These first charts are taken from the EIA’s Monthly Crude Oil and Natural Gas Production. The data are through June 2018 and is in thousand barrels per day.
US C+C production was up 231,000 barrels per day in June to 10,674,000 bpd, an all-time high.
Texas was up 165,000 barrels per day in June to 4,410,000 bpd.
New Mexico was up 5,000 barrels per day in June to 657,000 bpd. The Permian extends into New Mexico.
North Dakota was down 16,000 barrels per day in June to 1,220,000 bpd.
Oklahoma was down 3,000 barrels per day in June to 526,000 bpd.
Colorado was down 24,000 barrels per day in June to 423,000 bpd.
California was down 2,000 barrels per day in June to 462,000 bpd. California peaked in February of 1987 at 1,109,000 bpd.
Alaska was down 45,000 barrels per day in June to 451,000 bpd. June, July, August, and part of September are the prime maintenance months for Alaska. The maintenance includes pigging the pipeline and overhauling the pumps along the pipeline.
The Gulf of Mexico was up 154,000 barrels per day in June to 1,658,000 bpd. Just a couple of years ago the EIA was predicting the GOM to be at almost 2 million barrels per day by now. I really don’t think that is going to happen anytime soon.
Using the EIA’s Drilling Productivity report for Permian production, through June, the US less the Permian, is still 357,000 barrels per day below the peak reached in April 2015. It is obvious that the Permian is the driving force behind the major increase in US production.
The above data is through June 2018. This is oil rigs only, no gas rigs.
The following data are from Table 11.1b World Crude Oil Production: Persian Gulf Nations, Non-OPEC, and World. It is through May 2018 and is in thousand barrels per day.
The numbers here are only through May 2018. We are obviously on that proverbial bumpy plateau. A prediction! I see world C+C production peaking around July or August, remaining level to slightly down for about two years, then begin a steady decline.
It all depends on the USA. The US, and to a lesser extent Canada, are the only nations that are still really growing by any significant amount. The US has increased production by 1.6 million barrels per day in the last 12 months, June 17 to June 18. Total world has increased less than half that amount.
Non-OPEC is half a million barrels below its previous peak of December 2014. It may breach that peak later this year, but not by much.
Non-OPEC less USA is 1.5 million barrels below its previous peak of December 2015.
Canada EIA through May with Canada’s National Energy Board’s projection through December 2018.
China has slowed its decline somewhat.
The United Kingdom has, for now anyway, completely halted its decline.
Norway… well that’s Norway.
Mexico, for the time being, has slowed its decline.
This is the EIA’s estimate of all Persian Gulf production. That includes Saudi Arabia, the UAE, Kuwait, Iran, Iraq, Qatar, Bahrain, and Oman. This is through May. There will be a slight uptick in June, July, and August but will not likely breach the previous high in November and December of 2016.
This is Russia through August 2018 from the Russian Minister of Energy. They are now back to the level they reached in the last quarter of 2016.
US – all liquids full throttle;
Russia -all liquids full throttle;
KSA -all liquids full throttle;
Now it will be interesting to see who blinks first.
Ron,
Using the US tight oil estimate, which is broken down by basin, we can look at US C+C less Permian basin tight oil output. For June 2018 the level was 7962 kb/d and the peak was March 2015 at 8372 kb/d, so currently about 410 kb/d below the previous peak in March 2015 for US less Permian output.
Alternative view
Thanks Dennis. I should have done that but I just didn’t think of it. In fact I will do that right now.
Edit: Okay I just updated the chart with US Less Permian.
Thanks again for the reminder.
Chart above is slightly different from Ron’s chart which uses the drilling productivity report to estimate output from the Permian Basin region. My chart uses the EIA’s tight oil estimate from link below
https://www.eia.gov/energyexplained/data/U.S.%20tight%20oil%20production.xlsx
from page linked below (tight oil production estimates by play)
https://www.eia.gov/petroleum/data.php
Good analysis. Prediction is spot on. I am guessing your change from 2019 to 2018 is caused mainly by the more recent analysis of how much exports will be affected by the sanctions, and Venezuela’s continuing implosion. The limited amount they project out of the joint Kuwait/SA region would have caused me to reconsider, too. No increase from the US or Canada to speak of until the end of 2019, makes 2019 look very bad, now.
A decrease in 2019, and a limited plateau a year, or so after that, is my guess, too. Whether that plateau extends above 2018 from US/Canada is anybody’s guess, and is mainly unimportant. Demand will far exceed supply by then.
Iran update
http://crudeoilpeak.info/iran-update
Good info, Matt. Whether the decrease in production is 400k or over 1000k, the result in 2019 will end in a decrease to World production. Or, at best, mostly flat.
Guym,
What happens when demand exceeds supply? Prices increase, investment increases and output may increase. It is not clear that the US will not increase output, nor is it clear that higher oil prices will not result in higher output from the Persian Gulf, Russia, Canada, and Brazil and slow declines elsewhere. Perhaps 2018 will a temporary peak, but it is likely to be surpassed when pipeline contraints ease in the Permian basin in 2020. I maintain that 2025 is the most likely peak date, but it could be 2 years before or after depending upon oil prices, Global economic conditions, wars, etc none of which can be predicted with any precision.
In fact, high oil prices could spur more rapid development of oil resources which might extend a plateau from 2025 to 2030, but declines would be more rapid and this would depend on the global economy not faltering due to high oil prices (which I think is unlikely,t hat is there will be a slow down in economic growth due to high oil prices)
I regard your opinions very highly, Dennis. I just think you are more optimistic than I am. My pessimism is derived from three thoughts:
1. The capacity for US shale expansion, beyond the incredible point it is at now, is over rated. No matter what oil price is.
2. World declines will continue to increase in rate.
3. If future oil is discovered, it will take years to extract, putting us, probably beyond the point of increasing. Slowing declines, maybe, if it is ever found.
Guym,
Possibly World decline rates will increase, if you look at Ron’s recent charts, in many cases the rate of decrease in nations past peak is lower rather than higher.
Lately (since 2015) there has been a glut of oil, low prices and lack of investment in new field development World wide, that explains the flat oil output from 2016 to 2018. Without the pipeline constraints being experienced in the Permian basin, US tight oil output can reach 8 Mb/d in the US by about 2023.
I respect your opinion as well, but what you see as my “optimism”, I think is realistic (2025 peak). I agree the plateau until 2030 is optimistic, though there are some that view my “scenarios” as quite pessimistic.
Everyone always believes their personal view is the “realistic” one, which makes the conversation interesting. We won’t have to wait very long to see if 2018 is the peak, I imagine we will know within a year or so (when looking at trailing 12 month World C+C output). We will have to wait longer (another 8 years or so) to see if 2025 is correct.
We will have to wait longer (another 8 years or so) to see if 2025 is correct.
I really don’t think so. I believe we will know long before 2025.
I have a very strong argument to make in my next post, the OPEC post due out one week from today. I believe that will shed a different light on things.
Ron,
If you are correct about the peak, then we won’t have to wait that long. If output continues to increase through 2024 as I believe, then we won’t know if 2025 is the peak until 2026 or possibly even 2029, if we remain on an undulating plateau from 2024 to 2028.
Will high oil prices keep output from declining much from 2024 to 2028? I think this is possible, the high oil price from a plateau in output could lead to a recession or even a depression, but my guess is the depression starts in 2030.
Hi Dennis, thanks for all the great comments. I’m interested to know more about your ideas regarding the depression, the one that perhaps starts in 2030. What do you foresee as the overall and general conditions of the global, and perhaps regional, economies? Do you feel it will be a lengthy depression? Any silver clouds?
It would depend enormously on how countries and individuals respond: do they bury their heads and try to keep fuel prices low with price controls and subsidies? That would cause enormous budget deficits and crashes. Do they allow exchange rates to move as their oil imports rise? If not…more exchange rate and foreign exchange crises.
Or, do they work to accelerate the shift away from oil? Do they raise fuel taxes, to in effect keep the profits of high oil prices at home?
Survivalist,
Thank you.
My foresight is quite cloudy 🙂 but I will give it a go.
My expectation under a scenario where there is a peak in 2025 with perhaps an undulating plateau from 2023 to 2028 (peak year could really be any year in this range) is that oil prices will rise quite a bit maybe rising to $175 per barrel as the price will serve to ration oil to its most important uses.
The adjustment to oil scarcity by the World economy will be very difficult, with gradually slowing economic growth and an attempt to substitute EVs, plugin hybrids and hybrids as well as more efficient smaller vehicles for low mileage pickup trucks and SUVs.
This is likely to be too little too late. Possibly the government can incentivize people to switch to EVs with tax incentives granting special lanes to EVs only for faster commutes as well as a lane for car pools, perhaps better public transportation will be built (though clearly this will not happen overnight).
In the end, I suspect the World economy will succumb to some kind of economic crisis as slow growth may lead to higher unemployment and poor business conditions and possibly a financial crisis.
As far as regional economies, those that depend less on oil imports are likely to fare better and those more dependent on oil imports may fare worse, but the results are likely to be highly variable (that is, I have no idea).
For those nations whose policy makers have read and understood Keynes’ General Theory, the depression might be fairly short, nations that choose pre-Keynesian ideology and choose fiscal austerity in the face of a major recession are likely to have a lengthy recession (European policy during the GFC would be a classic example or US economic policy from Oct 1929 to Feb 1933 would be the classic example of how not to deal with a major recession.)
Hopefully people will read a little economic history between now and the next Depression as the repeat of history often results when people have never learned history.
Given what I have seen in the last 10 years, I am not optimistic about the recession being short (less than 3 years), probably 5-7 years would be my best guess, even with “proper” policy.
An aggressive fiscal response to the onset of an economic crisis by all G20 nations might make for a short 3 year recession, but the odds are probably 1 in 10(or less) that this would occur.
Silver lining? People may see that peak fossil fuels are right around the corner and it might be the brick in the head that gets society to move aggressively away from f0ssil fuels to non-fossil fuel sources for energy. In fact, fiscal policy could be used to move society in that direction.
It is possible that the deeper the depression, the more likely radical measures might be taken, unfortunately as Russians, Germans and Italians well know, not all radical change is positive.
Unfortunately, radical change is needed sooner rather than later.
Spot On Dennis!
Also consider the impact that the global debt and demographics issues are likely to add a severe drag on the economy as well as tie up resources & capital for migration efforts. It is not as if the US & EU will give up entitlements & pensions for resource mitigation. Between 2021 & 2023 all US federal revenues will be need just to service the interest of the Debt & entitlements\gov’t work pensions. I presume most of the industrialized world doesn’t fair any better. Debt & demographic problems will only get much worse in the second half the 2020’s
Dennis Wrote:
“Unfortunately, radical change is needed sooner rather than later.”
The time for radical change is 15 to 20 years over due. The world should have listened to the Cassandra’s like Matt Simons (2005) or even much earlier, Hubbert (1956). Consider that 2005-2008 was the wake up call, yet BAU didn’t even blink.
Ok, if optimistic offends, I will rephrase to “less pessimistic”.?
Guym,
I agree that my expectation is more optimistic than yours, no offense taken.
The reason I think my scenario for 2025 is “realistic”, is that an assumption that high prices increases the speed with which oil resources are developed from an average of 39 years from discovery to field maturity (when field reaches maximum output) to 21 years from 2017 to 2041. The rate of development has a mean value of 39 years for oil discovered from 1918 to 2017, with rate of development increasing from 3 years in 1870 to 39 years in 1918 (a 0.75 year increase each year from 1871 to 1918).
My previous oil shock models left the rate of development unchanged at 39 years mean value from 1918 to 2250 ( a maximum entropy distribution is used for fallow, build, and maturation stages of resource development).
The optimistic scenario (using my medium scenario URR=3400 Gb of C+C ) peaks in 2041 at 89.6 Mb/d and then declines quite rapidly with the annual decline rate rising to 3.5% by 2054.
Without the increase in the rate of development and extraction rates the same as the scenario below results in a plateau from 2028 to 2040 with output between 85.5 and 86 Mb/d, also quite optimistic, relative to a scenario that peaks in 2025 or 2026 (plateau from 2024 to 2028).
In sunny places, EVs + solar energy are competitive with combustion engine vehicles when oil is well under $10 a barrel. This is new and makes it hard to extrapolate from previous market conditions.
The main thing restricting EV sales growth is a worldwide shortage of batteries, but this will likely change soon.
Dennis Wrote:
“In fact, high oil prices could spur more rapid development of oil resources which might extend a plateau from 2025 to 2030”
Probably not considering that most of the oil major canceled their big projects that would have replaced reserves. Instead they opted to drill wall street with Stock buybacks & replace reserves by purchasing smaller players. Usually these big projects take 5 to 7 years to bring Oil to market. I don’t think they will consider restarting them until they think Oil prices will be high & stable enough to earn a profit.
I also suspect that their will be significant retirement of old hats that will be difficult to replace. the Oil industry has a lot of boom\bust cycles and younger people in the industry left for less chaotic careers.
Perhaps immigration of oil workers could close the gap, but since there is a broad demographics cliff pending, there probably will be a worldwide labor shortage for skilled Oil workers. If US companies Poach workers oversea it just create shortages overseas.
That said I suspect the the world could make due with a peak and shallow decline for decade or more. But I have no idea how long the SuperGiants will be able to defer significant declines. If they start running into major production problems we could experience declines that the global economy cannot cope with.
I think Debt & Demographics problems will hit first before Oil declines matter. But once all three merge (Oil, Debt & Demographics) that likely be an impossible hole to escape from. I think the Debt & demographics issues will come due before 2025. US National Debt will be around $28T by 2025, and we’ll like see a lot of states run into debt problems as pension costs become a severe problem. Already several states are running into pension obligations.
No, I still see the world average peaking in 2019. I just think July and August of 2018 will be above that average. But production in the first half of 2018 will hold the 2018 average below that of 2019.
But there are so many uncertainties out there. Like Libya, or Nigeria, or Iran. Anything can happen to upset any and all predictions. We will just have to wait and see. Anyway, I am not all that confident in my peak guess. It is nothing more than just a wild ass guess.
What happens if we lose 800k a day from Iran, plus whatever from Venezuela in 2019? Yeah, it’s all just a wag.
What happens if the Trump economy crashes and drives the whole world into a recession? Hell, on second thought 2018 just might turn out to be the peak.
There ya go! Insanity reigns.
Ron,
If there is a recession it won’t last for more than a few years prior to 2025 (or whenever peak oil occurs), WW3 before 2025 might result in a 2018 peak. I am hopeful that won’t occur.
Damn Dennis! I wish I had your knowledge and insight on future recessions. I always thought economics was the most uncertain of all disciplines. I won’t call it a science because I don’t think there is anything scientific about it.
But I don’t think we have anything to worry about concerning WW3. Not that Trump would not try to start it, because he most definitely would. But don’t think the Generals in the White House babysitting him will let him anywhere near the nuclear codes. And if he orders an invasion they will ignore him. He told them to assimilate Siria’s Assad. They said they would and then just ignored him.
James Mattis Reportedly Ignored Trump’s Order To ‘F**king Kill’ Bashar Assad
In one account shared by The Washington Post on Tuesday, Woodward writes that Trump told Secretary of Defense James Mattis he wanted to assassinate Syrian leader Bashar Assad last year. While Mattis agreed, he allegedly gave aides completely different instructions.
We live in dangerous times but fortunately, the danger will be out of the White House in January of 2021.
Disruptive wars can start from places other than DC. There are countries that import more than 50% of their net energy use. In a peak oil world they may be compelled towards desperate acts.
This list includes Germany, Japan, S.Korea, Turkey, Phillipines, Italy, Spain, Netherlands, Taiwan, among many others.
Other countries desperately need their own energy export income, such as Russia, Iran and Venezuela. If curtailed they could choose war, or face collapse.
This does not even begin to address others causes such territorial disputes, religious conflicts, etc.
Wars have a way becoming unpredictable, and can grow from a civil war to big regional one rapidly.
Many such scenarios exist as possibilities that could disrupt world trade and or energy flows.
This surely is not not news to anyone, just a reminder.
Hickory,
I agree, wars, like recessions are difficult to predict in advance. Generally my scenarios assume there are no major shocks to the World order, an assumption that is likely to prove false.
Lol, I realy like it when americans write some holy soup about germany(I am german).
Believing that germany could act agressive because of a lack of oil supply is far away from reality.
We dont have the menpower for this, the culturemarxism made our society so weak that it is absolutly unable to face a real war. We also dont have the navy for this. If we would like to invade a county because of its oil, which one should it be? Poland? France? They dont have oil. We would have to conquer some shit county, where we cant get there without NATO logistics. It just wont happen.
But what will happen with germany is a great civil war, like a lot of other european nations, guaranteed. It is just like peak oil: idk when exacty this will happen, but it will happen in the next decades.
Hi Karl,
I am not expecting Germany to start a war over oil, but I do believe it is possible that various countries that are heavily dependent on imported energy may face a scenario in the upcoming decade that puts a massive strain on their stability and well-being.
That may be severe enough to lead to chaos. Germany for example, may find itself with export customers who cannot afford the goods its sells, and may find it very hard to compete with other energy importing countries for the fuel it needs.
I hope that the transition from fossil fuel can be gradual for the sake of stability, but it may not be. Climate instability may be the trade-off to a slow transition away from fossil fuel.
Ron,
Deep recessions like 1929 and 2008 happen infrequently, most other recessions are short lived (1875-2018), so you will note that I said nothing about when a recession will occur or precisely how long it will last, just that it is likely to be short as has been the case for most recessions especially since WW2.
Social science tends to be very imprecise as the knowledge gained by individuals about how society works affects individual behavior and changes the system under study, unlike physics, chemistry, or biology.
January of 2001?
Sorry, January 20th of 2021, the day a new president is sworn in. But it could be sooner than that.
Ron Wrote:
” But don’t think the Generals in the White House babysitting him will let him anywhere near the nuclear codes”
Are a lot of crazy people in gov’t. I think some are pressuring Trump into conflict. Consider that Candidate Trump said we need to exit Syria, Afghanistan, end NATO and Make Peace with Russia. Since the election Trump has done full 180 supporting just about every military campaign presented to him. He also select war hawks like Bolton, Pompeo & Haley.
Seems that the US continues to become more belligerent no matter who is in the white house. That said China is becoming an active military power and expanding its influence worldwide.
All countries extract oil as fast as they can, but the ever hungry beast wants MORE. It will always want more, untill we cannot provide more, and the industrial civilization collapses.
Ron,
Sorry, I didn’t read carefully enough as I thought you meant July or August would be the trailing 12 month peak in World output. I also am not all that confident in my WAG even though it’s a wide 2023-2027 guess (probably a plateau over that period with the 12 month centered peak possible anywhere in that range of years).
Very opportune. The day before yesterday I was having a conversation with Dennis about it here:
http://peakoilbarrel.com/open-thread-petroleum-august-28-2017/#comment-650809
And this is what I said:
“Oil production has entered a plateau. There are higher values and lower values than 81 k, but it isn’t going anywhere like it didn’t between 2005 and 2010.
This is how Peak Oil looks and nobody knows. Date of entering the plateau: second semester of 2015. When it leaves the plateau it will be going down, not up.”
http://peakoilbarrel.com/wp-content/uploads/2018/08/650809.png
Dennis believes that the increase in oil price can solve the situation. But here is an interesting article:
https://www.theglobeandmail.com/business/article-saudi-arabia-cuts-oil-output-as-opec-points-to-2019-surplus/
The Globe and Mail
Saudi Arabia cuts oil output as OPEC points to 2019 surplus
Published August 13, 2018
“OPEC on Monday forecast lower demand for its crude next year as rivals pump more and said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production.
In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) said the world will need 32.05 million barrels per day (bpd) of crude from its 15 members in 2019, down 130,000 bpd from last month’s forecast.
The drop in demand for OPEC crude means there will be less strain on other producers in making up for supply losses in Venezuela and Libya, and potentially in Iran as renewed U.S. sanctions kick in.
Crude edged lower after the OPEC report was released, trading below $73 a barrel. Prices have slipped since topping $80 this year for the first time since 2014 on expectations of more supply after OPEC agreed to relax a supply-cutting deal and economic worries.
OPEC in the report said concern about global trade tensions had weighed on crude prices in July, although it expected support for the market from refined products.
“Healthy global economic developments and increased industrial activity should support the demand for distillate fuels in the coming months, leading to a further drawdown in diesel inventories,” it said.
OPEC and a group of non-OPEC countries agreed on June 22-23 to return to 100 per cent compliance with oil output cuts that began in January 2017, after months of underproduction by Venezuela and others pushed adherence above 160 per cent.
In the report, OPEC said its oil output in July rose to 32.32 million bpd. Although higher than the 2019 demand forecast, this is up a mere 41,000 bpd from June as the Saudi cut offset increases elsewhere.
In June, Saudi Arabia had pumped more as it heeded calls from the United States and other consumers to make up for shortfalls elsewhere and cool prices, and sources had said July output would be even higher.
But the kingdom said last month it did not want an oversupplied market and it would not try to push oil into the market beyond customers’ needs.
DEMAND SLOWING
Rapid oil demand that helped OPEC balance the market is expected to moderate next year. OPEC expects world oil demand to grow by 1.43 million bpd, 20,000 bpd less than forecast last month, and a slowdown from 1.64 million bpd in 2018.
In July, Saudi Arabia told OPEC it cut production by 200,000 bpd to 10.288 million bpd. Figures OPEC collects from secondary sources published in the report also showed a Saudi cut, which offset increases in other nations such as Kuwait and Nigeria.
This means compliance with the original supply-cutting deal has slipped to 126 per cent, according to a Reuters calculation, meaning members are still cutting more than promised. The original figure for June was 130 per cent.
OPEC’s July output is 270,000 bpd more than OPEC expects the demand for its oil to average next year, suggesting a small surplus in the market should OPEC keep pumping the same amount and other things remain equal.
And the higher prices that have followed the OPEC-led deal have prompted growth in rival supply and a surge of U.S. shale. OPEC expects non-OPEC supply to expand by 2.13 million bpd next year, 30,000 bpd more than forecast last month.”
The entire article makes no sense. It is full of reasons to increase production used to justify a decrease in production. OPEC and Russia agreed to cuts in production, they decrease production by 130% of the agreement (I know, quite fictitious), and KSA says it is no longer needed because price has recovered so they are going to… cut production further.
This is when surprise hits you, Dennis. You are following 101 resource economics that say an increase in price is met by an increase in production. What happens when it doesn’t happen?
Welcome to Peak Oil. Post-Peak Oil era will be inaugurated shortly.
OPEC does not want to increase production, or for them it is not cost beneficial to. US E&Ps will post horrible financials, overall, for 2018 and 2019. 2019 price increase would help, but they are fighting huge headwinds. Where will they get all the big bucks for huge capex increases in 2020?
OPEC used to regulate production according to demand to prevent oil price spikes. Now who knows.
OPEC is using shoddy projections from the US to justify getting a higher price, plus I don’t think SA has it, anyway. None of the EIAs, IEAs, Opecs, or banks are counting Iran’s drops, yet. This, with the exception to Iran’s decrease, will continue into the second quarter of 2019, when panic takes over. EIA will not change their estimates, until final data proves they had their head up their posterior.
Carlos
We have just come out of 2 years of a major oil glut that drove prices down to $27 a barrel.
Your graph also shows the 2005 peak oil which made a fool out of a lot of people. The world is now producing 8 million barrels per day more of Oil and 15 million more of total liquids.
When prices start hitting $150 and more, then we can start talking peak oil.
Suppose price is controlled by decree, as it would have to be if there was scarcity and food could not move to shelves.
When prices start hitting $150 and more, then we can start talking peak oil.
You are forgetting just one thing. Peak oil is the time of maximum oil production! Prices at maximum oil production are far more likely to be low than high. When the world produces more oil per day than ever before in history, that will be a time of glut, not a time of scarcity. Prices will not start to skyrocket until well after peak oil.
Ron
You could be right.
But I think crude oil production will increase but will gradually fail to meet demand over say 3-4 years. During that time price pressure will drive down demand.
My guess is the oil industry will fail to meet demand in 2020 and peak in 2023-2024.
By then oil prices will be $140 plus. A plateau after that for 2-5 years and then who knows what countries will do to get their share.
It’s failing to meet demand, now. When world inventories go down, supply is less than demand.
I’d love to know how much of a buffer we have in term of ‘stored oil’. If we are depleting storage then surely the price will have to jump when this supply nears depletion.
Dave P,
Part of the problem is the storage data is not very good at the World level, but typically the focus is on OECD inventory levels (which are pretty good) and the storage level relative to the past 5 year average level when it falls significantly below this level we usually see an increase in the price of oil.
In August, IEA data shows oil inventory about 1% below the 5 year average level, if the level falls to 4 or 5% below the 5 year average we may see a faster rise in the price of oil.
https://www.iea.org/oilmarketreport/omrpublic/currentreport/#Stocks
Thanks Dennis. Those graphs were very helpful. Pardon my ignorance but how frequently does the IEA update these numbers?
DaveP,
You’re welcome.
The report is published once each month, first there is just a summary released and the full “public” (free) report comes out after two weeks.
See
https://www.iea.org/oilmarketreport/omrpublic/
The next report is Sept 13 and is available at the public site on Sept 27.
https://www.iea.org/oilmarketreport/schedule/
The price jumps before storage reaches depletion, because everybody watches storage levels and bids future prices accordingly.
So would you say that the current price already reflects the current declining storage volume and you don’t expect price to increase much when storage actually depletes?
I would have thought if we’re still drawing stored oil then the current price isn’t high enough to temper demand or promote more production (granted production would have lag time so perhaps it already has stimulated an increase which will eventuate later).
Dave P,
If the inventory levels continue to drop, then oil prices will continue to rise, my WAG is that the rate of increase in the oil price may accelerate if inventory levels in the OECD fall to 4 or 5% below 5 year average levels or if the inventory falls below the 5 year range.
Like Denis says, it can just continue rising as storage declines. Problem is the market has zillions of players, and they don’t behave rationally. For example, Trump is following guidance from Bolton, a neocon sold to the Israelis, and placed sanctions on Iran with exquisite timing to screw GOP electoral chances in November. Such stupid behavior is hard to model.
Guym,
That is right, production is currently less than consumption (causing oil inventories to decrease). When OECD oil stock levels fall to 3 or 4% below the 5 year average level, we will see oil prices increase and consumption may decrease (or at least grow more slowly) and oil output may increase (grow at a faster rate) to bring production and consumption back into balance.
Guym
Have you got international data?
China is now the biggest oil importer and it is increasing it’s strategic oil reserves.
https://www.reuters.com/article/china-oil-storage/update-1-trade-tensions-could-boost-pace-of-chinas-strategic-crude-storage-idUSL8N1RQ45H
China has been increasing it’s strategic oil reserves for many years. It is still adding more reserve facilities.
Looking at US strategic reserve I do not know what you are referring to.
It has varied widely over the years and has nothing to do with global production.
https://www.eia.gov/todayinenergy/detail.php?id=24072#
Ok, I don’t remember writing anything about strategic reserves. There is no one source for world oil statistics. Energy News posts frequent updates on the places that keep some track of world commercial inventories, and there are occasional updates on floating inventory. Dennis posted a link above to IEA where you can find OECD inventories. China is a black hole for information. Are their inventories commercial or strategic??!
In future analysis, we need to take a look at Iran buildup of inventory. Is it floating or increasing their buildup of inventory.
I follow tankertrackers on twitter. At least one billion barrels in storage capacity they say. So a lot even if I have no idea if that includes strategic storage as well.
@TankerTrackers 4. sep. Milestone: Though not done, we have now passed the measuring and cataloging of a billion barrels of crude oil storage space in China. 2500 storage tanks so far. #OOTT
Well, at least one of the squirrels is storing up nuts for the winter. They are about equal to us, now. On the other hand, our Administration is delusional, and imagines us as oil independent, so they are selling reserves.
Guym
The China storage is in government strategic reserves. I consider all reserves to be very quickly accessible no matter who is storing it.
Current oil prices are too low.
The best selling vehicles are Jeep Wranglers, F series monster pickups, Dodge Ram etc.
https://www.autotrader.co.uk/cars/dodge/ram
Unless you are a rancher or lumberjack you don’t need monster vehicles like that to exist.
100 million vehicles are sold in a year.
If everyone bought cars like this.
https://www.carwow.co.uk/peugeot/208
https://www.carwow.co.uk/ford/fiesta
Oil prices could treble and you would be no worse off. Taking into account fuel and vehicle cost.
the UK uses 8 barrels per person, the US citizen uses 22 barrels per person.
The main reason is driving ridiculous trucks around. So anyone who says the global economy cannot cope with $150 oil should look at countries where we already pay $270 oil including tax.
That is why we drive small cars.
“Unless you are a rancher or lumberjack you don’t need monster vehicles like that to exist.”
The situation here in the US northeast is deplorable. Most males, particularly teenage boys, drive the most hideous, monstrous and loud pickups–to school, to the store, just to be assholes. They purposely alter their exhaust systems so that the noise is intolerable. We live close to a “rural” road which, now that oil is cheap again and the economy is “booming,” is a clusterfuck of noisy traffic. There’s a part of me that wishes peak oil to be swift and catastrophic to deal justice to these careless, narcissistic jerks.
I live on a small farm and need a truck to deliver boxes of apples to stores. I make do with a 2004 Ford Ranger–with an intact muffler.
Europeans would use even less oil if they could get their act together about freight. The average European (including the UK) uses only 18% as much fuel for personal transportation.
If Europe could standardize it’s freight trains, and tax commercial diesel properly, they could reduce fuel use much more.
Ron,
In a situation where oil consumption at $120/b is equal to maximum output and where even an increase in oil price to $150/b keeps consumption and production equal, then we would be at peak oil at a high oil price. Now it certainly is true that when oil output starts to decrease that oil prices would be likely to rise further, a glut would only be likely to arise if the high oil prices and lack of oil supply leads to an economic crisis and then we would see low oil prices once the lower economic activity reduces the demand for oil.
This seems a far more likely scenario for peak oil than a glut of oil and low oil prices, unless a severe economic crisis happens to occur at precisely the moment of peak oil output. I guess that’s possible, but seems a low probability event.
Peter, everybody thinks they know how Peak Oil is going to be. In your case associated to extra-high oil prices.
That ain’t so. The 2005 peak in conventional was reached with low prices, and with low prices we reached the 2015 plateau.
Peak Oil is the result of a series of circumstances that together will determine that future oil production will no longer beat depletion most of the time. The oil glut that you mention is one of those circumstances as it has led to a particularly low investment in future oil production for a few years.
Going forward future oil production will not be able to meet the requirement from a healthy growing economy, so the most likely outcome is that there won’t be a healthy growing economy. And that is regardless of oil prices, that respond to the ratio between oil production and oil demand. So it is futile to try to attach an oil price to Peak Oil.
Carlos
I think we are having a repeat of what happened between 1997 and 2007.
There was a glut of oil, leading to very low oil prices which in turn led to a dramatic cut in exploration spending. Then the global economy took off and there was insufficient oil. Prices went up to $140. The financial crash confused people who claimed peak oil for a second time, or third time.
After oil prices were over $100 for several years leading to large increases in exploration. This led to the crash in oil prices in 2015.
At the moment there is no sign of oil production leveling off nor consumption leveling of either.
Also conventional oil did not peak in 2005, it is 3 million barrels per day more than that now.
Peter,
Very different situation to 2002-2005, when the economy was going very strong due to the joining of China to the WTO, the expansion of credit, cheap oil, and several bubbles in different places. It continued going strong amid increasing oil prices until China’s summer Olympics when oil hit the roof and the whole thing became unsustainable.
But now the keeping of the world’s oil production rests in North America, and within North America in the US and Canada, and within the US in the Permian. We know Canada can continue increasing production, even if it is not the right stuff, but we already know from experience that the Permian will not grow for long.
We need ideal conditions in the rest of the world so production can recover in those places where production could increase or at least be maintained. Instead we have Venezuela imploding, Libya and Nigeria’s problems do not improve, and on top of that sanctions are imposed on Iran. To compound the problem the low level of investment since 2015 means a gap in new oil for a few years.
Unless there is something we can’t see, like shale in 2005, there is no way to fix this for several years. Which means we are in peak oil now. The economy needs to grow. It requires oil growth. And it isn’t going to get it.
I don’t know what is going to happen. Perhaps supply will not keep up to demand and prices will go too high. Or perhaps the economy will stop growing so demand doesn’t go above supply and oil prices never get too high. In both cases it means serious economic troubles, and pretty soon, a couple of years maybe three at most.
And serious economic troubles mean a decrease in oil production as has happened before. A few years down the road, when the economy recovers, depletion will have grown probably becoming larger than the increase in production can overcome. Peak Oil will be a thing in the past and nearly nobody noticed it when it happened. Then the mother of all crises will take place when the financial world awakes to the meaning of no growth.
Carlos Diaz,
Nobody knows what will happen. We do know that since the GFC the global economy has been growing and that it did so even when real oil prices (2017$) averaged $114/b from 2011-2014. An alternative scenario is that rising oil prices will allow increased output in Russia, the Persian Gulf, US, Canada, and Brazil over the next 5 years and that the higher oil prices will lead to further development of deep oil resources in the Gulf of Mexico, North Sea, and Africa and perhaps further development of oil resources in OPEC nations as well. As long as prices don’t rise too much too fast (maybe $5/b each year), the World economy may be able to adjust to higher oil prices (they would reach $120/b in 2027 in one possible scenario).
The higher oil prices will make EVs, plugin hybrids and hybrid vehicles more attractive, buses and trucks may also become EVs, more long haul shipping would move by rail which could be electrified due to higher oil costs. The transition to electric transport will create business opportunities which may create economic growth.
People may see the struggle to increase oil output and may realize that a peak in all fossil fuel output is not far in the future and businesses will see the opportunity to replace fossil fuel electric power with non fossil fuel alternatives creating further economic growth. Electric distribution companies may see the need for a modern HVDC transmission network to easily move variable output resources like wind and solar across nations and the investment needed for this endeavor will create further business opportunities and more economic growth. As this transition moves further and further along fewer and fewer fossil fuel resources will be needed and this helps the climate change problem.
Better tax policy to reduce the unequitable distribution of wealth may lead to higher incomes generally throughout the world with better education for women and equal rights for all people, under such a society total fertility ratios fall to 1.5 births per woman and global population peaks and then begins to decline reaching 2 billion by 2200 and continuing to fall until societies decide an optimal World population level is reached and larger family size (2.1 children per family ) 🙂
Note that it is pretty doubtful this scenario will play out, but something along these lines would be a target to aim for.
You are considering oil prices in isolation, and that is a mistake. As I explained the three most important factors for the economy are energy, labor, and finance, so you have to keep track of the three at the same time if you want to understand.
Oil is needed for every aspect of the economy, so economic expansion requires oil growth. During the period that you talk about China’s economy was expanding strongly due to very favorable conditions on the other two factors. It still possessed a sizeable pool of young people to transfer from the countryside to industrializing areas. And due to its starting very low level of debt, it was expanding its debt at an amazing speed. China’s growth was affecting positively many other places, and together they were bidding oil prices high. This had a very negative effect on economies that had an unfavorable demography and a high level of debt, and could not afford the high oil prices, triggering a debt crisis in those places.
Now conditions are very different. China’s pool of available young countryside laborers is greatly diminished. Since 2010 its working base is contracting. Due to the one-child policy the demographic effects are catching up. China’s population is ageing at the fastest speed in the world and its demography has turned into a negative factor that will grow with time. China’s level of debt has also caught up with the developed world. They built cities in the middle of nowhere that nobody occupied, so they have a lot of debt without return in bad investments.
Unless you have another China to rapidly develop in the world, the global economy will not sustain the oil prices it was able to sustain in the 2010-2014 period. The world is wrong about that. The global economy will now sink long before it reaches $115/barrel. The dangerous oil price level is obviously impossible to determine, but we will notice when we reach it.
Oil is only a few percent of the world economy, and most of it is completely wasted, adding no value. Doubling or tripling the price won’t do any harm. Some people might have to drive a Fiat Cinquecento to the beer store instead of a three ton pickup, but that is not The End Of Civilization As We Know It.
In addition, oil is about the most expensive energy source. It is insulated from the electricity market because transporting liquid fuel is so handy. But electrification of everything continues apace, and may soon envelope the transportation market.
That’s an incredibly silly argument. Are you the site joker?
Of all the energy used in the US in 2017, 29% was for transportation, and of that 89% was petroleum derivatives.
https://www.eia.gov/energyexplained/?page=us_energy_transportation
Oil is the blood of transportation, and transportation is the pulse of modern economy. You affect oil supply and the economy goes into arrhythmia.
Read and learn:
https://www.admiralmetals.com/admiral-metals/copper-oil-prices-a-look-at-the-correlation/
Oil and copper prices strongly correlate with a lot of other economic factors, including Chinese GDP, World trade, global industrial production, and EU GDP.
But we know that oil price is determined by the demand/supply ratio and the level of oil in storage.
http://1.bp.blogspot.com/-3CoyeFl5Dkc/VQ9AVfOHpOI/AAAAAAAAILs/YT5-e0tv-Bo/s1600/fig2.gif
That’s how important is oil price.
Carlos,
Transportation in America is a joke. Americans waste immense amounts of fuel driving around the “Great Triangle” connecting their suburban tract, their cubicle, and their favorite shopping mall.
Worse, they do it in ludicrously oversized vehicles. The amount of waste involved is titanic. The only people who really benefit are those selling oil.
Carlos,
The fact that both copper and oil are closely correlated with GDP should tell you something. Both copper and oil consumption are determined by GDP, not the other way around.
If oil prices rise slowly, the economy will handle it pretty well. If they rise quickly there will be a shock which would cause recession if we’re near the end of a business cycle, as we are now.
Carlos,
The oil price scenario I have in mind is below, real Brent oil price in 2017$ reaches $100/b (2017$) in 2024 and reaches $113/b in 2027 and then remains at that level.
China still has plenty of room to grow, as does India and many other nations. World real GDP growth has been 2.92% per year on average from 1975 to 2017, based on World bank GDP data in constant 2010US$ (market exchange rates rather than PPP).
Carlos
I think it is highly unlikely that the world goes from increasing production by 1.5 million barrels per day to decline, almost overnight.
Back in 1995 when almost every single oil producing country could increase production, the world could increase production by over 6 million barrels per day. coming from OPEC, UK, Norway, Nigeria etc, etc.
As one country after another peaked, the ability for the world to increase production diminished.
However it is not at zero yet, United States shale oil has 3/4 more years to run. Those who said how much US shale would increase have been proved correct.
OPEC has some more spare capacity, but is now at historical lows.
https://www.bloomberg.com/news/articles/2018-06-19/opec-s-plunging-spare-capacity-poised-to-boost-forward-oil-curve
I see global production increase being about the same in 2019 as in 2018.
2020 oil prices will rise as production cannot meet demand. Perhaps increasing by a million barrels per day.
2021 will see further price rises and production increasing by only 0.5-0.8 million barrels per day.
2022 prices of $120-$140 and demand curtailed to the small increase.
2023 peak oil.
But then a war somewhere or a global recession could disguise all that.
I guess I am not making myself understood. People have this curious idea that Peak Oil will take place when demand will not be satisfied because it will not be possible to increase oil production.
Peak Oil is economical not geological. Of course you are right and oil production can still be increased. For sure there is oil in ocean basins, and in the Arctic, and in shale plays elsewhere that can be exploited to produce more oil.
My point is that it won’t happen. Peak Oil is taking place because the economy, demography, and credit situation of the world have reached a state in which demand will not be sustained when the oil price reaches a critical level that is much lower than in 2011-2014. And the oil price will reach that level because the geology and lack of investment, coupled with political factors are making sure that supply growth cannot match demand growth at present.
When this plays out the economy will settle at a weaker level and the decline rate and depletion will make sure that oil production also settles at a lower level and increasing oil production will be so much harder that it won’t be possible to reach peak levels.
And this should take place faster than you estimate. By 2020 we should already be in economic woes with oil demand flat or in negative rate of change.
Carlos Diaz,
I do not think anybody can predict what will happen with the World economy, perhaps there will be a recession in the near term, but I am skeptical of those predictions. A gradual increase in oil prices ($5/b annual rate of increase in Brent oil price) is likely to handled by the World economy. The average rate of increase in World C+C output has been about 800 kb/d from 1982 to 2017 (using linear least squares trend on EIA data). The oil price will adjust in an attempt to continue this average rate of increase until geology reality intervenes so that higher oil prices simply ration the available oil supply to its most important uses as the peak is reached and we remain on an undulating plateau of output around 85 to 86 Mb/d (C+C only) from 2024 to 2028. Eventually there is likely to be a severe recession, my WAG is around 2030-2035 for the start date and it might last for 3 to 7 years.
The transition to other forms of energy to power transportation (whether it is natural gas, electricity, or improved efficiency or some combination of all of these) will no doubt be exceedingly difficult.
No, nobody can predict the future, my estimate is likely to be wrong. Stuff happens. Our country operates only by management by crisis. Planning is a completely foreign concept, and would be opposed by whichever party is not in power. I can imagine many future decisions, which could throw any estimate out the window. And future unknown foreign crisis will happen, including wars, civil disturbances, and economic crisis. Stuff happens. Five of the top 10 oil exporters do not have any stability, to speak of. Some, are actively fighting each other.
Carlos
Sorry but the term peak oil was defined by geologists and not economists.
https://en.wikipedia.org/wiki/Peak_oil
It is when an oil producing country reaches it’s maximum output and goes into decline no matter how much drilling is done to stop it.
You are talking about affordability which is something that many on Automatic earth discuss.
global oil consumption has gone up decade after decade and recessions have come and gone.
It will be peak oil that comes first and the recession that follows will be different due to the fact that oil production is on the decline.
We agree on that. We disagree on what is going to cause it.
That’s called observer bias. We wouldn’t be discussing this otherwise. It says nothing about next time the same way throwing a coin doesn’t say anything about next time result.
Exactly. Peak oil in 2015 and the recession will follow in 2019-2020. Then the next period oil production will not go above plateau levels.
Carlos,
Today the 12 month moving average of World C+C output is higher than in 2015, can you clarify how much oil output needs to rise before you are convinced that output has risen. Currently the trailing 12 month average C+C World output is 1 Mb/d higher than at any time in 2015 if we switch to centered 12 month average, it is about 700 kb/d higher than the highest 2015 centered 12 month average.
I define the peak as the highest 12 month average output of World C+C output, for the trailing total it is currently May 2018, next month it is likely to be higher. I would wait until we see at least 6 months of declining 12 month average output before calling a peak and even then I would be hesitant to call it until 12 month output had fallen 1 Mb/d below the peak and was showing no sign of recovery.
If 12 month output remains below 81.5 Mb/d for 6 more months, we are likely to see oil prices increase as inventory levels are likely to continue to fall.
Higher prices may slow the growth in consumption of oil, but it is also likely to increase oil company profits and investment in new wells and projects which in turn is likely to increase output.
Chart shows percent of World real GDP spent on oil using my medium oil price scenario and Medium oil shock model for 2018 to 2030.
Dennis, undulating plateaus undulate. From the top point in the 13-month averaged production data for 2015 to the top point since the increase is ~ 0.6%.
If it continues growing in 2019 and 2020 I will be wrong. As simple as that. But if it keeps being around 81 mbp/day it will be in a plateau, and there is a good chance I am right. But that means economic collapse, so I rather be wrong. I would prefer that we find a way of stopping burning oil derivatives that is not due to not getting what we need. But that is not what I see.
Carlos,
I use 12 month rather than 13 month averages, are you defining your “plateau” at 80.5 to 81.5 Mb/d, or perhaps 80 to 82 Mb/d? It is not all that clear.
Let’s say you are correct and output remains at a 12 month or 13 month level that is the same as now, wouldn’t you expect that oil inventories would decrease further and eventually cause oil prices to increase? Eventually the increased oil prices are likely to lead to higher oil output in my opinion, at least until 2021 and possibly until 2030 (though increases will become smaller and smaller as the peak is approached).
Time will tell.
Peter Wrote:
“When prices start hitting $150 and more, then we can start talking peak oil.”
Adjusting for inflation, $150/bbl is not sustainable. High Oil prices will trigger demand destruction. I would imagine Industries like commercial airtravel would collapse if Oil prices were high for a sustained prices.
“Suppose price is controlled by decree, as it would have to be if there was scarcity and food could not move to shelves.”
That never works, it just makes shortages worse. Nixon tried it during the Arab oil embargo. The best option is to let prices float so that people cut consumption & Energy companies have incentives to increase production. Venzuela is a prime example of price controls.
Peter Wrote:
“My guess is the oil industry will fail to meet demand in 2020 and peak in 2023-2024.”
Demand has exceeded supply for more than a decade already. Real Oil demand is likely in the neighbor of 140Mbpd. China, India, US, EU, etc could all use more Oil. I am sure ever consumer in the world wishes for $10/bbl.
Techguy
Practically nowhere can produce and deliver oil for $10 a barrel.
https://www.quora.com/What-is-the-break-even-for-top-oil-producers-by-country
Perhaps you want to differentiate between desire and need?
In the UK the most popular car is the Ford fiesta which has a 1.0 litre or 1.5 litre engine, followed by Ford Focus and Vauxhall Corsa. With similar engines and MPG.
This monster is the most popular vehicle in the United States.
http://carsalesbase.com/us-car-sales-data/ford/ford-f-series/
Even your equivalent of our small and mid sized cars have much bigger engines and consume far more petrol.
There is plenty of oil to meet need, never enough for mindless decisions.
Another way to frame this: oil consumed because the price is only $10/bbl is providing a very, very marginal value. There is a value to having fun driving a big vehicle (disregarding, of course, the cost to drivers around you of driving a heavier vehicle which poses more danger to them), but it’s a very marginal value. It’s far smaller than the value of getting to work.
Just applying efficiency to ICE’s will not cull demand since the number of vehicles on the road is steadily increasing, possibly doubling in the next 20 to 30 years. That along with increasing demand from other uses means that the only way out is to not use oil to fuel transport.
Global consumption of oil in 1950 was about 1/7 that of current consumption. US oil consumption since 1950 has tripled.
Global oil consumption has risen by a factor of seven.
The fact is that the ROW has been on a much faster track over the last 7 decades than the US as far as oil consumption. Similar problems with coal as exemplified by China and several other nations. Fact is US oil consumption has been running a “plateau” for the last two decades.
I do agree that efficiency should be improved in the US. However, if the ROW has already improved efficiency, the use of oil for transport will come to a grinding halt in the near future since there is little room for improvement and developing countries are going to double transport units.
The best solution is to eliminate oil as transport energy.
I couldn’t agree more.
The key is to reduce fuel consumption quickly, whether it’s through efficiency or electrification.
Actually, the fastest and most effective method may be carpooling and car sharing: the average light vehicle only carries 1.2 people in the US. Just double that number and you’ve cut oil consumption by 50% overnight.
Carpooling and car sharing used to be very difficult, but smart phones have revolutionized things.
Nick,
I agree, AVs and smartphone ridesharing might increase riders per car quite a bit. In addition EVs might catch on pretty quickly especially as larger automakers commit to EVs.
The Tesla Model 3 supposedly was the best selling sedan in the US in August, when the Model Y is eventually produced and ramped up, it may surpass the F150.
Carlos,
I do not believe an increase in price will always result in higher output, but higher profits are likely to lead to more investment and higher output ceteris paribus than would have occurred with lower oil prices and lower levels of investment.
A scenario I did last june for a “medium URR” World C+C scenario.
I am not convinced that more investment will significantly increase oil production. But since I personally don’t know what is left in the ground, I have to depend on what others claim is still available.
However, from a business perspective, I don’t see investment money necessarily going to support significant capex. Yes, there are still people throwing money at money-losing companies, but when the investors realize they won’t make any money doing this, they will stop.
I also think that just like corrupt politicians who try to get as much money out of their countries and into safer havens as they can, oil executives will quietly transfer their funds elsewhere.
The oil industry is on the decline. It’s not the future. Who wants to be in coal these days? I think the same will happen with oil.
While I expect oil prices to rise, I don’t see that it will be a favored industry to park money. And as mature fields decline, it will become more obvious that this won’t be an economic growth area.
Boomer
Who wants to be in coal?
https://asia.nikkei.com/Business/Markets/Commodities/Asia-coal-prices-soar-as-China-and-India-continue-dependence
It is now over $110.
The article says that both China and India are reducing domestic coal production: China because they don’t like coal, India because of their bad transportation infrastructure. It also says Indonesia is suppressing exports.
As a result, Australian exports are in greater demand, but…not necessarily that coal demand is up. Maybe it is, but you can’t tell from this article.
Boomer,
My claim is simply that scarce oil will lead to higher oil prices, the higher prices will tend to lead to higher (or less negative) profits and higher profits tends to lead to higher investment levels than a lower profit scenario.
Lets’s say investment is X and oil output is Y at time t1. At some later time t2 oil output would be lower at ZX, I am simply saying that oil output would be higher than Z due to higher investment, it may well be less than Y.
In other words output may go down, it will just decrease by a smaller amount at P2 than it will at P1. (P2>P1)
“My claim is simply that scarce oil will lead to higher oil prices, the higher prices will tend to lead to higher (or less negative) profits and higher profits tends to lead to higher investment levels than a lower profit scenario.”
Only if they believe the higher prices will be sustained for a considerable period & that spending CapEx will return big profits. If I was an Oil Exec for a Oil Major, I probably look to buy up smaller companies. I would wait for another recession and buy them up at a discount. Its far less risk then spending $100B in capEx to develop a field that has a long term payback and might not result in any profits. What’s left is Artic & deep water fields & lots of tiny pockets of oil that was bypassed when there were more profitable fields to tap.
Techguy,
Perhaps you are right, but as oil prices rise their will be competition for available prospects among the more profitable enterprises.
I addition there is always the risk that those who wait will have invested in resources that will eventually fall in price as EVs will eventually outcompete ICEV and oil will see a shrinking market of air transport, water transport, and farming as land transport switches to electric power (trains, light rail, overhead wire and battery).
I agree there might be some thresh hold price ($85/b in 2017$ perhaps) and we might need to see that price or higher for a year or so before a significant increase in investment occurs.
I doubt we will see falling oil prices due to substitution of electric transport for ICE until 2035 at the earliest (my WAG would be 2040).
I hear phrases like “investment money” or even “wall street throwing money” at E&P for fees. but who are these investors? where is the money coming from? until that question is answered in more detail it will be hard to tell when it will stop.
For example, if the money is coming from pension funds that are underfunded to begin with and might have trouble covering redemptions or even issuing bonds, then we will begin to see cracks.
many university, colleges and institutions have so much money they really don’t know what to do with it… and if the people making the deals are getting hefty fees to push the deal… and as long as interest payments can be made… and debt can be rolled… then it really never has to end. We are back to geological limits only… back to Dennis and 2023 – 2027
Dennis, I do not believe models of very complex phenomena can tell us anything we can trust about the future. You are just making an educated guess.
Political and economical conditions that are not included in your model can make a huge difference. It is my opinion that there is plenty of oil in the Earth’s crust, but Peak Oil will be determined mainly by economic factors with a great potential for political factors to bring it forward.
As your model does not include any of that, it can only be considered a best case scenario and then it becomes more probable that peak oil will take place earlier than you anticipate. The exact date for the peak has a lot of randomness into it, but 2015 will be the year when we entered the peak’s plateau and thus is the most appropriate date in my view for peak oil.
Carlos Diaz,
All forecasts are educated guesses.
The political and economic factors that might affect oil extraction can be included in the model by changing the rate of extraction. Political and/or economic crises are difficult to predict and are not easily modelled.
A variety of assumptions might be made about future extraction rates to give a range of possible scenarios. I do this all the time. Below I show the model with extraction rates, not that in 2030 in this model the extraction rate only increases to half the 1950-2017 maximum extraction rate (about 12% in 1973). Prior to 1950 (1871-1949) the minimum extraction rate was 8.7% in 1949.
Oil Shock model below assumes extraction rate remains at 2017 level through 2100. Other scenarios have assumed as oil becomes scarce and prices increase the extraction rate may increase to the levels attained in 1973 (note that US extraction rates are about 14%, so higher World extraction rates may be technically possible.)
XH=extra heavy oil, LTO=light tight oil, and C+C-XH-LTO =conventional C+C or World C+C minus extra heavy and tight oil
Also note that lower extraction rates result in lower annual decline rates, with the 2050 annual decline rate in World C+C only reaching 2%/year by 2050.
Dennis, I don’t believe that model for a second.
– So after four decades declining its rate of change, extraction rate increases faster from… now. Yeah, right.
– Annual decline rate shows a curious gap from 2009 to 2025. I guess it is too difficult to calculate an average 1970-2010 and apply it.
– You say price can’t be predicted but you could smooth the data to get a decadal rate of change and compare it to the extraction rate. On average price is going up over time, and extraction rate is increasing less and less.
Carlos Diaz,
The extraction rate is for C+C minus extra heavy oil minus tight oil and is defined as output divided by producing proved reserves.
The model uses a dispersive discovery model fit to discovery data provided by Jean Laherrere.
The following posts describe the model:
http://www.theoildrum.com/node/2712
http://www.theoildrum.com/pdf/theoildrum_4171.pdf
http://www.theoildrum.com/node/3287
http://www.theoildrum.com/node/2376
In many cases there are interesting ideas discussed in the comments so they are worth looking at.
If you want to minimize reading the last of these posts is the best summary, but keep in mind that one mistake made by Sam Foucher in this post is to confuse producing proved reserves with proved reserves. Extraction occurs from producing reserves.
For the lambda used in the Foucher post (April 5, 2007) My model uses lambda=13. The basis for that choice is that Laherrere estimated 2P reserves of about 800 Gb in 2010. Using US data for producing reserves and proved reserves and assuming 2P reserves are about 1.7 times proved reserves based on UK data (the only proved and 2P data publicly available) from 1980 to 2015. For the US in 2005 (before LTO ramped up), I make the conservative assumption that the 2P/1P reserve ratio is only 1.4, thus the ratio of producing reserves to 2P reserves was about 51% in the US in 2005. If we assume the world has a slightly lower producing reserve to 2P reserve ratio of 50%, then producing reserves in 2010 would be about 800*0.5=400 Gb. The shock model presented above has producing reserves estimated at 459 Gb in 2010 using lambda of 13 years for fallow, build, and maturation stages of the shock model.
The extraction rate falls because producing reserves increased from 1980 to 2018, see chart below.
On oil price and extraction rate there is very little correlation, there is a strong correlation between World real GDP and oil output, especially through 2000 or so, but extraction rate will be determined by output and producing reserves. Producing reserves are determined by discoveries and the rate that reserves are developed. Price may have some role in the rate that reserves are discovered and developed, but the relationship is not likely to be a simple linear function.
For individual enterprises and consumers, the oil price has an influence, but at the macroeconomic level the correlations are quite weak.
The “gap” you see in decline rate is that an annual increase in output of say 1% is the same as a -1% (negative) annual decline rate. I don’t show the rate of increase (negative values of decline) because it is if little interest. For a 1970 to 2010 average we have output increase from 45.9 Mb/d to 74.6 Mb/d, which would be an average rate of increase of roughly 1% per year or an average decline rate of negative 1% per year.
As to whether you believe a mathematical model or ad hoc explanations is clearly your choice.
Chart below shows US oil extraction rates from proved producing reserves from 1999 to 2016. Note extraction rate is annual output in year t divided by proved producing reserves in year t-1. In other words for 2016 the extraction rate would be annual C+C output in 2016 divided by proved producing reserves at the end of 2015.
I see you are recycling somebody’s model from 2007. Did it predict the same Peak Oil then? I guess the input data was different then, so all that talk about a mathematical model doesn’t hide that the result depends on the assumptions taken, as usual.
The extraction rate parameter then is meaningless as it depends on changes in reserves and they change all the time for different reasons and in some countries cannot be trusted.
Carlos Diaz,
That is the way science works, people build on the ideas of others.
The discovery data provided by Laherrere is based on proprietary data and is the best data I have access to. It is difficult to predict future discoveries and reserve growth.
Here are a few posts from 2012, these early models were different in that they did not break out extra heavy and LTO oil output into separate models as I do now.
http://oilpeakclimate.blogspot.com/2012/07/
Of course the model depends on the assumptions made, always true. Yes the reserve data is far from perfect. The reserves are based on the best discovery data I could find from Laherrere.
In my view, Paul Pukite’s Oil Shock Model with dispersive discovery is the best model I have seen.
In physics, the recycled old models are used and improved upon all the time.
https://www.zerohedge.com/news/2018-09-04/india-defies-trump-allows-state-refiners-import-iranian-oil
from end of last thread
Watcher –
Be interesting to see how this plays out, petro-dollars and all.
Before this I thought it was at least credible that tankers headed to Shanghai might be interdicted by the US Navy. But with them going to both countries it becomes less likely.
It is a sanction, not an embargo. The penalties are through the banking systems, we are not going to take their oil.
Big companies, like some in Europe and India use the US Banking system extensively, so they are not going to buy the oil. Smaller operations in Europe and India that do not deal extensively with the US banking system can bypass the sanctions. It is just most, not all. China’s big oil companies work with US financial systems, but they are able to bypass it with financial institutions which are primarily subsidiaries of the oil companies. The US would never be able to cut off all of Iran’s oil shipments, because we don’t have leverage, everywhere. Cutting off even some of Iran’s oil is a double edged sword. The nuclear expansion of Iran is a national security concern. Not having enough oil in the world is a national security concern. Is the sword going to cut the opponent, or the user of the sword?
“It is a sanction, not an embargo.”
Yeah, but does Donald Trump know the difference?
The anti Russia and anti Iran stuff extends back to Obama. I don’t think Trump particularly wants to have a hard line on this. There are forces inside the administration, or Washington as a whole, that have a different agenda and push this direction at him, with other voices shut off.
Not good.
DougL,
And what a difference it is: If my memory serves, an embargo is an act of war.
btw suppose methods to evade banking sanctions evolve
They have. You can run it through the Venezuelan kleptocurrency.
Iran is developing nuclear power for electricity generation, and it is under strict inspection controls. The Trump sanctions simply follow Israeli wishes. Israel of course wants Iran kneeling so it wont help shiites. It would rather encourage the growth of salafist sunni regimes which will become muslim terrorist sponsors. The aim of course is to turn Europe and US into raging Islamophobes. Its an interesting gambit by a rabidly right wing and nutty Israeli leadership.
And the Israeli government is financed by crazy right wing Americans like Sheldon Adelson, but also lots of nuts who pray that Iran will nuke Israel, so Jesus can come down on a mushroom cloud to carry them off to heaven.
So the dog is biting its own tail.
Cutting off funding for Palestinian refugees was a telling move by the Trump administration. It was pointless, spiteful and extremely petty. More importantly it was an admission they are clueless about foreign policy. If Netanyahu hadn’t told Trump to do it, Trump would have no ideas at all.
Nut&yahoo and Trump are just the results of late stage capitalism.
Maduro is an example of 21st century democratic socialism.
FL-You been hanging out with your little buddy CM too much.
No sir. My conspiracy theories are developed in my own think bunker, where i have access to all sorts of information, some of it from sources who were former employees of the GRU, CIA, and other spook services.
“my own think bunker,”
Ugly place. Not on my travel list.
The summer tourist crowd in this town is just about right. The beach is large enough to accommodate everybody, traffic gets heavy, and its hard to find parking, but they do bring in huge piles of cash. And now we get to enjoy life in bunkerland until June of next year.
Fernando,
Are you still in Alicante? It was a beautiful spot back in Dec, 1981 when I was last there, no doubt it is a bit more developed today. Nice beach.
Excellent beach. I can snorkel out about 200 meters and its mostly sand, with a few rock outcrops slanted at about 35 degrees sloping down to the north, and a steeply cut face facing Cabo Huertas. The geology shows at one time there was a line of hills or ridge to the South, which is now completely eroded except for the two hills near downtown. The ice age coastline was about 30 km offshore, and given the topography, a river must have run through the Albufera all the way to the ocean. This means that submarine archeologists should find ancient hunter gatherer settlements dated to say 15000-12000 years ago, under 110 to 130 meters of water.
It was hinted at in the post, but it is important to note that the decline in world oil (less US) is happening in a period of increasing prices.
Muppet,
The oil market is a World market so only World output (and World consumption) will affect the World market price of oil (usually Brent is considered the best measure of the World oil price at present).
Exactly, wouldn’t increasing oil prices over the past year encourage more countries and independents to increase their output to take advantage of higher prices? If they are unable to do so, it would seem this is telling.
Muppet,
Several countries such as Mexico, China, and the UK have slowed their decline. Some nations in crisis such as Venezuela and Libya have other problems that are causing decline. World output has indeed increased since 2017 even with OPEC and Russia cutting back. The cost of producing oil is different in different places so the oil price that will need to be reached to spur more investment in various nations will depend on the local cost to produce oil.
Even if Capex gets a big boost in 2019 and beyond because of higher oil prices is it even possible for discoveries of oil to even hit half of consumption in a given year? The last 4 years of oil discovery have been abysmal but how much of that was a drop in Capex. Would those years discoveries have been double had there been more money to explore? I guess there is always a chance of discovering an elephant field but I have to think these days a 1 billion barrel discovery could qualify as such.
AdamB,
There is a fair amount of proved undeveloped reserves, probable, and possible reserves along with some contingent resources which are as of yet undeveloped, those are the resources that I assume will be developed as oil prices rise and more capital is invested to drill wells and set up other infrastructure needed to extract the resource under a scenario where oil prices gradually rise from $75/b today to $113/b in 2027 (my medium scenario) or to $147/b in 2027 (my high oil price scenario).
It is also possible there may be some discovery of new oil fields and revised estimates of proved plus probable reserves n existing oil fields as technology improves and as oil prices increase.
We make make wags, but these are pretty wild. Well, what the heck, you don’t need a space cadet like me making wags, you need to have them come from the Galaxy Commander. OPEC is keeping up with the losses, and will venture into over supply next year. Ummm, yeah, whatever you say Commander. Now, what did I do with that aluminum foil cap I made to keep out the thought waves transmitted by the governments.
https://www.wsj.com/amp/articles/banks-stick-with-this-years-oil-price-forecast-but-lower-2019-projection-1536141600
Just wondering if anyone has noticed the change in rhetoric coming from KSA.
As quoted above:
“OPEC on Monday forecast lower demand for its crude next year as rivals pump more and said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production.
Contrast that with the Saudi position from 2014, when they had the Opec meeting and asked Russia and others what they were willing to do. Next step was maximum production, who cares about prices.
The Baker Hughes deal to redevelop three offshore fields had some interesting info.
https://oilprice.com/Latest-Energy-News/World-News/Saudi-Aramco-Signs-Deal-With-Baker-Hughes-To-Boost-Offshore-Oil-Production.html
“The Marjan oilfield is one of the major upstream developments this year that will contribute to the Kingdom’s oil production strengths, helping maintain capacity and meet domestic and global demand,” said Mohammed Y. Al Qahtani, senior vice president of Upstream at Saudi Aramco.
“helping maintain capacity and meet domestic and global demand”
Does that sound like the Saudi’s? Not long ago that would have been to obtain 2.5 million bpd spare capacity, or something of that nature. Now they are maintaining existing capacity.
Of course KSA will not be telling us their production stats. But as has been pointed out before, after creaming their fields with maximum reservoir contact horizontals for the last 15 years or so, whats left for an encore. The giants have been producing for 50 years or so, and whats left in them? Probably not as much as we have been led to believe.
Yes, I have been paying close attention to what Saudi officials have been saying lately. I will have a lot to say about that in my post on OPEC which will be posted next Wednesday, September 12, one week from today.
Saudi had a lot to say about decline rates back in 2006 but went silent until now. Now we are seeing them explaining their actions and investments. But more about that next week.
I look forward to your post Ron.
I always look forward to Ron’s posts.
I imagine I am not the only one.
They’ve been talking about maintaining rather than expanding capacity for at least two years now.
Ron, possible correction? Is the word manor under the US less Permian chart a mistyping of major? Space missing under California chart dayin. Just before your prediction is the word preverbal or proverbial?
Thanks Guym, I have made the corrections. It is obvious that I am not an English major.
I am the world’s worst, I can’t see my glaring errors.
I had to look up pigging, as I am pretty ignorant on most terminology. The most interesting is why they call it a pig. Widely used description is a pipeline intervention gadget, the other explanation is probably the true one, in that they used to send a leather plug through the pipe. As it passed locations it squealed like a pig. Now, I will never forget what pigging a pipeline is. Oily guys have a great sense of humor.
Oil-rich Southern Iraq is moving quickly into chaos.
Local observers speculate 4+ million b/d of oil might be likely in their way to be systemically end up into the Energy black market, as the Iraqi government increasingly diving into total paralysis and dis-functionality and armed militias gains the upper hand.
If/when that materialises, EIA’s coming reports must add a disclaimer that looted oil supplies, which end up into the Energy black market, are not possible to report on?
Since the Rockefellers, humanity never was able to understand the real size of crude oil reserves, worldwide.
Now, humanity also becomes unable to know the real gold-grade oil production’s daily rates.
Is this a sign on the potential of that all last producible crude oil supplies from the Middle East, Russia and others – must end up looted, smuggled and priceless?
https://www.youtube.com/watch?v=yUl7uVCTBgE
Not understanding that one. Link right?
https://oilprice.com/Geopolitics/Middle-East/Iraq-Is-Facing-A-Major-Internal-Crisis.amp.html
In the longrun, I expect Iran to be the victor from the instability caused by the Bush invasion of Iraq. The chances of Iran expanding their influence and control over much of Iraq is increasing as the USA backs out of the nuclear deal and re-exerts sanctions.
Iran will not just sit still and be complaint with Trumps pressure. Who would?
They will react by continuing their push into the Shiite Iraqi population centers and militias. Just last week they deployed medium range missiles in southern Iraq.
https://af.reuters.com/article/worldNews/idAFKCN1LG0W7
This is setting the stage for further instability in the oil producing region. Iran is hell-bent on making waves far beyond its borders, like some others including the USA. This could very well escalate the date/severity of peak oil, IMHO.
If anyone has interest in reading more on the geopolitical stance of Iran, here is a very good report , I believe. More than a soundbite, less than a book. https://fas.org/sgp/crs/mideast/R44017.pdf
In the Middle East, there is a wide belief the regime in Iran has been manufactured by the West, and kept in power by the West since 1979.
Choreographing for the severely-depleting Oil in the Middle East to end up looted and smuggled – is something we all unconsciously pray to god day and night to make it happen, or how for us to drive to work tomorrow?
It was no coincidence coal has peaked in Britain in 1913 and Iraq was invaded by the Royal army in 1914. Since then, Iraq and the region has hardly lived a peaceful year.
https://www.youtube.com/watch?v=HR53y35C4Qo
how for us to drive to work tomorrow?
Uhmmm…buy an electric?
If EVs prevent just one oil war, that would be a big accomplishment…
Oil is just one of many conflict substances. EV’s, and all the rest of the proposed free-green-clean infrastructure that will sustain humanity as usual, but without the carbon, comes manufactured from various conflict minerals. Resource determinism is nothing new. Swapping oil wars for cobalt wars is a very naive view of a better world. Rural DRC is easier to ignore though I suppose, as the First and Second Congo Wars have shown. Have you traveled much of the real world, like rural ‘3rd world’? A lotta folks out there, none of whom appear to be in the EV market anytime soon.
https://www.un.org/press/en/2001/sc7057.doc.htm
Oil is just one of many conflict substances.
Sure. But, it’s a big one. One thing at a time.
A lotta folks out there, none of whom appear to be in the EV market anytime soon.
No, maybe E-bikes are better for them.
Overall, I don’t get your point. It’s not a good idea to move to EVs? EV’s aren’t worth pursuing because they won’t solve all of the problems of the world, immediately and simultaneously, while also bringing the 2nd coming?
The difference between oil and cobalt is that nobody intends to fill their tank with cobalt every few days, so even if it runs out, it won’t matter. Existing electric cars will still run, there will be no panic or crisis, no repeat of the 1973 trauma that still seems to haunt so many posters in this forum.
Even in the long term there isn’t really a problem. Old batteries can be recycled to get back the cobalt, and nickel can replace it.
You are stuck in the fossil fuel mindset. Renewables don’t rely on constant refueling — they are more or less zero input once the initial investment is over. It’s an entirely different business model.
You need to think in terms of the circular economy. Traditionally, once a resource has been extracted and used, it is gone forever. In a circular economy, when a resource is extracted it is added to the pool of available resources, which can be used more or less forever, depending on the half life of the element in question.
Extracting compounds, like oil, and destroying them in a one-way process, will gradually disappear. This will massively reduce competition for resources.
Well said and an important point demonstrating how intrinsically different the new paradigms are from the old.
They are not just replacements, they put human civilization in a completely different place.
Looks like a significant reduction in cobalt usage is already in the cards.
http://www.benchmarkminerals.com/nickel-v-cobalt-the-secret-ev-battle-for-the-lithium-ion-battery/
Denmark recently switched from a net oil exporter to an importer, about seven years earlier than was expected even a few years ago; it also has a production profile that is closest to a symmetric logistic of almost any country or basin with more than two or three fields.
In recent years production has been declining steadily, but accelerated this year. The Danish Energy Agency 2018 report stated: ”For 2018 the DEA expects oil production to reach a total of 7.4 million m3, equal to about 128,000 barrels of oil per day … Compared to last year’s estimate for 2018, this constitutes a downward revision of 10 per cent, mainly attributable to lower production expected by the DEA from some of the larger oil fields. The revision of the forecast is driven by new production experience. For the period from 2018 to 2022 the production estimate has been revised downwards by an average of 14 per cent for the same reason as the estimate for 2018.”
https://ens.dk/en/our-responsibilities/oil-gas/resources-and-forecasts
Remaining reserves have also been dropping, slightly faster than accounted for by production alone (i.e. the estimated ultimate recovery has dropped slightly). DEA doesn’t use proven/probable/possible but have categories: 1) reserves are those developed and justified for development, 2) contingent reserves are a combination of those pending development, those not clarified and those not presently viable for development; and 3) technological and prospective resources which are potential future discoveries or growth (these too have also been reduced significantly recently). DEA include all the reserve and contingent categories (i.e. items 1 and 2) in future production estimates so those are equivalent to a 2P number.
There seems to be a bit of this happening now with mature, offshore basins or fields maybe not achieving quite as much production as expected or with slightly falling estimated ultimate recovery, e.g. UK, Angola, Mexico, some GoM fields. Those are all regimes with a reasonable to good level of data; it would be interesting to know if something similar was occurring in the black box countries.
Denmark is a pretty open and progressive society, well aware of climate change and with a large amount of renewable power, yet the government recently approved the highest cost project ever in the sector: the redevelopment of the Tyra gas hub, which has seen large subsidence as its reservoir has depressurized, in order to avoid stranding a large proportion of the remaining oil and gas reserves (now totaling less than 900 mmboe); plus their projected oil consumption is trending slightly up. I think that says quite a bit about the relative merits of oil and gas versus alternatives in the current economy given the sunk costs in existing infrastructure.
Related to that this is a view of why concentrating on EVs rather than renewables to replace existing fossil fuel power generation is a poor idea: THE MERITS OF RENEWABLES, THE FOLLY OF EV, https://surplusenergyeconomics.wordpress.com/2018/02/02/118-good-idea-bad-idea/ On the other hand that Jaduar E-type Zero EV is something else to look at.
DEA production and forecast.
>concentrating on EVs rather than renewables to replace existing fossil fuel power generation is a poor idea
This is a classic example of a false dilemma. EVs do nothing to inhibit renewables. On the contrary, they promote battery production, which sync well with renewables.
This kind of “gotcha” argument is almost always dishonest.
It’s not a false dilemma, the argument was that a switch to renewables and public transport is what is the optimum solution, not that it is either/or.
I thought that was an interesting article George, although the premise that the switch towards EV is a false hope was poorly supported I thought.
The energy cost per mile is with EV can be less than with ICE, substantially.
This doesn’t refute the other observations of the author.
The point that energy available per capita has peaked long ago is an important one.
ex- Using a vehicle and fuel comparison site from the Univ of Calif, you can determine that if you charge an EV at 20 cents/kwh, the equivalent gasoline price to achieve the same cost/mile is right at about $2/gallon for a 4 door sedan. Most of the world is paying far more than 2$/gallon for gas, and many places have electrical costs well below this, tilting the equation strongly in favor of EV’s. https://gis.its.ucdavis.edu/evexplorer/#!/locations/start
That is comparing EVs to ICEs, not EVs to public transport and renewables, and the article wasn’t about the world rather than just USA (I think), and more about the fastest way to reduce C02 – i.e. replace coal with renewables, not oil.
The lack of public transportation in America is primarily a land use problem, as illustrated here:
https://usa.streetsblog.org/2017/09/15/as-transit-expands-in-los-angeles-will-walkability-follow/
George,
If you look closely at the argument against EVs, you’ll find that it’s entirely speculative: the author guesses that wind and solar can’t grow quickly enough to power EVs, but…doesn’t provide any evidence for that guess. He also argues that it would require too much FF to build them, which isn’t realistic in light of their very high E-ROI.
I’ve been looking at the latest Jean Laherrere AspoFrance paper: https://aspofrance.files.wordpress.com/2018/08/35cooilforecast.pdf
He uses two different ways to get to ultimate reserves estimates – H/L and oil decline rates (actually three because sometimes he appears to just have an educated guess based on the most recent data (which is sparse and might be several years out of date – but if anyone can get close on limited data it’s probably him). Averaging the results it looks like there are about 900 Gb remaining in the countries he looked at. That doesn’t include Canadian XH, but may include some Venezuelan (I got a bit lost there). He doesn’t include countries that have low to no production, notably Guyana and some East African producers. He also has world charts showing EUR of 2200 to 3000, so the individual country estimates support those, maybe slightly on the lower side (I got a bit lost with his descriptions here: he presents some charts and then – I think – gives reasons why the higher assumed EURs don’t agree with current observations).
The 900 Gb includes developed, undeveloped and undiscovered crude and condensate as a 2P (most likely) estimate. He has some discussion about how condensate is measured and different energy content of crude but within the error bars on the overall figure I don’t think those make much difference. I think it includes US LTO, but maybe not that elsewhere.
He had a discussion 2P versus 1P and the importance of backdating discoveries that is certainly supported by (much more limited) experience, but he also says that UK is the only place to issue 2P numbers. I think that is wrong, Mexico and BOEM definitely use 2P estimates, Brazil has 1P and 3P so a decent guess at 2P can be made, Norway and Denmark don’t use proven etc. but have similar categories, a subset of which is used to give forward production profiles (therefore equivalent to 2P).
He has 5% average decline rates for countries in decline, that would include on-line production and new production (brownfield or greenfield). The figure agrees with others: I think Wood Mac use 4.5% and Rystad something similar, ExxonMobil had 6.9% but only for developed production so reduction to 5% with the additional Laherrere reserves would be reasonable, Rystad has 6 to 8% decline on mature fields, so all in a similar ballpark. However 900 Gb from current production at (say) 30 Gb would only give 3.3% average exponential decline which doesn’t quite add up – but the big difference I think comes from Saudi (and maybe the other 4 big OPEC producers) where production is held on a plateau well below a natural Hubbert peak.
The numbers also agree (or at least don’t disagree) with the recent discovery rates and continued tailing off of large project approvals despite lower project costs and recent cheerleading from the industry saying the contrary (i.e. a large proportion of that 900 is already producing or in development – 5% decline on 30 Gb per year gives 600 Gb, and I’d estimate, v. roughly, 150 Gb currently under development, including US LTO and brownfield, plus maybe another 50 to 100 under appraisal – mostly unattractive prospects that weren’t developed even in the high price years).
Hi George,
On Laherrere’s World estimates he seems to review earlier estimates from 2008, 2016 and then gives his most up to date forecast from 2018. For C+C minus extra heavy (XH) oil he has two estimates, 2600 Gb and 3000 Gb, the average of these two estimates is about 2800 Gb, this is a little lower than my C+C minus XH estimate of 2900 Gb for my medium scenario. Or that is my interpretation of pages 15-16 of the paper.
On the chart of technical reserves on page 7 it looks like his estimate of remaining technical reserves is 800 Gb, this estimate excludes XH oil, but includes tight oil reserves. For the table at the end of the book Laherrere’s estimate for remaining reserves at the end of 2017 (RR2017) for the 35 nations he evaluated is 935 Gb (page 115 of the paper), if we exclude XH oil from Canada and Venezuela. His estimate for World C+C less XH remaining reserves is 1151 Gb, with an assumed C+C-XH URR of 2600 Gb for the World.
There is a tendency for Laherrere to choose the lower estimate if he gets two different results from his various methods for determining URR, if we take the average of his two estimates for C+C-XH URR from bottom right chart on page 15 (Graph June 2018) the URR would be 2800 Gb rather than 2600 Gb and remaining reserves excluding XH oil would be 1351 Gb.
Also Laherrere assumes the peak will be 2018, this seems an unjustified assumption.
No – I think I’ll go with what I said in the first place, he doesn’t assume there’s a peak in 2018 and then go from there, that is what his observations and experience lead him to conclude, i.e. educated guesses.
George Kaplan,
Here is a quote from page 16:
Graph 2018 production forecast for U = 2600 (creaming curve) & 3000 Gb (HL) CP5% is far too low, because the peak is now and the 5% decline is taken now, too soon, it will come later
He never justifies why he believes the peak is now. In any case, we will soon know if the peak is 2018, an oil shock model with C+C-XH=2600 (including a separate model of World tight oil output with 100 Gb URR, 50 Gb US and 50 Gb rest of World). Peak is 2022 at 81.9 Mb/d, 500 Gb of extra heavy oil resources is assumed with only 140 Gb XH oil extracted by 2070, peak XH output is 8.97 Mb/d in 2083.
Yes I’ve seen that over and over again, it is not the only view of the world and new information comes in all the time, and not stating how a conclusion is arrived at is not the same as just making an assumption and seeing where it leads.
George,
I agree, my point is simply that it is not clear how Jean Laherrere arrives at his conclusion, a model with similar URR (2600 Gb of C+C less extra heavy oil as shown above) with reasonable extraction rates from C+C minus XH and LTO producing reserves, suggests a “peak now” estimate may not be correct. In addition, his other C+C less XH estimate of 3000 Gb is a bit more than my 2900 Gb C+C less extra heavy estimate for my “medium scenario”.
In the “low resource” scenario presented above (3100 Gb URR including 500 Gb XH oil), the extraction rate in 2023 (roughly the peak) is about 8%. The US extraction rate from all C+C producing reserves was about 16% in 2015 and 2016, up from about 11% from 2000 to 2008. The peak World extraction rate for the low resource scenario was over 14% in 1979.
In general, I think Laherrere’s analysis is excellent, and I may have misinterpreted his “peak now” statement. He may have simply meant that 5 % decline might not start immediately, but that there would be a gradual increase in decline rate from the peak where the decline rate is roughly zero to 5% decline a few years in the future.
Also when considering C+C-XH-LTO, the peak for my model is 2018 when LTO and XH oil are excluded. Part of the difference between the estimates is I expect LTO output will increase until 2030 (as I expect there might be some development of shale resources in nations besides the US by 2023), my model is likely to be too optimistic for LTO, as there is little to substantiate such an assumption at present.
A more realistic assumption is to assume no significant LTO output outside the US. A future modification I could make.
Ok but why are you choosing 2600, or any other number? I think previously you had chosen these because they were numbers Laherrere had used, but he now seems to be dismissing these, so it is not valid to quote him as a authority for them. I could be wrong but either way what is your basis? I don’t think you have anything like Laherrere’s experience in the oil business so I don’t think “general expertise and experience” is applicable, and therefore the numbers for you become closer to assumptions.
George,
The basis for my guesses was Hubbert Linearization for World C+C minus extra heavy minus tight oil which gives 2400 Gb, combined with USGS estimate of 3000 Gb for “conventional” (not continuous) oil, the average is 2700 Gb. The 2800 Gb estimate is based on the expectation that there might be more discovery or reserve growth and that typically the HL method seems to underestimate oil resources.
Have you noticed that Laherrere’s estimates have tended to increase over time (2200, 2400, 2600 Gb) from 2008 to 2018?
It is correct that much of what I know I have learned from reading Laherrere and it is without question that he knows far more than me about the oil industry.
I combine what I learn from Laherrere, Steve Mohr, Paul Pukite, Rune Likvern, the USGS, and many others to arrive at my estimates and/or scenarios.
I did a quick adjustment to my 2600 Gb C+C-XH model, reducing LTO to US only which reduces C+C-XH URR to 2560 Gb, peak is 84 Mb/d in 2021.
The 2600 estimate was based on a scenario I had done earlier with 2500 Gb of conventional based on HL, plus 100 Gb of LTO based on USGS and EIA estimates and production data to date from Enno Peters. The tight oil estimate for the US has been reduced to 60 Gb and I assume no output of tight oil from other nations as a revised estimate. My extra heavy oil estimate is consistent with Laherrere’s estimate through 2045 and after that is somewhat higher due to a higher XH oil estimate based on Laherrere’s earlier analyses, this also needs to be revised.
Interesting, I think his table at the end of his recent paper has 2600 Gb for his C+C less XH estimate and in the 2018 charts for C+C-XH he gives two estimates, 2600 Gb and 3000 Gb, the model I typically present as the medium scenario has C+C-XH as 2900 Gb and the low resource scenario has 2600 Gb for C+C less XH (now revised to 2560 Gb).
Essentially the URR cannot be estimated very accurately so 2560 Gb should be rounded to 2600 Gb in any case, so the URR is consistent with Laherrere’s lower estimate, with the medium scenario having a similar URR to his higher estimate (3000 Gb).
Thanks, for some reason I thought you used a bottom up approach and had a probability basis (but always wondered why there were never P10/50/90 numbers, which would be really interesting to see).
George,
No for the World a bottom up estimate would not be possible because not enough individual nations (including the US) have good access to discovery data. The World model starts with World discovery data, then guesses at a fallow, build, and maturation period with a maximum entropy probability distribution (following E.T Jaynes), the discovery data is convolved with the max ent distribution for the fallow period to get reserves in fallow state, these are convolved with a max ent build distribution to get reserves in the build state, the build reserves are convolved with a max ent maturation distribution for time spent between build and maturation to get producing reserves added each year. The producing reserves are than extracted at the extraction rate to give annual output.
In short, the model is top down, not bottom up. However the URR estimate is based on the bottom up analyses of others such as Laherrere, Mohr, and USGS. The dispersive discovery model (also top down) is fit to existing discovery data, but assumes a combination of discovery and reserve growth fills in the tail of the discovery curve to reach 2500 or 2800 Gb of C+C-XH-LTO URR.
Clearly there are many assumptions built into this model which could (are likely to) prove incorrect. A major issue is that we do not know what future extraction rates will be, we also do not know if there will be any future reserve growth or discovery.
Isn’t Laherrere’s method pretty simple to do? I don’t see how estimates based on H/L, and therefore an assumed logistic, make much sense in any other sort of curve (but that looks like what you produce so maybe it works out), and I don’t see what using a probability distribution gets you if it is then used deterministically.
Do you add slices for each year? If so you might just have rediscovered the Verhulst equation. In the limit of adding smaller, similarly shaped slices for smaller time periods there’d be an analogue function with an equation that might be worked out (not by me though) and your life cycle sounds a lot like the growth and crowding parts of a verhulst function.
How is fallow state defined and how much does it represent. In the 2010-2015 boom almost every half way good discovery, even back to the 1970s, was approved for development. There are some big older gas discoveries for LNG projects that might produce condensate but any decent new discovery is being immediately fast tracked and the other stuff left is the dregs (e.g. small stranded gas, offshore heavy oil requiring EOR, small stranded oil fields with no available hub etc.)
I’d agree H/L probably underestimates final recovery. Early on it’s no good and later mostly it misses fat tails, which I think are often caused by surface facility limitations that are not worth overcoming to accelerate any of the low run out production. But it was used partly because its easy to calculate by hand. In these computerised days generalised Verhulst equations (that can match fat tails) or field/basin bottom up methods aren’t that difficult.
Hi George,
The oil shock model uses expert estimates of URR and data for backdated oil discovery as a starting point. So “bottom up” estimates like that of Laherrere or the USGS that estimate World URR are used as a starting point. In addition the only place I have access to producing reserve data is the US and producing reserves are about 50% of 2P reserves (based on an assumed 2P/1P reserve ratio of 1.4). Laherrere estimated 2010 2P World reserves at about 800 Gb so if the World was similar to the US producing reserves would be 400 Gb in 2010, I expect at the World level this would be lower than the US 50% level, so probably 300 to 400 Gb would be the World producing reserve level in 2010.
I don’t understand what that had to do with my questions, is it to do with defining fallow state (I’ve only come across that term as applied to exploration leases that have no activity). The US is mostly LTO and gas condensate – fairly new reserve additions with poorly understood recoveries, it is unique so I doubt it’s much good as an analogue for the rest of te world
Maybe a simpler question – in 2018 how much, in Gbs and if applicable potential bpd, has the model got as fallow state for the world? And if possible how is that made up (e.g undiscovered, undeveloped, greenfield/brownfield etc. or maybe something else entirely as I don’t know what it means)
George,
Fallow resources (contingent resources and possible reserves) at the end of 2017 are 179 Gb (all discoveries through 2017), build stage resources (2P non-producing reserves) are 224 Gb, and mature stage resources (proved producing reserves) are 415 Gb for the model.
These resources exclude extra heavy and tight oil resources.
See http://www.theoildrum.com/node/2376
Note however that the author of this piece mistakenly assumes the extraction rate is from 2P reserves, the extraction rate is from proved producing reserves which in the US at least are about half the level of 2P reserves, for the World we can only guess. If we use Laherrere’s figure for 2P C+C less extra heavy reserves in 2010 of 800 Gb and assume half of the 2P reserves are proved producing reserves, then we would have 400 Gb. and using 400 for year end 2010, the extraction rate in 2011 would be 6.5% (26/400).
George,
A maximum entropy probability distribution is simply a way to make an educated guess.
Oil gets discovered, then goes through three stages fallow, build, and maturation before extraction occurs. For each field discovered the length of time the discovery remains at each stage will be different and be between 0 and 158 years (at least through 2018). By using a negative exponential probability distribution we make the simplest assumption that there will be some mean time period with the standard deviation equal to the mean.
Based on looking at cumulative discovery and cumulative production of oil, there is about a 40 to 50 year lag between cumulative discovery and cumulative production, the time between discovery and the start of production of a field or well will be somewhat less, maybe about 10 years for many wells for most of the cumulative output to be produced.
Without explicit knowledge of the development cycle for the hundreds of thousands of oil wells ever drilled, we simply assume for any 100 Mb discovered that the development times for the fallow build and maturation stages will follow a negative exponential probability density function with beta equal to 13 for a URR of 2800 Gb for C+C-XH-LTO and beta equal to 10 for 2500 Gb scenario, it is simply how we model producing reserves for a given discovery model (fit to discovery data shared by Jean Laherrere.)
As far as using a logistic to estimate URR, the logistic never fits production exactly and is not likely to fit future production either, its simply a convenient function used to estimate production profiles, there are many possible functions that might be used.
Another interesting change is Laherrere has reduced his extra heavy oil estimate to 215 Gb (100 Gb Venezuela and 115 Gb Canada) from earlier estimates of 500 Gb XH for Canada and Venezuela combined.
This seems a reasonable estimate despite supposed proved XH reserves of 395 Gb (215 in Venezuela and 170 Gb in Canada.)
Does anyone here agree with his conclusion on page 118, that only 6 countries have not reached peak yet? Brazil, Canada oilsands, Kazakhstan, Iraq, UAE, and Venezuela Orinoco? Is that a correct assumption? Thanks.
I would have to say that is pretty close.
Some frontier countries opening up – Guyana probably the biggest, but Falklands, East Africa (Uganda for oil and condensate from Mozambique etc.), maybe some new West Africa like Senegal. Remains to be seen how big each will be.
S&P Global Platts OPEC production survey for August
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/090618-opec-crude-oil-production-rises-to-3289-mil-bd-in-aug-as-cuts-unwind-platts-survey
Just the numbers: https://pbs.twimg.com/media/DmZ2FjwWwAARLmy.jpg
2018-09-06 (SPGlobalPlatts) Total estimated export volumes on Aframaxes, Suezmaxes and VLCCs from Iranian ports fell 17% to 1.92 million b/d in August from 2.32 million b/d in July, according to cFlow data (tanker tracking).
Table: https://pbs.twimg.com/media/DmZLoZPXsAAF1VE.jpg
Quite a few events have taken place in the Middle East and for some reason only got their metaphorical 15 minutes of fame.
1) Qatar vs KSA/UAE and the fracturing of Arab states supporting different factions in Libya. Now off the radar screen.
2) The pulling of the Saudi Aramco IPO. Avalanche of speculation why, ranging from fear of NYC lawsuits to the old King wanting to rein in his heir. No official word.
3) Kurds in Mosul selling oil outside of any agreement with Baghdad. Nothing new, other than Turkish rage.
4) Egypt’s big gas field find.
5) Israel’s big gas field find.
6) Yemen oil production.
7) Egypt’s post 2004 oil production uptick.
Not in the Middle East but close and affecting OPEC: There were a couple of reports recently that the opposition groups in Libya were forming a closer alliance, led by some old Gaddafi supporters, and that they would be targeting the oil crescent (that might mean less efforts to avoid damaging the infrastructure meaning any outages would be longer term). In Nigeria the demonstrations against ExxonMobil redundancies for some security guards is threatening to make EM shut some offices with maybe knock on to production outages.
If you want oil prices high, and you think news of supply disruption will do that for you, funding whatever Libyan faction is out of power would probably be an effective investment, and there almost certainly would be some peripheral noble rationale an oil major could embrace to camouflage intent.
But probably a meeting you would want to be sure is not documented.
From EIA data the charts below show monthly changes for C&C for the world and the world less North America. The world growth trend looks like an almost constant amount (or a bit declining); the boom years in 2014 and 2015 stand out and the recent numbers have been noticeably lower. The world less NA trend shows both the long-term linear trend and the annual average dropping below zero just about now, suggesting a peak might have been passed (which may or may not prove to be significant).
.
Attached is a comparison of the EIA’s monthly and weekly C+C production estimates. Using the June mid-month weekly average of 10,900 kb/d, the weekly production estimate is 226 kb/d higher than the monthly 10,674 kb/d June estimate. The weekly production estimates have been bouncing between 10,800 kb/d and 11,000 since June 1. Is this an early sign of a slowing monthly production rate?
Yes, it slowing. Weekly is pure speculation. Monthly is what I go by. Maybe another 100k from the Permian, and another 200k when I pipeline expansion is due to come on sometime late this year. Then don’t expect more from the Permian until the fourth quarter of 2019. Because prices are not increasing, there won’t be much, if any, from the other shales either. If prices increase, there will probably be a six month delay before they stick their noses out any further.
See oil head to $150 by November, 2018
The impossible near term rise of the Permian will still be touted by EIA, IEA, and OPEC as the panacea until next year, when it will become apparent by even the most seriously challenged that it is malarkey. Until that happens, oil price will not rise substantially.
The Permian did make a good first half of the year run at it, but when all is said and done, US will average 10.6 million barrels a day in 2018 vs 10.8, and probably 11.1 million in 2019 vs 11.7.
Traders are factoring in losses from Iran, Venezuela, and possible outages, but they are adding in 2 million in imaginary gains from North America, plus gains from the rest of OPEC, which are nebulous, at best. The result is sour is increasing, the lighter oil is still cheap.
https://oilprice.com/Energy/Energy-General/Asia-Braces-For-Much-Tighter-Oil-Markets.html
It won’t make a difference how much demand is affected from any oil price increase, we will still be seriously short in 2019, with current conditions. Worse, it will no longer be a short term problem, under current conditions. Going forward, the combination of demand increase plus non-OPEC declines will far exceed any increases that may come out of North America. And increases 5 years from now, will be overwhelmed by prior shortages. That demand will decrease due to a much more than probable economic decline, population will still increase, and there will still be demand, even if consumption has to decrease. The “third world countries” will have a difficult time switching to EVs short term. Whether Peak Oil is 2018, 2019, or 2025, doesn’t mean shit to a tree, now.
North America will be one of the last in line for economic collapse, probably. With light oil, gasoline will probably still be abundant for awhile. You may have to dump that Cummins diesel, or put off that airline ticket for awhile, but the economy will be affected, but not incapacitated. But, we are far from energy independent.
That will only happen if Iran blocks the strait of Hormuz. Which is extremely unlikely.
EIA Weekly U.S. Ending Stocks to Friday 31st August
Crude oil down -4.3 million barrels
Oil products up +4.9
Overall total, up +0.6
Natural Gas: Propane & NGPLs up +3.3
https://pbs.twimg.com/media/Dmd7hNLX4AAn7NC.jpg
A weekly measure of inventories
https://pbs.twimg.com/media/Dmd8CNwXcAAdG8r.jpg
Just the products: https://pbs.twimg.com/media/Dmd8PizXcAAYqwe.jpg
Peak oil is not a problem it is over consumption that is causing all the destruction.
http://www.eniscuola.net/en/mediateca/main-oil-consuming-countries-ranking-by-per-capita-consumption-2016/
https://www.usnews.com/news/best-states/michigan/articles/2018-01-03/top-selling-vehicles-in-the-us-in-2017
In Britain we pay the equivalent $270 per barrel for diesel and petrol, but even with these prices people still drive far bigger and more powerful cars then they need.
If the people in the United States used as much oil PER CAPITA, as those in Europe, Europe is bigger in area, has similar GDP. Then the US would be using 9 million barrels of oil per day.
If Americans valued oil as a truly precious asset and over the decades used it with care and foresight oil consumption could be as low as 5 million barrels per day.
When consumption is driven by greed this is what happens.
http://www.thefiscaltimes.com/2016/02/12/US-Obesity-Rate-Hit-Record-High-2015
Greed and waste go hand in hand
https://www.usda.gov/oce/foodwaste/faqs.htm
If we had our population in a space as small as GB, then our consumption would be much less. Space between locations is a bigger driver of consumption than greed. But I guess Great Britain does not have any greed? The essence of greed starts with your better than everyone else. My goodness! Why not bang on your Aussie brothers, they travel much further between locations per capita than the US? Plus, we don’t eat the damn oil, that would be gluttony, not greed.
Guym
I compared the United States consumption with EUROPE!!!!
Europe is just as big.
I think it is pathetic that someone can be concerned about peak oil yet get uppity when someone highlights the gross wastefulness of driving massive vehicles to buy the shopping which is what 90% of Americans do.
For your information the average commute in the states and Europe is very similar. So don’t give me that we have a big country rubbish.
Anyway peak oil will deal with wastefulness, it will be a hard lesson for many.
What?
You need a F350 to get the Doritos and beer at the 711.
Faux News will continue on, so better get back —-
Depends on how much beer they drink. Some may need an F350.
I think it is pathetic that someone can be concerned about peak oil yet get uppity when someone highlights the gross wastefulness of driving massive vehicles to buy the shopping which is what 90% of Americans do.
Nah, no worries! People buy mostly online at Amazon and it’s delivered direct to their doors. Shopping malls and big box stores are already going out of business. I’m pretty sure it won’t be long before those deliveries will all be by electric drones. There won’t be much need to drive at all anymore. The Pizza and beer are already on their way!
https://www.youtube.com/watch?v=JoP1lvgGLys
Domino’s First Company To Deliver Pizza By Drone | CNBC
Neat. Payload starts to approximate weight of transport. In trains the payload is several times heavier than the railcar.
https://en.wikipedia.org/wiki/Payload_fraction
Interesting that the payload fraction of a 747 is 50%.
Your understanding is lacking. My state is 5 times larger than your nation.
Yes, we are being greedy by exporting the oil we can not use right away for money. An individual hording something is greed. It is not greed for the country to limit exports to ensure future use is available. But, I guess the UK wouldn’t have much knowledge of exporting oil that could be used later for money now (smile). I have yet to have a successful argument with a bigot, regardless of their object of bigotry, so this is my last comment.
GuyM
America has the greatest Obesity epidemic in the world.
https://dictionary.cambridge.org/dictionary/english/greed
It has 4% of the world’s population yet consumes a fifth of the worlds oil.
Greed is about wanting more and more.
Bigger and bigger trucks to carry fatter and fatter people
Not sustainable.
I have you on ignore. So far, you have contributed to useless arguments, but it has had no value to oil information.
Guym,
I think Peter is right that a lot of oil is wasted in the US, you are correct that the population density of Europe is much higher than the US at 143 people per square mile compared to 92 people per square mile in the US. Keep in mind that most of the population in the US lives in relatively high population density metro areas, so there may not be a lot of difference between the US and Europe as far as distance travelled by vehicle.
The higher taxes on fuel in Europe probably are a part of the difference, prices for gasoline (petrol in Europe) are about double the price in the US.
If petrol prices were $6/gallon in the US we would drive smaller cars, if Federal fuel taxes were raised to $3/gallon, and Federal income taxes for the middle class were reduced by an amount equal to increase in fuel taxes paid by the average consumer then we would reduce fuel use with little net increase in tax burden, eventually we might reach European levels of efficiency.
I have no problem with what you said, but inferring that the US has nothing but fat greedy pigs pisses me off, big time. As it would most people in the US. Screw him.
But for comparative figures, most of Europe has the same problem.
https://www.washingtonpost.com/news/wonk/wp/2015/04/22/youll-never-guess-the-worlds-fattest-country-and-no-its-not-the-u-s/?utm_term=.a92ddd2e397a
I hear you Guym.
Maybe there should a separate blog reserved for derogatory comments about countries that people don’t live in.
I wouldn’t spend a minute there, but
I can think of a few people who would spend a lot of time there.
UK obesity rate increases leads the way in Europe
https://www.independent.co.uk/news/health/uk-obesity-rate-rising-overweight-worst-country-western-europe-world-us-ranking-oecd-research-a8049451.html
Obesity is a health issue and using at as a perjorative term is insensitive, as I’m sure most reasonable people already know.
Whilst I do abhor wastefulness and greed, I don’t feel it is fair to associate those characteristics in a society with the members of it who are obese, and then insult them over it.
Guym
Peak oil will have a devastating effect on the world.
Pointing out how one country uses 22 barrels of oil per person when other similar countries use 9 barrels per person is an entirely valid point.
If the United States used 9 million barrels of oil per day, peak oil would be 15 years away a least.
If the United States taxes petrol as we do in Europe, it would not have needed to import any oil from the Middle East saving a devastating war which killed 600,000 people. It would never have needed to entagle itself in Middle East foreign affairs stationing troupes where they were not wanted. it would not have had to prop up the evil Saudi government.
but you just carry on driving you 5 litre Ford F350 etc.
Hope you think it’s worth it.
Peter, your thinking is small, along with your bigotry. But, it’s a free country, so you can continue blaming everyone in the US for your problems. You can do so, courtesy of the Constitution, and the computer and internet, which was mostly designed in the country you hate most.
Your inference was plain by anyone reading your comments. We are just a country getting fatter, and driving bigger more consumption trucks. Fatter people driving fatter trucks. I drive a Nissan Versa, and admit I am probably 10 lbs overweight, but I am 70, now, and not as active as before. I’m not part of your problem, or any problem that concerns Peak oil, because I have no power to change anything. But, I don’t think your comments were actually meant for me, they were meant for the people in the US. All of the people. That’s bigotry.
Guym
What problems of mine did I blame on the States?
And don’t falsely accuse me of using words such as pigs you nasty little liar.
Because Europe uses less oil, then the US, we can import more stuff from China, and we make them richer, so they can buy 20 million cars per year.
Also if the US would use 10 mb/d instead of 20, then rest of the world would use this extra oil.
Peter,
Can you connect the dots for us? How does obesity correlate with the size of the vehicle one drives?
I agree the US uses too much oil and it would be better if we had higher fuel taxes, in fact many would agree with that assessment.
Obesity discussions are not really appropriate in the Petroleum Thread, but feel free to talk about it on the open thread if you think it significant.
Of very little relevance here. Keep on topic.
In my experience fat people hate small cars.
The other connection between being overweight and driving an oversized vehicle is thoughtless overconsumption.
Survivalist
How dare you say that you bigoted, nasty bigot, with horns on. ha ha.
I quite agree with you, you can say anything bad about my country as long as it is true.
The cost of obesity on a personal level and national level is horrendous.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3291123/
The pain, disability and cost of one person and on the family who have the fallout to deal with is immense. Multiply that by a hundred thousand each year and you have an epidemic whose cost is incalculable.
https://www.dailystar.co.uk/diet-fitness/547483/How-to-lose-belly-fat-Ultimate-Fighting-Championship-ufc-gym-transformation
I did not insult anyone. The fact is that greed, which has a definition in the dictionary is what causes people to be like that above.
https://dictionary.cambridge.org/dictionary/english/greed
Just simple facts stated simply.
The human race is on a global murder/suicide march and we are concerned with obesity? I think that problem will cure itself within a decade with no intention on our part.
Although getting fat might be an analog to our current global predicaments. We saw the problems happening so we continued the problem even more. Result obvious.
https://www.youtube.com/watch?v=l4YZiKbklAE
Baker Hughes Rig Count
Oil: -2 to 860
Natural Gas: +2 to 186
Permian: -2
Table: https://pbs.twimg.com/media/Dmgdy7BWwAA_7kg.jpg
Baker Hughes: http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother
There was an article from oilprice about the next LTO trend, in Wyoming:
https://oilprice.com/Energy/Energy-General/Oils-Next-Hotspot-The-Cowboy-State.html
So far, we don’t see any increase in activity in this state from the Baker Hughes Data. The rig count in Wyoming stayed between 26 and 31 so far in 2018…
In 2018, the oil rig count increased by 120 (+16%) since January 1st. In 2017, the same count increased by 240 (+45%) from January 1st to September.
I still think that we won’t witness a huge increase in the latter months of the year as we had last year.
I was reading statements from EOG, regarding their interest in the State. I would imagine that it will see a lot more activity in the near future, especially with the Permian slowdown. It had a lot of interest in 2014, before the bust.
Along with the rig count, the completions are trending down, as I posted above in Texas. Rigs can drill more DUCs, and is not as important an indicator as completions. I do not expect the rig count to decline much. It takes a lot of completions just to maintain the level of production that they are at now. An estimate in June, were that 95% of the completions were just to maintain production, and the other 5% was for growth.
The DUCs are not only to prepare for future production, but probably many are to hold leases. The Delaware Basin was not as leased up and held with production, as the Central and Midland basins were. I have a customer who is still trying to negotiate with XTO with his Delaware Basin holdings.
http://www.rrc.state.tx.us/media/46805/ogdc0718.pdf
http://www.rrc.state.tx.us/media/47577/ogdc0818.pdf
Always a delay in Texas posting completions, and I can’t really tell if it was primarily July or August the slowdown commenced in earnest. But, from August completions it will mainly just keep up production, not increase. My guess.
Iraq – protesters enter facility linked to West Qurna 2 oilfield, hold employees hostage – Lukoil and security sources
Photo: Iranian Consulate In Iraq’s Basra a few hours ago
https://pbs.twimg.com/media/DmgY2TkVsAEas_r.jpg
Zerohedge on Twitter: https://twitter.com/zerohedge
Looks to be getting worse, with widespread dissent. No clear unification, as is common.
Ok, I will play along. What can the US do to extend the plight of oil? Well, most anything I think of would make an economic mess of the US and, consequently, the rest of the World, but that’s going to happen, anyway. Whatever was done, it would have to extend the US ability, first. Mike, will like this one. First, we reinstate the oil export restriction. Makes a mess of WTI/Brent spread. Most of the unconventional E&Ps will go bankrupt soon after, but that’s the cost. The world will lose 1.6 million of oil soon thereafter, but that’s the cost. We subsidize EV sales, big time. Gonna cost in taxes, so we make that up in raising taxes on gas and diesel. Maybe supplement the conversion by implementing a VAT on all imports (including oil-that ought to motivate refineries to update) and doing away with these silly tarriffs. Then, we will be able to exchange VATs with other countries, and lose less on exports. Maybe even lower tax rates. In the meantime, the US economy goes down the tube for awhile, along with the rest of the World. But, that’s the cost. Over a period of many years, the US will probably recover, with the World, who knows when. By then, maybe the US and the world will have oil supply/demand equal, and the US will be setting the stage for oil consumption per capita. Now, sell that one to Congress.
Or, we could sit down at the table, and pig out, and hope the problems will all go away. That’s what we are probably going to do, because the crises has to happen, first, before there is any reaction. Besides, the EIA says we may have a oil glut next year, so what, me worry? The IEA and OPEC are both using EIA estimates, so nobody should worry, things will be just fine, trust in your government, that’s what I always say.
If your in the UK, waddle on down to the pub, have a few pints with fish and chips, and forget the issue. If your in the US, get your fat ass into the F350, and get a case of beer and Doritos at the the convenience store. Because, I can’t do a thing about it, sorry.
Guy, you are a CPA, I believe, and have to understand well economics pretty well. The FCF metric de jour that now has everyone so excited, including the IEA (who says after a decade the shale industry is now poised to make money), can be manipulated 10 different ways. The jefe at Schlumberger waved his hands the other day and now says productivity is going down in the Permian, and elsewhere. Costs are going up; the source water and disposal issue in the PB is serious, as I have said it would be 4 years ago, and the cost of liability insurance is going thru the roof. It is impossible to predict or model a business that is so dependent on credit, debt for its existence and has so many significant headwinds facing it. Often throwing more money at a problem simply will not fix it.
Please take a gander at this: https://www.oilystuffblog.com/single-post/2018/09/07/This-Weeks-Dumb-As-a-Fence-Post-Award and tell me the LTO faction of the US oil industry is in control of its facilities and that America can depend on it for the future.
Money matters. Its a business, shale oil, and the business must succeed or it will fail.
Good grief!! On a sixty acre tract, that is over 5 million before anything happens. Not even imagining all of the unusable acreage. That would be a sixty acre tract, but with two mile laterals and the problems they have been having with close spacing, I could guess closer to a 120, or at least an 80 acre tract would be more of a correct spacing. Lunacy, pure and simple. You may be able to make a profit at $100 oil, but you can’t make decisions based on what the price of oil will be. That’s just crazy.
I try to prepare myself mentally, for any eventuality. Oil companies are not venturing outside of the box. We will have an oil crises, and fairly soon. What is going to be public reaction, and how will the different parties handle it? I could conceive of another export ban, oil companies can’t. Then they are holding acreage they spent $86k per acre on, that they can’t drill on for years, possibly letting the lease expire.
One of my customers has acreage in far West Texas and was offered 2250 per acre. Individuals are screwed royally by the oil companies. If you don’t take, you are just an unleased royalty owner, and may wind up with nothing. Unless you find a third party buyer, who can pay twice that price and the sell it to the same company for twice, or for much more than what they paid you. Cousins clause in all leases.
“Individuals wind up screwed by oil companies”. You meant you say individuals who don’t agree to let oil companies drill on their land dont get paid?
Wtf.
If that land area is included in a pooled area, and the drilled area is not on your property, in Texas they do not have to include you, if you are not leased. If it is under your property, they have to pay. The mineral right owner has the right to file suit to be included, but it’s expensive.
https://www.oilandgaslawyerblog.com/amp/pooled-units-and-unleased-mine/
Even if you are successful, then the oil company has no obligation, at that point, to pay any lease bonus money. It’s also used as a scare tactic to get mineral right owners to sign. I’ve had it used on me, and the rest of my fairly large family. Which I found fairly laughable, because it is a two thousand acre tract.
And it’s pretty hard to justify to the normal Joe or Jane, why they should get $2250 an acre while they just paid $86k an acre for similar property.
As Elon Musk would say; party on dude! I also see a lot of Dodge Rams pickups these days in addition to the Ford’s. Maybe the 350’s are for the regular fat-ass Americans, and the Rams are for the the more radical contingent that prefer to role coal. I think our British friend Peter should take up his conversation with them. Preferably in person?
And for Mike, didn’t Teddy Roosevelt make a famous speech about the man in the arena vs. the critic. That is essentially what I think about when reading through your typical post. I have been a practicing petroleum engineer for 30 years and I see the recent industry activity and a progression of what we have always done. Even in the purely conventional/vertical days there were stupid or poorly run companies that you could mock with your superior intelligence. Today the industry is much more fractured with private equity funding most of it, and that leads tougher competition and more risk for companies trying to gain a position. I personally think the horizontal drilling and industrial sized completions make my job a lot harder as a petroleum engineer. There are simply more variables to consider and try to figure out. Also, most companies follow EOG’s lead and are very secretive, so as engineers we work with more unknowns.
Conventional production was not going to meet our future energy needs. I think that became obvious around the mid 2000’s. The resource plays took off at high oil price and they surprised most all of us with how effective they were. That is why the peak oil community got a little egg on the face around 2014.
We can all debate whether or not the world really needs this oil. I personally ride a bus most commuting days and of course I think actions speak much louder than words. Fortunately for my financial future most of the world still wants to drive big vehicles all by themselves. Unfortunately for my kids future most of the world still wants to drive big vehicles all by themselves.
Personally, I do not mind the coal rolling Dodge pickup drivers that much. At least they are not hypocrites. It’s the Leonardo Dicaprio’s and John Kerry’s of the world that really bother me. They jet set around the world personally burning more hydrocarbons than 99.9% of the rest of the population, but they still preach environmental consciousness.
Yes, but strictly looking at the numbers Quiet, $86k an acre is pretty hard to swallow.
And I do agree that there is no option, but to include unconventional oil as a source. I don’t think Mike disagrees, it’s just with their modus operandi.
As for our British poster, he would not make it over three minutes telling most 350 owners they are just fat asses. Most 350 owners do hard work for a living. It’s the Mercedes owners he would have more luck with, and in Texas, even that would be tough.
QO, I don’t feel superior to anyone, hand. I’ve been IN the oil business way longer than you have (and made LOTS of money from shale oil wells); what is occurring now in the shale business is NOT a progression of what we have always done. That’s horse shit. Never has our industry been so marginally (un)profitable and so totally dependent on credit/debt. Not ever.
I meet, and am contacted by people all the time IN the shale oil business, even PE’s, who have the guts to admit and shed additional light on poor economics, exaggerated reserves, and finances. Its not good, pardnor, and you know it. My goal is to counter the irrational exuberance of its role in our future. We do indeed need the stuff, we just need to tell the truth about how much it costs and who is going to end up paying for it.
As to my criticism of paying 100 million dollars for lease bonus on 1200 acres, your a PE; work out the economics on that and let everyone know what you come up with. Thank you for your comments.
Hi Mike,
I imagine you may have been in the Oil business (maybe not an owner at that point in your career) during the 1980’s in Texas. It seems things got a bit out of hand when oil prices were very high in the early 80s and there were a fair number of bankrupt companies when oil prices fell in the mid-eighties. I wasn’t there though.
https://www.forbes.com/sites/christopherhelman/2014/04/25/dear-texas-enjoy-the-oil-boom-just-dont-blow-it-this-time/#10e3e0a7260a
He does have a point, Mike. The oil business does have a significant history of bad business practices. Austin Chalk scams, Penn State Bank, and so on. Penn State was small in comparison to the total loan losses, they participated much more in upstream participation loans. We are just repeating, it is nothing new. I was in and out of banking during the time, so I remember, pretty well. I also talked frequently with some of the people manning the phones for investments in Austin Chalk. They made fabulous money, and that’s when I found out, there is no end to stupid money. I was in awe that anyone would give up thousands of dollars simply via phone calls from a stranger. P T Barnum had it nailed. Even more recently, Cheatapeak has had its issues.
Your main point is the magnitude of the problem, yeah, I get that. And I am a royalty owner, but not immune to facts. I follow a lot more in the Permian, now, than I did in the past. I follow the Eagle Ford, much closer. I am astounded that start up companies still come up with money to buy those tier three acreages dumped by the big boys, or bigger boys. Good luck getting your money back. When you hear such and such company divested it’s holdings in the Eagle Ford and reinvested it in the Permian, or wherever, it means they really had lousy rock there, and are trying to lose it somewhere else.
And if your looking at potential losses, you can’t just look at The big companies sick financials, you have to look at the thousands of smaller operations, too. They are doing half the drilling in the Permian, and probably every other field.
Yes, Dennis; I was an operator before the 80’s. There were a number of bad, questionable things that went on by 1983 in a very limited “resource” play in Texas (Austin Chalk). It got a lot of media attention. Most of it had to do with low interest credit, people that had no idea what they were doing getting into the oil business for the first time… and very lousy rock that declined rapidly and did not work out economically, exactly like shale oil and gas today. It took less than 5 years for that to sort itself out and it was over. OPEC had us all under its thumb then and lots of folks struggled. Lots of us carried on.
We’re in year 10 now with regards to the shale phenomena and stupid people are still paying 100 million dollars for 1,180 acre leases. The shale oil industry and much of the shale gas industry has NEVER in the past decade shown consecutive quarters of profit, it is still outspending revenue, and very little public debt is being deleveraged, while private equity debt is growing like a house on fire.
The 80’s were also some outstanding years for the GOM and large onshore clastic discoveries, as well as good things going on in the North Slope. Large reserves were found, lots of money was made, sufficient money for additional reserves to be found and reserves to be replaced, without credit, or with RLC’s that got paid back. What’s your point? Besides just arguing for the sake of arguing? Are you implying that the oil industry in America has never been able to stand on its own two financial feet? Because that is not correct. If you are implying that today is just like yesterday in the American oil and gas industry that also is not correct. How did all that conventional production in the Permian work, do you suppose? On credit?
I am astounded how few people have the guts to stand up and call the kettle black on this shale shit. It is getting away with money murder. I find that if you are IN the shale biz your not going to criticize it, or if you are benefiting from it, like royalty owners and CEO’s, your not going to criticize it, or if you are ignorant of the business in general and just need cheap(er) gasoline you are not going to criticize it. Or maybe need a prediction to work, you are not going to think right about it. Oily folks are afraid to admit the shale thing is not working because it must seem like and admission of defeat, or, if you give up your AR-15’s voluntarily you won’t be able to keep you shotguns to hunt with; I don’t know. It baffles me. In the mean time, however, Rome is burning.
Mike,
You said:
Never has our industry been so marginally (un)profitable and so totally dependent on credit/debt. Not ever.
I misinterpreted what you meant by “our industry” and was thinking that there was a time in the 1980s when there may have been some overinvestment when oil prices were high in the early 80s and many producers were hurting when oil prices fell. I apologize.
As I was not following the oil industry closely at the time, I may have misinterpreted the comments of people like shallow sand who mentions that 1986 was not a good year.
A major difference this time relative to the 1980s is that interest rates in this case remained very low so businesses were willing to continue borrowing, this was not the case in the 80s when the prime interest rate went as high as 20% vs 3.25% from 2010 to 2015 (and rising to 5% recently). So very different financial circumstances may lead to different results. In addition, the easy and cheap oil has mostly been extracted in the US, so profits will be more of a challenge especially at $65/b, at $80/b or higher tight oil may be profitable, though rising well costs, labor costs, water disposal costs, proppant cost, frac costs, and downhole maintenance costs, along with rising GOR are likely to require even higher oil prices, if tight oil is to become a profitable endeavor.
I am in complete agreement that at $70/b at the refinery gate (and probably $5/b less at the wellhead in many places in Texas), the average tight oil well will not be profitable and will probably not even breakeven on a full accounting cost basis (all costs included, land, plugging, facilities, and the stuff I don’t know about [too long a list 🙂 ]).
Thanks for setting me straight.
Dennis.
If you look hard enough, you can find 10K for independent E & P’s for the year 1998.
Oil averaged around $12 WTI in 1998.
Then, take a look at 10K for independents in 2016, when WTI averaged 3.5 times more, at around $42 WTI.
I find comparing financials of upstream US E & P’s to be pretty interesting for those two low price years, particularly the debt levels.
Amerada Hess 1998 v Hess 2016 is interesting. Production about the same. No downstream in 2016, did have in 1998. Long term debt in 2016 triple that of 1998 despite 2016 following the high prices that prevailed for most of 2004-2014.
Continental is also interesting. 29K BOEPD in 1998. $157 million of long term debt at year end.
No significant debt when CLR went public.
2016 over $6 billion of long term debt, as I recall.
Anecdotal from me about how costs of doing business increase.
Had to dig through a file to try to find some information. While doing that, noticed operating expense information for one of our leases.
2006 electricity for lease $700 +/-
2018 electricity for lease $1,100 +/-
2006 chemicals $680 per drum
2018 chemicals $993 per drum
2006 contract pumper $800 per month
2018 contract pumper $1,300 per month.
2006 tubing job $400
2018 tubing job $550.
Finally, sold 2,211 net barrels in 2006. Estimate will sell 1,700 barrels in 2018.
So, $60 oil in 2006 not the same as $60 oil in 2018.
Shallow sand,
Using prices in constant August 2018 dollars, 1998 was about $18.66/b and 2016 about $40.64/b (average imported crude price from EIA). As the resource depletes, I expect it will become more expensive to produce, so not really a surprise, also 1998 was a very low price year, the average real price in 1997 to 1999 was $24.60/b and 2015 to 2017 was $46.76/b, so prices roughly 2 times higher for centered 3 year 2016 to centered 3 year 1998 average price.
In any case, I agree not much money is made at $55/b at the wellhead for horizontal tight oil wells.
At $85/b, things look better. We might be there at the end of 2019 or perhaps August 2020.
Dennis, thanks. Shallow has given some good examples of how and why the current financial plight of the US shale phenomena is not an extension of how the industry use to roll. There are exceptions, sure, the Austin Chalk “boom,” for one, and corporate failures, etc. What is different today is debt. Debt and oil, much like oil and water, do not mix. Reserve growth based on debt is artificial, its unsustainable. The shale phenomena is as old as it is and not dead meat for one reason; credit.
I gave you an example of how fiscally irresponsible the shale industry is when it recently bought several leases in NM for over one hundred million dollars each. Its costs are much higher and will go even higher. We are just now walking thru the threshold of serious water issues in the Permian. Well productivity is going down, in spite of what you think, and it will decline further. More pipe is not going to really fix the problem and this LNG hubbub is more lies. The world has LOTS of gas to compete with US LNG. Watch and see how much the shale phenomena changes by 2021 just for political reasons.
In the mean time, read Shallow’s comments about the number of shale wells in America now making 30 BOPD and remember Enno’s quote…’shale wells in the US drilled before 2016 now only account for 27% of total shale oil production.’ That’s astounding. And I am hear to tell you, first hand: at $70 gross WH prices for the shale industry (its now about $55) economic limits are going to be reached at 15-18 BOPD, not 7, and all those long tails are going to get whacked off. When those wells are gone, they won’t be back, even if your dream of $150 dollar oil ever comes true.
M&A stuff going on now is all about acreage, and drillable locations. The only place for that to happen is the Permian. Who wants to buy 30 BOPD wells that will be 15 BOPD wells and at their economic limit in 4 years, then face $150K per well P&A and decommissioning costs? What’s the upside to an acquisition like that? Hope for higher prices? Re-frac’s at $4MM a pop (that are failing miserably in the Bakken)?
Folks in the shale industry, or benefiting from it financially, don’t want people to know the truth about this stuff. Outside capital is its life blood.
Mike
I don’t see how all of this corporate overhead is going to be supported on 15 BOPD shale wells.
Can’t see how those wil support the jets and corporate headquarters.
As you know, stripper wells only work when the overhead is low and you do a lot of things yourself.
The media is completely ignoring how many low volume wells there already are. I was surprised at the results of my search.
I am sure someone has aggregated public company E & P debt for 1998 and 2018. Bet that would be an interesting comparison.
Shallow sand,
When comparing any two years, you need to do it in constant dollars to adjust for inflation.
A dollar today is worth less than a dollar in 1998.
I imagine low volume wells will be sold off to smaller producers that have lower overhead costs. If they can’t be sold, they will operate until cash flow for any individual well becomes negative and then they will be plugged.
Mike,
If we assume a 14% terminal decline rate for the average 2017 Permian well the EUR is 396 kb, if we assume they are plugged at 7 b/d, if we assume 15 b/d is when they are plugged, then the EUR falls to 375 kb. These last 20 kb are produced over 5 years from year 13.5 to 18.5 and probably add very little to overall total discounted cash flow for the well. About 5.6% lower EUR.
Quite_One
You will not have a financial future, exactly because people drive massive vehicles.
The cost difference between a Dodge ram and a sensible vehicle including petrol is say $2,000 per year over the life of the vehicle.
The person with the cheaper car can spend that $2,000 in local shops, restaurants etc.
Giving employment to people who then can buy a small car and afford oil at $120.
The person driving the huge lump of steel around, filling it up with lots of petrol cannot support the local economy in the same way.
All that money just to fill up a petrol guzzling vehicle. Multiplied by millions of people and you have a very fragile economy that cannot cope with $120 oil.
It’s already bad and things have not even started yet.
https://qz.com/913093/car-loans-in-the-us-have-hit-record-levels-and-delinquencies-are-rising-fast-too/
Suspicious of attacks on Iranian facilities. Funded by whom?
Chinese crude oil imports, August: 9.04 million barrels per day
That’s up +1 million b/day from August 2017
The average for the first 8 months of 2018 is up +0.5 million b/day from the same period in 2017
Seasonal chart: https://pbs.twimg.com/media/DmlcOqEX0AAWHGl.jpg
What company gathers this info?
The latest number for August is from Bloomberg, all the prior months are directly from:
General Administration of Customs of the People’s Republic of China. (converted from tonnes using 7.33 barrels per tonne)
This is July 2018 –> http://english.customs.gov.cn/Excel/18-07-6-CNY.png
Thanks, you do good research. I don’t see much seasonality there, except for October it is usually down.
Add to the 4 mbpd they pump domestic and you have an explosive consumption growth year.
Earlier post had their inventory levels a little over a billion barrels. I’d say it’s more like gathering nuts for the winter. Their intelligence community is…well, intelligent.
1 billion at this consumption is – round about a third of a year.
How long would a gulf crisis last with choking the street of Hormuz with mines and loots of shooting and civil wars in one or 2 big oil countries.
That’s the absolut bottom line for oil storage.
The at least 1 billion barrels of oil is capacity, not inventory. If I was to make a guesstimate, China have only filled 60% of their storage right now. It is very visable that just that may be the case on satellite imagery due to the amount of floating roof top storages to assess. So lets say 400 million barrels commercial inventory and up to 300 million barrels strategic inventory. And the rest is empty, I am assuming 1.1 billion total capacity because tanker trackers employees have not mapped all of it, but nearly all of it.
So all in all, almost the same commercial inventory as US and about half the strategic inventory. Makes sense. To make these guesstimates are neccessary to have any chance of getting close to reality in China (I guess 😉 )
26,36 thousands MWs. Maximum winter electricity peak consumption in Poland so far (27.02.2018). That’s an F lot of electricity.
OK, I drink alkohol, and post stupid things on the internet, so what? Drink some too 🙂
Amundsen vodka! https://www.stock-polska.pl/_userfiles/pages/images/News/dw_685.png
Durn! I’d be careful, most vodka will go to your head, that says South Pole, so who knows where that goes to.
😀
re-packaging overfracking fraud will require massive bailout. New York Times gets religion? Rising rates bakes in a red queen race against time.
Keiser Report: Fracking Financial Crisis Lurking (E1277)
https://www.youtube.com/watch?v=YOeFzK85zq8
Thanks for this link Donald. Fracking is a Ponzi scheme that will soon collapse. Though this is reported here in the Keiser report on RT, they get their story from an article in the New York Times and from economist Paul Krugman. Paul Krugman has been saying for years that fracking companies are losing barrels of money producing barrels of oil, now the New York Times is chipping in supporting that theory.
The gist of the whole story is that the fracking boom started when interest rates went to near zero and people started looking for a place to put their money. Fracking companies paid near junk bond rates and people felt that oil was a great place to invest, especially since it paid such great rates. And the fracking boom began. And now that interest rates are starting to rise the fracking bubble may be about to burst.
Fracking is a legitimate way to get oil if operated correctly. It is not economically viable at lower oil prices. There are some oil companies that are operated correctly, and are not severely in debt. That said, most are not operated very well and exist primarily due to OPM. I think the next couple of years in the Permian will see their downfall. It’s one of the reasons why I do not expect the Permian to perform as expected. If a company pays over 80k an acre for just the potential of oil, they are not potential rocket scientists. Failure is just a matter of time.
The assumption of the Permian growth will require capital expenditures that are far beyond the ability of shale oil companies’ internal cash flow. More money will be begged, borrowed, or stolen to try to reach that growth. And the bubble bursts, at a time when oil prices purportedly would have made them profitable. That’s if they make it through the next year. There will be survivors, but a lesser number of companies can not expand as much as a whole bunch of companies.
Guym,
I expect as companies go bankrupt, the viable wells will be picked up on the cheap by financially strong companies. I also expect that oil prices will gradually increase and with higher interest rates there will be better capital discipline. By the time new pipelines come online we will see a surge in Permian basin output, if Brent oil price is $80/b or higher (with average spreads for other types of oil such as LLS, etc).
If oil prices are lower (Brent $70/b or so), the increase in Permian output may be slower (rate of increase will be smaller), but it will still increase when pipeline bottlenecks are removed, in my opinion.
The acreage an existing wells will have to go to some other company, yes. That will require capital expenditure of the existing companies. When pipelines open, there will be an increase on production, yes. Will an increase in prices help, yes. Will a price increase create enough internal growth to expand capital expenditures to create significant growth, probably not. Will there be sufficient external sources of money to increase capital for production? I don’t know.
Will the losses in previous production by bankrupt companies easily be picked up by the acquiring company, probably not. But, in all, there is serious doubt that expectations by many in the Permian will be met. Then we get into rising costs, dearth of manpower and materials, and limited transportation resources. More to it than mathematical projections.
Guym,
It doesn’t take that many more wells to increase output in the Permian Basin, perhaps cost will rise faster than the rate of inflation, if so profits fall and capital expenditures fall as well. Yes it is complex and there are many things which could make my scenarios incorrect, both on the low side and the high side.
Note that for every economic expansion all of the problems you state have always been potential problems, but they are usually overcome. I see no apriori reason why things will be different this time. Higher oil prices will solve a lot of problems.
If oil output is lower than oil consumption as you foresee, oil prices will go up. Then consumption decreases and output increases and note that there are a lot of DUCs which can be completed, so it won’t take a year, maybe 4 to 6 months between higher oil prices and higher output.
I agree the EIA forecast is too high, my high price scenario has Permian tight oil output at 3000kb/d at the end of 2018 and 3600 kb/d at the end of 2019, 4100 kb/d at the end of 2020, 4500 kb/d at the end of 2021, 4700 kb/d at the end of 2022, and 4800 kb/d at the end of 2023 (that is about the peak). The number of well completions per month increases from 390 wells in June 2018 to a maximum of 550 wells completed in Nov 2022, so a 160 well per month increase over 53 months or an extra 3 wells completed each month over the June 2018 level.
Contrast this with the 200 well increase from 185 at the start of 2017 to 385 in mid 2018, in just 18 months, thatas a rate of increase of 11 extra wells completed each month for 18 months. My scenario has the completion rate increasing at between 1/4 and 1/3 the rate of increase for the past 18 months. This is not a very high bar especially with higher oil prices and the upcoming increase in pipeline capacity.
The EIA estimates Permian tight oil output in July 2018 at 2753 kb/d, with an increase of 479 kb/d for the first 7 months of 2018, my scenario predicts another 250 kb/d increase in Permian Basin output over the last 5 months of the year, slower than the 68 kb/d increase each month on average over the first 7 months.
Dennis, again, I have little problem with your projections. Thanks for the detailed discussion of how you have arrived at it. I was not referring to you, when I mentioned mathematical projections are not all to consider. Your far below the EIA, and other wags.
Guym,
Thanks. When you said mathematical projections I thought you were talking about my scenarios, which absolutely leave many things out and are highly likely to miss the mark, either being too low or too high.
When I gain new insight by reading comments by Ron, George, Mike, Shallow sand, Fernando, and many others or answering questions that make me rethink my approach, the model is adjusted subtly. It probably looks like the same oil shock model over and over, but adjustments are continually being made.
Fracking is mostly in such bad financial condition becaus of the gold rush mentality.
If they would keep calm, leases would be cheap, truck drivers and crews would be cheap on the countryside where it is not that expensive to live, infrastructure would be cheaper (less pipelines for only a few years of operating and earning their mones), installations could be smaller and so on.
I think it could be profitable at the current oil prices, with all this waste from overspeed gone.
“Fracking is a Ponzi scheme that will soon collapse.”
If there is an oil shortage and the price per barrel goes over $100 what will happen then?
“Fracking is a Ponzi scheme that will soon collapse.”
If there is an oil shortage and the price per barrel goes over $100 what will happen then?
I was quoting the Keiser Report, The New York Times and Paul Krugman. Direct your question to them.
Hydro-carbon liquids are vital as oxygen for Life support at current population densities. Unfortunately Max may be correct on a future government bailout. Energy can not be printed. Such a crisis won’t be fixable like Mortgage Back Securities scam. There is a local Hotel built in a train station for Millions. It sold multiple times and now the Hotel Complex is viable with an equity of 15% of build cost. So how much write-down needed in Unconventional? Government central command and control of E&P seems to work so far for Saudi Aramco. Is government control even thinkable in the Unconventional space? The DOE was formed to reduce US dependence on Foreign Oil. Today it has 160,000 employees.
The DOE was formed to reduce US dependence on Foreign Oil. Today it has 160,000 employees.
Well hell, I am not at all sure that was why the DOE was formed. Though if it was, that is a very admirable endeavor. The fact that it may have failed is very unfortunate.
Hey, Donald, wake the fuck up. I am not the one that is claiming that hydrocarbons are the problem. I know that humans will do what is necessary to do what they need to do to survive. And if that includes melting the icecaps in order to continue their way of life, then by God that is what they will do.
There is no panacea out of this goddamn mess we have gotten ourselves into. Human nature will rule and reason and logic will be ignored as the desire for survival will be paramount.
So what are you trying to tell me, Donald? Where do you disagree with me? What is your point?
On another point. I will be back in Pensacola in exactly three weeks from today. Perhaps we can have breakfast, of lunch? Let me know.
Your spot on, I guess my point is that this can wont be so easily kicked down the road. Perhaps oil will balance and price will track above $100 and prop up Unconventional debt mess. Absolutely on Lunch. Email’s the same. On a shorter term, concern is Syria conflict. Where is Sanity and the US and global anti war movement?
Greenbub.
Here is something to think about.
I did a quick search, and found that in the states of TX, NM, CO, WY, ND and MT, there have been 67,523 horizontal wells drilled with a total measured depth of 10,000′ or more, with first production from 1/1/2005 to 12/31/2016. So, I am excluding wells with first production in 2017 and 2018.
Of those, 35,910 (53%) produced less than 1,000 gross barrels of oil in the most recent month reported. Based on my review of many lease operating statements and joint interest billings for these wells, a well that is producing 1,000 gross barrels per month will be lucky to net $400K annually at $60. So, it is fair to say, I think, that over one half of all of these wells are likely netting under $400K annually, and that will continue to drop unless oil prices rise from here.
Now, consider that these wells range in cost from $4 million to $12 million to drill, complete and equip. This, of course, does not take into account the cost of the land, pipelines, water disposal facilities, etc.
I don’t know that I would call this whole thing a Ponzi scheme. I think a better name is expensive to produce oil.
I am just hoping that the notion has forever been dispelled that these wells are on the whole economic at oil prices in the low $50s or lower. My view is they are not.
Shale leadership and the oil traders did a great disservice to all producers when they talked the price of oil down to unsustainable levels in 2015, 2016 and 2017. It feels nice to be able to breathe after those three years of having a heavy boot applied to the neck.
“notion has forever been dispelled that these wells are on the whole economic at oil prices in the low $50s”
Of course they’re not, but what about at $100+ ?
If some areas are running short of tier 1 leases they might now never be able to get ahead of the world oil price to become economic.
Yeah, my guess is there are quite a few of those companies, especially in the new start ups. They mainly bought up the bigger boys castaways with OPM. Seriously, what company is going to sell off tier one stuff, unless it was combined with primarily junk.
ShallowSand – do you think the oil price can be talked down? I think current price goes mostly by stock level changes, with a bit of adjustment for futures from “feelings” about supply and ecenomy but mostly based on the most recent news only. The aggregate changes add up to a trend that reflects overall supply and demand realities. Almost every E&P related company in the world, not just shale, overinvested in the boom years. Investors in deep water drilling have probably taken a bigger relative hit so far than anyone else, but a lot of the EPCs have been suffering (and more than a few familiar names have disappeared).
Go back and look at statements made by shale CEO’s and traders in 2015 and 2016.
All were losing money. Yet all kept stating lower “break evens” etc.
EOG CEO stated some nonsense about being great at $30, even though plugging that number into their PV10 calculation resulted in negative cash flows.
I seem to recall a certain trader stating WTI would never again be above $44 in his lifetime and also some predicting $10 oil.
I know many will state I am way off base, but I sure do think oil can be talked up or down in the short and medium term.
We sold oil for $99.25 6/14 and $25.25 2/16. Did inventories and supply/demand warrant this?
What happens to the auto industry if the price of their product goes from $40K to $10K in less than 2 years? Any industry for that matter?
I hope to look back when I retire and unload my oil working interests and be able to brag how we survived 1998 and 2015-17. Add in our father’s survival of 1986, as a significant amount of what we operate dates back prior to that.
How many paper barrels are traded for every physical barrel produced? Like 10 times?
Yes, I know academically “talking the price of oil makes no sense.”
Being faced with losing $30-50K per month with $25 well head oil prices does make one think about such things, however.
Google EOG Bill Thomas premium location plan 2016.
Then look at 2016 financials for EOG. Train wreck.
Don’t be fooled by EOG’s 2017 financials either. Huge income tax benefit skews the bottom line.
EOG is allegedly the best shale company in North America. Yet they lost their rear end 2015-17. They also said a lot of stuff to the contrary.
I don’t doubt they were selective with their statements and likely could be prosecuted if the SEC had a even a single testicle amongst them, and a lot of investors got conned, but did it influence the price of oil – I think it didn’t.
Talking oil prices up or down is surely possible for some. For instance Don Trump has called for lower oil prices from OPEC and KSA. KSA has responded by increasing their exports to the US, which shows up in increased exports and inventories.
US inventories are watched much more closely than other places, so if a 2 million bbl tanker comes to US instead of South Africa prices will tend to move down.
Link to an article about increased KSA shipments to US.
https://www.arabianbusiness.com/energy/403946-saudis-ramp-up-oil-exports-to-the-us-in-response-to-trump
Of course eventually it will even out as the increasing spreads between Brent and WTI will ultimately see more oil exported from the US, but in the meantime WTI will be pressured till the midterm elections.
Yes actions and policies that change the supply/demand trend will change the price but talk itself won’t, at least over more than the initial reaction. Also why would an oil company want to talk down the price of oil?
Brent-WTI spread at $9.08. Brent (Nov2018) $76.83, WTI (Oct2018) $67.75
At the close, Friday September 7th
Chart https://pbs.twimg.com/media/DmqjKRXW0AAHyGF.jpg
WTI Midland (Argus) vs. WTI Financial Futures Settlements
CME –> https://www.cmegroup.com/trading/energy/crude-oil/wts-argus-vs-wti-calendar-spread-swap-futures_quotes_settlements_futures.html
Chart of futures curves, May 30th seems to have been the low: https://pbs.twimg.com/media/Dmqk8IxW0AAyeEx.jpg
Saw this Bakken NoDak documentary on TV yesterday:
https://www.rt.com/shows/documentary/423547-black-gold-rush-north-dakota/
I think it was produced by a French documentary team.
Should anyone wish to see some tangible results of effective hydrocarbon development, viewing the Google images of the new schools in tiny Williston and Watford City, ND offers real world examples of providing for the children.
These world class facilities are already at capacity and the generations-long effects from the Bakken look very optimistic. (Directors cut out this Friday will definitely show new record numbers).
This site – primarily through comments – has highlighted the negtive reprecussions to some with almost no mention of the widespread, cascading positive effects throughout much of US industry.
From new aluminum smelters in Kentucky to the booming field of tugboat/barge construction, US industries are positioning for decades of abundant hydrocarbon supply.
The contrast that New England may provide in the coming winters could be a role model to a wider audience of what to expect by shunning fossil fuels.
Lol ‘providing for the children’.
Coffeeguyz says:
You are the one that said “decades” and not “centuries”.
Decades is what needs to be pointed out via the media. Decades is not very long in the great scheme of things.
I had a go at projecting world C&C production based on the recent Laherrere ASPO reserve estimates. I think that the rate of decline in oil exports will be a bigger effect, certainly for me personally, than the date of a peak; therefore I’ve also included two scenarios for that. Based on BP figures, which include NGL, exports may have peaked last year. Since 2000 internal use of C&C by producer countries has risen at about 1.7% but may have flattened out recently. Evidence from some countries is that internal demand stops rising as fast after a production peak. Therefore I’ve shown a flat internal use scenario as well as the rising one.
The country profiles assume a 5% decline after a plateau period to give the estimate remaining reserves, if the reserves are insufficient to allow that then a higher continuous decline rate is used. For US LTO, GoM, UK, Norway, Brazil, Angola and Denmark I used more detailed bottom up calculations, these came out giving slightly higher reserves than the Laherrere numbers.
For Iraq and UAE I assumed some increase in production (for Iraq to 6 mmbpd by 2025 – they have stated it will be 6.5 but have so far always failed in their aspirations). For Canada oil sands I’ve assumed a linear increase after a few years hiatus as there’s not much in construction at the moment – these projects have 50 year lifetimes so there is a limited production that even the high reserve numbers can support. Venezuela and near term Iran production is a best guess.
Laherrere looked at all the major producers but still indicated only 85% of the remaining reserves had been covered, which leaves around 180 Gb somewhere or other. I’ve included around 20 Gb for Guyana and some frontier countries (e.g. in Falklands and East Africa) but I don’t know where the rest is. Brazil has the largest other assumed undiscovered reserves at 55 Gb and I’ve shown them separate as a completely guessed profile.
The overall production shows a decline from this year but a peak is very sensitive to quite small changes. For example the assumptions give Russia in decline but extending its plateau for a few of years produces a world plateau, however it means a 7% decline later. For such reasons the decline in exports is less sensitive provided the production acceleration comes near term (i.e. while there are exports). Acceleration from much later production will be increasingly expensive and probably dependent on discoveries.
The news is not good for importing countries in the 20s and 30s if they are not prepared and edicting that there will be no new ICE vehicles after about 2040 is probably an unnecessary rule.
(Note I had a go at using a Monte Carlo method and representing the big unknown reserves such as for Saudi as probability functions, but my computer started glowing red and a I think I’d still be waiting for the answer sometime around Xmas. Might try again after some simplifications.)
BP World
Your usual, detailed and impressive analysis, George. It was my guess, but it is nice to have it supported by someone like you, and Ron. I don’t have the ability to deal at the detail level you guys work at. I just say seriously short. It confirms my statements that whatever we get out of shale is unimportant to the total. No, exact Peak year is difficult to get exactly right, but the trend is down from here. Regulations barring ICE vehicles in 2040 will be an anticlimax.
As Dennis says, demand will always tend to equal supply, and that’s basic economics, as consumption can not exceed actual supply. But, at what cost to the economy. As far as oil price goes, I seriously doubt you can talk down the price for a great deal of time. But, Perry is headed to SA to give it a go. Those who don’t think EIAs posturing might have just a little political reasoning may be wrong.
And the exports decline is scary. That part I have not seen factored in, anywhere. World of haves, and have not.
There was a lot of discussion around 2008 of the export land model (ELM) from someone who’s name I’ve forgotten but used to post as WestTexas-something. He showed how exports would decline much faster than production, but his predictions didn’t pan out for most countries as their internal usage rate didn’t keep rising after their peak as it had before (I think Mexico was a prime example).
Yeah, we wont hold you to exact numbers here, its the concept that’s important.
Yep! that would be Jefferey Brown.
The export model still has a lot of relevance. The exported volumes are vital to determine oil prices. That is why SA together with Russia have so much power in the oil market; if the exported volumes goes down or up 20% they can cause these huge price swings.
Looking at G. Kaplans projections of world oil C&C projections there are a few the reflections to be made. The first is the most obvious – but I think the level of oil production has reached such a high level that it is difficult to sustain for long. The second is that I have always believed that there would be a fat long tail to world oil production just as for individual oil wells. But I guess that assumes civilization will be at full strength with a lot of technology going forward – hard to conclude anything when it comes to how well we are going to transition away from oil.
I think this is the origin of the export land model: https://www.sciencedirect.com/science/article/pii/S0360544204002385
John L. Hallock, Pradeep J. Tharakan, Charles A.S. Hall, Michael Jefferson, Wei Wu, 2004. Forecasting the limits to the availability and diversity of global conventional oil supply. Energy 29(11): 1673-1696.
Updated version (open access): https://www.sciencedirect.com/science/article/pii/S0360544213009420
It makes more sense to assume the growth rate of domestic consumption to level of after PO.
Excellent information George.
The biggest economies and populations that are heavily dependent on imported energy (including but not limited to crude oil) includes-
Japan 95%
Taiwan, S. Korea, Spain, Turkey, Italy > 75%
Germany 64%
Philippines, France, India, UK, Netherlands >35%
as of 2015
George,
Nice Analysis. It is not clear that the decline rate will be 5%, what is cumulative output for your model through 2063? And what is the URR for the model when run out through 2200? The US decline rate from the secondary peak in 1980s to 2005 might be more indicative of World decline rates after the peak. There will be some new wells drilled that will offset the decline of older fields, at least until demand falls below supply (2040 to 2060 as a rough guess for when that occurs.)
Production is 910 Gb. URR is whatever has been produced plus about 1260 Gb that Laherrere had as remaining reserves (plus some that I don’t know what/where it is as mentioned in the comment).
“It is not clear that the decline rate will be 5%” – about half the non-OPEC countries in decline have to exceed 5% on average as they don’t have enough reserves for slower decline (I think accelerated in fill drilling in the high price years had some effect and may still be doing so). If there is slower decline then the countries would have a shorter estimated plateau or, more likely, already be starting shallow decline.
“The US decline rate from the secondary peak in 1980s to 2005 might be more indicative ” – I don’t see why, they had a lot of old onshore fields with lots of extra recovery as new technology became available, nothing like newer developments with a lot of offshore, deep water and condensate developed with the latest technology in projects with around 25 years or less life cycles. I’d say the US is a very poor analogue, in fact as different from most existing production practice as anything I can think of.
“There will be some new wells drilled that will offset the decline of older fields – the 5% decline allows for that. For only existing wells the ExxonMobil 2016 estimate of 6.9% decline is probably closer.
Hi George,
The US was one of the oldest oil producing nations in 1985, in 2015 about 30% of World production was from offshore fields. So it is not clear that the 70 % of World production from onshore fields would be much different from onshore US.
Your analysis has World output in 2063 at about 26 Mb/d (guess from reading chart).
Scenario below assumes extraction rates fall to lowest level in history (lowest level from 1870 to 2017 was 6% in 2002). The fallow, build, maturation time has been reduced to a 10 year mean for the scenario below, URR=2760 Gb (XH=200 Gb and LTO=60 Gb) is similar to that of Jean Laherrere (2800 Gb).
The assumption of falling extraction rates is quite conservative (they have been rising from 2013 to 2017).
Alternative scenario with higher extraction rates (the only change to the scenario assumptions).
I don’t see why you keep posting these things in reply to any alternative analysis – why don’t you post these as original comments and let people comment on them rather than always waiting for some kind of rebuttal (I assume, otherwise I’m not sure what they are intended for)?. I clearly said it was based on Laherreres numbers – the extraction rate that leads to 5% decline are from his observations. If you don’t agree with his numbers then I’m not sure it’s even worth you reading the rest of what I wrote. You seem to have picked only one aspect of why I said USA is not a good analogue and answered that, though I don’t think what you said is relevant.
The main point I was trying to make was that the near term production decline and impact on exports is probably a bigger concern than the date of the peak or what happens in the tail (and is relatively insensitive to either of those). Do you have a comment on that?
ps Are you assuming a 5% final decline rate for a country is the same as a 5% extraction rate for the world? By my simple model a lot of production is on plateau, and especially in later years when long cycle (non declining) XH dominates, so extraction rate is much lower than 5%. The highest decline rate I get is 3.8% in the 50s, and the highest extraction about 2.9%, but could be lower probably if I new where the phantom reserves were (although probably they would only impact later years)
No extraction rate is production divided by producing reserves for C+C-XH-LTO (conventional oil). Decline rate is fall in C+C output on an annual basis (for all C+C output).
I am less interested in the Export land model. It assumes producing nations will not adjust their consumption of oil as oil becomes scarce, I believe that is a poor assumption.
Many of the oil exporting nations (net exporters) depend on income from the sale of oil, as exports fall this revenue falls and they will begin to raise prices within their nations so that consumption is reduced.
I have always thought the Export land model was flawed and continue to have that opinion.
The model was simply presented as another variation based on Laherrere’s analysis. I used his URR for the World (slightly lower actually by 40 Gb), C+C-XH=2560 Gb and XH=200 Gb.
I was trying to reproduce something like your 26 Mb/d in 2063 with falling extraction rates, which would tend to increase decline rates.
I would suggest that a fall in extraction rates would be surprising, especially if oil prices rise after the peak as I expect. A state of continual recession from 2020 to 2063 might do it, but that scenario seems far fetched to me.
The overall extraction rate does not fall, it slightly increases – that’s what usually happens and why the decline curves tend to look more linear than concave.
George also stated the export model appeared flawed, and presented flat usage. It’s obviously subject to wide variations, but the concept that exports will fall at a faster rate than production is something I have not thought about, although it should be painfully obvious. Thanks for the attempt, George. Nobody had complete data, and different fields react in different ways, but in using someone else’s data, this was an interesting depiction. It’s more like what I think it should look like, even though I may be wrong.
George,
Looking at your chart and assuming the roughly linear decline trend continues from 2063 into the future, the URR is about 2400 Gb, this would explain why my 2800 Gb model would be different. If you look at Laherrere’s table at the end of the report he has World C+C-XH U=2600 Gb and he has XH=115+100=215 Gb for a World total of 2815 Gb. I also think he underestimates OPEC URR, probably by about 200 Gb, that is the missing 200 Gb.
Maybe fitting the generalized Verlhurst to OPEC nations might yield a different estimate.
I also found the following which was interesting, it suggests a 2.6% decline rate is more realistic (see page 9 and 11)
https://www.wilsoncenter.org/sites/default/files/sander_the_multi_cycle_generalized_verhulst_model_for_making_production_projections_for_nonrenewable_resources.pdf
Baker Hughes GE – International Rig Count
August total: 1008, up +11 from July
Oil +12, Natural Gas 0, Misc -1
Land +16, Offshore -5
List largest changes
Algeria +4, Argentina +3, Brazil -5, China offshore -3, Egypt -3, Libya +3, Romania +3, Saudi Arabia +4, UK -3
http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsintl
Chart of the oil rig count and oil production without North America
https://pbs.twimg.com/media/Dmvgb8jX0AAYB8D.jpg
Alltogether a sign for less production – since Offshore rigs are a lot more productive than onshore.
Complete capitulation when it comes to the Brazil offshore growth scenario. 7 offshore rigs is the lowest on record for a long time. What is going on?; it may be temporary, but it is not going in the right direction is it? Other South American countries are scaling up from a low level like Columbia, Ecuador and even Mexico+ Argentina.
Libya rig count is growing. I believe western oil companies through joint ventures (and especially service companies) are involved in making sure activity grows. It is probably needed big time.
6 more oil rigs for Saudi Arabia, mostly offshore. They are in a hurry to increase activity, especially offshore at the moment (and I can not help speculate that they have something to hide – the decline rates at major fields are eating into production at the moment). Saudi Aramco can tell us the Khurais expansion project is on track in their annual 2017 report, and we know it was due may 2018. Still they can not tell us the expansion is now online? And this company wants to make an IPO with all the openness it implies.
Offshore is suffering when price volatility is high – it is not easy to plan for projects over many years ahead when observing these sharp set backs in oil prices happening regularly.
Brazil could just be moving station, or maybe unplanned outages as you say – PetroBras doesn’t always get great reliability and they are tough wells to drill in pre-salt there.
From the horse’s mouth.
https://exame.abril.com.br/negocios/petrobras-quer-elevar-producao-de-petroleo-em-ate-10-em-2019-diz-diretor/
NEGÓCIOS
Petrobras quer elevar produção de petróleo em até 10% em 2019, diz diretor.
Estatal também deseja reduzir a dívida em mais 10 bilhões de dólares no próximo ano.
Translation:
BUSINESS
Petrobras wants to increase oil production by up to 10% in 2019, says director.
The State owned Company also wants to reduce debt by another 10 billion dollars next year.
BTW, Petrobras is still dealing with the aftermath of a major corruption scandal! I’m sure that can’t be too good for buisness in general!
Operation Car Wash (Portuguese: Operação Lava Jato) is an ongoing criminal investigation being carried out by the Federal Police of Brazil, Curitiba Branch, and judicially commanded by Judge Sérgio Moro since 17 March 2014.
Initially a money laundering investigation, it has expanded to cover allegations of corruption at the state-controlled oil company Petrobras, where executives allegedly accepted bribes in return for awarding contracts to construction firms at inflated prices.
Source Wikipedia.
Kazakhstan’s daily oil output, it looks like Kashagan is back from outage
Chart: https://pbs.twimg.com/media/DmzFRJzXgAIfSJI.jpg
Guyana update – Sept 11 (Reuters) – A prospect operated by Tullow Oil off Guyana contains an estimated 3 billion barrels of oil and gas, its partner Eco Atlantic said on Tuesday (close to 2.5 billion barrels of recoverable oil and 2.45 trillion cubic feet of associated gas).
Guyana became one of the world’s most closely watched oil basins after Exxon Mobil discovered more than 4 billion barrels of oil equivalent in its Stabroek licence in recent years.
Tullow plans to begin drilling in the block in the third quarter of 2019
https://uk.reuters.com/article/eco-atlantic-guyana/eco-atlantic-reveals-large-oil-resource-in-guyana-idUKL5N1VX128
Woodmac – Iraq has enough projects to add +200 kb/day of crude oil production each year for the next 5 years
Analysts from Woodmac’s Middle East and North Africa team discuss South Pars 11 in Iran and the Majnoon project in Iraq.
(13 minute audio) https://soundcloud.com/woodmackenzie/middle-east-and-north-africa-in-brief-for-august-2018
From here:
https://eto.dnvgl.com/2018#Timeline
Estimated peaks:
2023: Oil
2032: Primary energy supply
2033: Nuclear
2034: Gas
https://oilprice.com/Energy/Energy-General/Pipeline-Problems-In-The-Permian-Are-Overblown.html
Problems overblown? Just reading the article, you can see the problems. Yeah, the smaller producers are more likely to cut back. Small producers drill almost a half of the Permian drilling. Discounts will get oil price in the forties. Regardless of whatever hype oil companies put out, they can’t make money between 40 to 50 oil. Financials of E&Ps the past few years will confirm they don’t. Financials for a lot of these companies that are primarily in the Permian and don’t have derivatives will confirm this again in 2018, and many more will be damaged in 2019, because there will be little derivatives available. Those that had a significant amount of pipeline capacity, will still show zero growth in 2019 for the first three quarters, and increasing costs.
Of course, if WTI goes up to 90 by the end of the year, they may all survive pretty well. Not big profits, but survival.
EIA Short-Term Energy Outlook released today
EIA estimates that U.S. crude oil production averaged 10.9 million barrels per day (b/d) in August, up by 120,000 b/d from June (Typo June should be July). EIA forecasts that U.S. crude oil production will average 10.7 million b/d in 2018, up from 9.4 million b/d in 2017, and will average 11.5 million b/d in 2019.
https://www.eia.gov/outlooks/steo/
World supply/demand chart:
https://pbs.twimg.com/media/Dm06BKkWsAEd6ej.jpg
Ok, the keep adjusting down, and they may eventually get there. 120k since July is 60k a month. Although, I doubt the final monthly figures will support that. I have it at around 10.6 average for the year, and they have gone down from last month’s 10.8 to 10.7, and from last month’s 11.7 to 11.5. I guess closer to 11.1, but we will eventually get there. And their world production/demand chart is a complete joke.
According to the EIA’s spreadsheet the highlights have a typo. US crude oil production is forecast to increase from July to August by +120 kb/day (not June to August)
For GOM I was putting something together for a post later this month, but on production and STEO:
2018 production has so far been below 2017 for every month except June, which had a high maintenance load in 2017 (and it’s likely the final adjusted number will be lower there too if the BOEM estimates prove closer). It has even averaged below my projection from earlier this year, which I expected to be a median-to-low estimate, and especially so as it did not included the Kaikias development that was accelerated by about a year; plus I had not realised some of the large developments (e.g. Jack, Tahiti, Great White) hadn’t quite finished ramp-up in 2017 and also maybe relied on the BOEM reserve numbers being less conservative than is becoming apparent. I think the projection will still be lower than actuality unless the overall average availability in the second half is particularly poor.
The thick black line shows what the remaining production must average to exceed last year’s average, which looks unlikely, although it should catch up a bit if there aren’t any major hurricane related or other unplanned outages. The EIA STEO forecast must be generated by some algorithm because the future figures change each month but I don’t know how, the start is always fixed to actual production and I think there is some compensation to try to match the expected yearly average – i.e. lower than predicted actual production tends to lead to higher later forecasts – having said that though, the September numbers show a marked drop for both this year and next.
Attached is a history of the lower 48 production estimate from the STEO for every second month since March 18. Comparing June 19 projection from the May-18 projection with the Sept -18 one, the projection has dropped by 0.38 kb/d, i.e. 9.57 Mb/d to 9.19 Mb/d.
Yeah, I read it in the wrong location, again. Liquids vs c&c. So, the difference is not a million, just going down from previous. I deleted the dumb post.
2018-09-11 (The Libya Times) Islamic State claims terrorist attack on Libya’s national oil company
The most worrying part in IS’s statement is the threat to wage more attacks on Libyan oil facilities
http://www.libyatimes.net/news/157-islamic-state-claims-terrorist-attack-on-libya-s-national-oil-company
1.2 million drop estimated for September from Iran. More to come from Ven. drops, OPEC countries, overall, looking shaky.
https://seekingalpha.com/amp/article/4205332-irans-crude-exports-plunge-will-saudis-ready
anddd one more time, Iran is a big condensate shipper. Previous sanctions only managed to chop 800K off them because condensate was not covered. We need to know if the new sanctions included it. Haven’t seen a declaration.
Total pulled out of the South Pars project – that is gas/condensate only from what I recall. By the difference between OPEC and EIA numbers condensate is about 700 kbpd and I think a lot of internal use.
We close enough to year end to look at 2019. If we say we have supply/demand equal at the year (which supply is short, but let’s pretend), then demand starts to be estimated at 1.4 million. Add to that a low wag of 300k for declines. So, we would need 1.7 to keep up with demand. The US and Canada may be able to generate one million. Probably not, but let’s pretend. Unfortunately, it looks like Iran drops will offset that. So, OPEC is going to need to increase 1.7 to keep up with demand in this scenario. The more likely scenario is that we will be well over 2 million barrels a day short next year. More than that really, because Canada and the US will not increase much until the fourth quarter.
Guy – I generally agree, as usual. I’d add: Brazil has to get ahead of the decline some time with the number of projects they have so should go up (I said that last year but so far wrong). Nigeria could go either way. Angola could have a big decline if the Kaomba projects don’t do well (and I’d bet on them not). I think EIA are still way high with GoM for this year and next, even if Appomattox is early. UK will go from growth to slight decline – maybe unknown Brexit impacts as well. Asia – mostly accelerating decline I’d guess, could see Oman start to fall also. Norway should start to rise at the end of the year. Russia and maybe Kazakhstan are the biggest non-OPEC unknowns I think. Also loads of places with potential unplanned outages now with aging plant, extreme weather events, Saudi coup (?), and rising social unrest (could be a big jump in FAO food index with rising oil prices and some areas with drought affected harvests on top of general dissatisfaction all over the place).
On the other hand some OPEC countries + Oman have been switching to gas for internal use so there may be a bit more oil for export if not produced (though the general is probably showing increasing internal use by producers (I’ve ended up arguing against myself there I think).
2018-09-12 OPEC, citing secondary sources, says its August oil output rose +278,000 bpd m/m to 32.56 million bpd
The figures (June is missing)
Table: https://pbs.twimg.com/media/Dm5ANTTW4AUpT26.jpg
OPEC sees 2019 non-OPEC oil supply growing by +2.15 million bpd
Table: https://pbs.twimg.com/media/Dm5E_HXXgAA5T8T.jpg
Brent futures back over $79. Interesting take on the situation from Reuters (hope this hasn’t already been posted):
https://uk.reuters.com/article/us-oil-prices-kemp/traders-bet-iran-sanctions-will-leave-market-short-of-crude-kemp-idUSKCN1LR1V8
https://oilprice.com/Energy/Crude-Oil/Can-Oil-Demand-Really-Peak-Within-5-Years.html
I agree with the statement that peak demand will occur in the 2020’s, but not for the rationale stated in the article. Peak demand, or rather consumption, necessarily follows peak oil supply.