks have continued to trend lower, in December 2021 they were at 2725 million barrels which is 210 million barrels below the most recent 5 year average. The trend might flatten a bit over the next 2 quarters and then may continue lower in the last half of 2022. For this reason I expect oil prices may remain above $90/bo over the next 12 months.
Good YT interview with Josh Young.
https://www.youtube.com/watch?app=desktop&v=GAkupcU1G7I&t=4065s
It’s long but there are a number of interesting bits:
-Capital has no interest in financing 1.5bn offshore rigs with a 30 payback period because they won’t be needed by then.
– Some interesting on the ground comments from a guy running a rig about various bottlenecks at 58.50
There is nothing earth shattering for those who have been following PO but it’s obvious that people in the financial sector are also on top of it. That makes me wonder why it is not a more prominent issue in the main stream press.
Rgds
WP
The chart below, in blue, is OPEC total liquids production, and the EIA’s projection. They slightly missed January but they are predicting a big jump of 620,000 barrels per day in February, (arrow). But then are predicting OPEC to peak in production, at least for the next two years. They are saying OPEC will peak out at just over 29 million barrels per day then start to slowly decline. Their previous monthly peak was just over 32 million bp/d back in 2017.
But the absurd part of the chart below is what the EIA says about OPEC’s spare capacity. They are saying that even after they peak, they will still have a spare capacity of just under 4 million barrels per day. I think that is absurd.
Ron.
The EIA model’s OPEC production as filling the gap between demand and non-OPEC output, my guess is that the EIA expects high levels of non-OPEC output, but often they are too optimistic. In any case 29 Mb/d is the likely limit for OPEC and as George Kaplan suggests it will be less over time as many OPEC nations are likely to to decline, unless Iranian and Venezuelan sanctions are removed, that would bump capacity up by 1800 kb/d minus any decline from other OPEC producers.
Hello Ron,
You said: ” They are saying that even after they peak, they will still have a spare capacity of just under 4 million barrels per day.”
This might have some basis in the 2004 debate between Matt Simmons and Saudi Aramco at the Center for Strategic and International Studies. Mr. Simmons postulated that the Saudi numbers were a mirage and they didn’t have reserves of 256(?) billion barrels of oil; more like 157 BB. The Saudis countered and said that they could produce at 10 and 12 million barrels of oil a day until 2042(?) and 2034(?) respectively. My numbers may be off. But the “surprise” was that “in an emergency, Aramco could produce at 16 million barrels of oil a day.” **They didn’t say for how long** but the difference between 12 and 16 million barrels of oil per day is 4 million. The EIA number registered the thought that might be where their 4 MBOD is coming from. I’m no expert in this so take it with a grain of Saudi sand.
but the difference between 12 and 16 million barrels of oil per day is 4 million. The EIA number registered the thought that might be where their 4 MBOD is coming from.
Sorry Peter, but that is nonsense. Saudi is not now, and has never, produced 12 million barrels per day. They came close in April 2020, but that was when they were emptying their storage tanks and delaying all maintenance to get a higher quota for production cuts due to the covid collapse. They are now producing about 10 million barrels per day and showing definite signs of peaking. Getting from 10 million barrels per day to 16 million barrels per day is only possible in one’s imagination. But we all have to live in the real world.
The Saudis never quite said how they would get from 12 to 16 MBOD. The assumption at the debate was that they could trade production increases for a shorter time to peak from 2042 to 2034 if I remember the numbers correctly. The obvious question was why should they if it meant flooding the market with oil and driving down the price per barrel. Therefore 12 MBOD was not going to happen but it was a possibility. The Saudi preference was to produce at 10 MBOD but 12 was doable and 16 was possible in an emergency.
Simmons argument was that the reserves were not there and the use of maximum contact wells was creating the illusion of being able to up production. Simmons, looking at the Saudi data was concerned that the water cut would hamper production dramatically when the water cut reached the pipes. I’m not sure if it was complete nonsense as it was more like bravado.
Thanks for the work Dennis, always appreciated.
Libya might lose 200 kbpd (https://oilprice.com/Energy/Energy-General/Workers-Threaten-To-Close-200000-Bpd-Libyan-Oil-Export-Terminal.html) but even if it doesn’t this time it’s production is always going to be fragile. Angola looks likely to resume declining now it has just about caught up to where it would have been, but with fewer rigs now. Angola had a small lift because a new tie-in from Eni and will now likely go back to steady decline until the next start ups, which I think will be a small Chevron gas/condensate platform and then a new Total FPSO that has just passed FID and will be four to five years away. I haven’t seen anything to indicate that Iraq wouldn’t continue decline from mid 2019 (maybe Chinese input will have an effect but from rig numbers would suggest not yet).
The first Angola was supposed to be Algeria.
Dennis
Attached is a table which compares the January crude output of the OPEC 10 countries with their required January commitment. The overall deficit is 748 kb/d, 119 kb/d higher/worse than the December deficit of 629 kb/d.
As can be seen, the biggest January deficiencies are in Angola, Nigeria and Saudi Arabia. Also noted at the bottom for SA is their January output according to the “official communications” that shows they are above target.
OPEC+ is suppose to be increasing 400K/d per month until this summer. That is just not going to happen, obviously. Maybe the Saudis will go back to their fave excuse: “the markets are balanced but speculators and driving up prices!” LOL
Adding the asterisk to SA output converted it to text and the sum changed, which I just noticed. The correct sum for January is 23,806 kb/d.
Ovi,
Yes they are below target, based on secondary sources. Most of the deficit is from Nigeria and Angola.
Dennis
Saudi Arabia is missing one whole month since they add close to 105 kb/d each month. January is short by 123 kb/d. So right now they are more than one month behind according to secondary sources.
Also if you compare secondary sources with direct contact, you will see how the gap gets bigger from Q4 to January. My recollection is that they were never that far apart.
Q2 —— Q3 —. Q4 —- Nov—- Dec. — Jan
8,502, 9,536, 9,860, 9,871, 9,945, 9,999
8,535, 9,565, 9,905, 9,912, 10,022, 10,145
GAP: 33, — 29 — 45, . 51, —- 77, —-146
This, to me, hints of inventory use in the direct communication table from SA. The next couple of months will begin to demonstrate SA’s pumping capability.
Tks Ovi for the KSA inventory info . They disguise their incapacity to pump more .
Ovi,
Note that we do not have stock data for Saudi Arabia from secondary sources, JODI data comes directly from the nations that report to JODI. So if we are going to use JODI oil stock data, for consistency we should use the direct communication data in the MOMR in order to compare apples with apples.
The production data is separate from stock data from my perspective. The production is likely what the Saudis report, consumption (both within KSA and oil that is exported) reduces stock levels and production adds to stock levels. Any change in stock levels over a period will be equal to production minus consumption over that period.
Dennis
For SA, the direct communication production in the OPEC report is the same as reported to JODI. My main point in the post is that there is a widening gap between for SA between secondary sources and direct communications.
I am keeping track of inventory separately to see if inventory data will be able to explain the widening gap. Jodi only has data up to November. The first chance to compare Inventory change with production will be for December.
Compare SA production data from OPEC Direct and Jodi
Aug Sept Oct Nov
JODI 9,562 9,662 9,780 9,912
OPEC Direct: 9,562 9,662 9,780 9,903
Ovi,
It is not clear that there is indeed a widening gap, the most recent few month’s data gets revised over time and note that the direct commumication number from KSA also gets revised as the November 2021 data point did in the most recent MOMR, currently it is the same as the JODI number you give above.
If we are not going to trust the Saudi data, then we can’t trust either the stock data or the production data, seems being consistent makes sense, rather than picking the data that matches our preconceived ideas.
Trust, but verify! : )
Edit: Hih below, my point exactly, but might have put a small sarc, or not, note on it.
But I thought it was obvious…
(Out of scotch, but a few beers left)
Laplander , verify what ? EIA , IEA , USGS all a bunch of liars . Now let us verify Ukraine invasion . CNN , MSNBC , ABC , CNBC .? Verify this ? My take . Evolution gave us a thing called the ” brain ” . Use this . Funny , evolution put the brain between the ears . Why ? So that it could be a filter between the BS what the MSM spouts and reality . Hey , who am I to argue about Darwin ?
Dennis
On occasion it gets revised but not often and for November it is a small adjustment. Attached is a picture that shows August for the first time for SA in the Sept report and the final one in the November report. Didn’t change.
Ovi,
The gap is based on two different reports, secondary sources and direct communication.
You have shown that direct communication estimates don’t change often, that may be the case most of the time, I do not really pay much attention to the direct communication numbers. If you did something similar for the secondary sources you will find that there are often revisions, especially for the most recent two months, for prior months is is difficult to say, because we would need to calculate the quarterly data based on previous reports to see if it matches, too much work for me.
Dennis
Yes the OPEC secondary sources are revised.
I will start to monitor JODI stocks monthly change and see if some correlation develops with secondary sources.
Sometime one needs to try different approaches to unravel deep info.
Ovi,
I think the idea that increases in Saudi output is coming from stocks is a myth.
When Saudi Arabia ramps up output temporarily for higher quotas or whatever, that production is real, but it cannot be sustained, that is why I focus on peak twelve month average output which is about 10.3 million barrels per day. That is a better measure of Saudi Arabia’s sustainable output capacity.
Dennis
I will collect the info and let it speak for itself.
We will need to see a steady drop in inventory over let’s say the next six months before coming to any conclusion.
“but it cannot be sustained”
Could you add a little color to that Dennis ?
When Saudi Arabia ramps up output temporarily for higher quotas or whatever, that production is real, but it cannot be sustained,..
Of course this is true. Saudi could easily produce from stocks for one month or even two. And there are always other ways. Wells and GOSPs are often shut doen for maintenance. They rotate this maintenance so that a certain percentage of wells and GOSPs are shut down every month. They could simply delay maintenance for a month or two to ramp up production. Yes, it is that simple.
They can also overproduce from fields while ignoring the need to balance water injection, the pressure declines a bit but with such big fields there is a lot of leeway. Later they can make up the difference by reducing production and overinjecting for a time.
Thanks, but isn’t there a list of future projects of new areas that can be drilled that haven’t been tapped and could be moved forward in time ?
Example- There are areas of the Permian that haven’t been drilled.
California Resources(CRC) works 100 year old fields in the LA basin but has untouched properties in other parts of the state.
The Gulf of Mexico which still has undrilled areas.
“January 5, 2022, by Nermina Kulovic
U.S. oil and gas giant ExxonMobil has made two oil discoveries at Fangtooth-1 and Lau Lau-1 wells located in the prolific Stabroek block offshore Guyana.”
Back in 2014 before the collapse of the price of oil. There were small projects being worked. CRC was increasing conventional production with additional capex.
Huntington Beach,
The fact is the maximum 12 month average output of Saudi Arabia has been 10.3 Mbpd. If they have had any major new fields developed lately there would have been news of it.
Their claimed 12 Mbpd capacity is temporary capacity which might produce for 1 to 3 months, it is not clear it really exists. I will believe it does when I see 3 month average output of 12 Mbpd, in the mean time I remain a skeptic.
I will keep my mouth shut . I know it is ZH and they are a Russia mouthpiece as per CIA . 🙂
https://www.zerohedge.com/commodities/pioneer-ceo-warns-us-shale-cant-increase-supply-even-if-biden-asks
Whether ZH is a Russian mouthpiece is up for debate but Sheffield’s most important statement that the smaller independents will run out of inventory is spot on if they grow at 20%. His view of 5% growth rate is a smart approach. He wants to have some inventory that will last longer than 3 years.
LTO Survivor,
If tight oil producers as a group in the Permian basin increas annual output by 7% per year we get the following scenario. In a high oil price scenario ($95/bo in 2020 $ at well head or higher) this scenario may prove quite realistic.
Dennis, you are really saying that the Permian producing 10M/d in 2033 is realistic? That’s straight up crazy. This is why the oil folks on this board find your comments insulting. Because they spend so much time trying to explain the on the ground situation in places like the Permian and then you revert to this pie in the sky nonsense.
Stephen Hren,
If the USGS mean TRR estimate is correct and oil prices rise to $100/bo in 2020$ and remain there up to 2035, yes I think this is possible. The mean estimate for Permian net acres to be developed was about 50.4 million acres in 2017. That is the basis for my estimate. If the average well completed was about 300 acres, that would be over 166 thousand wells.
There is much that changes at $100/bo, lower prices would reduce output.
Note that the oil pros do not think EVs will reduce demand much, if that occurs prior to 2033 and oil prices fall then this scenario is not realistic, this scenario assumes oil supply is short through 2035.
Stephen Hren,
Note that this scenario was based on LTO Surviovor’s comment that 5% growth seemed reasonable, I increased it to 7% growth because I have created optimistic scenarios that have the Permian reaching 10 Mb/d by 2032. In the chart below I compare a 5% annual growth scenario with a 7% annual growth scenario. Perhaps the growth stops sooner, I believe Reservegrowthrulz might think either of these scenarios is too pessimistic for the $95/bo wellhead oil price I have assumed (also natural gas price is assumed to be $3.50/ MCF at wellhead and NGL sells for $33/b).
What has been discussed frequently is that inventory for many companies is in the 3-6 year range (implied even in LTO’s comment above). You do not take multiple sources of information into account and your projection lacks nuance. Instead you rely only on the source of information you want to believe in. That means you are almost certain to be wrong even with high oil prices.
Stephen Hren,
LTO Survivor said
His view of 5% growth rate is a smart approach. He wants to have some inventory that will last longer than 3 years.
To me the implication was that 20% growth would cause inventory to run out in 3 years. LTO survivor has said his company had 3 to 4 years of inventory, there are a lot of sources that say something different. If oil prices remain high the oil is likely to be profitable to produce. LTO survivor has also mentioned that the oil is there, he is skeptical that it can be produced profitably. He has also said that 5% growth is reasonable, I agree, but think that is on the conservative side. World oil output grew at about 7% annually from 1935 to 1975, as long as there is enough demand to keep oil prices at levels where a profit can be made 7% growth is not that hard to accomplish.
We know why , but still for the record .
https://oilprice.com/Energy/Energy-General/Why-Isnt-US-Shale-Production-Soaring.html?fbclid=IwAR32R7wJHYlnAqzArmXkGgScYwm08w_14EgVF0GxJLXMRJ-lfl6ZZ9WQyhE
Not Even $200 a Barrel: Shale Giants Swear They Won’t Drill More
(Bloomberg) — The Texas wildcatters that ushered in America’s shale revolution are resisting the temptation to pump more oil as the market rallies, signaling higher gasoline prices for consumers already battered by the worst inflation in a generation.
“Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans,’’ Pioneer Chief Executive Officer Scott Sheffield said during a Bloomberg Television interview. “If the president wants us to grow, I just don’t think the industry can grow anyway.’’
To be sure, U.S. oil output will rise substantially this year and is forecast to return to pre-pandemic levels by 2023. But it probably won’t be enough to knock oil prices off their upward trajectory any time soon.
“We’ve had enough head fakes that we’re going to be very thoughtful in ramping activity up,” Rick Muncrief, CEO of Devon Energy Corp., said during a phone interview. “Let’s face it: we all are recovering in one way or another from this pandemic. We’re just slowly getting healthier and healthier over time, but you don’t get there overnight.”
Such comments are a world away from the free-wheeling “drill, baby, drill’’ heyday earlier this century when shale upended global oil markets with year after year of record-high production. Seasoned CEOs like Muncrief, Sheffield and Hamm have seen too many bust cycles to get carried away again.
https://finance.yahoo.com/news/shale-wildcatters-send-bullish-oil-002829906.html
I registred this article, to me it seems for some months now the shale producers have spent more of their profit due to surge in oil prices to increased drilling activity and I guess some riggs are needed to increase levels of Ducks.
The production each well increase as now it is 3 mile latherales and also cost each foot is reduced. From what I have read long latherals have also some negative impact as more oil will remain in the shale formation. Would be good to see a courve, diagram that show how many riggs US need to add to keep production from decreasing as more and more wells are drilled. I believe at some point they will both runs out off acre and pepole/equipment even there is a profit. That is normal what happens and the oil Companies all time need to invest in new fields to keep up for decline.
Ovi,
From the yahoo finance article you linked above:
Exxon Mobil Corp. and Chevron Corp., for example, are targeting 25% and 10% shale growth, respectively, this year.
So between privately held companies and the Oil majors which have plans to grow at higher rates than 5% per year, we might see overall Permian growth at something higher than 5% per year, especially if oil prices remain at current levels ($91.77/bo for WTI crude front month futures as I write this.)
Dennis
The problem with these growth estimates is that they are BOEPD. Not BOPD.
It is rare for companies in the shale space to differentiate.
A cynical person would state that is because of ever rising GOR.
If I am incorrect, I apologize. But seems when I have dug into the forecasts, they have almost always been BOEPD forecasts.
Shallow sand,
You are probably correct, companies do tend to report things in BOEPD. If we look at US tight oil output from Pioneer from April 2021 to Sept 2021 (data from http://www.shaleprofile.com) the average annual rate of increase was about 8%. So at least for the largest operator in the Permian basin the 7% guess might be pretty good. For all of the Permian basin from April 2021 to Sept 2021 the increase in tight oil output using shaleprofile oil data was at an annual rate of about 12.8%, on that basis my projection is somewhat conservative. I expect high growth (15% or so from 2023 to 2027) and then slower growth as the ramp up in completion rate levels off in the Permian basin in a world where oil prices remain at $90 plus per barrel of oil. As you know, I tend to get future oil prices wrong.
Today’s Rig Report
Inspite of what the article above says, Hz Rigs are being beeing added at a record pace. Last week 17 rigs were added and this week an additional 8 Hz rigs were added for a total of 474.
In the Permian, 7 were added last week and 5 this week.
Must be the allure of $90 WTI.💰💰
For Permian at a rig efficiency of 1.3 wells drilled per month per rig the 284 rigs could drill 369 wells per month, for 400 horizontal oil wells per month about 308 horizontal oil rigs would need to turn at a rig effiency of 1.3, so an additional 24 rigs or four weeks at the rate of increase of the past two weeks( average of 6 rigs per week).
Dennis
What is the delay time from rig increase to output increase. Or put another way, how many weeks (average) after a rig arrives at a site does the first well drilled by that rig start producing oil. I keep reading that the delay time is about 6 months. Doesn’t sound right to me but as I have pointed out many times, I know nothing about drilling.
Ovi,
I have also heard about 6 months, but 3 to 6 is likely the correct range. I also know little about the details of the drilling process. EIA suggests about 60 days for drilling on average, and anywhere from 90 days to a year for drilled wells to be completed. So perhaps 5 to 7 months from first spud to production , if a producer is in a hurry, but in many cases wells remain in the DUC stage for many months. At present, the DUC count is getting pretty low so the average time may be at the 6 month stage.
For the Permian basin I am thonking in terms of a 400 well per month completion rate and the drilling rate catching up to that rate to stabilize the DUC count, then any further increases in the rig count can either allow thre completion rate to increase (with a stable DUC count) or allow the DUC inventory to increase (if the completion rate remains stable).
See
https://www.eia.gov/todayinenergy/detail.php?id=41253
Nowadays I think all the horizontal rigs are walking rigs so several wells will be drilled from a single pad. The rig would be assembled and then drill each well, maybe up to ten per pad but with things so crowded maybe fewer now. In the main basins a rig can drill about two wells a month so it may take up to six months but for an average pad less. Once finished the rig is removed, at this point the wells are DUCs. Sometime afterwards, not immediately, but depending on logistics and how contracts have been placed, the fracking spread will move in and complete each well in turn. The well would be hooked up to separation equipment and gas pipeline and started up. I don’t now what clean-up and testing requirements there are but I’d have thought they’d be ramped to full flow very quickly. The fracking completions are faster than the drilling so there are fewer frac spreads than rigs but overall there might be three to six months between spudding and completion. With capital controls tight companies might try to minimise the time as much as possible.
Thank you George Kaplan for the clear explanation.
Ovi , terrific ( not the data , but you ) . This confirms the ” Red Queen ” is causing the runner to breakdown . Some who still believe in the shale miracle are going to have a nervous breakdown . Get some help .
Apache is being hit with a class action suit for bilking its investors out of billions of dollars. I have only posted the first two charges here. There a total of eight of them. Bold theirs.
CONSOLIDATED CLASS ACTION COMPLAINT
FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
INTRODUCTION
1. Apache is an oil exploration and production company whose single most important
asset during the Class Period was an oil and gas field in the Texas panhandle called “Alpine High.”
For three years, Defendants touted Alpine High as a “transformational discovery” and “world
class resource play” with immense production capabilities, including “conservative” estimates of
over three billion barrels of oil and significant amounts of “really rich gas.”1
Defendants supported
their claims by highlighting examples of “strong well results” and “successful oil tests” that were
purportedly representative of Alpine High’s “2,000 to more than 3,000 future drilling locations,”
which would “deliver incredible value to Apache and its shareholders for many, many years to
come.” Analysts and industry media lauded this “massive shale discovery,”Fless than emphasizing that
Alpine High’s “compelling economics” represented Apache’s “largest catalyst opportunity” for
the coming years and put Apache “back in the game” after a “rough time keeping up with
competitors.” Fueled by Defendants’ assurances, Apache’s stock price soared, reaching a Class
Period high of $69.00 on December 12, 2016. The Individual Defendants took full advantage,
reaping more than $75 million in Alpine High-linked compensation during the Class Period.
2. Unbeknownst to investors, Defendants’ statements were false. In reality, Apache’s
own production data and analyses of the Alpine High play never supported Defendants’ public
representations. As Apache was ultimately forced to admit, Alpine High was virtually barren.
Indeed, after three years of relentlessly touting Alpine High to investors, the “world class resource
play” that was supposedly going to “transform” Apache produced less than 1% of the oil and gas
that Defendants had represented to investors was recoverable. Alpine High was so devoid of oil
and gas that Apache was forced to cease all drilling at the field in 2020, take a $3 billion write
down, and slash its dividend by a staggering 90%. When the truth regarding Defendants’ fraud
emerged, analysts and the nation’s leading financial publications excoriated Defendants, noting
that the revelations “were in stark contrast to [Defendants’] past defense of Alpine High,” and
Apache’s stock price was decimated, closing at a mere $4.46 on March 17, 2020—an astonishing
decline of 93% from its high during the Class Period.
Just goes to show that technically recoverable and technology improvements, lower costs and higher product prices don’t mean a damn thing when you are lied to by management.
I knew some folks at Apache. They knew Alpine High was a bust. The entire industry in the know referred to it lovingly as “Alpo High” because it was Dog meat. They were not allowed to say anything negative about the project and quickly shut it down when they were bailed out by Guyana. However at today’s prices Alpine High could be economic. It’s just deep and gassy.
Isn’t the primary issue that APA led investors to think there was more oil there than there actually is?
Peak Oil Dynamics at work .
https://www.bangkokpost.com/world/2266499/sri-lankan-energy-crisis-worsens
Sri Lanka, like other nations that subsidize fuel, are always at the risk of shortages. And this type of policy is difficult to undo as eliminating subsides often causes civil unrest. In my opinion, the whole subsidies idea is a trap to be avoided.
Frugal , let us start with the USA and see how fast it will collapses or maybe with KSA and we can watch the beheading of MBS on CNN , Fox etc . Would be entertaining and what better when the public only wants ” bread and circus ” .
Between Covid tourism drop-off and Peak Oil to think “subsidies” is the issue sounds like Libertarian mumbo-jumbo. Most of the globe has been one giant revolving bubble and subsidy monetary circle jerk as the diminishing returns of capital gets ever smaller, especially since 2008. But don’t worry – the Metaverse will save us.
The second largest producer of OPEC is having some domestic problems .
https://www.al-monitor.com/originals/2022/02/iraqis-queue-petrol-mosul-amid-shortages
Will the adoption of EV’s be able to offset the depletion of oil?
No.
Too late to get the job done without the world experiencing shortage oil for transport, with high prices and shortages.
At some point the decline in petrol fueled transport will be met by a rising EV transport trend, but it will be not be any time soon.
“A report from IHS Markit shows that in 2020, light plug-in and fuel-cell vehicles, as well as electric city buses and two-wheelers, collectively displaced about 370,000 barrels per day of global oil consumption, a figure that is projected to grow to 1.5 million barrels per day by 2025, equal to about 1.4% of the projected level of total world oil demand.”
“Bloomberg New Energy Finance estimates that road fuel oil demand will peak in 2027, but it will take another decade for the impact of advancements to be materially felt.”
[remember that peak does imply anything about the rate of decline thereafter. A peak in oil demand will likely be followed by a very very slow post-peak demand decline rate]
“That said, the EV sector could end up hurting the oil sector in the long run, with BNEF predicting that electric and fuel cell vehicles will displace 21 million barrels per day in oil demand by 2050.”
[this statement has odd wording- the 21 million barrels won’t be ‘displaced’, since you can’t displace something that is already gone. The depletion of oil will exceed 21 Mbpd long before 2050]
On a related topic, with the Russian oil and gas geopolitical situation in mind-
Renewable energy is potentially the greatest peace plan in history, U.S. Energy Secretary Jennifer Granholm said in her opening remarks at a U.S.-EU Energy Council Ministerial this week.
“No country has been held hostage to access to the sun,” Granholm said, quoting her Irish counterpart Eamon Ryan. “No country has been hostage to the wind. This is not just an energy and climate issue; it is also potentially the greatest peace plan that ever existed, to be able to build energy independence from clean energy,”
I think it is wishful thinking, but has a strong aspect of truth to it.
My lithium carbonate prices come from a great website, tradingeconomics.com.
In early January 2020 the price in China was $3.94/lb, with 135 lbs in a 70kw Tesla battery the cost to purchase the needed lithium was $530. At yesterdays price lithium carbonate is now costing $33.58/lb. Ok now let’s do the math. $33.58 X 135 lbs = $4533 per battery just for the required lithium. Obviously this huge increase hasn’t found it’s way to the show rooms but just don’t see how an EV can be practical when it does.
Ervin , cool . Great info which very few are aware of . Any other flies in the ointment ? Keep us informed .
Ervin- for some reason HinH thinks price inflation or supply shortages are cool. Everyone has different that they think are cool I suppose (cheerleaders for economic hardship club?)
Regardless, I suspect that going forward everything related to energy cost is going to be on an upward trend. Humanity has been exceedingly fortunate with energy costs in the last 100 years. Cheap energy party’s winding down.
But the recent sharp lithium carbonate price spike is a temporary deal. That resource is huge.
Since the price spike is a reflection of an imbalance in supply and demand one has to ask themselves, how will the balance be restored? World wide the auto industry is hell bent to go electric and governments are throwing money in every direction to get the masses to go to EV,s. Other than price there aren’t any pressures to reduce demand. And on the supply side I agree it’s a plentiful element but only incremental increases in supply are occurring. I see only that price will be the the driving force for the future.
Ervin,
The high price of lithium carbonate will result in more supply as the high profits will lead to more investment in the production of lithium carbonate. I agree price will be a big factor, it always is a big part of the story.
That”s not as easy as you are imagining this. The current problem doesn’t come from the abundance of lithium carbonate as ore but from the fact that the industrial-grade lithium carbonate is in shortage. This is coming from the scarceness of the industrial plants necessary to refine lithium carbonate ore. These industrial facilities are outrageously long to build ; for example, Lithium Americas has been built in 10 years. it doesn’t matter if there are dollars or not. What is important are the industrial construction times.
https://www.morningbrew.com/emerging-tech/stories/2021/12/13/a-lithium-shortage-is-coming-and-automakers-might-be-unprepared
I don’t imagine any of this will ‘be easy’.
Rather it will be a struggle, just like it will be for many other aspects of energy supply.
Nobody knows what the biggest or first large scale choke points will be.
Japan didn’t realize that nuclear would fail them (or vice versa), and the next big shortfall or stumbling block could be one of many possibilities.
Ghawar, failed states, lithium, copper, war- take your pick but it will just be a guess.
One big thing is for certain- oil supply depletion.
Regarding the spot price of lithium- the big battery manufacturers like CATL, Panasonic etc, and users like Tesla, BYD etc have long term contracts for lithium supply. They aren’t rookies.
Jean Francois,
Humans learn by doing. As the production of lithium carbonate ramps up we will become better at building the necessary industrial facilities and it will take less time to build them. The profit motive tends to move things along and those who do it best will establish themselves as industry leaders and stand to make a lot of money in the process. High prices tend to increase the supply of a good in a free market capitalist system.
Dennis,
In the previous FF thread I had a question for Eulenspiegel, but he didn’t answer. Can you, or someone else, elaborate a little more on the possible future for sodium batteries compared with lithium batteries ?
EULENSPIEGEL
02/13/2022 at 3:18 am
Its not sodium sulfur. Google CATL sodium battery. It works until -20 degrees without heating needed.
REPLY
HAN NEUMANN
02/14/2022 at 2:15 pm
Eulenspiegel,
So the mentioned issues with Lithium are not relevant ?
Han,
I don’t have an answer. Research it and report back.
From the end of the article Jean Francois linked:
You’ve got to ride out the volatility. Long term, it will be fine. The price will be fine. There’s no geological shortage. Lithium-ion battery powered EVs will dominate the world.
The author goes through some of the potential problems and thinks they will be addressed, my take home message from this article is that this space (companies that mine and refine lithium) is an excellent investment opportunity.
A good example of the dynamics Dennis proposes, regarding lithium production industry. High demand and prices will stimulate new production, with certainty-
“The Salton Sea geothermal field in California potentially holds enough lithium to meet all of America’s domestic battery needs, with even enough left over to export some of it. But how much of that lithium can be extracted in a sustainable and environmentally friendly way? And how long will the resource last? These are just a few of the questions that researchers hope to answer in a new project sponsored by the U.S. Department of Energy (DOE)….”
https://cleantechnica.com/2022/02/18/the-salton-sea-geothermal-field-in-california-quantifying-californias-lithium-valley-can-it-power-our-ev-revolution/
For anyone interested in geography/history, the Salton Sea is a fascinating story
https://allthatsinteresting.com/salton-sea-history
https://en.wikipedia.org/wiki/Salton_Sea
Dennis,
An educated guess is that sodium batteries take up (much) more space.
Maybe Eulenspiegel didn’t answer my question because he is shareholder of the company
Anyhow, the oil addiction is a dangerous one, like a Lithium addiction
Han,
Perhaps the sodium batteries will work well in stationary applications (say for grid backup). I am not familiar with the technology in this case.
If anyone is interested in the issue of energy related mining constraint there is an excellent recent report on this issue (as has been presented and discussed a bit on the other thread)-
“The Role of Critical Minerals in Clean Energy Transitions” IEA
Its a hard look at the issue and I highly recommend it. There is a lot to digest. Clear your slate.
Here is the link to the executive summary, with an embedded link to the full report-
https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/executive-summary
Teaser-
“The types of mineral resources used vary by technology. Lithium, nickel, cobalt, manganese and graphite are crucial to battery performance, longevity and energy density. Rare earth elements are essential for permanent magnets that are vital for wind turbines and EV motors. Electricity networks need a huge amount of copper and aluminium, with copper being a cornerstone for all electricity-related technologies.
The shift to a clean energy system is set to drive a huge increase in the requirements for these minerals, meaning that the energy sector is emerging as a major force in mineral markets.”
Hickory —
Rare earth elements are essential for permanent magnets that are vital for wind turbines
Not true. Wind turbines almost always use induction motors, which have no permanent magnets. The EIA is simply wrong, for whatever reason.
Alim-
you’ve said this previously yet there are many sources that discuss the use of REE’s in the wind industry.
I’d appreciate any good source of information you have that clarifies the actual situation.
I know there is an aspiration to do without REE’s in wind turbines, but what is actually the state of the industry?
Hickory – see the third link I posted as a reply to one of your other cmments, which I prbably meant to post here.
Thanks George.
And there is good coverage of the REE’s use in various wind turbines in the full version of IEA report pages 65-68
https://iea.blob.core.windows.net/assets/24d5dfbb-a77a-4647-abcc-667867207f74/TheRoleofCriticalMineralsinCleanEnergyTransitions.pdf
The REE requirement varies with type of turbine to large degree, and there is some wiggle room.
Nonetheless, it will likely be a big problem, especially if China restricts the market.
It takes a long time to get new production sources up and running. Check out the history of Lynas company from Australia to get a sense of that.
Hickory —
The advantage of permanent magnets in wind turbines is that they work at low rotation speed. To deal with that wind turbines have increasingly huge gearboxes, which are a weight and maintenance problem. The advantage is a much cheaper generator, which is why most turbine manufacturers use them.
It’s interesting that people talk so much about magnets in connection with renewables. All electricity generation requires magnets whether permanent or not, and whether fueled by fossil fuels or not. There is a lot of electricity generation around, but nobody seemed to notice before wind started threatening fossil fuels.
That is why I suspect it is probably bullshit. It sounds like a desperate attempt to project the problems of the extractive fossil fuel industry on the circular economy. Nobody has the numbers though, so who knows?
One of the things to remember is that this is looking at current technologies and projecting forward. One of the dark horses are perovskite solar cells. They are based on lead and current maximum efficiencies are around 30% but their longevity is much shorter than silicon based solar cells.
If they do solve the longevity problems, they are projected to be much cheaper to manufacture than silicon solar cells. This could then change the graphs and adoption of perovskite cells over their silicon brethren.
Also, with EV batteries, there is a push to go back to LiFePO batteries to avoid use of Cobalt. The energy density is not as great but the cost is less.
In the IEA report with respect to the element graphs, I love the way that when you run a cursor over the element, the other elements in the bar graphs fade and the element of interest brightens up.
Chile has by far the world’s largest known lithium reserves. At 8 million tons. Australia 2.7 million tons, Argentina 2 million tons and China 1 million tons.
Chile imports 68% of the energy it consumes. 98% of it’s oil, 73% of its natural gas and 88% of its coal.
Chile also uses the above fossil fuels for 73% of its total energy use. They have to import energy just to mine lithium.
What happens to the lithium when fossil fuels are no longer available to Chile for imports?
HHH- “What happens to the lithium when fossil fuels are no longer available to Chile for imports?”
When oil becomes expensive, and eventually in restricted supply, everything that is solely or heavily dependent on it will be hit hard and possibly extinguished. Lithium included.
But lets remember that the down slope from peak oil is not going to happen all on one day.
There is going to be a period of rough plateau (I think we are already there) followed by decline.
Prices will rise and rise, and some places may lose access to physical supply regardless of price willing to be paid.
Less important uses of oil (like light vehicle transport which is the big majority of consumption)
will get weeded out first by either higher pricing or by outright restriction by governments.
They call it rationing. Read up about WWII policies to get a inkling of what happens.
http://abacus.bates.edu/muskie-archives/ajcr/1973/Gas and Fuel Oil Rationing.shtml
Oil will get shunted away from routine citizen use and towards more critical and irreplaceable uses such as the petrochemical industry, the heavy mining and ore processing industries, bunker fuel, etc., either by market forces and/or government intervention.
It won’t be smooth or seamless or pretty.
These things will be a big part of the story over the next 2-3 decades, for starters.
Maybe at some point the collective human consciousness will realize it is time to downsize population and economy, or the downsizing will just commence without any realization-
It will be forced by the circumstances.
If anyone really wants to get in the weeds there are other reports from the European Joint Research Council, some are a bit old but they are detailed and specific:
https://setis.ec.europa.eu/jrc-report-critical-metals-energy-sector_en
https://setis.ec.europa.eu/critical-metals-strategic-energy-technologies_en?wt-search=yes
https://publications.jrc.ec.europa.eu/repository/bitstream/JRC122671/jrc122671_the_role_of_rare_earth_elements_in_wind_energy_and_electric_mobility_2.pdf
A search OECD library shows a load of hits too but I haven’t been through them yet:
https://www.oecd.org/dev/Session-4_Investing-in-Green-Supply-Chains_World%20Bank.pdf
https://www.oecd.org/env/global-material-resources-outlook-to-2060-9789264307452-en.htm
https://www.oecd.org/greengrowth/greening-energy/greengrowthandenergy.htm
Adding to what George has linked . Short video about 12 minutes. Mining and LTG .
https://www.youtube.com/watch?v=JRGVqBScBRE&t=297s&ab_channel=SimonP.Michaux
A podcast of about 45 minutes but good bringing EROEI etc into the discussion .
https://www.youtube.com/watch?v=gpPRZNF1Pso&ab_channel=PhilDobbie
Here Is a video, who has combed through the weeds and summarized her findings in two books.
https://www.youtube.com/watch?v=k-gyAp3GO3k
Chile is ideal for solar energy, because so much of the country is at high altitude. Northern Chile has the highest solar irradiance of any region in the world.
Mining companies like Anglo American and Biliton that operate in Chile have been investing heavily in in renewables for years. This has mostly been for copper mining, but solar is also growing in the Atacama desert now as well.
In general, mining in remote locations is well ahead of the rest of the world in terms of electrification, because transporting fossil fuels is more expensive than transporting electricity. On site renewables are even cheaper, so they are enjoying rapid uptake.
Oil drillers buy diesel and flare gas, but other industries are better at pinching pennies. Renewables cut costs at remote locations by making maximum use of local resources.
Yes, the mining industry is deploying more and more electrical machinery along the chain of production.
However, at some point we will find ourselves in a situation where petrol for transport is in restricted supply or very expensive. And electric transport may not be available for purchase due to battery manufacturing capacity constraint or high cost of component materials.
The ease at which people have been able to get ‘a new ride’ may evaporate.
Everyone who hopes to keep traveling beyond walking range better get used to a much tougher, less convenient and more expensive future deal. Pick a location that you really like to live, and get used to it.
An exception to this exists- if you get an EV before possible supply constraints limits availability, and you have a dozen solar panels and a half sunny location then you will have (relatively) very inexpensive miles at your disposal. I bet such a person will be in high demand as a people or cargo mover.
Mrs. Granholm’s comment about renewables representing the “greatest peace plan that ever existed” is naive beyond comprehension. As the price rises for “Unobtainium”–rare earth elements (REE’s) over which China now holds a virtual monopoly (China Rare Earth Group)–and the price for increasingly scarce oil & gas rises in lockstep, there is going to be a mad quest for energy, especially electricity. China refines 95% of all REE’s. The largest known cache was in Helmand Province Afghanistan. The USGS obtained the data, but the whole enchilada is now being offered to China for mining/refining. In effect, if we don’t watch it, the transition from fossil fuels to renewables could represent the most treacherous time for global civilizations since WWII.
Gerry we agree on this
“the transition from fossil fuels to renewables could represent the most treacherous time for global civilizations since WWII”
Where we part thinking is on a pretty simple distinction-
It is the running out of oil and then the other fossils that is the both the wood and the spark that will light the bonfire of war, both internal and external.
The renewables and electrification of industry and travel are a sideshow to that. Countries that deploy these alternatives to oil/ICE at mass scale are going to have a buffer to fall back on- either a lot or just a little depending on how proactive (and fortunate with resource) they are.
I don’t disagree. But part of me does wonder why we are building wind turbines with rare earth magnet alternators in them? Why not just a hydraulic pump in each turbine with dozens of turbines powering a single large electrical generator on the ground? And for smaller power output, local applications, i.e ~100kW, wind turbines could be built using compressive stone towers and wooden blades, close to the applications they are powering. Lower embodied energy materials. The towers should last for centuries. The blades get replaced every 20 years. Some applications could even make use of direct mechanical drives, without need for electricity production at all.
Intermittent power generation can be dealt with either by adjusting working patterns to when energy is available, or by overbuilding generation, storing excess power as heat and backing up baseload with a gas turbine. I cannot escape the thought that somewhere along the line society is failing due to a lack of lateral thinking. With wind energy, we appear to be building complexity into something whose advantage lies in its simplicity.
Thank you gentlemen .
https://oilprice.com/Latest-Energy-News/World-News/The-US-Will-Be-A-Net-Oil-Importer-In-2022.amp.html
I have never understood this. Why is this news?
From what I gather, the US, over at least the last two decades, has always consumed over 18 million barrels of oil-based products per day.
When has the US ever produced anything near 18 million barrels per day? US Oil Consumption.
Isn’t that what “net importer/net exporter means,” the difference between production and consumption?
Or am I thoroughly confused?
The US produces a large amount of natural gas liquids from the shale gas fields especially (ethanes to pentanes) so overall, as pure barrels of anything hydrocarbon, it was a net exporter, but it doesn’t keep all the prduction to itself. It tends to import heavier hydrocarbons and export lighter ones and (I think still) it has more refining capacity than for domestic needs alone, so as a net result it imports crude and exports product.
Thanks. So what you’re saying is, “It depends upon what your definition of oil is”?
A significant part of the definition is that exportable crude oil includes that oil that is imported for refining purposes. So once the USA refines the imported oil, it becomes labelled USA crude and then can be used for accounting purposes as exported oil.
That’s the only way that the USA can claim to be an oil exporter if it only extracts 12 million barrels of oil per day but is consuming over 18 million.
Seems than Opec need to increase production to cover the worlds oil demand, but that spare capacity aint not much perhaps 1 mbpd. mainly SA.
Will the increased riggs in US shale change much of this in 2023 and onwards…?
Seems like high oil price will be the new reality..
Freddy,
I will have some more on this later this week with a post on the Permian basin. At the current oil price level, Permian basin output may increase significantly. So the short anwer to your question is yes, US tight oil output might be significant from 2023 onwards to 2030 if oil prices remain at current levels (I expect they will increase to over $100/bo). A significant supply response from OPEC plus and others to higher oil prices and some demand destruction due to high oil prices might reduce oil prices to under $100/bo, but if they remain above $75/bo then tight oil output will remain significant.
Dennis
What about availability of experienced crews to operate the frac spreads and rigs. Also one of our participants keeps saying steel rods are in short supply.
Ovi,
Prices and wages will rise, the pandemic fears will subside and market dislocations are likely to be resolved as markets respond to price signals. Shortages happen in market economies, prices increase, profits go up, more investment occurs in industries where supply is tight and supply increases bringing prices back to “normal levels” where the price is equal to marginal cost in competitive industries. If this does not occur then oil prices will rise to levels that are high enough to balance the market.
” … If this does not occur then oil prices will rise to levels that are high enough to balance the market.” – Dennis
As you know oil is not just a “market”, it’s the precursor to every market, everywhere, including yours. I know you know that but you appear to treat PO like a cold snap in Florida, “well, a shortage simply means the price of orange juice goes up.”
Your point is factually correct, but it stops where most everyone else’s’ concern starts, which is why you get the grief.
Pops,
I agree peak oil may be a problem. My guess is that prices will rise to the point that people find alternatives, whether more fuel efficient ICEVs that use less oil, or plugin hybrids that use even less, or BEVs that use none at all. Heavy land transport can move to electrified rail with BEV heavy duty trucks used for rail to warehouse, also natural gas could be used for heavy duty transport. While this transition occurs oil prices may be very high and the transition may be difficult, much depends on relative prices and how fast battery production (and the raw material production that is needed to support this) can be ramped up. Once peak oil is finally taken seriously by the mainstream political power brokers we could see a WW2 like effort to make the needed transition.
We will see. Some government intervention might be needed.
Pops —
As you know oil is not just a “market”, it’s the precursor to every market, everywhere, including yours.
Although there is some truth to this claim, most oil is flagrantly wasted. For example, long distance trucking would be a good example of your argument, but long distance trucking is ridiculous and only exists thanks to massive subsidies. If oil prices get too high, the market will find workarounds.
Yes , we can get back to using mules , donkeys and horses . Oil is the master resource and there is no workaround it . Read this .
https://energyskeptic.com/2016/when-trucks-stop-running-so-does-civilization/
Alimbiquated – market will definitely find a reach around. keep telling yourself that as you take it up the wahoo. That’s the funniest shit I’ve heard today, and today was a humdinger for a doomer like me.
Twocats
take it up the wahoo.
If there is one thing the pandemic has taught me, it’s that many people are just whiners and are so stuck in their habits that even minor lifestyle adjustments get compared to genocide. The sky won’t fall if we can’t get fresh flowers from Kenya delivered to your door or another load of stamped plastic crap from East Asia trucked across the continent.
I think a big misunderstanding about economics is that people think “demand” means “what people have to have or they will die” instead of “what people are willing to pay for”. If shipping gets expensive it will just stop, and people will buy local, or simply less.
Another problem I see is a stunning faith in modern technology coupled with an inability to imagine anything better. Voltaire lampooned this “best of all possible worlds” thinking in the 18th century, but people still haven’t gotten over it.
In fact modern society is rife with inefficiency, and America is particularly inefficient when it comes to energy consumption. There are many easy solutions to the problem, both technical and non-technical. Notice for example that the US consumes about three times as much oil per capita as Germany does, and Germany isn’t particularly efficient. You don’t have to look far for solutions.
ALIMBIQUATED: “most oil is flagrantly wasted”
No doubt oil is wasted, hunter/gatherers didn’t need any. But every drop of oil in modern society is tied to someone’s income.
So the question is: whose income is “wasted”?
Pops , correct . Our system is designed like that . My waste is your income . Somebody wrote a book ” The landfill economy ” . Describes exactly this phenomenon .
Pops- “No doubt oil is wasted…But every drop of oil in modern society is tied to someone’s income.”
It is certain that as oil supplies deplete that whole industries that are now seen as a normal part of life will fade out. And the income and jobs in those sectors will fade with it. There would be some wisdom to understand and come to grips with this.
In some places and sectors this may be abrupt and severe, and others much more gradual.
It comes with the territory of peak oil.
Examples of the vulnerable sectors- internal combustion engine component manufacturing, leisure travel by land sea and air…
Example of most vulnerable places- I’m curious to hear others peoples take on this
And yes- most oil is wasted. It is 2022 and something like 60% of oil is used for light transport with an energy efficiency of only around 30% (70% energy content wasted as friction/heat/partial combustion). Much of that oil consumption could be replaced with electric transport. And eventually it will- it appears that humanity will wait to be forced into the transition rather than being out in front of the crises. And I ask- what other issue stares humanity so clearly in the face as oil depletion? [Ok, overpopulation is the base problem]
Very slow to react to the reality. Even though we like to think of humanity as smart. Even many people here who may consider themselves savvy to energy issues don’t seem to have digested the realities beyond what was going on last year..
Dennis
This is old news from last week. Thought I should remind you what Pioneer said.
“Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans,” Pioneer Natural Resources’ chief executive Scott Sheffield told Bloomberg Television in an interview. “If the president wants us to grow, I just don’t think the industry can grow anyway,” Sheffield added.
Ovi,
Pioneer is one of many producers of tight oil, other companies may choose to grow faster than Pioneer and they will lose market share, that is their choice.
Dennis.
The companies at present have pretty much defined their remaining well locations. They mostly have HBP acreage.
Recent articles have explained that the faster they use those locations up, the quicker their companies will run out. None seem to have exploration plans past US shale.
I have thought about that quite a bit before now. All of these pure shale plays, what is the long term plan?
I also think they finally figured out that they can affect oil prices. US producers had zero affect on them from 1973-2013. They didn’t realize they did until 2019, when they started taking their foot off the pedal.
Shallow sand,
Wouldn’t you guess that the drillable locations that are profitable would be different at $100/bo compared to $50/bo, what about $150/bo?
Am I missing something here.
The USGS mean estimate for net acres (acres times expected success rate) for the Permian basin is about 50.5 million acres as of mid 2017. Let’s assume 300 acres per well on average (9500′ by 1320′ is about 290 acres), that would be roughly 168 thousand wells. The most productive benches assessed have net acres of about 31 million acres, if we assume only those benches have future completed wells at 300 acres per well that would be about 103 thousand wells.
I have not gone through the work of looking at all publicly traded companies 10ks and 10qs to try to determine the number of drillable locations, but I imagine this changes as the price of oil changes.
Bottom up analysis is definitely better, but more work than I have time for.
He is correct.
Thanks Coyne, that would be interesting.
What I remember for some years ago was the CEO of Continential Resorces Mark Papa told they would not add more riggs if the oil price WTI was below 75 usd each barrel WTI. Since that I believe the Capex have increased even with 3 miles latheral.
I am exspected to see a significant increase of US oil production from L48 2-3 months from now as the rig count is increasing a lot. If we not could see that it might be a combined reason of constraints on the ground related to Earth quake, increase child well problems, contacts between wells because of tighter spacing as more wells are drilled on a limited Area. From what I have read a long 3 mile lateral will have higher production each well but lower production trough life time each foot wich mean more oil will be left in the ground. As the field gets more utelized there is also lots of other factors that will impact production like water cut, pressure drop. I guess the old fields line Eagel Ford have some challanges we also will see in Permian during time.
Freddy,
It may be that output per acre will decrease with the longer laterals, that is up to each individual business to decide on the most profitable approach. My model simply takes the basinwide average of about 9500 foot laterals and assumes spacing of 1320 feet between laterals (based on comments by LTO survivor) which is 288 acres per well, as Mike Shellman has pointed out most leases are only two sections (2 square miles of area) and allow for only 10,000 foot laterals at most (the leases are 2 miles by one mile in many cases). So there may not be a big move to 3 mile laterals. I assume new well productivity will decrease starting in Jan 2021 in my scenarios, I use actual production through 2021 based on http://www.shaleprofile.com data from the blog posts there to develop individual well profiles for the average 2010-2012 well, then 2013, 2014, 2015, 2016, 2017, 2018, 2019, and 2020. The newer wells have less data (only 12 months for the 2020 well profile) so the estimate will be less accurate. I then assume output decreases dependent in part on the well completion rate (if more wells are completed in a given month the decrease in new well productivity is higher than it would be if the completion rate was lower). I take the net acres based on the USGS mean TRR estimate and divide by 300 acres to estimate total wells and then adjust the rate of decrease so that the TRR is 75 Gb (USGS mean estimate for Permian basin). Then economic assumptions are applied for a future oil price scenario using a discounted cash flow analysis to determine if a completed well will be profitable. This reduces the number of completed wells and reduces the cumulative output to the ERR which will always be less than the TRR (though in a high oil price scenario sometimes the ERR is equal to the TRR).
Here is an article from 2015, this is now 7 year since…
https://uk.finance.yahoo.com/news/u-shale-oil-needs-80-114040277.html
Here mark Papa tells 80 usd WTI is needed to further grow shale oil production.
What have happened since this?
Longer latherals to decrease some drilling cost.
Ducks reduced to very low level
Inflation growing and increase capex
Labour cost increase
Earth quake gives challanges with produced water
Thiere 1 /hot spots are used, now Thiere 2, 3 with lower output of oil each foot latheral.
There is also higher costs due to Methane and CO2 emisions, that add cost.
What happens if there will be a oil glut again in 2025 with oil price WTI hits 75 usd. Would the producer still earn money trough hedging contracts..?
Freddy,
Since 2015 well productivity has increased and breakeven costs have fallen. For the average 2020 Permian well the well breaks even at a nominal annual discount rate of 25% and a natural gas price of 3.50 per MCF, NGL price at $18.20/b, and crude oil price of $52/bo at well head assuming well cost of $10.8 million (full cycle) and OPEX per barrel of $14.37 over the life of the well with royalties and taxes assumed to be 28.5% of wellhead revenue, and transport cost to refinery assumed to be $5/bo.
You are not confused Mike. A lot of effort has gone into creating numbers to hide the fact that America is a massive net consumer of oil, and has been since WWII.
I guess it’s a “feel good” thing, like a fat girl telling everybody she’s on a diet and eating tiny portions at meals but still gobbling sweets in private.
Was anyone here aware that Alice Friedemann called Peak oil? What do you think about it? Look here for yourself:
https://energyskeptic.com/2022/failing-oil-and-gas-companies-a-sign-of-peak-oil/
No, I was not aware of this publication. It is dated very recent, February 1st, 2022. It will take me some time to digest this. She agrees with what I have been saying for over two years. However she explains it better than I ever could. She also digs deep into every detail of peak oil. Thanks a million for posting it.
A complimentary article from the same site-
“Is there a long emergency plan for peak oil?”
https://energyskeptic.com/2022/is-there-a-long-emergency-plan-for-peak-oil/#comment-58661
[don’t look here to find a national energy policy that has developed over the past 4 decades or has made it through a hyperpartisan and short sighted congress- you won’t find it]
LUKASCH —
From your excellent Alice Friedemann article.
“Nor will we ever reach “peak oil demand” because heavy-duty transportation (trucks, locomotives, ships), manufacturing, the 500,000 products made out of petroleum, and natural gas fertilizer that keeps 4 billion of us are utterly dependent on fossil fuels. Even the electric grid depends on fossil fuels to provide two-thirds of electricity, and nearly all of the energy to construct wind and solar contraptions (they are ReBuildable, NOT renewable). This is explained in great detail in my latest book “Life After Fossil Fuels: A Reality Check on Alternative Energy” and previous book” When Trucks Stop Running: Energy and the Future of Transportation””
According to this article by Michael Kern, oil companies are prevented from increasing production due to supply chain bottlenecks and the soaring cost of drilling.
https://oilprice.com/Energy/Energy-General/The-Cure-For-High-Oil-Prices-Might-Just-Be-Higher-Oil-Prices.html
Gail Tverberg has been predicting something similar for years. As time goes forward, a greater proportion of reserves consists of unconventional deposits or deep offshore. So production cost of each incremental barrel is increasing. But the price that refiners are able and prepared to pay is limited.
Tony H , bullseye . I have long argued that EcOE ( Economic Cost Of Energy ) is too high for our current lifestyle . Further I have espoused ” If you can’t afford it then you can’t have it ” . Affordability is the key .
Ask Sri Lanka and Turkey . The next Lebanon’s ? Only time will tell but Sri Lanka is in line . I have posted a link on this earlier . Europe would be no better but for the Ponzi being carried out by the ECB . All ponzi’s collapse , the question is not ” if ” but ”when” . ECB is the biggest ” bad ” bank in the history of finance . It is loaded with BS bonds of the PIIGS and zombie corporations . Get a parachute .
I coincidentally just put a link above to her discussion of the various ways peak oil leads to insurmountable troubles. I met Alice Friedeman at ASPO Pisa conference in 2006. She is a tireless worker and interestingly her grandfather knew Hubbert when both were at University of Chicago. I am reading now her book, life after fossil fuels.
Dennis
This is a first look at the “production/stock change” discussion started above. JODI updated their data to December 2021.
The first chart shows that stocks went up by 2,284 kb or 74 kb/d in December.
The second chart looks at four pieces of info. Two are direct info from the OPEC reports.
The red graph shows production according to secondary sources. The number shown is the three-month revised final number shown in the OPEC report.
The green graph is production according to direct communication. Note that Direct communication output is always higher.
The remaining two graphs present two ways of looking at the OPEC data.
The blue line assumes that the secondary sources numbers are too low and missing some info since those numbers have been lower than direct communications for the last six months.
For December 2021, secondary sources estimate production to be 9,945 kb/d. (Note this is from the February OPEC report). Since stocks increased by 74 kb/d in December, that would imply actual production of 10,019 kb/d. By fluke OPEC direct communication is 10,022 kb/d. On the other hand in January, output from secondary sources was 9,077 kb/d, but stocks went down by 91 kb/d so real production would be 8,986 as opposed to direct which claimed 9,103.
The orange graph assumes that direct communication info is correct. The graph then shows how much oil Saudi Arabia exported and used internally. For January 2021, direct communications says 9,103 kb/d were produced. At the same time stocks dropped by 91 kb/d. That implies that SA’s exports and internal use of crude amounted to 9,194 kb/d in December.
The data collected is shown in a table below. Only six months of data is used in the chart because an expanded Y scale was required to show the small differences.
Ovi,
Current oil stocks of oil are equal to stocks in the previous period plus revisions, minus internal oil consumption within the nation minus exports of oil plus imports of oil plus oil produced. So there are several pieces of missing information which your chart assumes are unchanged, this may be correct, I don’t have enough information to say.
Table
Two weeks in a row 10year US bond yields have been rejected as they try to climb over 2%.
Is the inflation and growth story getting rejected here? I still believe when they actually start hiking rates the yield curve inverts as long term bond yields fall while short term rise.
I wonder how much margin debt has been used to bid up price of oil? Don’t be surprised if the price of oil heads other direction as the rate hikes cycle takes place.
Wall Street thinks the Fed is too chickenshit to actually raise rates.
Wall Street darling Cathie Wood has once again gone rogue against the common consensus on rising price pressures, and reassuring the investment community that inflation is anything but a problem.
During her latest monthly market webinar which aired this week, Wood took aim at the financial market’s obsession with accelerating prices, instead insisting that inflation is not a growing threat. To illustrate her firmly-held conviction, the Ark Invest CEO pointed to the influence of labour productivity gains, citing a slight 0.3% increase in unit labour costs in the fourth quarter of last year.
Wood insisted that financial markets have a tendency to overlook the effect of productivity improvements on long-term inflation prospects. She took aim at recent US wage data showing that average hourly earnings rose 5% from the year before, instead contending that the figure is probably closer to 3% in real terms due to an increase in worker productivity. “I think not taking into account productivity is going to cause a serious miscalculation in terms of what’s going to happen to inflation,” she added.
The Ark Invest CEO also pointed to the oil market, which has recently been a substantial source of rising consumer inflation. According to her, the sudden appreciation in oil prices to above $90 per barrel will eventually correct itself, as an increase in supply will be attracted back into the oil market, ultimately equalizing the inflation equation. Wood cited 2019 oil production data, which showed that output peaked at 12.3 million barrels per day, making the US one of the largest producers of energy.
According to Wood, such levels will be reached once again, because “it appears in 2022 we will be going up to roughly 12 million barrels per day and in 2023 up 12.6M barrels per day.”
https://thedeepdive.ca/cathie-wood-criticizes-financial-markets-for-focusing-on-inflation/
HuntingtonBeach
I saw her on CNBC the other day and she looked pretty rattled. She seemed to be trashing around, like a rudderless ship. Her big holdings of TSLA, ZM, ROKU and COIN have all taken a big hits recently.
As for oil production, the peak in 2019 was 12,966 kb/d. For her, like many economists, it’s all about more investing and innovation. Geology has no place in their thinking.
I suppose if you don’t like ARKK, you can invest in SARK, which is a fund which seeks to be -1x ARKK.
I remember the dot com crash and the Munder net net fund.
I am sure some of her choices will be big long term winners and some won’t.
But saying oil will never be higher than a certain price (or lower) is the sign of someone who doesn’t follow the oil market closely enough.
Wonder if she has ever studied shaleprofile? I doubt it.
Ovi,
Many point to average annual output rather than a single month’s peak output. In 2019 average annual US crude plus condensate output was 12289 kbpd according to EIA data as of today. The most recent STEO has US average annual crude plus condensate output at 12598kbpd in 2023. Seems her data is based on average annual output and is correct.
Dennis
Note what Cathy said: “Wood cited 2019 oil production data, which showed that output peaked at 12.3 million barrels per day, making the US one of the largest producers of energy.”
Peaked not Average.
Ovi,
I interpret 2019 oil production data as the average for the year 2019 and for the US that was the peak year of oil production.
As in chart below
Ovi,
“Also last week, Devon Energy’s Rick Muncrief told the Financial Times, “In the back of everyone’s minds is, ‘When is it going to be [production] growth? . . . We have investors saying ‘My gosh, if not now, when?’ But for everyone saying that there’s at least one other if not two others waiting to say, ‘Gotcha! We knew that discipline would be shortlived.’ We have learned our lesson.”
Speaking to Bloomberg in a separate interview, Muncrief also said, “We’ve had enough head fakes that we’re going to be very thoughtful in ramping activity up. Let’s face it: we all are recovering in one way or another from this pandemic. We’re just slowly getting healthier and healthier over time, but you don’t get there overnight.””
https://oilprice.com/Energy/Crude-Oil/Are-US-Shale-Firms-Spending-Enough-On-New-Oil-Projects.html
I believe Fed Fund Futures for 2022 is still pricing in for over 5 rate hikes, which is insane. So yes, Wall Street is absolutely convinced the Fed is going to make due on its bat-shit hawkishness.
Okay so funds rate will be only about six percentage points below the rate of inflation at that point? Meaning only a -6% actual return rate. Not a number generally associated with hawkishness. Typically this funds rate has been ABOVE the rate of inflation, not six points below.
That’s not really to the point (which was – what does Wall Street expect), but even here I would have to strongly disagree. Given global levels of debt, Peak Oil (which limits growth) and a distinct lack of new areas for capital to spread (Bored Ape anyone?), even at the minimum 25 bps, six raises (and I would argue THREE RAISES!!) would absolutely ANNIHILATE the Global Economy, and yes D. Coyne I’m using that in the technical economic sense :). The Ghost of Volcker has passed into the Light.
Two cats.
We will see, I think the Fed will do one rate hike at a time, see how things go, and adjust accordingly. My guess is that an increase of 1.5% on the Fed funds rate over a short period might indeed lead to a recession, but the Fed can change course and we may not see the 5 to 7 rate hikes some seem to expect. Many banks are inflation hawks so they are predicting what they would like to see.
https://www.reuters.com/business/finance/what-global-banks-forecast-fed-rate-hikes-2022-2022-02-19/
Chart below has median FOMC (Fed Reserve Open Market Committee) expectation for Fed Fund rate. Note that in July 2019 the Fed Funds rate was about 2.4%, currently it is 0.08%. Most of the big banks are forecasting a 1.5% to 2% increase in Fed Funds rate which would still be less than the level in July 2019.
It is not clear to me that this level for the Fed funds rate would destroy the global economy. Note that this is a far cry from the 22% Fed funds rate in December 1980.
The global economy was doing ok in 2019 when fed fund rates were a around 1.5 to 2%.
Iran could supply an ‘initial 1.3 million barrels a day’ to global market if nuclear deal reached, expert says
If a new nuclear deal between Iran and the U.S. and other Western powers is reached, over a million barrels of oil a day could hit the market, driving oil prices down, according to an industry expert.
In fact, Iran “could supply an initial 1.3 million barrels a day of oil to the market and perhaps even more as they liquidate oil that they’ve been holding in inventory for all these years,” Andy Liptow, president of Lipow Oil Associates, LLC, told FOX Business Thursday.
I’m not convinced that Iran has 1.3 million barrels/day of spare capacity, especially since they’re probably selling some oil that’s not being recorded.
Frugal,
Either they have the 1.3 million in spare capacity (if oil output from secondary sources is correct) or World oil output is higher by the amount of the “hidden Iranian output” that many seem to imagine. It has to be one or the other.
Yes I agree.
We will see.
When the oil output of all surriunding countries suddenly sink for no reason we know more …
Putin just moved events a notch higher . He has recognized Donbass and Lugansk as independent republics . Let the party begin . Bring on the sanctions . 🙂
The Donbass Russians (along with all the rest of Novorossiya — basically the Black Sea coast and the southern part of the country) were added to Ukraine by Lenin in 1922. Up until then, the territory was part of the Russian Empire. So if Lenin had just left it alone, we wouldn’t have this problem.
Galicia (basically the western-most part of modern Ukraine) was added to Ukraine by Stalin in 1945.
That is where the “conservative” Ukraine is.
They should of let the Poles have it.
Bring on +$100/barrel oil!!
Whoops! Bring on $110/barrel oil.
Putin’s Ukraine shenanigans have finally given traders a war scare that can drive up oil prices. It’s a repeat of Bush II’s fiasco in Iraq.
I think the Arab spring had the long term effect of making traders numb to political turmoil in the Mideast. It drove prices up on top of the Iraq War scare for a while, but ultimately led to falling prices.
This Ukraine scare is even less realistic than the Iraq scare and the Arab Spring, but adding it to the supply chain turmoil the world is experiencing is enough to send prices up for a while.
The key thing to remember is that as long as supply is more or less meeting demand, as it is now, there is no particular reason for prices to go up or down except herd mentality. If we really get into a situation where supply can no longer meet demand, prices will go up, but five minutes before that happens market movements will still be dominated by speculation.
See my other comments regarding a Fed Tightening into an Economic Slow Down in the Second Quarter of this year. Every day oil continues to remain at ridiculous levels is another kick in the teeth to the US economy for the next 4 months. If you don’t mind a 20 – 50% draw down on your retirement account, it probably won’t matter to you. Or planning a trip by RV. Or drive for living without a mileage reimbursement. Or have a long commute. Supply/demand is over-rated and the system has shown plenty of ways of destroying demand when push comes to shove.
Two cats- ” Every day oil continues to remain at ridiculous levels is another kick in the teeth to the US economy”
By ‘at ridiculous levels’ I guess you mean high levels.
I am surprised you would think that these levels are high, or unexpected, or absurd.
Without fracking/shale oil the prices would have been higher than this a decade ago, just as a start.
And we all have heard that the Bakken/Permian/etc basin production is limited.
And with limited supply the pricing will be high until some future day when demand declines
(I am not holding my breathe on that, with 8 billion people all yearning for more oil derived living)
If this pricing is ‘ridiculous’, I propose that you begin to consider it normal.
Even consider it a bargain, as it truly is.
Middle Eastern Oil Nations Hike Prices As Production Falters
When OPEC+ agreed on its 400,000 b/d monthly increases back in August 2021, the overwhelming expectation for the first months of 2022 was a gradual return to normality, with key Middle Eastern crude producers ramping up production to almost pre-pandemic levels. Fast-forward to today and the world is facing a completely different picture – inventories are the tightest in almost a decade, with the pace of stock depletion unparalleled in recent decades. The same key Middle Eastern powerhouses have played a part in this, underperforming their production quotas – in fact, the divergence between self-reported figures and third-party assessments keeps on increasing, potentially insinuating that the likes of Saudi Arabia stalled the monthly additions knowingly. Against the background of tight inventories and invariably robust demand across markets, Saudi Aramco hiked all its March-loading formula prices.
Here is an estimate of OPEC spare capacity
Thanks Seppo,
I doubt OPEC plus capacity is as high as this, my expectation is that OPEC plus will have sustainable capacity (which can be maintained for 12 months or longer) that is close to zero by April 2022, possibly earlier.
Fuel for Thought: OPEC-Russia marriage faces the test of an oil market that demands more
With global oil demand on pace to climb back to pre-pandemic levels in the coming months, OPEC and its Russia-led partners are running out of their ability to keep pace with crude production.
The 23-country OPEC+ alliance, which controls some half of global crude supply, has been hiking its production quotas every month, but the difference between those targets and its actual output has been rising. January saw a 600,000 b/d quota shortfall, according to the latest S&P Global Platts OPEC+ survey, contributing to fears of a looming supply crunch.
That gap looks set to grow further, with many members already stymied by declining mature fields, unstable oil infrastructure, an exodus of industry investment or civil unrest.
This is quite a long article with lots of graphs. One graph shows OPEC spare capacity dropping to less than 2 million bp/d early this year.
Norway released their January production figures today.
Production dropped by 116 kb/d from December to 1,745 kb/d. The NPD had projected January output to be 1,776 kb/d but came in at 1,736 kb/d, 40 kb/d below plan. No explanation provided. Chart shows 1,745 kb/d since it includes 9 kb/d of condensate.
In Q4-22 the second phase of the Johan Sverdrup facility is planned to come stream and is expected to add 220 kb/d. A 7% decline rate on current production would reduce it by close to 120 kb/d. So the net benefit of this second phase in Q4 would be about 100 kb/d which would restore Norway’s output back to close to 1,850 kb/d. Is Norway close to peaking once the second phase of JS comes on stream?
Does anyone know if there’s a third phase for Johan Sverdrup or is the second phase the last planned one?
Norway, as well as Brazil, will not be a factor in preventing oil production in the period of 2018-2019 from remaining the peak in world oil production. They are both struggling to keep production flat. They just might succeed in doing that. But they will definitely not power world oil production to new heights in the next few years.
Ovi, great work, just a minor note I´ve been harping about, as the majority reading here most likely know by now, I think you mean a secondary peak for Norway, about half the previous one…
Btw. Melkoya restart seems to be delayed to mid May, so they might have missed the LNG high price window due to poor maintenance of the gas turbines.
https://thebarentsobserver.com/en/arctic-lng/2022/01/hammerfest-lng-pushes-restart-further
Laplander
Yes. Peaking/plateauing of the second peak.
We got a potential reversal candlestick on Brent futures chart today. It’s a bearish shooting star after a long run up in price.
Need confirmation though. But if prices stays under the top of the wick on today’s candlestick. Potential is there for a reversal.
Maybe the two largest central banks tightening monetary policy at same time outweighs what is going on in the Ukraine.
We shall see.
Outside of a trading perspective (which I appreciate your posts – as Peak Oil cannot be untangled from the larger Macro Economy), the setup here is very interesting. As I’m sure you are aware, 2022 Q2 is going to have a very unfavorable comp to 2021 Q2. And the longer oil stays up, the worse this comparison will become. It’s hard to imagine a world where Oil stays at these elevated highs once these numbers sink in (not to mention Fed Tightening into the slowdown). It’s a “Harder They Come the Harder They Fall” scenario. But to your point, for trading: WHEN is a lot more important than the WHY. (And of course, a deepening Ukraine crises is one hell of a wild card). Too rich for my blood! I guess a dumbbell strategy might be the way to go? If Ukraine situation goes red-hot oil goes beyond $102. If situation mellows and Macro situation unfolds, oil drops below $82.
Price action can tell you a lot about what majority of market participants are thinking. You’d think the last two days would be risk off with situation in Ukraine.
Well not really. Stocks were down but high beta currencies like Australian dollar were up not down. Funding currencies like the Japanese yen and Swiss franc were down not up. Dollar was somewhat down not up.
Markets right now are mostly dismissing Ukraine. Oil appears to be following that. For now.
What’s about the end of the Iran sanctions? Is there a solution ready?
Guys , don’t spend your time worrying about Iran sanctions . It is a matter of formality , just like Dombass/ Lugansk were just a formality . Moscow was in charge since 2014 , supplying food, electricity , gas , water paying pensions etc . Rouble and not Hryvnia was the medium of exchange , If sanctions are lifted it will only be the formalization of the Iranian oil production . The Iranians were not sitting on their butt twiddling thumbs . They outlasted
2x Reagan
1x GWB 1
2x Clinton
2x GWB 2
2x Obama
1x Trump
That makes it 10 terms = 40 years . You must be aware that Iranian tankers carrying gasoline to Venezuela were stalked by US frigates but did nothing Why ? Let me give you the three scenarios that have Washington pissing .
1.Shutdown of the Strait of Hormuz thru which 65% of the world’s exports pass . Controlled by Teheran .
2. China invades Taiwan .
3 . Putin deploys missiles in Kaliningrad and gives him the capability of turning Berlin, Paris, Frankfurt , Warsaw etc into crushed glass .
Relax , grab your favourite booz . 😉
HHH , the two largest banks tightening policy ? Do you believe this ? The option is tighten + raise interest rates and crash the financial markets OR let loose inflation and kill the ” main street ” . The FED is going to choose to option 2 . Anyway even if it chooses option 1 it is still screwed . It is trapped . For ECB the problem is even more difficult and not to mention the property developer problem brewing in China . A perfect storm .
I see ECB rate hikes as being negative for the currency. I mean you might get a knee jerk move higher but if assets prices aren’t being supported by the central bank in Europe. There will be money that starts leaving Euro denominated assets.
Due to the fact of how the dollar is trade weighted to the Euro this likely pushes dollar higher. Most people would argue that the FED’s tightening is already priced in and Not so much priced in for ECB tightening.
If the dollar index goes to 105 it will be hard for oil to remain elevated. And I think the idea is to engineer a stronger dollar to hold down oil and other commodities at least to a certain extent.
Diamondback to keep Permian output flat this year
New York, 22 February (Argus) — Diamondback Energy will maintain flat production from the top-performing Permian basin in 2022 as the oil and gas producer vows to return at least 50pc of free cash flow to shareholders.
The company expects overall full-year output in the range of 369,000-376,000 b/d of oil equivalent (boe/d). Production last year came in at 375,348 boe/d.
The company forecast annual capital spending of $1.75bn-$1.90bn, up from $1.49bn in 2021.
We are now getting this consistent theme from the big players to return cash to the shareholders. Could it also be dawning on these executives that Tier 1 areas are dwindling and by keeping production down, it reduces expenses and reduces the downward pressure on oil price.
https://www.argusmedia.com/pages/NewsBody.aspx?frame=yes&id=2304623&menu=yes
Permian players have to increase some drilling to make up for the fall in DUCs. Also labor and materials are more expensive. That’s why they are spending more.
Maybe if they have a good year where they can catch up with the declining DUCs and are still making $90 , they will consider increasing production with enough wells. But they know if they do their time as a viable company decreases that much faster as prime drilling locations run out. Probably they would like to have their well paid CEO jobs for six years rather than three. They have also figured out that they can substantially bring down the price of oil by overproducing. So there will be little incentive for any of the majors in the Permian to increase production. Most likely scenario is the one that’s probably best for everyone: keep production stable around 5M/day until it starts to deplete, probably after 5-6 years. And make a lot of dough in the process.
Occidental who paid dearly to out bid Chevron a few years ago for what was considered some of the best property in the Permian announces fourth quarter earning tomorrow. Should be interesting what they have to say. They have a lot of debt to deal with from their purchase.
Occidental is making money hand over fist with their blue-ribbon property and fast drilling/fracking operation running like a well-oiled machine. The marked increase in LNG exports has also improved shale basin profit dynamics. With high gas prices, it doesn’t matter much if the GOR is on the rise. In fact, LNG is probably going to largely replace oil as a petrochemical feedstock, as it is much cleaner and easier to handle. Europe may also replace Mr. Putin’s pipeline gas with much cleaner LNG–the Dunkirk-type LNG brigade is going pretty well, at a reasonable price, from what I understand.
The shale folks are fairly quick learners–like most people. True, they want to stretch out their CEO work life, but they are also functioning currently with about 25% of their targets off the playing field–what with federal leases still being blocked by the Biden administration. That won’t last forever.
In fact, if they bide their time and drill responsibly, they will run out of good assets about the time Mr. Biden runs out of juice. If a Republican president goes in, the federal lease bans goes out, and all at once there will be more tier-1 targets to drill on. Additionally, while new pipelines and LNG trains are difficult to build now, that could very well change too. These are just possibilities–and may never come to pass–but the oil and gas business has always been a gamble, and this one seems relatively small.
Guys it is simple. No speculation needed. Diamondback is ramping up CAPEX and still expects production to be flat in 2022. When the larger independents like Pioneer and Diamondback tell the market they are keeping production flat in a $90 per barrel market, they are telling the market that “The Red Queen” has arrived. Running harder just to stay in place. Tier 1 or Tier 2 are meaningless when the majority of wells now drilled in the Permian are less productive “child” wells. An oilman will always try to increase production in times of high prices. The fact that they can’t increase production was what my company was experiencing with every successive well we drilled.
Mr Maddoux , a piece of BS + crap if I ever read one . You don’t even believe what you wrote because you put this disclaimer at the end of the post . “These are just possibilities–and may never come to pass–but the oil and gas business has always been a gamble, and this one seems relatively small. ” Adios Amigo .
I wonder who are they trying to convince , themselves or us that everything is going to be rosy after the world realizes that there will not be enough oil to go around.
Raul , here is the answer . Einstein was correct ” “Insanity is doing the same thing over and over again and expecting different results”.
https://www.zerohedge.com/commodities/wti-shrugs-after-biden-admin-hints-another-spr-release
Releasing SPR to lower oil price is akin to breaking your grandson’s piggy bank so that you can get some crack .
Actually, I do believe what I just wrote.
I’m very aware of the distinct limitations of shale oil–more than most, I suspect.
However, I am also acutely aware of the extreme current expense of looking for new oil and building the infrastructure to exploit it.
In such a setting, I rather suspect that the federal land leases are going to be drilled out before this is all said and done.
But opinions are like behinds: everyone has one. Cheers!
Yes, you just exposed yourself ” I’m very aware of the distinct limitations of shale oil” . Yeah but you don’t want to admit it like a few friends here . There is a difference between ” knowing ” and ” realizing ” . I ” know ” eating Big Macs everyday is injurious for health but ” realizing ” that ?? . I have read your posts which indicate that you know more than I do , but there is in the rear view mirror a ” blind spot ” , are you somewhere there ? I am sure you also understand the concept of ” tipping points ” . The difference between 0 deg centigrade and 1 degree centigrade
is not 1, but at 0 it is ice and 1 it is water . Solid to liquid , also called ” phase change ” . Shale has crossed ” the Rubicon ” . Repeating myself . Ralph Nader ” Unsafe at any speed ” my take on shale oil is ” Unprofitable at any price” . I have some real oil men ( not armchair analysts) to support my viewpoint . Be well .
Got a question about the price of oil vs the price of gasoline at the pump.
I’m seeing stuff on line saying how we are paying record prices for gasoline at the pump, yet we’ve certainly seen higher oil prices before.
I used to keep track of mileage on my vehicles, and the most I ever record paying here in south Louisiana is $3.87 a gallon on July 1, 2008. That’s when oil prices were on their way to a record high of over $140/barrel.
Is anyone really seeing highest gasoline prices ever?
I am not. Paying about 50 cents below the 2008 peak.
Also, my state raised its gasoline tax since 2008, so factoring that in it’s about 70 cents below the peak.
I think many states raised gasoline taxes since 2008. So that matters.
For some reason, it’s very high in certain parts of CA and AK.
Yup. At the peak in 2008 I filled up my WRX with premium for $4.04/gal. I just filled up my NSX with premium this morning at $4.15/gal. Blew away the old record. The new NSX actually gets better gas mileage than the old WRX due to the electric motors and is a thousand times more fun to drive so I still consider it a net win.
I saw about 30 articles saying CALIFORNIA is at record highs, so local variability must be at play. Not sure how reliable EIA but probably close enough: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=m – of course, none of this will ever get attributed to peak oil. peak demand, russia, speculators, pipeline protests, regulations. it will always be something,
Cruise missiles are targeting military installations in Kiev and Mariupol and one other city.
Very sad.
Ovi ,
Kevin Costner in ” Dance with the wolves ”
Vladimir Putin ” Dance with the bear ”
Well someone is going to get hurt . 🙂
It’s war now.
When russian gas is cut off to Europe then, and I think it, we’ll get at least a taste of war here when the storages run dry (caverns still at 31%).
The government is already reactivating old coal power plants and OIL BURNERS in Europe and calls them into cold standby.
Do you think Germany will stop Russian gas imports and not just delay NS2? Do you know if there is any poll among Germans what they are prepared to do?
The question is not if they want but if they must. During war the pipeline will be interrupted – and I think due to sanctions they will cut off Russia from the western financial $ system. So no possibility to pay the gas.
Things will get ugly fast when they do this – prepare 200$ oil. Nat gas price is already round about 150-170$ / BOE, still accelerating.
I’m not so sure they will or “must”. Many European leaders refute the ide to stop importing energy from Russia. There is a lack of unity in the union and the eastern states are paying the price. One option would be for Germany to restart its Nuc and install heat pumps, it might even lower their energy bill. But they do not seem interested in that option.
I quite like this fellows analysis
Why Germany won’t support Ukraine
https://youtu.be/FvESFgKREo0
Pipeline interruption has also been in my mind. This could be done by turning off the valve. It could also come about as collateral damage from the war. And there is the final possibility that if Putin finds himself at the losing end, the pipelines will be blown up by the Russians themselves. Kind of what happened in Kuwait after Saddam was routed.
Seems Germany is the one blocking sanctions on energy imports and swift.
Yep that shooting star on Brent Brent futures lasted all of 2 days. That’s why you wait on confirmation. Brent was at $105 this morning when I checked. And what is interesting it’s not just energy commodities that spiked. It’s all sorts of commodities. Industrial metals are up rather large.
Dollar is up large. There will be some unwinding of financial trade here. To what extent is anybody’s guess at this point.
Just as a disclosure only exposure I have in any market currently is a week ago I shorted the Euro against the dollar because in my head it was the easiest way to play a likely negative outcome in Ukraine.
Now that the Ukraine situation is hot the ECB will likely forget rate hikes and tightening.
Only question I have for oil is how high and where and when does it go so high that it gets sold instead of bought.
HHH , I think the FED will use the war as an excuse to do nothing on the 15th .
Iran Moves Millions Of Barrels Of Oil Onto Tankers As Nuclear Agreement Nears
Iran is preparing for a possible lifting of the U.S. sanctions on its oil exports in case a deal is reached in the ongoing nuclear talks, as the Islamic Republic seems to have accelerated the transfer of millions of barrels of crude onto tankers in recent weeks.
The volume of crude oil on tankers around Iran has surged by 30 million barrels since the start of December and is now around 103 million barrels in floating storage, Bloomberg reported on Wednesday, citing data from commodity intelligence firm Kpler.
The talks about the United States and Iran returning to the Joint Comprehensive Plan of Action (JCPOA)—as the Iranian nuclear deal is officially known—have entered the final crucial stage.
In recent days, reports have intensified that the indirect talks between the United States and Iran are in their final stage and are said to be “about to cross the finish line,” according to a tweet from Russia’s envoy Mikhail Ulyanov on Tuesday.
“At the final stage of the #ViennaTalks intensive consultations in various formats are underway,” Ulyanov said a few hours later.
However, some key issues still need to be resolved, and talks are now at a “critical” stage, Iran’s Foreign Minister Hossein Amir-Abdollahian said on Wednesday, as quoted by AFP.
“We hope that some sensitive and important issues remaining in the negotiations will be resolved in the coming days with realism from the Western side,” the minister said at a news conference in Tehran.
“We wonder whether the Western side can adopt a realistic approach to go through the remaining points of the talks,” Reuters quoted Amir-Abdollahian as saying at the same press event.
If a deal is reached, Iran could return some 1.3 million barrels per day (bpd) of crude to the tight oil market, and its oil in floating storage would be the first to go to international buyers until the Islamic Republic ramps up its oil production to pre-2018-sanction levels.
Ron , I don’t believe this . 103 million barrels is 51 VLCC parked offshore Iranian coast . Never a word about it anywhere . 103 million barrels @ 1.3 mbpd = 90 days production . Something does not smell good here .
HH, you are selling Iran a little short on production. They are currently producing about 2.5 million barrels per day. The article is saying they could increase production by 1.3 million barrels per day if sanctions were lifted. That would put them at 3.8 million bp/d, exactly where they were before sanctions. I doubt that they could reach that point but they could probably reach 3.5 million bp/d within six months or so.
Ron , ok my mistake in properly reading , but still the mystery of the 51 VLCC and if not 90 days then maybe a little less let us say 60-75 days . Still does not pass the smell test .
The EIA’s Monthly Energy Review is just out. C+C production was down 103,000 barrels per day in January. That is subject to revision however.
So , 12,892 mbpd in Nov 2019 is still the peak . Hurrah . Question ? If not now then when ? Are the shale drillers waiting for the price to go to $ 150 ?
If you look at Brent futures. If price closes where it is currently we get a massive pinbar candlestick and it’s bearish as bearish can be on price.
HHH , I am not a chartist . I disagree at least for the short term (1-3 months )
I disagree too but pin bar candlesticks don’t come very often. And if it closes just slightly above where it opened today it’s a pin bar candlestick. And it would suggest price is going down instead of up.
Stocks just got ramped into green btw 😂 lol
They will be ramped up even more. The war is already “priced in”, time to continue the eternal rally.
Btw, ramping up the stocks was parallel with downing oil – market prices are only option play side effects nowadays.
Yeah, not saying oil prices can’t ultimately go higher but that pin bar on the Brent chart will play out as a move to the downside for oil prices.
Probably looking at a pull back to the lower $80’s maybe somewhere in the $70’s
And I know that don’t jive with the oil can only go higher crowd but it’s what the price action on chart is suggesting currently. I’ll short that pin bar for a move lower. Just got to understand it might be a short term trade or medium term.
Looks like my dumbbell strategy would have worked! Maybe I should start doing this options stuff – doesn’t look so hard!! 🙂
Repairs and protests halt a tenth of Iraqi oil output
Iraq has halted over a tenth of its oil output due to maintenance and protests, in a further blow to the already tight global supply at a time of rising demand and soaring prices.
Iraq’s 480,000 bpd of crude outages make up nearly 0.5% of global oil supply and come at a fragile time for oil markets.
New posts are up
https://peakoilbarrel.com/permian-basin-update-february-24-2022/
and
https://peakoilbarrel.com/open-thread-non-petroleum-feb-25-2022/