253 thoughts to “Open Thread Petroleum, November 2, 2017”

  1. Shallow, quoting you:

    “Watcher. I understand.

    I am starting to think Tesla is a fraud. Or at least the CEO is losing it.

    Mars, tunnels, solar roof tiles that have never been made. Building a camp fire on the roof of a factory, while drinking whisky and making s’mores?

    Burned $2.5 billion in 180 days. A company making a fraction of the vehicles annually than one US Toyota plant makes.”

    Comment thread somewhere went like this (re cash burn of 2.5 billion in 180 days ($14 million/day).

    “Buddy of mine worked at Treasury. His staff’s job was incineration of old dollar bills. He said their best ever day, never could do more with maximum effort, was $3 million in a day.”

    haha

    1. Hi Watch and Shallow.
      I think Tesla’s efforts in the car market are remarkably focused and prudent for what they are trying to do.

      Consider: they started in 2003, and built the Roadster- a small production vehicle (2450 copies) to learn how to build cars. They decided on a market segment they could be successful in with a relatively limited risk; essentially craft production and about half outsourced engineering. It made them an actual company, let them make mistakes, got a lot of promotion and built a saleable brand (electric performance).

      Next: the Model S. Another segment they could do well in: Luxury Grand Touring. Bigger production runs, but not so large the risks were untenable. Could do their own engineering and over-engineer so they can scale back what they’ve learned for a mass market vehicle. Learned more about mass production of cars, marketing, customer service, etc.

      Now they’re betting big, and having some hiccups on the Model 3. However they have a track record and glowing reviews for previous products. Going from 300 cars a year in 2008 to 50,000 now and aiming for 300,000 in 2018 shows that they are building a company in stages and that they have planned what they are doing.

      It costs billions of dollars to build factories from scratch; not spending billions of dollars at this stage would be cause for concern, as it would show that they were not serious about a mass-market vehicle.

      -Lloyd

      As for the other stuff: they’re building a low-cost, reusable spaceship. This makes up, in my mind, for the tunneling/hyperloop whackiness (though I’m even coming around on the hyperloop).

      1. You do realize India has a space program?

        No sewers but a space program.

      2. My first impression of the hyperloop idea was that it’s nut case stuff, that it will never be possible to make it work on an economic basis.

        But after thinking about it for a while, it seems to me that pulling a partial vacuum in a nice round tunnel that’s reasonably straight isn’t going to be all that big a deal, compared to the cost of excavating the tunnel.

        So if we can afford subways and elevated trains and high speed surface trains, we should be able to afford hyperloop as well, considering how fast it will run, and how many people it will be able to carry when built in the right spots.

        The reason I changed my mind is that I realized that virtually everything involved in building a hyperloop system is now old hat, off the shelf tech, for all intents and purposes.

        Pressurized passenger vehicle equals cabin of airliner. Tracks will be basically the same as any other track. If magnetic levitation is desired, well, the tunnel is as suitable a location for it as anywhere, if it gets to be cheap. Airlocks are old hat, I’ve been thru some myself.

        Electronic traffic control, old hat.

        Tunneling machines, old hat.

        The only thing that’s actually NEW is putting together these parts in a new combination.

        Sealing the tunnel to hold a modest vacuum does not appear to me to be any more difficult that sealing a large water main to hold water pressure of a couple of atmospheres or more. And if there’s a leak, well it just means the trains run slow until it can be fixed.

        The savings in energy needed to move the trains at the anticipated speeds may actually be enough to offset a substantial part of the energy needed to maintain the necessary vacuum. Hell, if the tunnels are well sealed, there may even be a net energy savings, compared to an ordinary subway.

        If anybody knows of an engineer who blogs about this topic, and presents various scenarios with some performance and cost numbers worked out, I thank them in advance for posting a link to his blog.

        Hyperloop tech may eventually displace one hell of a lot of buses and cars and even a substantial number of short hop scheduled airline flights. And freight can be sent this same way, especially with automated freight handling. Bottom line, mostly renewable electricity can replace a hell of a lot of diesel fuel.

        That will leave more diesel for folks out in the boonies, like me. 😉

        I’m not so sure that batteries powerful enough to run farm machinery will ever be cheap enough to be practical. There’s a hell of a difference between the total cost of using a battery all day every day, as in a city delivery vehicle or cab, as opposed to using it a couple of months sixteen or more hours per day , but letting it sit idle most of the rest of the year.

        I don’t think there will ever be any mass transit of any sort available out in the boonies, other than maybe something along the line of automated vans that might pick up people on a schedule maybe twice a day to take them to town and back home again. Once in town, they could then hire a car to take them to specific destinations.

        Automated vans running scheduled routes could displace millions of cars , tens of millions of cars even.

  2. new tax bill…all I have found so far on the depletion allowance;

    Will companies still be able to take advantage of loopholes?

    Yes!

    Oil and gas tax breaks cost about $2 billion a year, but they are among the most durable tax breaks in the code. A century ago Congress adopted a provision that allowed companies to write off “intangible drilling costs” in the first year of exploration. The provision still exists. The depletion allowance, first adopted 91 years ago, lets companies treat oil and gas in the ground as capital equipment; thus they were allowed to write off a about a quarter of it as they take it out of the ground.

    The industry says it deserves special treatment because of the high risks involved in drilling, although advances in seismic testing have greatly reduced the chances of drilling dry holes. The largest oil and gas companies have not been able to benefit fully from the depletion allowance since a change in the law in 1975 and the allowance was reduced somewhat. But there are still plenty of big independent companies that qualify, including companies like Apache and Continental Resources — and during the campaign President Trump listened to a lot of the advice given by Continental’s chief executive Harold Hamm.

    The proposal does eliminate some oil and gas items. It repeals creditrs for enhanced oil recovery and production from marginal wells, but those items have virtually no revenue effect.

    https://www.washingtonpost.com/graphics/2017/business/tax-bill-q-and-a/?utm_term=.fcf89ee6b7a5

    I hate to declare victory yet any body seeing anything to the contrary?

      1. The House bill would also end two smaller breaks for “marginal” oil wells and enhanced oil recovery projects, which involve older oil and gas fields. That would cost drillers about $371 million over ten years, the Joint Committee estimated.

        I have not read the bill so I am not sure what this means.

        https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf

        One would need to know the tax code much better than me in order to interpret this bill.

        I seems to simplify the tax code one would start by saying the previous rules have been rescinded in their entirety and then start from scratch.

        It might also make the bill readable.

        The US tax code is ridiculously complicated.

        Maybe there is a smart accountant that could find a way to simplify.

        Section 3505 applies to marginal production and is on page 265 of the bill to understand it you have to go back to the 1986 tax reform.

        It seems there was a tax credit for marginal wells which has been eliminated, but I don’t understand the tax code to be honest.

        The relevant section is at link below and has been struck. Maybe an accountant can decipher (or a lawyer).

        https://www.law.cornell.edu/uscode/text/26/45I

  3. World C+C 12 month centered moving average, new peak in most recent 12 months (Aug 2016 to July 2017) of 80,842 kb/d about 75 kb/d higher than previous 12 month average.

    Roughly a plateau in 12 month average output for the past 18 months.

    1. Nice graph. Shows an annual increase of 0.8 million bpd over the period. I notice that after 2008 the graph becomes much smoother. Probably due to the focus of money and effort to worldwide oil production. Large dips seem to coincide with economic problems, but what caused the 2005 to 2007 decrease?

      1. Hi Gonefishing,

        The rapid ramp up from 2002 to 2005 may have led to overproduction and possibly stocks got too large. Also prices climbed over this period so perhaps there was a bit of an efficiency increase.

        Another factor may have been the greater use of biofuels over this period which might have reduced petroleum demand a bit. The US substituted 10% ethanol in most of its gasoline supply over this period, thus reducing demand for gasoline somewhat.

        These are all guesses, I don’t have the answer as there are undoubtedly many effects intertwined.

        It does not look like stocks are the explanation for the US. If you look at annual supply of finished petroleum products in the US, they decreased from 2005-2007 so maybe it was efficiency or a slow growing World economy.

        https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mtpupus1&f=a

        Ethanol input to fuel supply

        https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mferius1&f=a

        Also crude prices went from 54 to 72/b over the 2005-2007 period which was uncharted territory at the time (prices were 31/b in 2003), this may have lead to people choosing more efficient vehicles (I bought my first Prius in 2005 and may not have been the only one.)

        2. I think the logical answer is peak cheap conventional oil. Up until about 2004 there was spare oil production capacity in the world – in an low-oil-price environment with no supply constraints, fairly fast GDP growth equaled fast oil consumption growth. Around 2004 oil supply flattened out, and oil prices started to rise to maintain a balance of supply & demand.

          1. Hi Nick,

            Yes that is correct. The question was why did supply decrease when there were not any obvious signs of recession from 2004-2007.

            Two things were happening, there was an increase in the use of biofuels and there was also an increase in oil prices which led to improved efficiency in the use of oil, there may also have been a draw down of stocks because eventually the blend wall was reached in the US (so increases in ethanol use slowed) and prices continued to increase, but then supply started to increase in response to high prices (2007-2008).

            Part of this may have been a lag between high oil prices and the time to complete new projects.

            Your explanation is logical, but it misses some of the complexity of how supply and demand balance occurs, it is not instantaneous, nor straightforward.

            1. Well, I think we agree on the basics, but not quite on how to describe the narrative of what happened, of how to explain the cause and effects.

              I’d describe it this way: cheap oil started to plateau and decline around 2004. Demand continued to rise due to economic growth, so prices rose to ration oil consumption. Ethanol production rose, but that wasn’t enough to replace the missing oil production, so prices continued to rise to restrain consumption.

              Finally, after a lag, high prices succeeded in incentivizing enough production to satisfy demand at that price, and then after another period production overshot consumption* and prices fell.

              *One could argue that OPEC caused the price collapse by raising production, but I think they simply recognized that US production was going to continue to rise quickly and cause a price collapse, and they decided to cut to the chase, and beat the US to the punch by raising their production. They describe that as protecting their market share.

              I’d also argue that KSA had a secondary motive for accelerating the price collapse: they knew that prices above $100 would incentivize alternatives, especially EVs, and that was a mortal threat.

            2. Hi Nick,

              We don’t really have great numbers on “cheap oil”, where is this “cheap oil” produced? Are you talking about OPEC, OPEC plus Russia, OPEC Russian plus US onshore conventional?

              So perhaps your story is correct, one would need some data to back it up though, otherwise it’s only a story.

              Mine is based on numbers we have. Ethanol output in the US and C+C World output, oil prices, and World GDP in constant dollars, so I will stick with my story as I don’t have any data on “cheap oil” output.

            3. When I refer to “cheap oil”, I’m referring to everything that was produced at 2004 prices.

              So, let’s start with a simple question: imagine a world where the price was capped at the level that existed in 2004 (perhaps by an international version of the US WWII Office of Price Administration). On the demand side you’d start to see shortages, but let’s ignore that for a moment. On the supply side – do we have general agreement that C&C supply would have continued to decline?

            4. Hi Nick,

              The average oil price in 2004 was $38/b and in constant 2017 $ the price was about $47/b.

              The real price of oil has been under the average 2004 level since August 2015.

              We do not know how much “cheap oil” has been produced, but using your definition for 2016, all the oil produced was “cheap” as the average real price of oil was less than the 2004 average real oil price.

            5. The real price of oil has been under the average 2004 level since August 2015.

              hmm….kind’ve. Not really.

              First, some of the oil that has been produced since 8/2015 was drilled and completed when prices were much higher. And, some of the large projects that have come online or will come online later than that were based on higher prices. So, it’s “expensive” oil that is being produced because most of it’s cost is “sunk”, and the marginal cost of production is lower than current prices.

              2nd, much oil is being produced, and projects being planned, under the assumption that prices will rise later. If everyone in the oil industry (and in the investing community) really, really believed that prices were never going to rise above $47 (in 2017 dollars), would you expect oil production to rise or fall?

            6. Hi Nick,

              You said use the price. You like to move goal posts.

              I don’t think anyone knows the future price of oil.

              I also don’t think we have a good handle on how many barrels were produced at what cost.

            7. You said use the price. You like to move goal posts.

              I’m not sure what you mean. I’m referring to the 2004 price, which you indicated was $47 in 2017 dollars.

              I agree that we don’t know the mix of production costs, or future prices. But, work with me here: do you think oil production would have increased after 2004 if oil prices hadn’t gone up, and incentivized tight oil production?

              I thought there was a consensus on this blog that the rise in oil production after roughly 2004 was caused by US tight oil, and that the increase was caused by higher oil prices which incentivized much more aggressive production – am I wrong?

            8. Hi Nick,

              If prices had remained low, output would have remained low, or ceteris paribus output would not have risen as much.

              I suppose we could imagine some scenario such as a World Great Depression from 2004 to 2017 or price controls World wide with the shortages that would have been likely (and a World Depression possibly resulting).

              Conventional output (not from extra heavy oil or tight oil) has been fairly flat since 2004, some of this “conventional oil” has been from deep water offshore and is far from “cheap”.

              My simple point is that we don’t have data to back up the “theory” espoused in introductory microeconomics textbooks.

              In the short term these theories are wrong as often as they are right because there are so many simplifying assumptions that are unrealistic.

              In the long run the theory may be correct, but you may remember what Keynes said about the long run.

              https://www.quora.com/What-is-the-meaning-behind-the-John-Maynard-Keynes-quote-In-the-long-run-we-are-all-dead

              The fact is that what is “cheap” is determined by each individual. The price of oil matches demand and supply, weather it is “cheap” or dear is of little relevance, over the long run the marginal cost of production will match the price if the market is perfectly competitive.

            9. hmmm. I’m surprised by this disagreement.

              US oil production declined from the mid 1980’s until around 2006. Is there any question that it would have continued to decline if prices had stayed at the 2004 level?

              Heavy oil production expanded with higher prices, and is currently un-economic: “Factoring in blending and transportation, WTI equivalent costs increase to US$60.52 for SAGD and US$75.73 for a stand-alone mine. Those numbers are down 25% and 16%, respectively. The big jump in SAGD breakeven costs reflect the high price of diluent required to blend the bitumen product. Diluent (typically condensate) trades almost at par with WTI.

              CERI therefore concludes that no greenfield oil sands project is economically feasible under the current pricing environment.

              However, the author concedes the same could be said for any new oil development around the world, and profitability will improve considerably when (not if) oil prices eventually recover.”

              http://www.oilsandsmagazine.com/news/2017/2/9/oil-sands-breakeven-prices-decline-since-2015

              deep water offshore and is far from “cheap”

              Is there any question that the same logic applies here: that many existing deep water projects would not have been “green-lit” if prices were lower at the time, and that deep water investment would plummet if low prices continued??

            10. Well, as I re-read you comment above, maybe we’re not disagreeing.

              I guess I’m not sure what it is in microeconomics you’re concerned about.

            11. Hi Nick.

              No there is no question that if prices had remained at 2004 levels or less that World oil production might have declined.

              The point is that economics suggests that unless there was some technological revolution (which was not apparent to me) that demand for oil would continue to increase if the World economy continued to grow and your hypothetical of oil prices at the 2004 level or less is not realistic.

              The point about microeconomics vs macroeconomics is that there was a time that economists argued that laissez faire was the best policy.

              Keynes destroyed those very simplistic arguments in The General Theory of Employment, Interest, and Money.

              Microeconomics generally assumes a very rapid adjustment of a market to a new equilibrium in response to shifts in the supply or demand curve (or both). In capital intensive industries this is far from the case.

  4. http://www.zerohedge.com/news/2017-11-02/teslas-having-worst-day-ever-gop-tax-plan-calls-axing-electric-car-credit

    “That will stop any electric vehicle market in the U.S., apart from sales of the highly expensive Tesla Model S,” said Xavier Mosquet, senior partner at consultant Boston Consulting Group, who authored a study on the growth of battery powered vehicles. “There’s no Tesla 3, no Bolt, no Leaf in a market without incentives.”

    Now then, about that 8% Indian oil consumption growth. And China’s 6.6%.

    2. You are better off buying next years EV that buying this years with the credit considering
      Steady improvements in range and drive-trains/battery tech. 60kWh in a Bolt over 24kWh in a Leaf
      is a BIG deal – but these cars are as complex as ICE’s. The biggest problem is people don’t want cars – they want SUV’s and Pickups and batteries/drive-trains with the required utility are a couple of years away. Some plan to never buy an ICE anything again. In the meantime my 01 5.9L Cummings 5 speed burner must do as long as fuel is < $5 USG. Once Petro prices normalizes EV demand will pickup.

      2. Hi Long Timber,

        The Bolt is essentially a compact crossover SUV about the size of the Kia Soul. With the rear seat folded down the cargo space is 56.6 cubic feet. For Rav4 hybrid the cargo volume behind first row is 70.6 cubic feet and for the compact C-HR it is 36.4 cu ft behind first row.

        Tesla’s Model Y will be the low cost SUV crossover, probably priced about the same as the Model 3 and my guess is that is will be about the size of a RAV4 or perhaps the Bolt.

    3. But Tesla has a foothold in China.

      Killing US EV manufacturing will just give China another opportunity.

        1. Maybe a toehold. They have announced they will build a factory there, might be hype though.

  5. …a couple of GOP Representatives had to come along and propose a tax bill that would eliminate a key component on Tesla’s business plan: taxpayer subsidies. As SF Gate notes, each electric vehicle purchased in the U.S. is currently eligible for a $7,500 tax credit…a credit that has long served to artificially prop up a business that would likely not exist but for the generosity of taxpayers.“That will stop any electric vehicle market in the U.S., apart from sales of the highly expensive Tesla Model S,” said Xavier Mosquet, senior partner at consultant Boston Consulting Group, who authored a study on the growth of battery powered vehicles. “There’s no Tesla 3, no Bolt, no Leaf in a market without incentives.”

    http://www.zerohedge.com/news/2017-11-02/teslas-having-worst-day-ever-gop-tax-plan-calls-axing-electric-car-credit

    1. Hi Texas Tea,

      The EV credit phases out after a manufacturer sells 200,000 cars. Tesla has already sold 148,000 cars.

      It never expected the EV credit to apply to most Model 3 cars sold (already 500,000 pre-orders).

      In fact this tax law change will give Tesla an advantage over other car manufacturers who expected to get the EV credit, but may not.

      So investors who are smart will realize this helps Tesla rather than hurting them.

      I plan to buy a Model 3, but put in my order late so I never expected to get the $7500 credit, many of the other people waiting for a Model 3 probably have no expectation of getting a $7500 credit.

      1. Dennis

        If the tax credit removal on EVs in Denmark, Hong Kong, state of Georgia, and the looming cut in Norway offer any guidance, Tesla might be sucking wind.

        On a somewhat related note, the federal government down in Oz is saying if wind and solar are so inexpensive, mebbee they don’t need all the financial credits they currently receive. Growing reports of elderly people buying food that does not need cooking, as they cannot afford to heat the food, is starting to create enormous social and political pressure Down Under.

        1. I find it very hard to believe that electricity is so expensive in Australia that people can buy ready to eat food cheaper than they can buy food that needs cooking, never mind the almost trivial amount of electricity needed to simply heat up most foods.

          Sounds like fossil fuel fake news to me, or possibly sarcasm on the part of the person who originally said something to that effect. Sarcastic remarks are often repeated by people who fail to recognize them for what they are.

          Electricity that is supplied by a grid that has only a very few customers on many miles of transmission lines is necessarily very expensive but this doesn’t pass the smell test.

          1. Retired couple Brian and Fay Willot were interviewed by Aussie 60 Minutes show and described how they cannot heat their residence, heat water, nor cook food due to the high cost of electric.
            Their plight was particularly magnified via the show’s interview with Elon Musk.

            Believe or disbelieve as is your choice, Mac.

            This and the coming winters should have several similar plights out of New England for essentially the same reasons.

            1. Sounds like a lack of insulation is the problem, not a lack a fuel.

              Building poorly insulated houses and then heating them for decades is plain stupid.

            2. It’s a combination. Insulation and double glazing are rare in Australia or have been until probably the last decade in the southern part of the country. Having spent time in North America, the build quality of houses in Australia is sorely lacking in comparison.

              In addition, there’s a lot of electricity used for heating. I did a comparison about 5 years ago to various areas in North America to Australian electricity prices and it’s no exaggeration to say even then Australian prices were around 2-3 times higher. Gas isn’t available where I live, so I can’t comment there.

            3. Hi Coffeguyzz,

              Not many in New England heat with electricity, most use Natural Gas and a fair number use No 2 heating oil (essentially high sulfur diesel fuel).

              In rural areas many use wood, especially as oil and natural gas prices increase. The nice thing about a wood stove is no electricity is needed. Generally speaking demand for electricity has been decreasing and one can always turn down the thermostat if one uses a heat pump (not usually very good for Northern New England) and electricity prices rise. Warmer winters also make this less of a problem.

              Good report on the problem at link below.

              https://www.iso-ne.com/about/regional-electricity-outlook/grid-in-transition-opportunities-and-challenges/natural-gas-infrastructure-constraints

              It would seem the simple solution would be for a law to be passed in Massachusetts allowing Electricity suppliers to pass on the cost of long term natural gas pipeline contracts to customers so new pipelines can be built.

              It would also make sense to study wind and solar resources to see if the Northeast region can get by with less natural gas and maintain reliability as wind and solar resources increase.

              In fact, electricity could be produced in the Marcellus area (where natural gas supply is plentiful) and shipped over an HVDC line to New England. I doubt this is the cheapest option, though no doubt existing HVAC lines might be able to ship electricity to New England during times of Natural Gas shortage.

              High electricity price during times of shortage would be passed through to consumers. In fact people should have a monitor in their home telling the current electricity price and they can turn down the thermostat or delay drying their clothes etc in an electric dryer during high price periods, they can also turn off the lights and switch to LEDs.

            4. Now there’s a hell of a difference between affording enough electricity to provide heat and hot water and run all the other things usually found in a house on the grid, as compared to just enough to COOK and or heat food.

              So how much does a kilowatt hour delivered cost at the boonie ends of the Australian grid? I presume the customer pays a flat rate for simply being ON, and then so much per kilowatt hour for whatever he actually uses. The minimum bill often includes a certain number of kilowatt hours here in the USA, but I don’t know about Australia.

              I don’t doubt that there are people in Australia that can’t afford food, or heat, but I do find it hard to believe that if they can afford to eat, they can’t also afford enough electricity to cook. Ready to eat foods are FAR more expensive that staples that have to be cooked.

              Even at fifty cents Yankee per kWh, it would be cheaper for me to cook basic staple foods on an electric stove than it would be to buy ready to eat foods. And even a quarter of a kilowatt hour is enough to thoroughly heat up a fair sized meal for two people, or even three or four people, if you use a microwave.

              Now it’s EASY to see why solar power is getting to be so popular in Oz. If purchased juice costs anywhere near fifty cents per kWh in yankee money, a personal solar system would be a world class bargain.

              And in mostly sunny Australia, a dirt cheap solar cooker would eliminate most of the cost of cooking, especially for anybody who is retired or unemployed, or if there is a stay at home family member and a working member. I built one myself just for the fun of it. It worked very well on a sunny day. Gave it away, because using it to save a few bucks a month would be a waste of my time. I have a solar domestic hot water system I built myself too. It was saving me maybe fifteen or twenty bucks a month on average year round until it started leaking. I’ll fix it someday.

        2. Hi Coffeeguyzz,

          The law was written with the phaseout after 200,000 vehicles in the US. The phaseout occurs over the two years after the 200,000th car is sold under current law, first two quarters full credit, next 6 months half the credit, last 6 months 1/4 of the credit, then no credit.

          This has always been expected. So far there has not been a car like the Model 3, though the Chevy Bolt is close, I don’t know if the Chevy Bolt is available in Europe. As far as natural gas driving solar and wind out of the market, eventually natural gas prices will rise.

          It is the output of the average well that matters, not the best well. I agree the USGS estimate may be too low however.

          I don’t follow shale gas very closely, but my guess is that the companies tend to overstate the average new well EUR.

          Based on shale profile Marcellus output has been pretty flat. This is also true for US natural gas output over the past year or so. EIA projections for tight oil are not very realistic beyond 2025, this may be the case for shale gas as well.

            1. Hi toolpush,

              Using monthly data at

              https://www.eia.gov/dnav/ng/hist/ngm_epg0_fgw_nus_mmcfdm.htm

              Chart below shows 2013 to 2017 monthly data for gross withdrawals in millions of cubic feet per day, the red dashed line is the Jan 2015 to Aug 2017 average monthly output (89560 MMCF/d). So US natural gas output has been relatively flat since Jan 2015.

              The shale gas output has indeed increased, but Marcellus has been relatively flat in 2017 relative to 2012-2013 (an increase of only 1 MMCF/d). The increases in shale gas have been offset by declines in conventional output since early 2015.
              Shale gas increased by 6 MMCF/d while conventional natural gas output decreased by a similar amount.

              You are correct that overall shale gas growth for the past year has been impressive at 10% per year. Marcellus growth has also been impressive at 11.6%/year, with much of that growth occurring in late 2016, since Jan 2017 Marcellus has grown more slowly (7.8% annual rate) and for the first 6 months of the year (Jan to June) the annual growth rate was only 0.7%.

            2. Dennis,

              The answer was on the page I linked.

              Permitting, drilling, and infrastructure activities increase as Pennsylvania’s natural gas production reaches new highs

              Pennsylvania’s natural gas production reached a new high of 15 billion cubic feet per day (Bcf/d) in October 2017, an increase of 25% from year-ago levels and an increase of 80% from January 2013.

              25% increase in a year from a large base is anything but flat. I think you will find these numbers are taken from flow data, which are very current, verses production data which is often several months old.

              In the last 2 days 2 new pipelines have come into partial use, with more to come in the current month. The price in the Marcellus region is currently under $1 as per the linked artical. meaning plenty of supply no take away capacity. You can argue as much as you like about how long it will all last, but right at this moment in time the Marcellus /Utica is roaring ahead and will continue as new pipelines come on line.

              Appalachian weekly average prices increase. Tennessee Zone 4 Marcellus spot prices decreased 28¢ from $0.80/MMBtu last Wednesday to $0.52/MMBtu yesterday, but weekly average prices increased 9¢, from $0.63/MMBtu last report week to $0.72/MMBtu this report week. Prices at the Dominion South hub in northwest Pennsylvania fell 56¢ from $1.23/MMBtu last Wednesday to $0.67/MMBtu yesterday; however, weekly average prices increased 30¢, from $0.79/MMBtu last report week to $1.09/MMBtu this report week. According to pipeline project data from PointLogic, at least two Appalachian pipeline projects—Access South and Adair Southwest—were put into partial service this report week, increasing the takeaway capacity from the Appalachian production region. Both projects involve new construction and modification of existing facilities, e.g., pipeline reversals, to move natural gas from the Appalachian production region to market.

              https://www.eia.gov/naturalgas/weekly/#tabs-storage-2.

            3. Hi Toolpush,

              Here’s the Pennsylvania page linked from the page you gave.

              Looks pretty flat to me.

              https://www.eia.gov/dnav/ng/hist/ngm_epg0_fgw_spa_mmcfdm.htm

              I realize now that Oct of 2016 was a very low output month, better to look at 12 month average output in my view so monthly spikes don’t give false information.

              If we look at the trend in the natural log of the centered 12 month average for the past 12 months (April 2016 to March 2017) the annual growth rate is 2.4%/year.

              For the US as a whole (the more important metric in my view) natural gas output has been relatively flat for a while.

            4. Looks like the URL is missing, Dennis.

              Marcellus gas output has been constrained by pipeline capacity.
              Lately I have seen quite a number of sand cars headed up into the Marcellus region fed by a local railroad system.

            5. Hi Gonefishing, fixed thanks.

              Yes I agree pipeline capacity has been a constraint, we will see what happens when pipelines open up.

              About 4.75 to 6.25 BCF of pipeline capacity is scheduled to open up by late 2017 (with one 1.5 BCF/d project waiting on approval.

              It is not clear there is demand for another 6 BCF of natural gas, but that would be better than burning coal over the short term.

              Maybe some will be exported.

              https://www.forbes.com/sites/judeclemente/2017/06/25/the-northeast-natural-gas-pipeline-buildout-is-coming/#2c3132c77f74

              see figure one at link above.

              But, the Northeast gas pipelines are indeed coming, perhaps more than 20 of them, with some 18-20 Bcf/d of new takeaway capacity by 2022. This will allow this once constrained gas market to continually reach even more end-users downstream and increase gas-on-gas competition. In fact, Appalachia  gas will be fueling mushrooming gas power plants across the country and even distant LNG export terminals along the Gulf. Natural gas is surging toward being 50% of all U.S. generation capacity.

            6. Hi toolpush,

              So for the past 20 months (Jan 2016 to August 2017), Pennsylvania natural gas output has increased at an annual rate of 0.9% per year, based on monthly output data.

              Note that the weekly data is historically very inaccurate, monthly data is far more accurate (though not perfect especially for the most recent 3 to 6 months).

              Chart below shows natural log of monthly natural gas output in Pennsylvania (gross withdrawals) in MMCF/d from Jan 2016 to August 2017.

              if chart is too small clicking on the chart gives a larger view.

        3. If the tax credit removal on EVs in Denmark, Hong Kong, state of Georgia, and the looming cut in Norway offer any guidance, Tesla might be sucking wind.

          When tax policies change, people stock up before the end. So there’s a big surge just before, and a big drop after. But, the effect is temporary.

        4. The high price of electricity in Oz is unrelated to wind & solar credits.

          I haven’t seen a good, well organized explanation of why their power is so expensive, but it seems to have a lot to do with overbuilding of conventional generation. And, Mac’s explanation makes sense: a very low density customer base (Australia is very, very large, but the population….not so much) would cause very expensive transmission.

        5. re: Australian electricity prices

          Good old price gouging (after privitisation – spelled with an “s” since it’s Oz), plus a shortage (e.g. resulting in higher price) of natural gas seems to be to blame.
          http://www.news.com.au/finance/money/costs/the-real-reasons-why-our-power-prices-are-going-up/news-story/c61b12ecd56001bfbcd2b9f45c581d7b
          http://www.cleanenergycouncil.org.au/policy-advocacy/electricity-prices.html

          Old, beat coal plants closing down, new ones cost too much.
          Private industry is making big bucks exporting natural gas to Asia, so who cares about the folks at home.

          60 minutes australia seems NOT be be viewable outside of Oz,
          but a few short tweets from the show:
          Transgrid CEO Paul Italiano believes it is time we address renewable energy options
          https://twitter.com/60Mins/status/924581228841385989
          In Salisbury, SA Michael & Melissa installed a battery to store the energy produced from their solar panels. Their savings have been huge.
          https://twitter.com/60Mins/status/924580673406435329
          Lithium Ion Batteries – apparently an Aussie company mining Lithium
          https://twitter.com/60Mins/status/924579567708258304

          If you look down their main page of tweets for Oct 29, you’ll find more shorts including the Elon snippets.

        1. Hi Shallow sand,

          Basically the deposit just puts me in the line, no date, probably late 2018 or early 2019 (and my guess is probably as good as my guesses on the oil price).

          I am not holding my breath, I will get one eventually.

          1. Hi Shallow sand,

            The Tesla website says mid 2018, but based on the 3Q Tesla report this has been pushed forward about 3 months, so late 2018 might be right.

            1. I have never understood the use of forward and back with respect to time. People use it both ways. However, I do have my own preference.

              Generally, I tend to associate forward as something gettting closer and back as something getting further away. As in walk forward 3 steps and walk back 3 steps. Or, back your car up, or move it forward.

              So, I think that your Tesla schedule has been pushed back 3 months [personal opinion]. Kind of like “the crowd pushed forward, but the police pushed them back.”

              While it does not matter to you [as you stated], my personal opinion is that it will be pshcologically tough for some people to pay $7,500 more for their vehicle than someone else.

            2. Hi Clueless,

              That was the risk in waiting to get in line. It was pretty clear for the Model 3 with 500,000 people in line that I would not get the tax credit. I will be treated the same as anyone else who buys the car at the same time.

              If it was important to get a lower price I could wait as prices will probably get lower over time, this is just the early adopter problem and the credit helps with this problem a bit.

              In any case I will be happy to get a Model 3, if I get some of the EV credit (probably only 1/4), great, if not it is ok.

              If the credits are repealed not much I can do.

        2. Hi Shallow sand,

          My reservation was made on Sept 16, 2017, according to a third party estimate I found online I should get my Model 3 in late December 2018, in reality it is likely to be the first quarter of 2019.

      3. why does that not surprise me?…can you say delorean
        The DeLorean Motor Company (DMC) was an American automobile manufacturer originally formed by automobile industry executive John DeLorean in 1975.[1] It is remembered for the one model it produced — the distinctive stainless steel DeLorean DMC-12 sports car featuring gull-wing doors—and for its brief and turbulent history, ending in receivership and bankruptcy in 1982. Near the end, in a desperate attempt to raise the funds his company needed to survive, John DeLorean was filmed appearing to accept money to take part in drug trafficking, but was subsequently acquitted of charges brought against him on the basis of entrapment.[2]

        1. Hi Texas Tea.

          Tesla has delivered 250,000 vehicles by Nov 1 , 2017. DeLorean made about 9000 vehicles.

          By 2019 Tesla expects to be making 500,000 vehicles per year, the base Model 3 will sell for $35,000 in 2018 and has a range of 220 miles. No doubt range will increase or price will decrease (or both) as battery cost continues to fall with economies of scale.

          Note that over 150,000 miles about $12,000 to $12,500 is saved in fuel cost compared to the Mercedes C class (at 28.5 MPG assuming 50/50 highway city MPG and $2.50/gallon gasoline cost.) I have assumed a high New England electricity price of 16 cents per kWhr and 34 kW-hr per 100 miles.

          The battery warranty is only for 100,000 miles.

          http://www.greencarreports.com/news/1110149_tesla-model-s-battery-life-what-the-data-show-so-far

          The report above suggests for the Model S early models that the battery range might degrade to 85% of initial range over 150,000 miles.

          I plan to get the larger battery (car cost about 50k currently) with about 310 miles of range which would slowly degrade to 260 miles of range after 150,000 miles, with the fuel savings over the life of the car and lower maintenance costs (essentially brakes and tires only) the TCO will be less than a Mercedes (which I have never owned), probably a little more than a Camry Hybrid (which I do own and gets 40 MPG and cost about 30k). Roughly about $11,000 more in TCO for the Model 3 ignoring maintenance cost for the Camry (essentially 15 oil changes or $750 bucks for Mobil 1 oil changes) compared to Camry hybrid. The Model 3 is more like a Lexus and has features (Autopilot) not available in the Lexus or might cost the additional $11,000 if offered.

          The 49k price is a high end Model 3 with Autopilot and 310 miles of range.

          1. The Chevy Bolt would be about 43K and the EV credit will be used up pretty quickly by GM as well as there have been many Volts that have also received the EV credit.

            https://insideevs.com/us-federal-7500-ev-credit-expiry-date-by-automaker-estimates/

            The phaseout is expected to start for both GM and Tesla in 2Q2018 and fall to zero by 3Q2019.

            I like the convenience of the Tesla supercharger network, the autopilot (not available for the Chevy Bolt), and don’t really like GM cars so I will pay extra for the car I want with reduced incentive (possibly zero) and the ability to reduce my emissions (electricity already sourced from wind and hydro, but I may get solar panels as well).

            1. Dennis.

              Seeking Alpha has some authors that have been writing bear articles about Tesla for quite some time.

              What is interesting to me is that Tesla bulls do not refute them with specifics.

              I read the CC transcript. I think there is something fishy going on with Tesla.

              I agree that Tesla has made some remarkable strides regarding EV. But it looks to me right now that something is wrong.

              I don’t think EV is going away, if anything the big automakers are now committed. I am just not sure whether Tesla is a viable company in its present form.

            2. Hi Shallow sand,

              I don’t read seeking alpha. Right now Tesla is trying to ramp from 50,000 cars per year to 500,000 cars per year over a two year period (2017 to 2019), perhaps all the bears thought this would be easy to accomplish, I had no such illusions.

              For those interested info is at

              http://ir.tesla.com/events.cfm

              There is no guarantee that Tesla will succeed.

              They have produced a total of 250,000 cars since 2011 with 108,000 over the past 34 months, in 2012 Tesla produced about 2650 Model S vehicles (first 6 months of production.)

              Maybe they are not viable, I think they will make it, they are having problems getting all the automation working correctly, they expect to get to 5000 vehicles per week by the end of quarter one 2018, but it might take until the end of quarter 2. In that case I don’t get my car until 2019 maybe quarter 4, I will wait.

        2. I have a friend with a Delorean.

          They are JUNK, pure and simple, by any measure. They are NOT high performance cars, and it’s nearly impossible to fix a dent in a brushed or polished stainless steel body panel.

          The only thing you can say for them is that they aren’t rusting away, and that getting mechanical parts is easy, given the ho hum Ford station wagon drive train.

          I’m surprised they ever managed to sell even nine thousand of them, but there are always a few fools around with money. My friend got his for peanuts, gambling that it would eventually be worth something as a collectible. It’s been collecting dust for twenty years, and so far, it’s still worth peanuts.

          1. Hi OFM,

            I’d buy Doc Brown’s fusion powered model. 🙂

            Roads? Where we’re going we don’t need roads…

    2. Hi Texas Tea,

      If it were for an oil company it would not be called a subsidy, it would be a tax break.

      Otherwise one would be accused of being anti-oil and having an agenda.

      You can call it a subsidy for EVs, but don’t turn around and say the percentage depletion allowance is not a subsidy. Be consistent.

      And yes other extraction industries get a percentage depletion allowance, not all of them get the same percentage. On page 37 of Publication 535 they give the percentage depletion allowance for various mining products, only a few are higher than oil and natural gas (see below).

      Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica …….. 22%, everything else is 15% or less, except natural gas sold under a fixed contract (also 22%).

      https://www.irs.gov/pub/irs-pdf/p535.pdf

      1. Ok how is this for consistency. As I understand it the depletion allowance as been in the tax code since 1929, so 88 years. over that time numerous policy makers have weighed and balanced the “cost” versus the benefit and has always come out on the side that the greater good is served by maintaining the allowance for a segment of our production. NOW that is what I call consistency and why a predicated it would survive again.

        Now you be constant, how on earth is the greater good served by giving tax credits to very wealthy individuals who want a very expensive play toy for their garage. give me strength.

        1. The tax credit applies to both cheap and expensive EVs. If you don’t give it to expensive EVs, you’re discriminating against the wealthy!!!

          Seriously….there are several good reasons for the credit: one is that we subsidize oil heavily by not charging oil consumers for the cost of the pollution they emit (sulfur, particulates, NOX, SOX, CO2, etc), and for the cost of security in the form of trillions of dollars to police the ME.

          Not to mention the ten’s of thousands of soldiers who have been killed or disabled in the ME. They’re there because of oil, and the least we can do is recognize their sacrifice and recognize the cost of war.

          1. Well said, Nick.

            The externalized cost of oil is more than enough to take your breath away.

        2. Hi texas tea,

          It is served by developing a technology that will be needed when oil output peaks and the price of oil skyrockets. Then society will have an alternative for transportation.

          So tax breaks are only ok for the oil industry, is that about right? 🙂

          Or fossil fuels in general?

          1. not a valid comparison. if the market is ready both in demand and in technology, tax incentives for consumer goods are not needed. Using your logic anybody can petition the government for subsidies based on some future need argument. I will make a note again, much more revenue would be lost to the federal government, state and local government as well as cash flow to royalty owners and the multiplier affect as royalty owners income is spent, if the depletion allowance is removed and wells are prematurely plugged. That is the definition of a NO BRAINIER.?

            1. if the market is ready both in demand and in technology, tax incentives for consumer goods are not needed.

              Oil-based liquid fuel works just fine, superficially. Why would we switch to EVs? Well…there’s the pollution problem, and the security problem.

              If so, then we have to recognize those costs. Lead paint and leaded gasoline worked just fine, but we recognized the cost of lead paint (and leaded gasoline) by converting to alternatives. Mercury thermometers worked just fine, but…mercury is poisonous. So, we converted to alternatives.

              Once again: Is pollution real? Are the security costs of policing the ME (and guarding against domestic terrorism) real? Are the deaths and disabilities suffered by tens of thousands of soldiers real?

            2. Hi Texas tea,

              As far as I know consumers use petroleum products.

              Why are subsidies needed? Your argument is far from logical.

              Basically, subsidies are ok for oil and natural gas, but not for other products that compete.

              That is what is called a non-level playing field.

              Also I am not actually arguing for the depletion allowance to be repealed, I am just pointing out
              the fact that this is a tax subsidy to some oil producers (and other extractive industries). Note that percentage depletion is different from cost depletion where only the initial investment can be deducted, the percentage depletion is only limited by the 1000 bopd limit and income (you cannot deduct more than your income, though it can be carried forward for following years).

              Now one could argue that 1000 bopd is “small”.

              But at $15/b net revenue, that’s $5.5 million in net revenue per year. That is a pretty big “small business”.

              I also agree with your suggestion that leaving the percentage depletion allowance and raising Federal Fuel taxes would be a better policy so that marginal wells are not plugged. Only about 2 cents per gallon of diesel or gasoline sold would be enough to cover the tax revenue that would be gained by eliminating the percentage depletion allowance.

              In my view the federal fuel tax should be a fixed percentage of the pre-tax fuel cost, in 1993 for gasoline it was about 25% and the Federal fuel tax should be returned to the 1993 level in percentage terms and remain a percentage of the pre-tax fuel cost.

              Any extra revenue over that needed to maintain the transportation network should be used to pay down the national debt, if it ever gets to under 50% of GDP excess revenue could either be paid directly to citizens or used to reduce income taxes.

            3. I think I will head down to walmart and buy me a barrel of oil? last i check crude oil is a raw material of course…i live in the real world. after it is refined into consumer goods it is of course taxed.

            4. Hi Texas Tea,

              The depletion allowance may not make much difference, I am no tax expert and am not sure if depreciation is figured using discounted cash flow, etc.

              Using discounted cash flow with a discount rate of 15%, the percentage depletion allowance looks pretty reasonable, but I am not an accountant or tax expert.

              In any case the EV tax break applies to 200,000 vehicles per manufacturer and then phases out to zero over the next 5 quarters after the quarter that the 200,000th vehicle is sold.

              For GM and Tesla this is expected to happen in 1Q2018 and the credit falls to 50% by 3Q2018, then to 25% by 1Q2019, and to zero by 3Q2019, 100%=$7500 as the maximum for Bolt and Teslas.
              If the credit is eliminated, the effect will be temporary, my credit is likely to be $1875, not really a game changer for a $57,000 (including all taxes and fees) car.

              The price of these cars will fall pretty quickly, in 10 years they will be the same price as an ICEV and TCO will be far lower than an ICEV.

              My car will be self driving.

            5. Dennis.

              Tesla claims they make cars with self driving capability, and charged $8,000 extra for that capability.

              I read, however, that the self driving capability has not actually been installed, and now Tesla is saying they may have to replace the hardware in the cars at some point.

              I am all in favor of properly tested driver assist technology. However, I think the technology is still far from “self-driving.”

              I have been reading up on Tesla a lot recently, as I have seen the stock price sky rocket. It has to be the most divisive company for investors in a long time. Many fanboys and many haters.

              I guess what would concern me is that management is not simply focused on automotive. There is also the solar business, the power storage business, and also separate companies that are boring transport tunnels underground, launching rockets, developing a “hyper loop” and even proposing human transport and colonization of mars.

              Seems like maybe management is stretched too thin.

              That and the fact that the company has not yet shown it can turn a profit on EV’s at any volume.

            6. Tesla claims they make cars with self driving capability, and charged $8,000 extra for that capability..

              They didn't claim that the cars had the capability. They said that the cars had the required hardware, and that the capability would be developed later through software.

              I agree that they're stretched thin. Musk takes enormous risks, and asks his staff to work incredibly hard.

              The amazing thing is that he has accomplished things that were generally considered impossible, including starting a major new car company in the US; pushing the world car industry into fullscale development of EVs; and developing a private space launch capability. Any one of these is breathtaking, together they're astonishing.

              Even if they all fail at this very moment they will have demonstrated that these things are possible and set major, major change in motion that cannot be stopped.

            7. Hi Shallow sand,

              I have test driven a Tesla Model S with the “autopilot” feature in rush hour Boston highway traffic (Mast Pike westbound out of Mass Av exit at 5:45 PM on a Friday, for those familiar with metro Boston.)

              The feature works well and is indeed $3000 extra, $5000 for other enhanced features (that are included in the $49k price I quoted, another 3K for “autopilot” which adds some extra sensors and cameras.

              So the car is $52k, the way I would like it equipped and adding sales taxes and other fees the total price is about $56k ($1200 doc fee and about 3k in sales tax).

              This model has the larger battery which has about 315 miles in range.

              The base model has 220 miles range and is about 35k plus tax and doc fees (about 38 k total where I live if the rebate has expired).

              At some point Tesla plans to demonstrate an across the country trip in autopilot mode (no need for driver to interact with the car beyond setting destination.)

              I imagine the system will not work well on dirt roads and such. Not sure about snowy roads, but I’ll let you know in 2019.

  6. Mr.Leopold

    Your question on the last thread prompted me to both read Chesapeake’s conference call transcript and do a long overdue check on the USGS’s 2011 Marcellus assessment.

    Regarding Chessy’s financials, that is something you may well be far more familiar than I, along with the entirety of operators – collectively – in this unconventional arena.

    Regarding operations, however, my long running observing this stuff prompts me to offer you these perspectives …

    Chesapeake is transitioning to oil and away from gas.
    Following EOG’s lead, they are increasing attention to both the Eagle Ford and the shallower Austin Chalk, as well as the Powder River Basin.
    The stacked PRB holds enormous potential, but is in its very early days.

    Regarding natgas in general and the Appalachian Basin in particular, there is almost too much of it, certainly at $3/mmbtu.
    The 4 big takeaway pipelines currently under construction – Rover, Nexus,Atlantic Sunrise, and Leach Xprees – will bring almost 7 Bcfd to market, the equivalent to the Haynesville.

    Within 15/24 months, the Mountaineer Xpress, Mountain Valley, Penneast, and Atlantic Coast should be operational, adding an additional 7Bcfd.
    The MVP and ACP are especially significant as the southeastern US will access cheap natgas for their burgeoning CCGT power plant build out.
    This will send the solar/wind producers forevermore to the cornfield which is why the environmentalists’ opposition has gone ballistic.

    In 2011, USGS pegged 84 TCF recoverable from Marcellus. (Recent Haynesvile/Bossier was 300 Tcf).
    Parameters used were 150 acre average size per ‘cell’, equating to 4 wells per square mile. Mean recovery (EUR) was 1.15 Bcf.
    Although not stated, at least I could not find it, lifespan is usually given as 30 years.
    Mr. Leopold, Chessy’s McGavin 6 well has produced 4.3 Bcf first 90 days.
    Meaning of all this?
    There is an almost unimaginable amount of gas in the AB in particular, and several other areas in the US and, most probably, throughout the world.

    These past half dozen years have been paradigm-shattering in multiple ways with the biggest disruptions yet to come.

  7. People in rich countries are dying of loneliness

    Sociologists have long been warning about the dangers of increased isolation thanks to aging populations, scattered families, and cultures that promote the individual over the collective. Now, new research analyzing previous studies suggests people who fall into the loneliness trap are 50% more likely to suffer an early death than those who remain socially connected.
    Previous studies have found that as many as a third of Americans are lonely, and that 18% of UK adults felt lonely “always” or “often” (pdf). The latest research, which collated studies in two meta-analyses, connected the issue of isolation to health and specifically to premature death.
    Julianne Holt-Lunstad, a professor of psychology at Brigham Young University in Utah, presented the meta studies at a meeting of the American Psychological Association last week. The first, which involved 148 studies representing more 300,000 participants, found that greater social connection was associated with a 50% reduced risk of dying early.
    A second meta-analysis took in 70 studies, representing 3.4 million people from the US, Europe, Asia, and Australia. It found that the effect of isolation, loneliness, and living alone had an effect on the risk of dying younger equal to that of obesity.

    https://qz.com/1048847/people-in-rich-countries-are-dying-of-loneliness-an-effect-on-par-with-obesity/

    1. Society dysfunctional? How can that be with such an advanced state of civilization? 🙂

      Wait a second here, loneliness trumps the lack of stress of living with and around people. Nahhhh.
      Stress kills and people are often real jerks, downright nasty and definitely self-serving. Not all of them, but a lot of them. Who in there right mind would ever want to live with them or even get to be their friends?
      So we should be skinny and around people, not smoke, not do dangerous activities, be careful of sex and keep that drinking to a minimum. Off to be a Monk. They live longer than the rest of us. Who says religion is not good for you, especially if you are doling it out?
      http://www.independent.co.uk/news/science/want-to-live-longer-be-a-monk-5360664.html

      Keep busy, think deep thoughts, have a few acquaintances you can get away from and if you ever feel lonely just realize how peaceful and stress free it is. Then there is the reality, living longer can just mean a lot more illness and suffering, as well as being ignored because you might die soon and can’t run around as much.
      Two of my buddies are laid up right now, one can hardly breathe and the other can’t walk. Both older than me. Another one can’t get far from his car now. But my younger buddies are still kicking around. Mostly meet them elsewhere. I even let them in the house once in a while, see how nice I am. 🙂

      It is rough on young people and the health impaired. Dogs are good.

      1. People can be annoying, and more so as you get older (maybe even more than when you were a teenager), but we are evolved to have 100 to 150 people around as, annoying or not, even if they are only nodding acquaintances, being forced into solitariness is very bad however much rationalization you apply. I think they found something like it in Victorian prisons where (all of this from memory by the way) the original plan was for all prisoners to be kept isolated, but they started going nuts early on. In a similar vein I think teenager surliness and apparent disregard for risks are evolutionary traits to ensure they move out of the house and tribe and go procreate somewhere else (as we all would like to remind them at one time or another, though not in quite those words).

        ps – just noticed this is in the oil thread – too late now.

      3. GoneFishing: “So we should be skinny and around people, not smoke, not do dangerous activities, be careful of sex and keep that drinking to a minimum. Off to be a Monk. “

        Not really. You have to have deep understanding of pain and pleasure as intrinsic parts of life to understand what happened to Monks. If you deeply observe people are so much afraid of pain so they repress it, they avoid any situation that brings pain. And then the stumble upon the fact that if you really want to avoid pain you will have to avoid pleasure too. That’s why your monks avoid pleasure – they are afraid of it. Because they are simply avoiding all possibilities of pain. They live and walk on the plain ground, they never reach peaks. Your monks are living dead, they are not alive. You destroy polarity and you become dull, you have become stale, dusty. They have missed life.

        1. My monks?
          I thought we were discussing longevity.
          Your generalizations about Monks and people seem wrong and biased to me.
          But I guess working as a wage slave and looking forward to a beer and some mindless TV entertainment before falling asleep then doing it all over again is a much higher life endeavor than focusing on spiritual enlightenment or helping others.

          1. ….“focusing on spiritual enlightenment”

            You said focus? You said “focusing on spiritual enlightenment “? Ahh you know nothing. All you know is just Yakeeti-yak, Yakeeti-yak posts all day long: stupid politics, tesla, trump, whatever soup the jour, all day long bla bla, bla bla …..absolutely nothing existential ..useless garbage

            The mind is always hankering. The mind is nothing but hankering, desiring something to happen. Sometimes it is thinking about money, to have more money, to have bigger houses, to have more respectability, to have more political power. Then you turn towards spirituality; the mind remains the same. That is your monks. Only the object of focus is different. But mind have stayed the same. Clinging, desiring.

            Focusing is mind game. Imagination and projection and hallucination and illusion — they are all parts of the mind. Only idiots focus on spiritual enlightenment. You don’t get enlightenment with help of mind. Only idiots will ask how to fulfill his passions.

            1. Focusing is mind game. Imagination and projection and hallucination and illusion — they are all parts of the mind. Only idiots focus on spiritual enlightenment.

              Tsk, Tsk! You sound a tad stressed there, old chap…
              Is the oil business stressing you out?

              Is Buddhism True?
              A Conversation with Robert Wright
              https://www.samharris.org/podcast/item/is-buddhism-true

              In this episode of the Waking Up podcast, Sam Harris speaks with Robert Wright about his book Why Buddhism is True: The Science and Philosophy of Meditation and Enlightenment.

              BTW, in case you are wondering, this isn’t about religion. Sam Harris is a neuroscientist and an atheist. Though he does know a thing or two about the mind, meditation and focusing…

              Of course you could always just ask your Doc for more Valium or maybe just go eat some magic mushrooms. And no, I don’t really expect you to listen to the podcast or try meditation. That kind of activity is for idiots, right?

            2. Meditation IS a state of NO MIND. But you would not know that because you absolutely don’t know anything about mediation or mind. All you know is just to copy paste links from the internet.
              Your knowledge is all borrowed knowledge, some stupid podcasts that you post, some stupid links – useless, NOT your knowledge at all. You are not authentic. You are just carbon copy.

              And congratulations on destroying decent oil blog with your stupid copy paste links. Mike is right, this blog became violent anti oil blog. This little side topic was about Mind and the first thing that you could scribble was “Is the oil business stressing you out?” Pathetic.

              So you are the one that needs some medical help, and you can start with meditation because word mediation comes from the root word medicare – to cure.

            3. Meditation comes from medicare? Are you sure about that, or is that spell checker’s opinion. I think they might both come from a common base concerning measurement (same with meter) but not 100%.

            4. I should have been more precise where the root comes. Not from the English noun – medicare, but from the Latin verb “medicaré” – to cure, to heal.

            5. Hi Ves,

              I was going to say that, but I am pretty sure George knew that, I think he was joking.

            6. Thanks Dennis, you are very nice trying get George out embarrassment. It would be only a joke if there was Latin spell checker ?. But there isn’t.
              George was trying to be smart thinking that term derives from English word instead of Latin, so he got caught with his pants down. He does not know anything about mediation but he is always itching to write something, whatever, even if it’s wrong.

              You think George knows? He only knows trivia like counting barrels, making fancy graphs, coloring graphs. That is very childish knowing because they do that kind of stuff in kindergarten. Knowing is NOT matter of “knowledge”, knowing is matter of “seeing” – seeing the insight. You must discard all the “knowledge”, become completely empty, and you will be able to see the insight.

              I will leave you now. All the best to you Dennis.

            7. I wasn’t trying to be smart – Iw as suggesting you are wrong – meditation comes from a route concerning measurement, medical might as well but I’m not certain – or in other words go fuck yourself, you self important piece of shit.

            8. Hi George,

              Your stuff is great. Please ignore comments to the contrary.

              There will always be those who will make snide comments, but contribute little else.

            9. As I said, you really sound over worked and stressed out. And Yes, I do think fossil fuels use is a major problem, and humanity needs to get off of it ASAP! I have always been quite up front about that.

              Have you read this report yet?

              https://science2017.globalchange.gov/

              Climate Science Special Report
              Fourth National Climate Assessment (NCA4), Volume I
              This report is an authoritative assessment of the science of climate change, with a focus on the United States. It represents the first of two volumes of the Fourth National Climate Assessment, mandated by the Global Change Research Act of 1990.

              Quite a lot in there to digest…
              Cheers!

            10. Fred,
              Where did you get that I am stressed out? 🙂
              It is you that read all these “scary” reports from the links that you have provided. I don’t read that stuff. I feel you are stressed out. I think you should read less of that stuff.

              We agree on the first part. Men is fighting existence since day one, but man is also part of the existence too. So, man is fighting with himself. It is like your left hand fighting your right hand.

              But we don’t agree on solution. Nothing is to be done. Doing nothing IS the solution. When both hands, left & right, get tired from the fighting there will be peace, balance, equilibrium.

              I am of to do some world traveling starting this weekend before oil gets too expensive ?
              All the best to you.

            11. Hi Ves,

              Meditate is not from medicare (Latin) it is from meditatus (in Latin).

              So George was not joking as he said, he was correcting you.

              https://www.google.com/search?q=etymology+of+meditate&ie=&oe=

              And one reference suggests it amoes from meditari which means to measure, as George also pointed out.

              I actually agree with much of what Mike Shellman says.

              If suggesting that the oil industry receives tax breaks (which is a fact), makes me anti-oil, then I guess some oil men would consider me anti oil.

              I believe oil is a limited resource which should be used wisely, I think World output will peak between 2020 and 2030 and this will be a problem for society.

              Mike may not agree with my guess for the date for peak oil, but may agree with the previous sentence (with date adjusted perhaps to earlier or later he has never offered an opinion.)

              Edit:

              I was mistaken.

              Looking more closely you may be right about meditation. In Latin there is meditor for (to think or contemplate) and medeor which means to heal or to cure.

              It seems that meditor is derived from medeor according to

              https://en.wiktionary.org/wiki/medeor#Latin

              where meditor is said to be derived from medeor.

    1. China will have it’s fill of problems in the near future, be lucky they don’t implode. The population problems in that region are just devastating and it is getting worse. Gives me the shivers.

      1. That’s why I put the maybe in there.

        The Chinese are like a country at war, fighting several critical battles in various locations simultaneously.

        If they are to win the war, that is to say, that in a few more decades they will be prosperous and that they dominate a large portion of the world, or maybe the entire world, they’ve got to win most of these battles.

        The population battle and the resource depletion battle are probably the two toughest ones for them.

        In military terms, it won’t matter much what happens to any peasants still living subsistence lifestyles. If a few million of that sort starve, or even a hundred million starve……… the industrialized portion of the country will continue to function…….. If they can put their hands on enough raw materials and energy.

        Given that they have a highly technocratic leadership, I think they have a pretty good shot at transitioning to a renewable energy economy that uses relatively little in the way of raw material to provide a reasonable standard of living.

        There’s a lot to be said for a managed economy……. if the managers make the right decisions and don’t go overboard on the micro management end.

        China already has a stranglehold on the solar industry and may succeed in dominating the wind industry as well.

        1. China has little to offer the world except as a manufacturing site.

    1. Is there a connection to petroleum here I’m not seeing or did you post in the wrong thread?

      2. Hi Dave,

        When people see “Open Thread” they assume non-Petroleum follows, sorry, I was pretty sure this would happen.

        If everyone could help me out and post Non-Petroleum comments under the Electric Power Monthly post, it would be appreciated.

  10. I was going to post that for the benefit of my helpmate HB, lol.

  11. For something a bit oil related I had a look at the USGS “undiscovered global reserves” assessment from 2012. Below is the summary by region and also showing the offshore/onshore split. The USGS are big fans of the Monte Carlo method, so they get a full probability curve from 0 to 100% change of discovery (100% is always zero discoveries, P95 is like “proven” or P1 for discovered reserves, P50 is like “proven and probable” or P2, and P5 is like “proven, probable and possible” or P3).

    At current success rates, and with a noticeable geometric decline in y-o-y discoveries, it will take hundreds of years to find these resources, assuming they are there, and as most are offshore and in inhospitable seas also a lot of new, high spec. and expensive drilling rigs. Keep in mind too that frontier success rates are between one in twelve and one in twenty and average discoveries are below 50 mmbbls and declining, so think how many, very expensive, wells might be needed.

    Personally, I think the USGS are too optimistic in the parameters they use and spend too much time on the Monte Carlo and not enough on the geology, and the real implications of the numbers (e.g. for “chance of discovery” that they use. The P5 case can probably be ignored and the P59 case might really be closer to the high end.

  12. This shows the P50 breakdown for some of the bigger fields and those recently in the news. They are ordered by their P5 totals, to show this number ratio-ed to the P50 number is fairly constant except for the exceptions that stand out. Santos is the biggest field for oil – it has had mixed results recently for leasing and drilling. West Central Coastal is offshore Africa and includes the Kwanza pre-salt region (a mirror of Santos) from which most companies recently pulled out after disappointing exploration results. It’s noticeable that Alaska is supposed to have a load of oil, but the Barents see not much oil, more gas (maybe Statoil should have read this report before committing to their recent, and so far mostly barren, drilling program).

    A couple of others where there has been disappointing drilling are the Red Sea, Western Greenland and north coast of South America (the Garija basin – which I think was pretty small in the USGS numbers so I didn’t include it, or actually I just forgot).

    This is the South America report: https://pubs.usgs.gov/fs/2012/3046/fs2012-3046.pdf

    Those for other regions and downloads of the Excel files they generated in the study are in similar addresses and easily googled.

      1. Hi George,

        Thanks. As you have already read the report and may have this in your head already, are these charts conventional oil only or does it include “continuous” resources (tight oil, oil sands in Canada and Venezuela, and other extra heavy oil with API<10)?

        The total looks to be about 700 Gboe for the World Mean, is that roughly correct (I am just estimating from your first chart)?

        1. Conventional only. It would have been better had I put titles on the charts probably. I can’t remember the mean, I don’t think it’s as useful as P50 as it gets skewed by highly unlikely “possible” discoveries. I think the P50 was 550 – it’s a very short summary if you want to read it, as are all the regional one’s that go into it.

          I even managed to get the units wrong second time – it’s Gb or mmmboe).

          1. Thanks George,

            I agree P50 is better. For oil only its 478 Gb for P50, for NGL its 19 Gboe (I multiply the barrels of NGL by 0.7 to convert to BOE). So about 500 for Gboe of undiscovered conventional in 2012. The USGS also expected some reserve growth over time, I think also about 500 Gb.

            USGS summary at link below (it is short as George suggested).

            https://pubs.usgs.gov/fs/2012/3042/

            BP has proved conventional at about 1300 Gb (I have deducted 19 Gb of assumed tight oil reserves). So this suggests about 2300 Gb of conventional oil which might be produced and about 1300 Gb of conventional oil had been produced through 2016, suggesting a World conventional URR of 3600 Gb if the USGS estimates are correct.
            If we assume 500 Gb of extra heavy oil and 100 Gb of tight oil that would bring the total to 4200 Gb for C+C+NGL, I believe approximately 300 Gb of this total is NGL so that would put the C+C URR (conventional and non-conventional) at about 3900 Gb, with 2600 Gb left to produce (including about 500 Gb of extra heavy oil from oil sands).

            Note that if one thinks the USGS is too optimistic by a factor of 2, then C+C-XH would be 500 Gb less or 1600 Gb rather than 2100 Gb.

            Note also that I have read that the 2P estimates from IHS are close to the BP “proved” estimate for the World (as of 2010 or so).

            If we assume no discoveries and no reserve growth then conventional C+C left to produce is about 1000 Gb (where I keep the assumption that 300 Gb of reserves are NGL). Probably 1600+/-500 Gb is a reasonable guess for conventional C+C yet to be produced.

            1. I think USGS is too optimistic by a factor of 20, and even if not what does it matter if it’s going to take 300 years and 20 trillion dollars to find it.

            2. Hi George,

              Interesting. So you would expect over the next 300 years (after 2012) the P50 estimate for reserve growth and discoveries of conventional C+C+NGL will be roughly 50 Gb? I would say there is roughly a 95% probability it will be higher than that (if I have understood you correctly).

              Perhaps you only mean discoveries, what do you expect for reserve growth from 2013 to 2313?

              USGS reserve growth report at link below

              https://pubs.er.usgs.gov/publication/sir20155091

              F50 estimate is 600 Gb as of 2012. Total mean URR for crude about 3300 Gb of conventional outside the US. If we assume another 300 Gb for US crude URR ( 219 Gb has been produced), that would be 3600 Gb total.

              The F95 estimate for discoveries is 200 Gb and for reserve growth it is 330 Gb for a total of 530 Gb.

              So the F95 estimate of the USGS for World conventional crude URR is about 3000 Gb (as of 2012).

              This seems high too me as an F95 estimate, but seems reasonable as an F50 estimate. My F95 estimate would be about 2500 Gb and F5 about 3600 Gb.

            3. I’m not sure where reserve growth suddenly appeared from, the USGS report was just about new discoveries. On average there won’t be any reserve growth on P50 numbers for fields that are using modern technology, which is most, as long as the P50 is being reported by SPE methods. Judging by the GoM deep fields there might be some significant negative growth (I might include that in the next GoM update). I might include better charts for these as well, they were done in a bit of a rush and I was waiting for my glasses to be fixed (my excuse and I’m sticking to it, and happens to be true).

              I can’t see exploration continuing for 300 years either way, we’re building rigs costing 100’s of millions to build and more to run that might only find one pool of any size in their whole life (has IceMax found anything so far). Discovery size is falling, success rate is falling, basic cost of drilling is going up (current costs are low at the expense of all the drillers gradually going bust). Whatever the oil price frontier territories need some kind of large anchor project to get things started, and they aren’t really being found in oil (some gas, but they need to be even bigger). A spaced out collection of 10 or 20 mmbbl pools aren’t much good.

              I think Seismic and understanding of the underlying geology is good enough now that companies know when to pull out after a couple of dry holes (e.g. Tullow is the latest in Mauritania, Anadarko in Colombia, everybody in Kwanza earlier this year).

              Of course it’s all stochastic, there might be a huge find under Santos soon to come.

            5. Hi George,

              If we use US data and assume P50 is about 1.7 times P5 (as is the case for UK North sea), we can adjust the US P5 data to P50.

              When we do so we find that reserve growth from 1980 to 2005 in the US was about 63% (or an annual rate of roughly 2%).

              So you assume there will be no reserve growth?

              Perhaps this is just a different understanding of what a discovery is.

              Over many years of drilling more is learned about the field the estimate of URR will change. You assert that it is just as likely to decrease as it is to increase.

              Historically P50 estimates have been pretty conservative so that on average they increase more than they decrease, you may consider these discoveries rather than reserve growth, but the USGS classifies this differently.

              There also are improvements in technology and method of production and increases in prices which can result in reserve growth.

              Yes it is all stochastic, true of most everything.

              Possibly a better way to do it is assume any “reserve growth” is a part of discoveries. An HL on conventional oil (excluding extra heavy and tight oil) suggests a URR for conventional C+C of about 2400 Gb. Based on Jean Laherrere’s estimates for 2010 there were about 800 Gb of 2P C+C reserves and about 1100Gb of conventional C+C had been produced, so after 2010 we would expect another 500 Gb of conventional discoveries (including any reserve growth) if the Laherrere 2P estimate and the HL URR estimate are both correct.

              https://www.iea.org/newsroom/news/2017/april/global-oil-discoveries-and-new-projects-fell-to-historic-lows-in-2016.html

              Chart from link above on conventional discoveries from 2011 to 2016 suggests about 84 Gb over that period. If all these estimates are correct, this would suggest another 410-420 Gb yet to find (including any reserve growth). This is about 17 times higher than George’s 25 Gb estimate (20 times less than 500 Gb) and about 2.8 times less than the USGS mean estimate of 1150 Gb for discoveries plus reserve growth.

              Another way to look at this is George might think conventional URR (including future discoveries) is about 2200 Gb, my estimate is 2400 Gb which is not very different.

              This is my “low URR conventional oil estimate”, I think 2700 +/-300 Gb for conventional oil (no tight oil or extra heavy oil) URR may be correct.

              Even the “high case” only moves the peak back (to a later date) by maybe 3-5 years from the low case with maybe a few million b/d higher output peak compared to the “low case”.

            6. Hi George,

              Got it now. Not much is likely to be found.

              Perhaps higher prices might make some stuff viable in the future where now they are not?

              In that case maybe some reserves get reclassified as 2P rather than being in the “possible” category.

              Isn’t there some change in 2P reserves when oil prices go from $50/b to $120/b?

              Would you call that reserve growth or discovery, if it should occur?

              I see now were you get 300 years, only 1.5 Gb was discovered in 2016 so 500/1.5=333 years.

              In the future it is likely we will discover less and less each year. For the past 6 years the average has been about 14 Gb/year. (84/6=14) If we assume the average discovery rate over the next 70 years is 7 Gb/year we get about 490 Gb discovered by 2086. No idea what will actually happen, obviously.

            7. The Norwegians do growth the best – they have categories based on EOR, price changes and something else I can’t remember. Growth has to be in a discovered field I think. There might be a bit based on price change, but much less in offshore and modern fields than oil ones. All the growth that will ever occur in fields brought on line before 2010 has happened already. Fields since then are fairly well understood, though high prices might lead to more infill drilling and EOR and some growth but nothing like the older “up from the ground came a bubbling’ crude” type discoveries and developments. I’m pretty sure I’ve written all this at least once and maybe twice before. I’ll post something on Nom fields which shows how shallow fields grew then smoothed out as technology improved and also how some of the big deep fields have dropped 60 to 70% from initial estimates.

              Why are they going to suddenly start finding 7Gb per year when every time they hit a dry hole or even a discovery it’s another place gone that they thought was better than all the places anywhere else, and discoveries have been dropping geometrically, and wildcat numbers have been falling steadily even through 2011 to 2014?

              7Gb at 25 mmbbls per discovery and 5% success rates is 5600 wildcat wells required, and maybe same again for appraisal – most offshore at maybe $100 million a pop (all estimates at the bad end this year I know, but maybe not in 5 or 6 years).

            8. Hi George,

              I misread the chart only 35 Gb of discovered resources (I was using approved resources by mistake). That’s about 6 Gb discoveries per year on average from 2011 to 2016, I was assuming this would fall to half that rate over some number of year, let’s say 75 years with discoveries averaging 3Gb per year over that period, that would be 225 Gb of discoveries. This would be about 245 Gb if we include the 2012-2016 discoveries, about half of the USGS estimate.

              A conundrum for me is this:

              1. You suggest we have a good handle on the geology due to modern technology and thus the P50 estimates are fairly accurate.

              2. There is not much exploration success and a lot of dry holes.

              It seems that 2 contradicts 1.

              Now I can understand that one might interpret this as we actually don’t know much and are consistently overestimating 2P reserves . This is not your claim, I think you have said 2P estimates on average should be about right (50% chance of being too high and an equal chance they will be too low.

              Perhaps the current lack of exploration success is due to the low price environment and the expectation that low prices will continue.

              Or maybe modern seismic is not very good.

              Or perhaps all the good spots have been explored and there is little or nothing more to find.

              https://www.epmag.com/easy-oil-really-gone-820336#p=full

              No doubt you have read this, but for others I thought it was good.

              Is The Easy Oil Really Gone?
              Rhonda Duey, Hart Energy Thursday, October. 2015

            9. I said they have good seismic and a good handle on geology – but still had to drill a couple of dry holes before deciding whether there was anything there. In the past they’d have had to drill more. Seismic tells if there are traps, it doesn’t tell if there was ever oil below to migrate there, whether it got to the trap and whether it then all leaked away. But drilling fils in some of the gaps, and results can be extended to some extent to the rest of the basin (better now with the computing models and power available).

              P50 and P2 and F50 get a bit confusing. On discovered and appraised reserves I think “proven and probable” at 50% chance for production is pretty much what you’re going to get on average. That is based on history, and especially when the discoveries are adjusted and backdated (i.e. newer production has a bit larger error bars).

              For discoveries USGS use F for fractile, but it should be P for percentile (fractiles can be deciles or quantiles etc, but I guess they understood the possible confusion). That is just a number from their Monte Carlo simulation and there’s no history to indicate it is correct, in fact if they went back and looked now at areas that have been well explored I’m sure they would find it to be wrong.

              I don’t think there’s any question the best locations go first and therefore have gone, You could say some areas haven’t been leased – but the oil companies will give strong hints on where they want leases to come up first – there may be some environmental objections and technology issues, but overall they usually get the areas they think the most prospective. One reason that new lease areas are big acreages in mature plays might be that the authority know there’s not much of interest and just hope to get a couple of hits (which is exactly what is happening, i.e. very low take up ratios recently in GoM, UK North Sea etc.).

              Also of course as you go further out at some point there’s no more sediment so there has to be a hard limit – other than that though it is all stochastic, and we’ve been getting (slightly) better at doing the probabilities.

              (See chart near the bottom)

            10. Thanks George,

              There are a variety of opinions on this.

              Perhaps the Monte Carlo simulations are worthless, but in many cases the USGS estimates (Bakken 2013 assessment for example) are pretty good.

              Currently for the North Dakota Bakken/Three Forks formations,1P reserves plus cumulative output is more than the USGS F95 UTRR estimate and it seems likely that the USGS F50 UTRR estimate will be reached (more than a 67% probability in my view).

              One could argue that in this case at least the USGS may have been a bit too conservative.

              In any case my view is that the economists at the EIA are far too optimistic, but the geologists and geophysicists at the USGS do a fairly good job with limited information.

              Time will reveal if my guess is correct.

            11. Dennis – I don’t follow that at all – the USGS numbers were for undiscovered values, almost nothing new has been discovered since then because very few wildcats have been drilled. What has been produced and what remains on the books as reserves is what was considered discovered in 2013 – and that was all excluded from the USGS analysis. So for the study to be proven there needs to be announcements of new discoveries in line with the USGS numbers, for each area.

            12. Hi George,

              We don’t actually have 2P estimates for the Bakken/Three Forks (or I don’t, others might have access to the IHS data, but they cannot reveal this information publicly). So I take “undiscovered” resources as anything that had not been produced at the end of 2012 (the April 2013 publication suggests they probably used data through the end of 2012) plus proved reserves at the end of 2012 for the Bakken/Three Forks.

              My estimate is that this was about 4 Gb at the end of 2012 (1P reserves plus cumulative ND Bakken), UTRR was about 5.8 Gb for the North Dakota Bakken Three Forks (about 78.5% of the Bakken/Three Forks total).

              Through the end of 2015 1.7 Gb of C+C had been produced and 1P reserves were about 4.8 Gb, so about 6.5 Gb have a 95% probability of being produced. If the 2P/1P ratio is similar to the UK (about 1.7), then 2P reserves plus cumulative would be about 9.8 Gb.

              This cannot be compared with my original TRR estimate which was 1P plus UTRR.

              Using the same 2P/1P assumption of 1.7 the TRR for the USGS mean estimate would be 12 Gb.

              I believe the USGS includes both reserve growth and discoveries as “undiscovered resources”.

              If the USGS uses 2P resources for the discovered resource (which would be the best way to do it imo) and my guess that 2P/1P is about 1.7, then I agree the USGS estimate is too high. My expectation based on the 1P reserve data and output data to date is that P50 for ND Bakken/TF URR should be about 10 Gb.

  13. My personal opinion is that we are probably going to be dealing with a permanent and potentially catastrophic oil supply problem, and most likely within the next decade or not much longer than that. I just don’t think electricity will displace oil in transportation quickly enough to prevent this from happening.

    How many here agree with me ?
    How many disagree?

    1. Hi OFM,

      I disagree, but it depends on how one defines “catastrophe”.

      I think oil supply will be tight and oil prices will rise, there might even be a severe recession by 2030.

      If the World follows Herbert Hoover policies and decides deficit spending is a bad idea and we must all tighten our belts (a la the European response to the GFC), then it might be a catastrophe.

      If a few Keynesian Economists that learned their economics from Paul Samuelson are in charge and a decision is made to spend on public transport and a modern HVDC grid and other worthwhile public infrastructure using public private partnerships facilitated by tax breaks and other public policy tools. Then the “catastrophe” might be no worse than the GFC of 2008-2011.

      Essentially a World economic slowdown for a couple of years with a rapid transition to electric transport and TaaS in urban areas, a move of long haul transport to rail, and short haul to EV trucks for rail to factory or store. Some transport could also move to propane or Natural gas during the transition, but these resources will eventually be constrained as well. Biofuels would be an environmental disaster so not a good option in my view.

        1. Hi Stanley,

          Couldn’t load that (expired). You know far more than me. Does it seem that short haul from rail head to factory/store by either EV or EV/overhead wire on main routes might be viable in a World with diesel at $10/gallon (2040 or so)?

          1. Dennis,
            The link was to a CL listing for a 1912 CT electric truck, part of a fleet of about 20 trucks owned and operated by a printing-house in Philly. They ran them until 1962! Fairly long article gave operating cost comparison between the trucks and the horses they replaced. Interesting stuff.

            With fuel at $10/gal. I think EV’s can be viable for short-haul. Overhead wire? I don’t see that ever happening. Too expensive to install and who’s gonna pay? Wire to all the existing stores? I don’t think so.

            With regards to moving long-haul freight to rail, that’s being done for years now, I think maybe J.B. Hunt trucking was the first big freightline to do it about 1990 or so? Should look that up, I’m guessing. I’m wondering how much more truck-to-rail is feasible with existing rail capacity, and how much freight will stand the added time for rail. Fresh foods don’t want to wait.
            Of course it really wouldn’t hurt most of us to do without a lot of that stuff anyway would it? But that also means lowering our standard of living, I guess?

            I’m sure lots of changes are coming, but I sure as hell don’t know how it will all shake out. Me, know more than you? LOL. Maybe about a 1950 Buick straight-8 engine, as I just finished cleaning, painting, and tuning one!
            Seriously, since I have lived all my life among the lower income brackets of the working-class, my vision of the effects of sharply rising energy costs are probably much different than yours or most others. I suppose my view of what happens to the po’folks when this happens blurs my vision to where I can’t see how we can pay for all the new techno-fixes that are supposed to overcome the obstacles.

            1. Hi Stanley,

              I think as oil prices rise there will be more rail capacity installed and rail may eventually be electrified. Note the overhead wires would be on main local highways and could be paid for as part of the transportation network. The cost of electricity could be metered in the truck (or bus) and billed to the customer. The lines would not go to every store and factory, the idea is a hybrid EV/overhead wire setup. The last few miles to the store or factory off main routes would be by battery.

              As someone who has driven a big rig, you would no more about the practical pitfalls of various hare-brained ideas.

              We would need a fresh produce rail line that can bypass Chicago or there may continue to be some time sensitive goods that go by truck.

              Eventually liquid fuel will become very expensive unless alternatives are found, the peak is likely to be between 2020 and 2030, when it arrives prices will go up, maybe to $200/b, not sure how much will end up as the price of fuel at the pump.

              When oil was at 110/b the price at the pump was close to $4/gal and at $30/b it went as low as $2/gal, so maybe in the US $10/gallon is unlikely, but at $190/b we might see $6/gallon at the pump. The relationship may be non-linear, in which case prices at the pump might be higher or lower than this guess.

              In a shortage situation the price could get bid up quite a bit. The linear relationship implies $350/b for $10/gallon at the pump, I doubt we get to that point, a Depression would be more likely at that oil price (which then brings oil prices lower).

            2. Dennis,
              First, I started trying to look into the likelihood of increasing rail freight capacity, and found this link. It’s interesting to me and quite relevant to this overall subject because, for one thing, it shows that the rail industry is taking the issue of climate change seriously. It discusses the effects, already known to the rail industry, of increasing temperatures on rail traffic, and the procedures already in place to deal with the effects of those increasing temps and what they expect from same in the future. The increase in summer temps in the US is or course expected to be slower than the timeframe we’re talking about for the likely peak in oil production.
              http://www.sciencedirect.com/science/article/pii/S0967070X16308198

              When you wrote “2020-2030”, I thought “goddamn, that’s almost like tomorrow!” which it surely is. I’m really trying to gain some understanding about what the US, and my particular part of it, which is the southeastern part, is going to face in the next decade or two. One of the best reasons possible for this concern visited me yesterday afternoon for a few hours. My oldest granddaughter, who’s about to turn 17 years old. We talked about what she plans to do with her life, and she’s very uncertain about which direction she should go, as is common for young girls. I feel almost helpless as far as advising her, partly because I think I see a far different world in her future than the one her parents see. It seems nearly impossible to get my two children to understand that their crazy-assed, out-in-left-field, living-on-less, enjoying-it-more, dad has possibly stumbled upon some of the most important information available to common folks with an internet connection available today.

              Anyway, I’ll be posting a reply to more of the points you raised, later, probably tomorrow, after the effects of homemade blueberry wine has worn off. I tend to get wordy after a pint or so. I very much appreciate the intelligent, informed, and thoughtful discussions that happen here. I don’t speak up much because I have sense enough to know when I’m in the company of better educated and more intelligent people, and am not ashamed to admit as much. As someone said some time ago, I think it might have been one of my favorite authors, Samuel Clemens, ” Better to remain silent and let people think you’re a fool, than open your mouth and prove it.”
              Later,
              Thanks,
              Adios,
              Back to the mason jar,
              Stan

            3. Hi Stan,

              Thanks. In my view there are lots of well educated folks that are pretty dumb and lots of “less educated” (in terms of formal degrees beyond a high school diploma) people that are highly intelligent.

              I know nothing of your educational background (and don’t believe it tells us much), but your comments suggest a high level of intellect.

              I enjoy the discussion as well, thanks.

              Real world intelligence is far more useful than spreadsheets and charts.

            2. Thanks sunnyv,

              Probably a little too slow for today’s needs, but very interesting.

      2. To OFM-I agree, in part. There will be enough oil for the countries who can pay for it. The others will not do as well, and drag down the world GNP. The GNP of the countries who can pay for it, will suffer too, because of the price. It’s interesting, because the world could have followed China’s lead a couple of years ago. Oil could not be sold for less than X price, and the pending shortage would be, at least, postponed for a long time. Didn’t help them, at all, because the price was too low. $40 price is useless. Never work in the US due to price fixing. Rules predetermed what is going to happen. Everything will work out better for me, as my oil will not be pulled out until there is a much better price. Other royalty owners were not so fortunate. Consumers received a temporary reprieve, only they will pay for it much more, and longer, in the future. All this makes no difference to oil traders.

        2. Hi Jim,

          Yes the question was a shortage of oil causing a catastrophe. Climate change may be helped by a shortage of fossil fuel in general, adjusting to that reality in terms of feeding people and such and finding non-fossil forms of energy in the required quantities is precisely the problem.

          See

          http://peakoilbarrel.com/the-energy-transition/

    2. I agree with you OFM.
      It could have been avoided if we went on a ‘war footing’ about the problem 25 yrs ago, put the brakes on growth and population, didn’t waste resource on poor choices like wars, and learned to all live in a simpler and cooperative style.
      Basically it would have depended on us have been both smart and well managed.
      Neither rings true, although China wins some medals for being well managed and having lifted the most people out of poverty the fastest, and with no invasions.

      I suspect depletion and the lack of replacement oil discoveries, as well as inadequate adaptation (adoption of ev and solar, for example) over much of the world will result in a huge economic jolt.

  14. Looks like Venezuela are likely to effectively default on debt tomorrow (Maduro is calling it restructuring and complaining of being persecuted). PDVSA could go offline completely within six months at a guess.

    1. Yeah, can’t figure that one. If they were not planning on making this one, why did they make the first one. Maybe, he was planning on using some out of his piggy bank, and then changed his mind. Or, Russia said, no deal.

      1. Actually, it was said they would make this one, and the no more until it was “restructured”. Maybe, maybe not. Argentina just went through 15 years of default mess, and they were better equipped to handle it than Maduro is. Yeah, PVDSA is not long for this world. So, next year we should be swimming in oil. Of course, they could always sell it all to Russia and China, and retain about 5 to 10%. But then, taking it back over later will not be as easy as stealing it from ConocoPhillips was.

    1. So what’s the theory on this, I haven’t seen anything in the media much. Oil price is up and continuing to go up, stocks are coming down, geopolitical risk to supply seems to be increasing, demand not declining really although some headwinds in the forecast, oil can be exported to the right refineries without problem, oil company profits on average are going up, OPEC committed to ‘voluntary’ cuts, – and drilling continues to fall?

      Debt load too high, something happened three months ago and all the companies responded in the same way as they usually do (if so I can’t remember what it was), better places to invest as interest rates might be on a general upwards trend, nowhere left decent to drill (or at least better places to spend the exploration money – if so where, Brazil, Mexico …), shareholders scared shitless about the future, not really that big a decline (DUCs fill the gap) so not much of a story anyway, something else?

      1. I’m guessing that the decision to cut these rigs was taken when WTI was still below $50. As you know there is usually a lag between rigs & WTI.

      2. As illustrated by the above frac-sand link, fracking effort as measured by any reasonable metric such as tons of sand per time period is at a new all-time high, and continues to slowly increase. You can’t hire an existing crew without winning a bidding war, and the same is true for buying new equipment or hiring new workers.

        Don’t be fooled by the relatively low rig count compared to the previous peak. With the shift to more powerful rigs, they’re still significantly piling up DUCs even running flat out on fracking effort. Unless they’re planning to pile up DUCs forever, the only rational response is a moderate decrease in rig count.

        It’s mostly gas or wet gas rigs (many of which are recorded by Baker Hughes as “oil”) not in Appalachia which are coming down, with heavy rig losses in the Haynesville, eastern Anadarko, and Eagle Ford. The main issues are very heavy additions in the short term of new pipeline capacity out of Appalachia, some already in service but even more to come shortly, and worries about associated gas from the Permian and western Anadarko, both of which Wall Street seems to be willing to grant nearly unlimited funding at the moment.

    2. According to what I have read, they are using about 50% more per well of frac sand since 2014.

  16. Interesting to see under tax proposal, companies could only deduct interest up to 30% of net income, which would include revenue, less operating expenses, depreciation, depletion and amortization. However, shockingly, there is an exception for “real estate companies”.

    Last I knew, interests in oil and gas are considered real estate. So, are the shale guys exempt under this proposal?

    1. SS
      Count me as “shocked” if something like that makes it into the tax bill. If there is any recession, ever, there would be too many companies affected, just at the wrong time.

      One other example: I guess that we can agree that Wall Street has some effect on policy. So through the last 20 years or more, they have put together numerous investment vehicles that have centered around leveraged buyouts, and wealthy investors own the debt. [In fact, it is one of the best ways for original founders to cash out.] Well, the investment banking fees that Wall Street gets with these deals is tremendous. A tax provision like this would kill a lot of that business.

      Many, many mature companies have debt to equity of 50% in order to enhance shareholder returns. So, if they had a breakeven year, they lose a large portion of their interest deduction.

      So, as a retired tax CPA, I predict that it will not happen.

      And “nice try,” but I think that most oil and gas companies will not be classified as real estate companies. However, the IRS has let midstream pipeline/gathering companies elect to become Real Estate Investment Trusts. See for example symbol CORR.

  17. MILITANTS IN NIGERIA’S OIL REGION END CEASE-FIRE, WILL RESUME ATTACKS

    This is behind a paywall on Bloomberg, but World Oil just seems to copy the whole article if it’s interesting.

    With Venezuela getting worse; a bit of bother in Libya, this in Nigeria; Colombia, China and Mexico looking like they might be coming off plateaus they’ve held for 12 to 18 months and maybe not such great supply growth in LTO the supply squeeze might be happening a bit earlier than expected.It’ll be interesting to see what Russia and Saudi do if there is a sudden drop, if they still extend the cut’s I’d say it means they have nothing more to give.

    http://www.worldoil.com/news/2017/11/3/nigerian-militants-end-cease-fire-say-oil-attacks-to-restart

    A militant group in Nigeria’s southern Niger River delta, whose attacks on oil installations in 2016 cut output to the lowest in three decades, said it ended a self-imposed cease-fire and will resume its violent campaign.

    1. Well, as the current price of oil makes all of the big analysts 100% wrong, again, I don’t see any arguments that will hold oil price back. The super Heroes, that were supposed to keep the oil price lower for longer, have turned out to be fakes. For awhile, anyway. By the time they do show up, it’s all but over. However, we can sit back and amuse ourselves for a long time with EIA antics. How many EIA people does it take to screw in a lightbulb?
      It’s ok, my 2019 and 2020 USO leaps are already looking pretty healthy.

  18. Mexico announces onshore oil discovery in Veracruz state ~ABC News

    ” Mexico’s state oil company says it has made a significant onshore find in the Gulf coast state of Veracruz.

    A statement from Petroleos Mexicanos says the field could represent total reserves of about 350 million barrels of crude equivalent, from an original volume of over 1.5 million barrels.

    Pemex says the location near Cosamaloapan is advantageous because it is close to existing production and pipeline infrastructure, allowing it to be exploited more quickly.

    Pemex’s production has been in a years-long slide. Beginning in July, average total crude production dipped below 2 million barrels per day, reportedly a 22-year low.

    President Enrique Pena Nieto announced the find with fanfare Friday, flanked by state and federal officials at a Pemex coke plant being built in the central state of Hidalgo.”

    1. This new field will probably produce enough oil over it’s lifetime to supply the world at current rates of consumption for about a week , give or take a couple of days.

      1. Actually works out to roughly 3.65 days of global liquids demand. That’s YUUUGE! 😉
        According to the IEA, in 2016 the global demand for barrels of oil and liquid fuels per day was about 96 million barrels.

      2. Not important on a world wide scale, but no doubt very important to Mexico.

        1. Important, but I would not say very important. Maybe it will have a peak production of 100 kbpd compared to around 2 mbpd they produce now. They have to find 2 of those every year just to keep production flat. Also note that it is 3P estimates:
          “the overall field is believed to hold some 350 million barrels of proven, probable and possible reserves.”
          https://www.reuters.com/article/us-mexico-pemex/pemex-makes-mexicos-biggest-onshore-oil-find-in-15-years-idUSKBN1D32FK
          Then on the other hand:
          ” adding that the find could double in size.”
          That is a very confusing statement. If it´s 3P estimates then it would likely be 1/2 the size, not double.

  19. Now it’s oilmen who say fracking could harm groundwater https://www.eenews.net/stories/1060065209.

    “I’m convinced we’re impacting fresh water here,” Mike Majors, a small producer from Holdenville, said as he drove from well to well on a September afternoon. “If they truly impact the groundwater, we can kiss hydraulic fracturing goodbye.”

    The small producers leveling these accusations are tangling with Oklahoma’s large independent drillers in a bitter political brawl. The question of groundwater contamination is a small part of that debate, overshadowed by a fight over taxes on drilling and where horizontal wells can be drilled.

    1. geez what a weak argument for that case. not one single word about world wide current demand growth vs available supply, only historic references with out comparison to the underlying fundamentals. i think i will take the opposite side of that trade. if it was Goldman I would go “all in”

      1. Yeah, the historic references don’t apply, because the US could not export. Absolutely ignorant article. No mention of pending world shortage. Just, this was history, so expect the same. Yeah, if I had more spare cash, I would take a bigger Leap position, but I will take what I can get. Already ITM on 75% of it. I really expected to see more press like this, and people following EIA for much longer into 2018. But, change is already started. Not much, but it’s started.

      2. Hi Texas Tea,

        I agree, very poor analysis in the CNBC piece. I think oil prices will continue to climb, but usually my oil price predictions are too optimistic. Do you think we will be over $80/b (one month average price for WTI) by next October (2018)?

    1. I thought DT was against global trade. How are we going to be energy independent if we keep exporting it with one hand and importing it with the other?

        1. Hi Guym,

          The refiners don’t believe the hype from the tight oil guys, not worth the investment for a few Gb of oil.

          1. It irritated me years ago that they wouldn’t. Now, I’m not so sure that I wouldn’t have made the same decision, if I were them. Eventually, oil sands will pick up again in Canada, so that will still be available.

          2. “The refiners don’t believe the hype from the tight oil guys, not worth the investment for a few Gb of oil.”

            source for that statement

            1. Sounds to me like an observation/opinion made by Dennis. I have no problem with that. A comment does not need to be sourced.

            2. Well I just assumed it to be a bull sh!t statement but if it was actually true i wanted to know where he got that information…does not jibe with the facts I am aware of at all…

            3. Okay TT. What is your source for believing that the refiners DO believe the hype from the tight oil guys?

            5. Hi Texas Tea,

              Prior to the export ban being lifted, there was very little evidence that refineries were being re-tooled to accept lighter tight oil. Now that the lighter (higher API gravity) oil can be exported there is no need to adjust refinery capabilities as the proper weight oil can simply be imported.

              This policy seems sensible to me and is but one of the many arguments for why free trade is a smart policy.

              The current administration does not believe in free trade. If the US restricts imports other countries will follow suit and we will no longer be able to export as many goods.

              Workers that work in industries that compete with imported goods might be helped, workers in industries that export a lot of goods will be hurt.
              All consumers are hurt by generally higher prices when there is less free trade.

              All in all, poor policy.

              Do you have evidence that most Gulf coast refineries (where the bulk of oil is refined in the US) made major changes to their refineries so that they could refine the lighter crude from the tight oil plays?

              An analysis by McKinsey of the problems if the crude export ban had not been lifted

              https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&ved=0ahUKEwiRg8armarXAhUBMyYKHfqMBJoQFghPMAY&url=https%3A%2F%2Fwww.mckinsey.com%2F~%2Fmedia%2Fmckinsey%2Fdotcom%2Fclient_service%2Foil%2520and%2520gas%2Fpdfs%2F797317%2520implications%2520of%2520light%2520tight%2520oil%2520growth.ashx&usg=AOvVaw2MX9kUGCJLPn3XQYDAlW5m

      2. Hi Gone fishing,

        Trump likes trade, he thinks exports are ok, just not imports.

        The US is an energy superpower, believe me. 🙂

        1. I will take your word for that but I realize he could change his mind in a NY minute.

  22. Ven apparently made the large debt payment on schedule today. The next payments are quite a bit smaller and are not due for months. The government there has announced that it wishes to restructure the debt and those smaller payments, but unlike a typical restructuring this one appears to be desired not in the context of having enough money to pay but rather having a mechanism to pay. US sanctions are preventing money flow to bondholders even if the money exists.

    The magnitudes don’t work but there has been talk of Bitcoin. That would certainly evade sanctions.

  23. I have been following Keene Group, which is a public company that primarily operates high volume frac fleets.

    Earned 4 cents per share. First quarterly positive EPS.

    “Profit per frac fleet” went from $10.5 million in Q2 2017 to $14.3 million in Q3. I am not sure how this is measured. Maybe most of improvement is from more fleets being utilized?

    Well costs have to be going up, at least somewhat?

    1. Yeah, Halliburton just said, after the third quarter, they will have to raise their prices some more.

  24. https://oilprice.com/Latest-Energy-News/World-News/LNG-Prices-Climbing-As-China-Scrambles-To-Secure-Supply.html

    Large price differential on gas prices. Anyone know what production and shipping costs are for LNG to China? I think, I read about 1.50 to get it into LNG, and probably $2 to get it to China, but I’m talking pure guesswork. Does kind of contradict some of the stories of LNG running low on buyers. All this oil and LNG to China, should help the trade deficit with China. Although, that may be offset by competition with refined products. Sinopec is planning a large refinery somewhere in the Gulf or Atlantic.

    1. Guym

      Your numbers are about right, but – as is normal – there is ‘more to the story’.
      While the Chinese government is pushing for more gas fueled electricity, all the LNG is imported through the NOCs, who then turn around and charge the producers bokoo yuan for the stuff.
      Federal government is trying to set up system so juice providers don’t get screwed.

      Along those lines, site tfxnews.com has recent article ‘It’s a regas’ describing the growing market in smaller locales for gas fueled electricity via imported LNG with floating natural gas regassification units (FSRUs) providing relatively economical hardware to provide the product.

    2. … In a quick follow up, there is growing congestion through the Panama Canal for LNG shipments. Talk is they will allow nighttime passage which, apparently, is not presently the case.

      Much bigger impact might occur by re-purposing Mexico’s LNG import terminals on west coast, currently 3, I think, which may become stranded assets caused by huge pipeline build out from Texas.
      If US producers could pipe gas to Mexico for liquification, global ramifications could be big.

      Likewise, if Oregon or Washington construct LNG facilities, areas such as the Piceance could become viable regions for development.

      1. I have a place in South Padre, so I know they are building a big gas line down to Port Brownsville, where more LNG plants will be coming online soon. It will get to Mexico easily from there. If not by ship, it can go by rail, or via the New Mexico superhighway out of Brownsville.

        1. Actually, the pipeline is going all the way through Brownsville into Mexico. Big benefit to gas. NGL plants right at the port, and pipeline to Mexico. And bokoo (beaucoup) places you as a probable Vietnam Vet. If so, thanks for your service. I was a squid, E5 Radioman, mostly in Yokosuka 69-72.

          1. … 4A here, Sole Surviving.
            Knocked around southeast Asia few years just post April, ’75 on offshore rigs.
            Remarkable time to be a young round eye in that part of the world after a decade of chaos.

            So, I thank YOU for your service, Guym.

  25. I read over an email today from a trade association regarding percentage depletion and intangible drilling expensing with regard to the Republican Tax proposal. The email says both are proposed to remain, unaffected.

    As to the enhanced recovery and marginal well credits that are being repealed, both date from the 1980s-1990s and have such low threshold oil prices built in that no prodicer has been able to benefit from either for many years anyway.

    2. I could say I told you so, but I would rather warn you from years of prior experience. Keep up your vigilance. The tax code has a number of things in it where it was thought that a battle had been won, but then in the middle of the night, a provision is put in that came out of nowhere. That is why all small businesses need to keep in contact with their trade associations which have lobbyists that can represent them.

    1. Might be a bit low over a year. They were dropping at about 25 bpd per month and then up to 50 last month. I can’t remember what the capacity of their upgraders is, I think around 800 kbpd, but without regular major maintenance (i.e. full shut downs) they won’t keep working, and might be gone for good once they do break down, and then Venezuela can’t produce the XH oil no matter what the state of their wells.

  27. Reports out of Saudi regarding major political shakeup could signal the end of KSA as we have known it.

    Much depends on how successful the pushback will be and it will likely be fierce.

    As the Old Man is rapidly approaching worm food status, MSB’s consolidation needs to be both swift and effective, with the outcome highly in doubt.

    Houthi missile flying overhead doesn’t calm things much, either.

    1. http://m.gulfnews.com/news/gulf/saudi-arabia/saudi-arabia-arrests-princes-ex-ministers-in-anti-corruption-drive-1.2118748

      Arrested 10 princes and “dozens” of foreign ministers sounds like a thwarted coup. 10 princes sounds like a lot, but the Royal family has about 15,000 prince or princess titles. Arrested, supposedly, due to corruption. King told his son to establish anti-corruption cabinet. He did, and all this happened in about a day. Witch hunt, or consolidation of power?

      1. They did grab one of the most prominent ones – al-Waleed bin Talal.

        Major holdings in Citibank and News Corp.

        1. He was listed in Forbes as number 45 of the richest men, with over 18 billion in holdings. Now held in a five star hotel, that he could have bought with raiding a piggy bank. That was quite a signal to the other family members. If there are any who stayed in country. Probably was quite a few remaining, as I heard he took everyones’ car keys, so they can’t get out. From a prince to a pauper, literally.

          1. Taking out the head of the National Guard might be just as important, they are the ones that will put down any riots or direct coup attempts.

      2. … the anticorruption committee [led by MbS] has the right to investigate, arrest, ban from travel, or freeze the assets of anyone it deems corrupt.
        – blimey, that’s how you clean house and get some money if you need it, and probably end up with a civil or external war. The king might accidentally take a tumble down stairs sometime soon. Leather trench coat and rubber truncheon sales looking good for the future as well

        1. And they are using sharia law as determination of what is corrupt.
          It is interesting that Trump’s son in law was visiting just before this happened. Exit, stage left, before corruption arrests.

          1. Yes – about 350 mmbbls equivalent recoverable I think, pretty good onshore if it pans out.

    1. Guym.

      Read over Keane Group’s CC.

      Their frac fleets are fully utilized. Profit per fleet is forecast to almost double from Q2, 2017 to Q1, 2018. Further, for it to make sense to build more fleets, management says pricing would need to go even higher yet.

      I think maybe we are seeing rig counts stagnate and even decline for this reason. Adding capacity is just going to cost too much, even with the recent price improvement.

      1. Pretty much the same as I read elsewhere. Bigger problem seems to be in hiring enough people. EIA estimates seem to be ignoring hard facts that limit production.

          1. It’s a desolate area, and living costs are going up. Most would have to be single, or would soon find themselves divorced, even with good pay. However, if I were younger, and out of a job, it certainly would be something I would do. Heard sand drivers could make up to 200k a year.

  29. Looks like Saudi Arabia is going to be a dictatorship. Arrests by the dozen, helicopters crashing it’s got all the traits of a coup.

    1. Saudi Arabia has always been a defacto dictatorship since the country was founded in it’s modern incarnation in the aftermath of WWII. It’s been a “kinder and gentler” dictatorship that most of the ones I have read about, I will say that much for it, but no more.

      The Saudi princes are not exactly our friends, but they are not our enemies by any means. They know damned well that their privileged lives are possible primarily because we Yankees and our friends have kept them safe under our military umbrella for the last half century plus, for reasons of our own.

      So they cooperate with us when they must, or when they perceive doing so to be in their own interest.

  30. Dennis – I’ll put this in the next GoM update with a couple of others, but this shows how shallow and deep reserves grew or not. There is a bit of influence from price but more so from technology on the old shallow fields in the 80s and 90s. But also note how all deep discoveries before 2002 actually dropped reserves as they were produced (i.e. things didn’t work out as well as expected). Some of that might come back now as the BP fields, which have been having a lot of brownfield work recently, were particularly affected, but against that some of the newer fields aren’t looking as good as expected. The discoveries after then, which haven’t all been developed, are messed up by the 2007/2008 reporting rule changes and the reserves are coming back on the books gradually as they go through FID. (Each slice in the deep section shows a discovery year).

    1. Hi George,

      Great chart thanks. Do “original reserves” equal remaining reserves plus cumulative output?

      You have a lot of data on deep water oil fields, what is the World wide total reserves approximately?

      In 2015 about 9.3 Mb/d of C+C+NGL was produced from offshore fields in water deeper than 125 meters worldwide. Total offshore output of C+C+NGL was about 27 Mb/d in 2015.

      https://www.eia.gov/todayinenergy/detail.php?id=28552

      I cannot find a summary of World off shore reserves.

      Article from 2007 seems an overestimate

      http://www.ogj.com/articles/print/volume-105/issue-10/exploration-development/global-offshore-oil-2-growth-expected-in-global-offshore-crude-oil-supply.html

      1. Yes original reserves equal production plus remaining. I don’t know offshore reserves in total, The Opec countries don’t report it in detail so you only get what to trust of what they decide to report as a final number and it’s not all offshore, similarly Russia. I have data on Brazil, Mexico, UK, Norway, GoM that’s all. I could probably find data on the minor Asia producers but it’s a small proportion of the total. There’s lot’s of others – Oman, China, India etc.. I don’t have access to OGJ – maybe exceeded my free articles. For the EIA shallow numbers a large amount will be from OPEC Middle East I think.

  31. WTI just broke $57. And Bent is almost $64. Gotta be some profit taking Wed.

    1. The Energy Report 11/06/17

      Saudi Purge as Oil Supply Fall

      Oil prices hit a two year high as U.S. oil rig counts had the biggest drop of the year and the Saudi Crown Price goes after his “rivals” in a corruption crackdown. Drama in the Saudi Kingdom as Crown Prince Mohammed bin Salman consulates power in a shocking crackdown that even saw Saudi billionaire investor Prince Alwaleed bin Talal arrested along with 14 of Mohammed bin Salman cousins. Crown Prince Mohammed bin Salman has also ordered that all members of the royal family should remain in the country and that may mean there are more arrest’s coming. Then there was a helicopter crash near Yemen killing a bin Salman rival, Prince Mansour bin Moqren, the deputy governor of Asir province and son of a former crown prince. One wonder if this is a coincidence or not.

      This comes as global oil and petroleum supplies are draining at a historic pace as demand and OPEC production cuts are failing to keep up with global oil demand growth. Don’t look for shale oil producers to save the day they are in major retreat. We saw the U.S. rig count fall eight oil rigs the biggest drop this year and the biggest drop since May 2016. That puts the U.S. oil rig count at 729 in the lowest level since May. Some of the drop is seasonal in nature but you can’t ignore the fact that the U.S. shale producers are seeing a peak in oil production as August U.S. oil output fell to 9.2 million barrels. That is well below what was expected at this point.

      But it is not just shale that is peaking. Major oil firms have major CapX cutbacks and we will see a major disappointment in future production. Still Reuters reports that exploration and production (E&P) companies expect to increase the amount of money they plan to spend on U.S. drilling and completions in 2017 by about 53 percent over 2016, according to U.S. financial services firm Cowen & Co. That was up from 50 percent in the firms prior capital expenditure tracking report last week. That expected 2017 spending increase followed an estimated 48 percent decline in 2016 and a 34 percent decline in 2015.

      Oil refiners have fallen behind the curve and are struggling to keep up with global oil demand. Low oil prices have sparked a global oil demand surge catching many by surprise as there was a sense of complacency in the market. Under reporting of demand and the talk of an oil glut made many miss the most significant bottom on oil prices in a generation.

      Oil Supply in the U.S. will continue to plummet into the end of …….

      http://www.321energy.com/reports/flynn/current.html

  32. Quite awhile back, I was engaged in a discussion on this site regarding the enormous amount of employment potential this so called Shale revolution was presenting.

    The November 2 piece from Triblive (Pittsburgh area), describes job fairs where a vertical drill company is seeking workers for 14 on/14 off jobs paying $60,000/year, building trades paying $35/ hour during their multi year long apprenticeship program, truck drivers paid $20/hour with 5 day, 12 hour shifts guaranteed ($2,000/week) … this just walking in the door, willing to work, and drug free.

    The massive, massive build out in the Appalachian Basin area (at least one cracker, 2 dozen huge CCGT power plants, to note just a few) ensures years (decades?) worth of strong economic potential for those willing and able to seize the opportunity.

    Appalachia Rising!

    1. They should have job fairs in Odessa Tx. No big deal, a telephone booth should suffice. Joking. Seriously, they could open up a big fair in DFW, but they would have to offer free man camps, and a huge salary to move out West. Not quite sure they are ready for huge employment costs increases, yet.

      1. Guym
        What is taking place in the Appalachian Basin area is somewhat similar to the origins of the steel and coal industries, that is, a huge supply of raw materials, secondary consequences being cheap heat and electricity, with a tertiary effect on manufacturers who utilize a whole array of material for their products (white goods, automotive parts, packaging, chemicals, etc.)

        For another website, I did an operational and financial comparison between the world’s largest offshore wind farm – the London Array – and a random, new build CCGT plant – the Lackawanna Energy Project.
        The distinction was stunning to me, and smart CEOs around the globe must be well aware of these parameters when they mull over future planning.

        1. There’s no doubt oil and gas are going to be meeting our demands for energy in the near future, probably cheaper. However, even Texas sees the long term need for renewables,?even if they are more expensive, now. As you drive through the Permian, you will see a massive number of wind generators, and all along the coast, before you even get to the rigs. People rag on Perry for being anti-renewable, but he was responsible for a lot of that activity.

          1. The electricity produced by those Texan windmills is awfully cheap. It’s a lot cheaper than UK offshore wind power. The UK has…adequate…wind resources, but their offshore resource isn’t real cheap, at least not yet.

            Oddly enough, they have some pretty good onshore wind resource that would be a lot cheaper to develop, but the English apparently prefer their “viewshed” over cheap power.

  34. 257 oil completions in Texas for October. New low for this year, and going back quite a ways. I’m sure Energy News can update on the historical perspective. Chances of meeting EIA projections are pretty bleak.
    I’m beginning to think they are waiting to complete for a higher price. Mostly. Then the completions can only happen in a time frame the analysts can’t fathom.
    Oil CEOs tell the public what they want to hear, but probably most are much more informed than I am.

    1. As I have said a few times in the past, in my opinion, it is not the companies waiting for a higher price – it is the banks forcing them to wait for a higher price. For example, on Continental Resources 2nd qtr conference call the CFO comments seemed like he was reading from a script given to him by their banks, with a gun to his head.

      1. Which bank would have that much acumen on oil prices? None of the bank analysts I have read expect anything but a lower for longer oil price. Wells Fargo expects it to fluctuate between $30 to $60 for the next ten years. Although, I could see them trying to constrict spending. Many of us bean counters do not have the gift of gab?

        1. Guym says; “None of the bank analysts I have read expect anything but a lower for longer oil price. ”

          Bingo! My point exactly! They are going to restrict lending until they see sustained higher prices. And when they were near $50, the banks were absolutely not anxious to lend any more than what they already had at risk. Continental kept saying they were going to be responsible and that they would not do new drilling with borrowed money.

          Incidently, any company that hedged at around $50 now has to put up $7 per barrel margin call until they cover the hedge with actual production. So that dips into their borrowing base. I will bet that there is some squirming in the executive suite when they read headlines of possible war in the mideast. If oil spiked to $80 for a week, I bet that someone will not be able to cover the $30 per barrel margin call and could be sold out.

          1. I have not been keeping up with the predominate type of hedges companies are now using. Except for EOG who has limited hedges. I know there used to be various collars, so they would not be trapped either way. If a company is underwriting their own put on all their production, then they really should go out of business, because no one should have a business and be that stupid.
            Did Mexico underwrite their own put at $46 a barrel, and just leave it being a put?
            By collars, I meant it’s a built in hedge either way. A put at a certain price, then if it rises to a certain price, there was a built in corresponding call at that price to offset the put. There are other forms of derivative protection, but they are set up by management to protect the company from wide swings in price either way.

            1. When I first learned about derivatives in the 70’s, there were only two types, puts and calls. They did not represent much of the market at the time, and were considered too risky for business, only the experienced investor. They have expanded, and grown to be much more gigantic than the regular stock market. Then, what happens if some underwriter can’t cover? Think Lehman Bros., and thinking it can’t happen again is not thinking. So, maybe the company who uses derivatives the least, may be the last one standing.

    2. Texas RRC oil well completions, October 257
      The low last November 2016 was 342
      There is only one number lower than 257 and that is July 2011 at 243 (since January 2010)

      1. And July 2011, they were still drilling a lot of vertical wells in the Permian. As far as horizontals, it may be a new low. To be fair, Texas completions are not always posted in the month they were completed, but that is pretty much consistent from month to month. The trend is definitely down.
        Thanks for the update EN.

  36. LONDON, Nov 6 (Reuters) – Hedge funds have built record or near-record bullish positions in almost all parts of the petroleum complex anticipating that prices will keep rising.
    Hedge funds and other money managers had amassed a net bullish position in crude and refined products amounting to more than 1 billion barrels of oil as of Oct. 31
    https://www.reuters.com/article/oil-hedgefunds-kemp/column-hedge-funds-go-all-in-on-oil-kemp-idUSL5N1NC3DM
    Bloomberg chart https://pbs.twimg.com/media/DOAM1C7XcAAVFEQ.jpg

    1. Hi Guym,

      I think triple digit is not that likely, once oil gets to $85/b there will be a drilling frenzy in LTO and there might be a brief spike to $100/b, but there may be enough supply from LTO to keep oil prices from spiking too high. By the time LTO peaks there might be some deepwater and oil sands projects that take up slack, so $80-$100/b from 2019 to 2025, by then peak will have arrived and oil prices rise until EVs or recession take some demand pressure off. Probably at $150/b demand moderates either due to a slow economy or rapid transition to other types of transport.

      1. It shouldn’t have to go to $100 to bring on more production. $90 would cover most difficult production costs, and yield a profit. But, we are dealing with humans, not Dr. Spock. Humans over react, and come up with mindless future horror stories. Just like lower forever. Or, WTI will trade in the range of $30 to $60 for the next ten years.

        1. Hi Guym,

          Yes the market can overshoot, but LTO output can ramp up within 6 months of rising prices, so once WTI gets to $70/b there may be a gradual increase in completion rates and the increased supply of oil may keep oil prices below $1It will00/b at least until tight oil peaks around 2025, by that time the high prices may have started deep water investment in 2018 which would start to hit around 2023 and this output would continue through 2028 which might mitigate the decline of tight oil output. Potentially there might also be some tight oil output from other parts of the World (maybe China or Russia) by 2025.

          It will be interesting.

  38. Saudi stuff for those whose eyes glazed over.

    The crown prince in line for succession is Mohammed bin Salman. His dad is presently king and will croak soon since age 81. bin Salman only become crown prince in July, replacing the king’s nephew.

    bin Salman is the dood who orchestrated all the arrests of the weekend. He’s pre-empting a succession battle. Note the arrested guys are presently housed in the Riyadh Ritz Carlton. haha

    bin Salman is gung ho for the Aramco IPO. Oil minister, who is not a royal, recently said they remain on schedule for late 2018. Bloomberg says there will be several months slippage. Oil minister denied.

    The king has spoken out in favor of bin Salman’s weekend actions.

    One of those arrested is Prince Alwaleed bin Talal, the bailer out of Citibank during the crisis.

    11 princes and 37 business guys are detained so far. The replaced nephew had been put in command of the National Guard. He was removed from that position this weekend and the king was seen swearing in the replacement.

    Ignore most of what you read in the media about all this. There are agendas in place, and probably equity positions at the media company.

  39. Wild guess, here. I think the best increase in US production for 2018, will be to not too much over what the monthly numbers EIA has for July 2017.

  40. EIA STEO estimates U.S. crude oil production averaged 9.3 million barrels per day (b/d) in October, down 90,000 b/d from the September level. Crude oil production in the Gulf of Mexico averaged 1.4 million b/d in October, which was 260,000 b/d lower than the September level. The lower production reflected the effects of Hurricane Nate.
    https://www.eia.gov/outlooks/steo/

    2. 9.3? These guys are intent on digging the hole so deep, they will never climb out.

      1. And the last quarter of 2016 monthlies for EIA average about 8.8 million, add .01, and say 8.9, or a little under. That is about what I was estimating from Texas RRC info. That’s with Harvey. I don’t see any better numbers for the fourth quarter, as completions will probably continue to follow October’s bleak numbers. Say, 8.9 less production loss from the Gulf for Nate, and compare that to the STEO garbage.
        That’s pretty much the basis for my wild guess estimate for the end of 2018. That is, 9.2 to 9.3 million. Not 9.9 million, as EIA guesstimates. Limited by service companies’ capabilities. I just eyeballed the increases during the first quarter per RRC info, and imagined them doing that for the full year with about 500 to 600 completions a month, which is about what they were doing for many out of the first six months. I think it is over estimate, at that.
        What gets me is that banks and analysts have this raw information, but then they turn around and quote EIA projections, instead of saying the king is buck naked.

      2. https://www.cnbc.com/amp/2017/11/07/morgan-stanley-ups-oil-target-says-us-shale-struggles-to-meet-demand.html

        Morgan Stanley’s overall thoughts are that US shale is not up to the task expected in 2018. We will be far short on oil supply in 2018. This is only confirming what Energy News just posted, and my earlier comment on it. I don’t believe it! A bank is capable of actually digging into details. Although, they came at it in a different direction, by analysis of a significant number of financial statements, and talking with CEOs from those companies. The results were effective, and without mentioning EIA, the obvious conclusion is that the King is buck naked.

        1. Hi Guym,

          Let’s assume your guess for the oil price is correct. Wouldn’t you expect a rise in US LTO output if your price estimate is correct? I think it would be 500-600 kb/d in a year’s time, I agree EIA is a little too high, probably 400 kb/d or so for the end of 2018, their estimate will be revised as they adjust their current overestimates for output in Texas.

          1. I gave it 400k max, from end of year estimate. Which, at the most, would be 8.9 million. Frac crews can’t gear up for next year, yet, because of the current declines in completions. JMO

            1. Hi Guym,

              I think if oil prices are high rates paid for fracking will be higher, wages will go up, and completion rates will also increase.

              I often think this happens faster than turns out to be the case.

              You see it first hand and your guess may be better.

              What would your guess be for completion rates of horizontal wells in the Permian after 6 months of oil prices at $75/b or higher (WTI).?

            2. Frankly, Permian is bumping up against infrastructure constraints. Roads and pipelines.

              Even if we could pay vastly more for services, it takes time to get green people up to speed and manufacture new equipment. Its all been cannibalized and experienced workforce has left the industry. 12-18 months to manufacture and train, and that only helps supply if we build the additional pipelines et al to move the product.

              My company and others are running up against physical supply constraints vis a vis servies atm.

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