Since around 2005 many countries have increased their oil production but more have decreased. But the combined production of the United States and Russia have kept the world on a slight uptrend since that time.
World oil production jumped in 2011, hardly moved at all in 2013 but it was up by more than 1.5 million barrels per day in 2014. And after such a huge gain everyone and their brother were singing “peak oil is dead’. But if you scroll down through the 37 major world oil producers it becomes obvious that a majority of nations have peaked and most of them are in steep decline.
The above chart is EIA data however the next four charts below are JODI data with the last data point February 2015. The data on all charts is thousand barrels per day.
However in the last decade it has been two of the three world’s largest oil producers that have kept us from peak oil, the USA and Russia.
Russia grew like gangbusters in the first six years of this century but has slowed down considerably in the last five years or so while the US, due to the shale revolution, has had four years of dramatic growth.
Using a stacked zero based chart it looks like nothing much has happened since early 2005. And that is correct, the USA and Russia have kept production slightly inching up while the rest of the world slightly declines.
Here we get an amplified view of the World less USA & Russia. The peak was in February 2006 and February 2015 is over 2,600,000 barrels per day below that point.
We have discussed, in several posts, why many of us believe that the USA has peaked, or will peak this year. But what about Russia? Is Russia at her peak also?
I have taken another look at the Global and Russian Energy Outlook to 2040 by two Russian think tanks, The Energy Research Institute of the Russian Academy of Sciences and The Analytical Center for the Government of the Russian Federation that was published last year. I never noticed it before but they actually predict peak oil. On page 35 of this study they say:
Conventional oil (excluding NGL) production will drop to 3.1 billion tonnes by 2040 from the current 3.4 billion tonnes, and the long-discussed ‘conventional oil peak’ will occur in the period from 2015 to 2020. The drop in its extraction will be due to the gradual working-out of reserves of the largest existing fields.
3.4 billion tons per year works out to be 68,000,000 barrels per day and world C+C was about 10 million barrels per day above that number so I don’t know what they are counting, perhaps crude only.
They predict that Russian exports of all petroleum products will peak in 2015. Page 111:
Exports of petroleum products will peak in 2015 and will then gradually decrease until they reach 2010 levels by as early as 2040, mainly due to the decrease in exports of fuel oil and non-marketed petroleum products.
Then on pages 132 and 133 they predict the peak C+C for Russia
In Outlook 2014’s Baseline Scenario, production of oil and gas condensate in the Russian Federation reaches a peak and gradually declines, from 523 million tonnes in 2013 to 522 million tonnes by 2015, after which it continues to decline, right up to the end of the period, to a level of 468 million tonnes. This reduction in production is, for the most part, brought about by the working out of already exploited deposits in the key oil producing regions of the country (in Western Siberia).
They said that Russia peaked in 2013, the year before this document was published, at 10.46 million bpd then decline to 10.44 million bpd by 2015. That is a tiny, almost an imperceptible decline of 20,000 bpd or .2% over two years. They could have said that Russia would plateau in 2013 and remain on that plateau through 2015, which is exactly what has happened… so far anyway.
Here is Russian C+C production through February 2015. It appears now that the peak will be 2014 and 2015 which means that they are at peak right now. The spikes in 2011 were likely caused by the huge Western Siberian wildfires they had that year.
It is interesting to note that both JODI and the EIA reports Russian C+C production at about half a million barrels per day less than what the Russian official web site CDU TEK reports.
Here they have the peak in 2015 but only a slow decline from here on out. Notice that about 60 percent of all Russian oil comes from those very old Western Siberian super giants fields with that percentage declining only very slightly in the future. How can that be? They drilled 8,688 new wells in Russia last year, most of them infill wells in Western Siberia. Do they really expect to poke more holes in those old fields and and continue to get oil from them for another 25 years… or more?
Well yes and no. The chart below shows where they expect all that new oil to come from.
As you can see from the shrinking red column they expect those old fields to decline rather dramatically. But at the same time they expect them to grow. By 2040 they expect fully half of their production to come from “reserves growth”. And they are not bashful in admitting such:
One should point out the significant role that will need to be played by geological exploration during the forecast period, since by 2040 more than 50 per cent of production in all scenarios will need to come from growth in reserves, and final reconnaissance of fields resulting in category C2 reserves becoming category C1.
So those tired old Western Siberian fields will shrink but at the same time they will grow. But in all fairness they will not grow quite as fast as they shrink.
Despite the fall in production in the Baseline Scenario, even at the end of the forecast period the key production capacities of the country will continue to be concentrated in the Tyumen region, with its share accounting for 51 per cent of all crude oil and gas condensate production by 2040 (compared with 61 per cent in 2010).
The Tyumen region, and the areas surrounding it, are the areas in Western Siberia where their oil fields are. So the share of Russian oil production from this region will go from 61% today to 51% in 2040. Because those tired old fields are gonna grow!
Bottom line, USA peaks in 2015 and Russia peaks in 2015 which means the world peaks in 2015. Also many other nations that have increased production over the last few years are also at peak and will be declining soon. And Russia will be declining just a whole lot faster than those two think tanks believe they will. Those old reserves are not going to grow nearly as much as they think they will.
Of course there is a possibility that the peak could actually be in 2014 or even 2016, but I am firmly convinced that we are at peak oil right now. If you have a counter argument I would love to hear it so please post it in the comments below.
I have published a new page, World Oil Yearly Production Charts with annual data charts for all the world’s major oil producers.
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Note: If you would like to receive an email notice when I publish a new post, then email me at DarwinianOne at gmail.com
”Exports of petroleum products will peak in 2015 and will then gradually decrease until they reach 2010 levels by as early as 2040, mainly due to the decrease in exports of fuel oil and non-marketed petroleum products.”
I can’t quite make sense out of the last portion.
What is (or might be?) an exported non marketed petroleum product?I presume this bit of nonsense is the result of an error in translating the original document from Russian to English.
Otherwise this document has the smell of many I have read over the years involving agricultural issues. It seems to be composed in such a way as to be read by various people in various ways – composed so as to not unduly upset the business as usual apple cart when the general public reads it- but also in such a way that the real message is plain to be seen for eyes that wish to see, eyes that are not afraid to see.
Nobody tells little kids that Mommy and Daddy are going to die and rot. They tell them that someday Mommy and Daddy are going to go to Heaven to live with Grandmas and Grandpas already up there in the clouds, and that the kids themselves will someday do likewise – at some impossibly far distant future time. So the kids are happy and reassured. Any thing more than a year away is unreal to a little kid and anything more than a decade away is unreal to nine hundred and ninety nine adults out of a thousand- until after reaching the age at which their friends and relatives are dropping like flies.
The older one gets, the more he comes to understand the business of reading between the lines of such communications. Powerful Russian officials with intelligent aides at their beck and call will not mistake this report for anything more than a hoped for best case scenario.
There is a folk saying to the effect that a wink is as good as a nod—— which is perfectly true if you are paying attention.
The public in this country does actually in my estimation accept the reality of peak oil in the abstract- and in the concrete too- given the ( mistaken ) caveat that the peak is twenty or thirty or more years down the road – no need to worry about going to die and going to peak oil heaven , plenty of time left to buy TWO or THREE more new six thousand pound beer fetchers.
Put a hundred thousand miles on all three of em!!! Plenty of time to get right with sky daddy in regard to energy sins. !!
We backwoods Baptists joke about getting started sinning on Sunday afternoon and building up to a peak on Saturday night -knowing that we can ( and MUST if one is a believer) get right again on Sunday morning. Serious Baptists plan enjoying life as long as they can and then giving up sin TWO Sundays before their appointment with the undertaker.The second one is just in case – an application of the precautionary principle. 😉
As John Gray has noted, Marx and Hegel, just like Adam Smith, “followed Judaism and Christianity in seeing history as a moral drama whose last act is salvation.”
Morality is not dependent on ‘institution’. It is dependent on the individual.
Kid: “Daddy? Why are there rich people?”
Cae-Dad: “What do you mean by rich? You mean like in spirit?”
Kid: “No-o-o-o-o… Like they have lots of big houses and cars and money!”
Cae-Dad: “Ohhh, you mean those kinds. Well, you see, sweetie, our society allows some people to make more money than other people, working no harder that anyone else. Society then allows those with more money to acquire more land than others. Over time, this creates the dynamic for most, if not all, problems we have in society today, from landlessness, homelessness and poverty, to social unrest, war and civilizational collapse.”
Kid: “Why does society allow that?!”
Cae-Dad: “Corruption. Society uses force to uphold the laws that say that one person with more money can have more land than another with less money.”
Kid: “Why can’t we stop that!?”
Cae-Dad: “Corruption again: This setup is upheld by people with guns and weapons, or access to them, like cops, security guards and military people– people who often don’t understand this basic and very simple immoral core of our society.”
Kid: ” 🙁 ”
Cae-Dad: “Ya; 🙁 “
Morality is not dependent on ‘institution’. It is dependent on the individual.
And just what is it that molds individual behavior?
Two things, heredity and environment. There is nothing else.
A current institution is generally merely a small subset of one’s environment and far easier to transcend than heredity and environment over time.
Environment and heredity generally depend on the laws of physics, rather than the laws of institutional doctrine.
Actually, one thing; environment, which determines heredity. ‘u^
”Actually, one thing; environment, which determines heredity. ‘u^”
In a zen sense this makes just the slightest bit of sense. The river shapes its bed just as the bed shapes the river.
But I have no knowledge of any qualified biologist making such a claim except in this very broadest sense.
Of course the environment of a penguin requires that it have a genome suiting it to its frosty environment. A cow would starve pretty quick , or drown sooner, trying to feed like a penguin – not only does the cow lack the proper body , it also lacks the proper genetically based behaviors.
But generally speaking the claim that environment alone determines everything is bullshit. Heredity suits the organism to the environment but heredity also CHANGES the environment.
Grazing animals change their local environment for instance by (paradoxically to a layman ) promoting the growth of grasses.
Robin: “Cosmic calamity, Batman! It’s an Old farmer mac comment!”
Batman: “Robin, can we just calm down and fight crime without all the drama? Or I won’t take you with me anymore. Sometimes you’re just plain ridiculous… And while I’m at it, why are we wearing our underwear on the outside?”
“In a zen sense this makes just the slightest bit of sense.” ~ Old farmer mac
No, in an Old farmer mac sense this makes just the slightest bit of sense. 😉 <– yellow blob alert!
Actually, one thing; environment, which determines heredity. ‘u^
Caelan, I don’t know what ” ‘u^ ” means. But I hope it was something like a smiley face you were trying to make. Because that has to be a joke. After all even a fifth grader should know that the environment does not determine heredity. That silly crap went out with Lamarck.
I would say in a sense the environment changes what hereditary factors are selected for, and which mutations are favorable
So I do not think it is total nonsense, more just long term musing
And Lamarck is rising, very slightly, with epigenetics, very interesting stuff. There is a book by that name a year or three back that is a fun read
I would say in a sense the environment changes what hereditary factors are selected for, and which mutations are favorable.
The environment can cause different gene expressions but the environment cannot change the genome itself. That is absolutely impossible.
Of course the environment often determines which mutations survive and which do not. But that is nothing but pure natural selection. That is not Lamarckism, that is Darwinism.
Those who think Lamarck is rising simply do not understand natural selection. Learned behavior cannot be inherited.
Ron, seeing as you ratcheted the institution thing to another level, regarding heredity and environment, I thought to click the ratchet yet again it into environment whereby, fundamentally, genes come from it.
LOL, you’re too cute. Yes, a winky face, only turned counter-clockwise from the usual sideways one, in part to avoid the yellow blob that your blog turns the usual ones into. I have been using it and ‘u’ and ^u^ for some time. Of course I could also always use an umlaut: Ü
…How’s your cold by the way?
The environment can cause different gene expressions but the environment cannot change the genome itself. That is absolutely impossible.
Perhaps not the “natural” environment, but reports are that the human genome has already been modified in the lab.
http://rt.com/usa/254965-genetic-modification-human-embryo/
Hopefully they’ll figure out a way to reverse my heterochromatin disorganization.
Kid: Why did the former Soviet Union collapse?
Dad: Because they tried an experiment called communism whereby everyone was paid the same regardless of talent or effort. So, e.g., garbage collectors made the same as physicians and therefore no one wanted to go into the medical profession. Hospitals had huge wards where they had to share needles. It was not good.
Kid “Why did the Soviet Union Collapse?”
Dad ” Because it was a totalitarian state that was controlled by homicidal maniacs.”
Kid “But what about its economic system”
Dad “The homicidal maniacs weren’t very good at economics either”
One famous refugee who manage to escape – leaving his family behind , everything behind , sorry I cannot remember his name famously said
” They pretended to pay us. We pretended to work.” I have zero patience for people who yak about communism and American shortcomings in the same sentence but have never read anything written by people who actually lived under communist governments., or experienced it personally.
Ann Rand had an excellent grasp of the way communism worked in theory and in practice. She did a great job of describing it in the chapter of ” Atlas Shrugged” wherein the workers in the electric motor factory took over and voted in socialism.
They kept increasing the wages and benefits of the lower paid workers ”according to their needs” by means of reducing the pay and benefits of the higher paid skilled workers and management with the end result being all the people who knew how to maintain and run the Twentieth Century Motor Company quit either by choice or necessity, with the company going broke.
Of course the electric motor company story only illustrates the first rotten layer of communist theory.
The rotten core of it is that the people in charge soon position themselves as dictators living very well while the common people suffer.
I find it highly amusing that people who have not read her accuse people who have of being fascists-and accuse her of being fascists.
If fascism means anything at all it means big government being joined at the hip to big business in an extremely foul fashion, with the rich owners and government people running a country as a fiefdom.
That is the exact scenario she put in her book which lead to the collapse of the economy. The real producers were run out of business by the incompetent ones who allied themselves with the government thus getting favorable treatment and subsidies.
For writing a novel that illustrates the evil of fascism she is called a fascist.
Ayn Rand was a psychological deviant who, like all psychopaths, attempted to create a ficticious world and an ideology where her immorality could appear “normal.”
As the Polish psychologist Andrew M. Lobaczewski, who lived 6 years under Nazism and 32 years under Communism, concluded in Political Ponerology:
“It is common,” Lobaczewski adds, for an association or group of psychological deviants to craft
As Lobaczewski goes on to explain, when psychological deviants gain political power (such as Rand’s good buddy, Alan Greenspan),
An absolutely outstanding movie, IMHO, which deals with the obstinancy of human nature is the German film, Napola:
https://www.youtube.com/watch?v=kVL9ZszGhxA
The Gift
“Under capitalism, man exploits man. Under communism, it’s just the opposite.” ~ John Kenneth Galbraith
“What happens when communism comes to the Desert?–
For 70 years, nothing. Then they run out of sand”
The Gift
Russian net exports* have been at or below 7.2 mbpd for seven straight years (2007 to 2013 inclusive, 2014 data not yet available). Based on the 2007 to 2013 rate of decline in their ECI Ratio (ratio of production to consumption), I estimate that Russia has already shipped, through 2013, about one-fifth of their post-2007 CNE (Cumulative Net Exports).
*Total petroleum liquids + other liquids, EIA
No, I wouldn’t call for any peak just yet. News from my buddies out west is the Bakken oil fields are gonna reach record production level in May 2015. Suppose to lower the price at the pump some. All the way up now to $2.79 per at the Valero down the street from me in Enfield, Ct. Still better than last year of course but higher then it needs to be due to all the fleecing and gouging by big oil and big government.
Frank – Regarding “fleecing and gouging” by big oil. What is the price of a hotel room in Las Vegas on New Years eve? What is the price of a beach house in Maine in July? What is the price of a hotel room in Orlando on July 4th. What is the price of a Super Bowl ticket? What is the price of a final four basketball ticket? What was the price of a ring-side ticket last night? What is the price of a World Series game? What was the price of a Kentucky Derby seat at the finish line? What is the price of a ticket within 100 feet of the Indianapolis 500 race finish line?
So – you are right!!!! Everyone price gouges, based upon what “you” want to pay.
Also, higher “than” it needs to be, not higher “then” it needs to be.
Frank would almost for sure gouge the hell out of any customer that comes his way if he happens to be a plumber , mechanic , etc.
But in HIS case he would believe he IS charging a FAIR PRICE.
After all plumbers should be able to drive cars as nice as the cars driven by doctors.
People who make such remarks always believe EVERYBODY is gouging them.
We don’t fleece nor gouge you. We simply charge as much as we can. This generates profits. It’s pretty straightforward.
Yes that is an accurate description. There is a huge gap between what it costs to produce oil and what customers are willing to pay, so there is a lot of play. (Put another way the demand curve levels off at the high end quite a bit.)
Oil companies have certainly been guilty of applying political pressure on governments to ignore the negative externalities of oil consumption. But I think the high prices we saw in recent years (that started when an oilman got himself elected president and started a war against a major oil producing country) were more about panicky traders than some secret cabal oil producers. My guess is that prices fell when traders got numbed to bad news from the Mideast by the Arab Spring.
But as always it’s important to keep in mind there is no single cause for anything in economics.
Mechanical engineers. http://www.imeche.org/knowledge/themes/energy/energy-supply/fossil-energy/when-will-oil-run-out
Economists are predicting that the $200 ceiling will be broached before the end of the year.
I don’t think anybody but Simmons was predicting that…
Back before the price collapse of 2008 I heard all kinds of predictions. A lot of them were in the $200 a barrel range. I thought they might go that high myself. I wuz wrong!
But I learned a valuable lesson. That lesson was that oil prices can only go so high before they start adversely affecting the economy. Then the prices plunge. It happened again just recently. And it will likely happen again.
If oil prices spike they can go a lot higher before they crash. They spiked to $147 a barrel in 2005. But if they go up slowly, or hold a high price for a long time, then they cannot go nearly as high before they crash. $100 to $120 did it last time.
Ron,
For oil price determination, the substitution of oil at high price is also a factor. Ethanol at roughly 2 mb/d is just one factor and came nearly to a standstill in recent years. However the demand for residual fuel oil has been falling precipitously over the last few years. In Europe and North America and even in China demand for residual fuel has been falling by 40% per year – despite rising demand for gasoline, diesel and aviation fuel. Five years ago demand for residual fuel has been almost 15 mb/d – or nearly 20% of the market. Now it is 10 mb/d and in my view it will come out of the market completely over the next five years. This contributed very much to the fall in oil price over the last year. Therefore the oil price will be rising strongly again in a few years, but not over the next two years.
That would make me think the fuel oil is broken and shows up as refinery gain after its hydrogenated?
Ron,
While the oil price crashes of the early 1980s and of 2008 were caused by recessions, which caused demand destruction, the oil price crash of 2014 was different.
Whereas the crashes of the 1980s and 2008 were caused by demand destruction, the oil price crash of 2014 was caused by overproduction.
While the oil price crashes of the early 1980s and of 2008 were caused by recessions,…
Aren’t you getting the cart before the horse? What caused the recessions?
Oil prices were the surely the major cause in 73, 78 and 91, but I would prefer to blame the banks in for the most recent crash.
But as always it’s important to keep in mind there is no single cause for anything in economics.
Ilambiquated says:
I don’t think the human mind works that way. As Tolstoy so eloquently put it in War and Peace, and as a great deal of recent research now confirms that his observation wasn’t too far from the truth:
Oh well, so much for homo economicus and the Enlightenment myth of rational man.
Yes, I agree completely. Humans need narratives.you often here “push chain” arguments: A causes B and B causes C and C causes D therefore A causes D. Makes for a great story, but it’s hard to push a chain.
Well I suppose it depends if one wants to place emphasis on proximate causes or ultimate causes.
Would you agree that the proximate cause of the 1980s recession was Volcker’s monetary policy, the approx. 20% interest rates he implemented?
Would you agree that the proximate cause of the 2008 recession was the popping of a private debt bubble in the West — the private debt bubble in the Anglo/American world and Europe (with the exception of Greece, where the debt bubble was public)?
What were the ultimate causes? What caused the profit crisis for capital in 1979, which in turn caused Volcker to embark on his crusade to destroy inflation in the prices of oil and labor?
What caused the inflaton in the price of oil leading up to 1979? Was the rapid inflation in the price of oil between 1973 and 1981 caused by depletion? Or was it caused by politics, by OPEC (read Saudi Arabia) deciding to curtail supply? What had changed which caused OPEC to have this power, a power which it did not have pre-1970?
What caused the bubble in private debt in the years before 2008? Why was there so much non-productive investment in the Western economies in the years leading up 2008? Why did all the new debt (read money) created in the years before 2008 in the West not result in a concomitant increase in production in the West? In other words, why did it turn out that
?
Hi Ron,
Your argument about oil prices being limited by economic downturns is certainly true in the short to near term of say up to maybe four or five years, maybe somewhat longer.
But I believe that the price of oil certainly can and will approach one fifty or more per barrel in constant money in the longer term- AND that the world will be able to pay this price due to using oil more efficiently.
At one time our primary vehicle on our farm was a full size Ford pickup that seldom got more than ten miles per gallon except it would get twelve on a trip.
Now our primary pickup truck gets in the mid twenties and the car I drive to save gas and wear and tear on the truck gets in the mid thirties.
More efficient vehicles and changing lifestyles will allow us to pay one fifty or more in todays money for oil within a decade or so in my opinion.
This is a very good thing except in the eyes of people who actually WANT the economy to collapse. I personally prefer business as usual to forting up and getting shot at (and eventually hit most likely ) and living on home grown beans and corn bread..
I ‘m getting a little old to be dirt farming with a spade , given that I don’t own a mule or horse or even a donkey.
Now to wander a bit off the topic I am a big fan of Elon Musk and his Tesla cars but I have been reading some horror stories about the cost of repairing one if it is involved in an accident.Some people are claiming you simply cannot get a Tesla fixed except in a Tesla authorized shop and that the price of a very minor parking lot fender ding is ten grand and up. I don’t know if this is true or not.
But at any rate the man and the company are doing a lot in terms of changing the attitude of the public when it comes to electrified automobiles. My great grandparents never thought they would be able to afford tractors and cars when they were young but THEY WUZ WRONG about that. They owned half a dozen or more cars and trucks and two or three tractors over the course of their lives.
Heck, the average European uses 18% as much fuel for personal transportation, which makes $7/gallon (equivalent to $250 oil) entirely affordable. Their cars use 60% as much fuel, and they drive 1/3 as much.
Most Americans live in urban areas that are just as dense as European urban areas. Of course, the US doesn’t have the same mass transit, but we do have hybrids, plug-ins and carpooling (more Americans carpool than use mass transit).
But the entire cultural and physical structure of the US economy, polity and financial system is built upon a requirement for ever-increasing oil consumption.
What will it take to change that cultural and physical structure, and can it be done, or done quickly enough, so as to avoid collapsing the society?
And if the US economic, financial and political order collapses, what will that mean for the rest of the world?
entire cultural and…structure of the US economy, polity and financial system is built upon a requirement for ever-increasing oil consumption.
I’ll grant you that there’s been decades of misinformation that made people think that oil was necessary. That’s not quite the same as a “requirement”.
physical structure of the US economy, polity and financial system is built upon a requirement for ever-increasing oil consumption.
??? EVs can be built in the same factories, drive on the same streets. They start, and turn, and park in the same ways.
They’re sold by the same dealers. I’ll grant you that Tesla is bypassing dealers, and that EV’s low maintenance is a challenger to the business model of dealers, but I think the US will cope with fewer car dealerships.
It has taken 75 years of incessant public relations to instill the car culture and oil culture in the people of the United States.
There’s a great film from the 1939 World’s Fair in NY, created by General Motors, that is instructive in this regard, and shows how the “scientific” methods of mass marketing which were developed in the late 19th and early 20th centuries were used to create the car and oil culutre:
https://www.youtube.com/watch?v=-JFgpxYaeJQ
It’s amazing how much of what the film predicted came true.
The bottom line is that there is so much cultural inertia sustaining the car and petroleum culture that I’m not so sure that it can be turned on a dime.
In addition, all of the infrastructure of the US — suburbs, shopping malls, grocery stores, eight-lane expressways, etc. — was built to accomodate the car and oil culture. How much is it going to replace all that?
Plus the economy and financial system of the United States functions on a model of capitalism which requires never-ending growth. How easy is it going to be to transition to a no-growth economic and financial paradigm?
Car culture isn’t the same as oil culture: EVs work just fine. I sympathize with unhappiness with car culture (I live in a walkable neighborhood, and commute with an electric train), but that’s a separate problem from PO.
The same applies to growth: PO doesn’t mean zero -growth.
“Car culture isn’t the same as oil culture: EVs work just fine.” ~ Nick G
EV’s are part of car culture. Car culture doesn’t work ‘just fine’ at all– ostensibly, a disaster. EV’s in this context therefore don’t work ‘just fine’. Despite this; despite that you don’t own an EV by your own admission hereon (and, if recalled, own a rarely-used regular car); despite that you take the train; and despite that you claim to live in a walkable neighborhood to boot, you continue to want to ‘dump’ EV’s on the rest of us.
The proverbial sleazy car salesman comes to mind.
“I sympathize with unhappiness with car culture…” ~ Nick G
Apparently not enough to abandon the EV PR-sleaze.
“…but that’s a separate problem from PO.” NG
Separate where it’s convenient to be so, like some preaches and practices.
When I talk about the car and oil culture, to my way of thinking they are one and the same. Maybe this song by George Jones will help:
https://www.youtube.com/watch?v=wh5jfvNOwK0
Maybe you were never part of the working or middle class, though, so don’t have any way of understanding how a car becomes part of a man’s ego.
I understand.
Keep in mind: EVs have *better* performance than ICEs. The Tesla 4Wd is the fastest production 4 door sedan on the road.
Have you tried a Chevy Volt in sport mode?
Exactly, Nick G.
Help drive Earth into the ground with the new Chevy Dolt in sport mode. Steal roadkill’s snarl with traffic. It’s sporting.
I’m amazed how around here, some people seem to go into orbit when ‘EV’ is even barely mentioned.
All kinds of bad vibes bounce off the walls, totally out of proportion to the simple facts as I see them.
Sure, I am swimming in the car culture, that’s where I was born and that’s where I am. I don’t like it, and have worked hard to do something about it (urged uber idea decades ago), but still, here I am. I do have a car.
A leaf, an EV, to confess the awful truth. I got it because, despite being bad, bad, bad, it seemed less bad bad than the F150 my good friend bought at the same time.
In my next incarnation, coming soon, I shall construct a better universe, wherein all will be well.
PS, hah, hah. Full disclosure. Just today I went out and bought an old but good F150 for my very hard working soninlaw on accounta he “needed” one for all his farm stuff.
Wimbi, it’s in part about balance and equal time.
As a culture, and as individuals within it, we don’t critically inquire nearly enough about the contexts and consequences in which we do things or advocate doing things. Small, seemingly-inconsequential details, for example, can get pretty big and unwieldy over time, sometimes trapping us.
While some consequences can be supposedly unintended, our often willful negligence where some of them are concerned, makes some cases for unintention terribly flimsy.
It’s amazing how much of what the film predicted came true.
I think what’s amazing is how much of the technology from “Star Trek” that has come true.
Amazon’s “Alexa” functions pretty much the same as the ships computer in the TV series.
http://www.amazon.com/oc/echo/
Hi Glenn,
It will probably require a crisis for things to change. High oil, coal, and natural gas prices will help to spur some of the needed changes but they are also likely to lead to a Great Depression. Hopefully it will become clear to the “man on the street” that fossil fuels are limited and the the rate that they can be produced cannot increase without limit. Once that is understood, things will change, but it will be difficult at best, maybe impossible, but I think not.
The repair cost for any “exotic” six-figure car might be pretty high. If a collision compromises a Tesla S’s “skateboard” vehicle base panel, then a repair might get very tricky, as the battery cells are spread out all through the panel and have thermal cooling circuits. Tesla had problems with road debris bouncing up and puncturing the bottom panel and damaging cells. They ended up retrofitting extra steel plates to reinforce the key areas of the front portion of the panel.
My Chevy Volt was involved in a rear-ender last year. A local body shop made the repair, at “normal” costs and in a reasonable time. With the battery pack configured as a “tee” located in the central core of the vehicle, and reinforced with steel all around, the possibility of the pack being compromised in a non-totalled-level collision are pretty low.
I loaned my car to a friend and she got hit three blocks away driving at 40 km/h. The repair cost shoots up by 4500 € because one single side air bag triggered. I heard they sold three Teslas in Spain, to very rich people. They don’t care about repair bills, I guess.
They don’t care about repair bills, I guess.
I guess they do…
There are no repair bills worth mentioning when talking about a Tesla. If there is a problem Tesla fixes it with a smile at no cost to the customer. Basic maintenance runs about $600.00 a year. Compared to what the average ICE costs in gas alone, that is but a pittance.
“The company [Tesla] reported a net loss for the year [2014] of $294 million, compared with a loss of $74 million in 2013… The company continues to lose money as it builds a market for high-end, all-electric vehicles.” ~ New York Times
this will help them…
http://www.businessinsider.com/tesla-is-officially-in-the-used-car-business-2015-5
Old farmer mac said:
I believe we certainly have to keep that possibility alive.
But the question is: “Can we get there from here?”
And we certainly can’t get there using existing US-style “democratic-capitalism,” which I would argue is neither democratic nor capitalism, at least not capitalism as Adam Smith originally envisioned it.
As the wheels come off of US empire, I’m reminded of what Arthur J. Balfour said of similar time when the wheels were coming off a similar great empire:
No, you weren’t. You were just as lead astray into the use of the wrong kind of value system.
Substitute those 200 dollars to the value generated in the economy. the 147-peak wasn’t that far away. In 2007/8 you got certain smartphones or computers with a certain performance. Look at what you can get now for one and a half barrel. Or remember how much the median worker in a country makes a day to actual paying something (pension funds do not count, they act as a value bumper for public assets in the long run). In Switzerland, that was 200.-/day then and now it is a little bit less, as everywhere. But in the US, wages went waaaay down. The median worker earned then 2 Barrels/day and now probably too. The net effect is much less capital flowing around. The average worker cannot see that with its wallet, but investing companies have trouble as their cash flow or ability to raise capital diminishes. Only those at the fringe of the economy and those not part of societal stuff feel the growing capital needs of the energy sector.
I say if we would look at how many hours it takes to work for a certain amount of oil, coal, gas and agricultural inputs, this is the metric which counts, just like CAPEX was recently put into focus on sites like this.
But $$ are so much more easy to compare, so we take them. At least Dollars are unambiguous to interpret.
I think the reason why postclassical and neoclassical economists settled upon a utility (or price theory) of value, despite all its glaring empirical and logical defects, is because, as Robert L. Heilbroner noted in The Problem of Value in the Constitution of Economic Thought, they “were seeking a less subversive approach to value” than the theories of value formulated by Smith, Ricardo or Marx.
As Heilbroner goes on to note, postclassical and neoclassical economists prefer the utility or price theory of value “because it avoids troublesome considerations of class conflict and cooperation as the fundamental problem of social order, and puts in their place a view of social order as the outcome of individuals contending for pleasure or avoiding pain in an environment of scarcity.”
Hi Glenn,
That is one explanation for a subjective theory of value. The other is that any object can be chosen for an objective theory of value.
We could just as easily have a capital theory of value as a labor theory of value, or we could use steel, cement, bananas.
One only needs to apply a little linear algebra as Piero Sraffa showed, and there are an infinite number of objective theory of Values one could choose. As this is a peak oil blog, the obvious choice is oil or energy as our “source” of value.
This would be no more correct than a labor theory of value or any other objective theory of value.
There’s a great deal of epistemological and ontological anxiety concerning objective theories of value. And unfortunately many of the peak oil tribe cling to instrumental rationality and materialism as if they were a life raft in turbulent waters.
But, as Amitai Etzioni wrote in The Moral Dimension, the fact is that “the position Smith took in Moral Sentiments is not easily reconcilable with the one he took in The Wealth of Nations.”
So in order to solve “Das Smith Problem,” the postclassical and neoclassical economists chose to believe what they wanted to believe of Smith’s writings, accepting whatever justified their policies and convictions, and material interests, and ignorning the rest.
And just look at the hatchet job the objectivists have done on Marx! It’s all part of the drive to put us in that “iron cage” which Max Weber warned of which “imprisons the human spirit and cuts us off from the deepest sources of our being.”
As Susan Neiman explains:
Wittgenstein also blasted objectivism, charging it is not a narrow technical assumpton; it is a world view, a mentality deeply entrenched in our culture that, if left unchecked, shapes itself into the iron cage that Weber so rightly feared imprisons the heart and soul of our civilization.
But, as Daniel Yankelovich laments:
Hi Glenn,
Interesting stuff, my daughter loves Wittgenstein, I am not that familiar with his work. Both objective and subjective positions can be carried too far. For a theory of value as it is done in neoclassical economics a subjective theory of value makes more sense to me. Though there are endless problems with how prices are determined (who is that auctioneer?), how the system moves from one equilibrium to another, and the influence marketing has on consumer preferences (just to name a couple).
From a philosophical perspective, it seems some blend of the subjective and objective makes the most sense. Theory influences how we perceive the world, and our experience and observations in turn influence our understanding or theories of how the world works. A bit of a chicken-egg problem at least in my view (I am no philosopher.)
I think some blend of subjective and objective makes the most sense too. Man may not live by bread alone, but he sure to heck can’t live without bread.
Smith, Ricardo and Marx rejected the utility theory of value because, amongst other reasons, of what is known as the paradox of value (also known as the diamond–water paradox), which is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.
This becomes very important when, for instance, we examine the reasons why people are so hell bent on buying a private automobile, or why they value a sleek, fast and sexy new BMW over a car that will get them from point A to point B in the cheapest, most efficient way possible. One only has to look at the vast amounts of money which people spend on cars to see there’s a lot of the diamond effect going on here, with use value occupying second chair.
And to top it off, marketers know their potential customers. They go to great effort to research people’s buttons, what gets their juices flowing, and to punch those buttons.
Can marketers make riding the subway to work as sexy as driving one’s own flashy, new BMW? Something tells me that is going to be a hard sell with most people.
Trains have chauffeurs – the ultimate luxury!
Would rejecting mind – body dualism suggest rejecting an objective/subjective split as well?
The shift from cars to public transportation is happening among younger singles. They may end up buying cars again when they have kids to transport, but when it is just them and they have convenient access to public transportation (or Uber, for those with more money), they find that they don’t have to bother with parking, insurance, car maintenance, and so on.
Freedom, in some circles, is living without a car, not living with one.
Cellphones have given many people a preferable option for keeping in touch than actually getting in a vehicle and visiting people.
I just read this. It isn’t about cars, but it is about someone choosing to live minimally.
I follow all of that very closely. I have downsized myself considerably and am always looking for ideas about to do even more of it.
I secretly lived in my office for 500 days – Salon.com
Ron Wrote:
“If oil prices spike they can go a lot higher before they crash. They spiked to $147 a barrel in 2005. ”
I think you mean 2008 not 2005. It peak in July 2008.
FWIW: I doubt Oil can spike that high again. 2008 was the peak of the housing\credit bubble. It was much easier for people to borrow back in 2008 than it is today or will be for sometime. My guess is that the global economy can’t tolerate a spike above $125 for anything more than a few weeks before tumbling the economy. That would put a floor on how expensive oil can be drilled. I suspect that the Big Oil firms know this and that is the primary reason why they cut Cap Ex and are no longer drilling for long term, expensive oil projects.
However, monthly Brent prices were only over $100 for six months in 2008, whereas starting in February, 2011, monthly Brent prices were over $100 for 42 months, seven times longer than the six month $100 period in 2008.
And the annual Brent price in 2008 was $97, versus an average Brent price of $110 for 2011 to 2013 inclusive.
That’s a pretty good argument that the 2008 recession was not caused by oil prices: recent oil prices, as a practical matter, have been much higher in the last several years and the economy has not crashed.
Oil hit $147 in 2008, but we didn’t pay the equivalent of $147 at the pump.
Oil also has its largest daily moves in history in July 2008. It spiked and crashed so quickly that the price point of $147 is, in terms of lending valuable economic info, useless.
Jeffrey Brown details why, so I won’t go into it, but just say that average price matters far more than the blip of a one day record.
Brian Wrote:
“Oil also has its largest daily moves in history in July 2008. It spiked and crashed so quickly that the price point of $147 is, in terms of lending valuable economic info, useless.”
Well, July 2008 is when the credit markets started to dry up. In Aug 2008, Subprime began to collapse, and by Sept, Lehman folded, and the price of Oil collapsed with it. By Jan 2009, it bottomed at about $30 bbl. If you recall, a lot of people had open home equity loans (home ATM) which permitted a lot of people to spend money that they didn’t really have. If a large number of people have access to easy credit they will spend it. Recall that lots of people bought SUVs and other large vehicles.
Jeff Wrote:
“hereas starting in February, 2011, monthly Brent prices were over $100 for 42 months, seven times longer than the six month $100 period in 2008.”
Yes, this is why I doubt the economy can tolerate prices above $125 for an extended period. If it could than they economy would have recovered and permitted more drilling and higher prices. Which means that we will “likely” never see Oil projects with break even in the $115 or higher range. Thus putting a limit on ultimate recovery of Oil.
SawDust wrote:
“Don’t be a bit surprised if oil goes above $150 and stays there. Bad economy or not. Currently we are over drilling into a oil glut. We get to a point where we are drilling all we can but into a supply shortage, an ever increasing supply shortage at that. Those who can’t afford $150 will just be priced out of the use of oil. Oil will only be available to those that can afford it.”
I would be very surprised! Perhaps only 10% to 20% of the global population of the industrialized world has incomes that can afford expensive oil. First the poorest will lose out, and so will millions of jobs losses (as whatever disposable income they have vanishes) . The top income earners rely on the bottom 90% of the population to consume to keep thier jobs. Once the economy collapse so will demand. Oil prices will fall to meet demand. I don’t see in any scenerio that prices can remain statically high (excluding high/hyper inflation).
Sawdust Wrote:
“Only reason why oil isn’t +$100 right now is we got too much supply.”
much more likely: too little demand. US GDP growth vanished in late 2014 and continues, China Manufacturing is falling, and Europe is in a permanent recession, and primed for another crisis when Greece defaults (leading to other defaults in the EU)
FWIW: I had expected Oil prices to sig-saz from demand-destruction cycles. As prices rises, the will breach a tipping point that causes the economy to collapse. Oil prices undershoot and make a slow recovery until the next tipping point is breached.
That said, I see lots of instability in the industrialized world. Lots of people are unemployed or underemployed due to the weak economy. Perhaps as soon as the next major economic crisis, I think riots & revolts will become much more abundant. Leading to revolutions that overthrown gov’ts and more regional\civil wars. Even in the US riots are become more common (last week’s in Baltimore for example). When people are no longer willing to tolerate the status-quo they will rebel by rioting or igniting rebellion to overthrown the existing gov’t.
TechGuy said:
This is a perfect example of where, for those in love with theory, that theory trumps factual reality and where the difference between history and specuation — of what has already happend and predictions about what might happen in the future — ceases to exist. (Thank you Kant and all the Fichteans who followed Fichte’s lead.)
Just to set the factual, historical record straight, here is what has already happened:
http://www.api.org/~/media/oil-and-natural-gas-images/gasoline/whatsup-hi-res/world-liquid-fuel-consumption.jpg
Don’t be a bit surprised if oil goes above $150 and stays there. Bad economy or not. Currently we are over drilling into a oil glut. We get to a point where we are drilling all we can but into a supply shortage, an ever increasing supply shortage at that. Those who can’t afford $150 will just be priced out of the use of oil. Oil will only be available to those that can afford it. Demand will fall as those who can’t afford it don’t buy it. But price will probably remain high as the supply is limited and those who can afford it will buy what supply is available. I don’t think demand destruction due to high price will necessarily equate to lower price oil as in the past.
Only reason why oil isn’t +$100 right now is we got too much supply. The oversupply is about 1mbpd or so. Not a huge amount of over supply. Watch what happens to price when we become 1mbpd short and we stay that way for about a year.
Steven Kopits’ (January, 2015) outlook (Prienga):
“Affordability” is the wrong way to frame the discussion. The important thing is that there are better and cheaper alternatives.
Oil just isn’t worth $150 for most applications.
The breakeven point for EVs is about $60: at $150, only fools will continue to buy “gassers” where there’s an EV that will do what they need. There are large categories of the “light vehicle” market where good EVs don’t yet exist, but that’s changing fast. In the meantime, most people really can use a hybrid or a plug-in for most of what they need.
Hi Nick,
It is true that people can use hybrids or just small cars that get good gas mileage, only the Chevy Volt is a very useful plug-in, the range on a Prius plug in is too short to make a big difference (about 11 miles I believe), so the plug-in option is pretty limited. I have refused to drive Chevys (or GM cars in general) since owning a Chevy Chevette when I was younger, by far the worst car I have ever owned. Next car was a Toyota Tercel I got used at 60k and drove until it hit 250k, have owned Toyotas and Hondas since.
A lot of people are turned off by the short range of EVs, so more plug-in options would be nice.
Yep, honda and toyota all the way, but now I have a leaf and am delighted with it. Have a big yellow sign on it:
“RUNS ON THE SUN FOR NOTHING”
Which is somewhat true, ignoring the modest up front cost of the PV.
Also, on the range thing. No problem, almost always the range is plenty, and when it isn’t we can whistle up the honda from the granddaughter and off we go. She likes the leaf better, so is eager to make the trade.
That’s why I keep saying that when the word gets around, EV’s will really take off.
Also, I noticed on Robert Rapier’s blog that the leaf is 25 times as reliable as average, whatever that can mean.
I think there will be a lot of choices.
For instance, I think Ford has two plug-in hybrids.
Hi Nick,
Again I had a bad experience with a Ford as well, my Dad’s car. Coming back to an earlier comment about $60/b for a break even to switch to EVs, you are underestimating the convenience factor of being able to get a 400 mile recharge in 10 minutes when using liquid fuel.
There was not a very big move to EVs when oil prices were over $105/b for three years (2011 to 2014) using twelve month trailing averages of Brent crude. So my guess is that even $125/b may not get the job done, I think we will need to see $150 to $200/b before there is a significant move to EVs, trains, light rail, buses, bikes, blades, car-pooling, walking, and denser living.
Also you have mentioned that in Europe they are paying prices at the pump equivalent to $220/b oil in the US, but there has been very little move to EVs in Europe, though they have far better public transportation.
We really need to get to work on that in the densly populated areas of the US (Boston to Washington) and Southern California and maybe the Bay Area, maybe Chicago and a few other midwestern cities.
I think we will need to see $150 to $200/b before there is a significant move to EVs, trains, light rail, buses, bikes, blades, car-pooling, walking, and denser living
That’s why the “coolness” of a Tesla is important. For as long as we have had cars, they have been sold as something more than just utilitarian transportation. They are sold to make a statement.
I don’t have an EV. I have an 18 year old car that I try not to drive much. When it no longer runs and if I have to get something, it could be an EV, it could be a hybrid, or it could be a subcompact. It definitely won’t be another V6, which I have now. If/when I get another car, it’s got to be one more fuel efficient than what I have now, both for economics and out of concern for the environment.
At any rate, people will make the switch to EVs when driving a big car/truck makes you look as outdated as our grandparents looked when they hung on to their massive Caddies and Pontiacs. Big gas guzzlers will go out the same way polyester leisure suits did. Big trucks and big cars will become “old people” vehicles.
bad experience with a Ford
Yeah, me too. Well, Volkswagen has a plug-in. Heck, almost every car maker has or will have one soon.
underestimating the convenience factor of being able to get a 400 mile recharge in 10 minutes
Wimbi will tell you that’s mostly FUD. Still, a plug-in hybrid will take care of that problem: a plug-in can reduce fuel consumption by 90% – enough for ethanol to cover the rest.
There was not a very big move to EVs when oil prices were over $105/b for three years
It takes longer than that, especially when Fox News and talk radio are trashing them. It takes a while for a variety of models to be available; it takes a while for someone to know someone who has one; it takes a while for silly stories about battery fires to go away; it takes a while for batteries to prove themselves.
For instance, some taxi companies took 6-7 years to evaluate hybrids – now you can’t pry hybrids from their cold, dead hands. UPS and Fedex are still doing trials and pilots. Commercial truck hybrids are still in prototype mode.
there has been very little move to EVs in Europe
That’s happening now. Up till now there’s simply been relatively little need, given how little fuel the average European uses for personal transportation. See Fernando’s comment just below, from Spain.
public transportation. We really need to get to work on that in the densly populated areas of the US
Absolutely. But, that will take a very long time. In the meantime, we can eliminate oil for personal transportation with EVs.
I see Toyota hybrids here, Prius, Yaris, and a larger model I can’t remember. We don’t have any pollution problems, and they don’t save money, but they are “cool”.
You’ve agreed that CO2 is a problem.
In the US, EVs are the cheapest thing on the roads, and hybrids are the next cheapest. What data makes you think they don’t save money in Spain?
SAWDUST said:
To suggest that oil prices have collapsed due to overproduction, and not demand destruction, is a heresy amongst the more doctrinaire elements of the peakoil tribe.
Nonsense. It is not either / or.
Overproduction can cause price collapse. High prices can cause demand destruction leading to price collapse. Both are always at play in the supply – demand oil pricing scenario.
There is no such thing as a peak oil tribe. There are only people who are aware that oil is a finite resource and will soon peak and decline. Then there are those who are aware that oil is a finite resource but deny peak oil is anywhere in sight. Some of this group even say we have hundreds of years wort of oil left. (The abiotic oil fools are such a tiny few that they don’t even count.)
Then there is the third group who make up perhaps 99% of the population, those who have absolutely no idea what the debate is all about and couldn’t care less.
“demand destruction” is an odd phrase. It suggests sacrifice, and a loss of value to the consumer. It suggests poverty.
If I choose a more efficient car, have I “destroyed” demand? Or just gotten smarter and better off?
Ron Patterson said:
Try telling that to the more doctrinaire elements of the peak oil tribe.
Try telling them that there has been no diminishment in global oil demand during the past four years, much less in the last 12 months.
As evidence to substantiate my claim, I would point you towards Gail Tverberg’s latest post and, especially, the comment thread on her blog, Our Finite World:
Gail in China: In Her Own Words and Pictures
We have overproduced right into peak oil. Part of being at the peak is we have as much of a supply as we have ever had and as much of a supply as we will ever get at the same time.
Somebody please post a chart showing me where demand destruction is taking place. Exactly who is using less? We been down this route and demand is steady or growing despite all the negative economic news we see everyday. Demand destruction hasn’t taking place yet. Until i see that the US is using a 1 million or 2 million bpd less than we did YoY. There is no case for demand destruction.
Last time i checked demand has been on a plateau for about 15 years regardless of where price has been during this time. At least here in the US.
Hi Sawdust,
The fact that demand has grown more slowly than before is evidence of demand destruction. If at lower oil prices an increase of 3% in GDP led to a 1% increase in quantity of oil consumed and at higher oil prices the same 3% increase in GDP leads to a 0.5% increase in the amount of oil consumed, then that 0.5% lower consumption is the demand destruction due to higher prices.
The effect of higher oil prices is relatively small, but there is an effect. Likewise we should see an economic boost due to lower oil prices, but that effect is also very small. The fall in prices is mostly due to an excess growth in supply relative to the growth in consumption.
Ron’s contention that it is a bit of both is likely correct, but in this case the larger effect seems to be a relatively fast growth in supply, demand growth did not change all that much. There was an excess supply of about 2 Mb/d in 2014 using EIA output data(93 Mb/d) and OPEC demand data(91 Mb/d). OPEC has a lower estimate for total liquids than the EIA for 2014 (92 Mb/d) with an excess supply of 1 Mb/d, which would suggest an increase in stocks of 365 Mb in 2014.
So for 2014 we are talking about oversupply driving prices down.
Basically true, but economies are what Nassim Nicholas Taleb calls antifragile. Each time you injure an economy, you make it stronger.
It’s a bit like body building. As Arnold Schwarzenegger put it, if it doesn’t hurt, you are doing it wrong. Weightlifting damages the muscles. They react by getting stronger. To injure them again, you have to use bigger weights.
We’ve seen several rounds of intense pain inflicting by oil price spikes since 1970. some countries have reacted quickly, others — especially those with a strong oil producer lobby — haven’t.
Meanwhile technology has improved across the board. The next price spike might look a little different.
Basically true, but economies are what Nassim Nicholas Taleb calls antifragile. Each time you injure an economy, you make it stronger.
That is an interesting thought, though I suspect that Taleb would disagree. Perhaps there are a few economies around that world that might fall into that category but I think most current economies at best might be considered temporarily robust. I think that most economies today are still trapped in a growth paradigm mentality. When growth is no longer physically possible they will crash.
Unlike Taleb’s example of using airliner crashes as examples of systems that are antifragile because we always learn from these crashes and make planes and safety procedures better, in the case of a crashed economy we can at best try to follow a new paradigm but the old growth based system can not fly again.
The US, and Western European economies haven’t been physically growing for about 40 years: home building, steel, cars, appliances, TV, oil consumption….all flat for a long time.
Our growth is non-physical. Manufacturing with improved quality & features, faster, etc., and services: healthcare, communications, entertainment, software, etc.
Drama aside, the economy hasn’t really crashed recently. Rich countries dipped into slight shrinkage for a year or so in the recent crisis, but I don’t think the world economic growth ever fell much under 3% since WWII. Maybe for a year or two. Overall growth has steadily increased since the end of the Cold War.
The countries where growth is occurring has shifted considerably. I think this leads people who grew up in places where growth was high in the 50s and 60s to see things worse than they are.
Hi Ilambiquated,
World GDP growth depends on how you measure it. If we choose the Purchasing Power Parity(PPP) method for GDP growth, you are correct that there have been very few years since 1960 where World GDP (PPP) has been less than 3%.
Rune Likvern has questioned if PPP is the best method for measuring GDP and a did some quick research on this and he is correct that there is some controversy in economics on this point. Some economists argue that market exchange rates should be used because there are many problems with the PPP measure of GDP.
I have noticed that at the IMF they tend to focus on the PPP measure of GDP in their World Outlook reports, it is the measure that is used for GDP in most of the tables in the report. The World Bank seems to use market exchange rates in their database, over the 1990 to 2013 period GDP growth in nominal US $ at market exchange rates was 5.4% on average. Using average US inflation rates over this period (as the measure is in US $) of 2.54% (using US BLS CPI data), the average World real GDP growth at market exchange rates was 2.86% over the 1990 to 2013 period.
Perhaps any economists could comment on whether market exchange rate or PPP is the better measure for determining world GDP growth.
This article is a classic example of confusing proven reserves with URR.
John is talking about this article: WHEN WILL OIL RUN OUT?. And they make a bold statement:
By 2040, production levels may be down to 15 million barrels per day – around 20% of what we currently consume. It is likely by then that the world’s population will be twice as large, and more of it industrialised (and therefore oil dependent).
I don’t think they are confusing proven reserves with URR. I think they are confusing stated proven reserves with actual proven reserves. Which would make the above statement a little optimistic.
I’d say that’s just a casually written, badly researched article. For instance, no one is predicting that by 2040 that the world’s population will be twice as large.
Hi Ron,
Even using the relatively pessimistic estimates of oil resources (2700 Gb of C+C including oil sands at 500 Gb). Output is unlikely to fall to 15 Mb/d by 2040.
Jean Laherrere estimates output at about 40 Mb/d in 2040. Add the XH curve in black to the C+C-XH curve for about 18 Gb/year in 2040 or about 40 Mb/d.
Chart below from Jean Laherrere at link below(page 6):
http://aspofrance.viabloga.com/files/JL_veryshort30May2013.pdf
Chart won’t post so link to chart is below:
https://drive.google.com/file/d/0B4nArV09d398RlZ6eGNCczV0eXM/view?usp=sharing
Note that it looks like over 167 kB files won’t post. Looking at recent charts I have posted it looks like up to 60 kB is ok, I haven’t figured the exact limit, but it is between 60 and 160 kB. If people report the file sizes that didn’t post we can figure this out.
EDIT: I tried reducing the file size to 121 kB, chart still will not post. Also 98 kB in JPEG doesn’t seem to work.
So I have narrowed the range from 60 kB to 98 kB.
Test to see if smaller image fits. Jean Laherrere scenario from above.
gif 37 kB.
Also tried an 81 kB jpeg, same problem too big.
A 69 kB jpeg also did not work, so somewhere between 60 and 70 kB seems to be the file size limit for images.
A 69 kB jpeg also did not work, so somewhere between 60 and 70 kB seems to be the file size limit for images.
Peak graph? 🙂
-Lloyd
Even using the relatively pessimistic estimates of oil resources (2700 Gb of C+C including oil sands at 500 Gb). Output is unlikely to fall to 15 Mb/d by 2040.
I agree. I was just stating that if they had not confused stated reserves with actual reserves then they would have had an even more pessimistic prediction, even taking into account that their current prediction is wildly pessimistic.
I take anyone’s estimate of 2040 oil production with a huge pinch of salt. No one knows what kind of international chaos we may have in the next 25 years so therefore any 2040 prediction is likely to be miles off.
How much of this world production will be available on the export market in 2040? Isn’t this the more important question?
Hi Ed,
That depends on the growth in demand in exporting countries, you are welcome to make that estimate, it requires even more assumptions than I have already made.
Ron is correct that we do not know what things will look like in 2040, or even 2016, in fact.
Ron,
IF some of the following occur then I think the can may be kicked down the road for a little longer.
1. Sanctions against Iran are removed
2. The oil companies finally get their act together in Kazakhstan
3. ISIS is brought under control and Iraq starts a steady increase in production
4. Libya stabilises
5. LTO from countries outside the USA begins. No one forecast the US growth in LTO. Given the cost reductions that US CEOs say that they will be able to make in LTO in the USA it opens the possibility that other countries may be able to produce in volume given a sufficiently high oil price
What you say just goes to show that even the future of conventional oil depends to some extent on geopolitics.
And as far as “the cost reduction that US CEOs say that they will be able to make in LTO in the USA,” if history is any guide to the future I think I would take these claims with a rather large grain of salt. US CEOs have a history of significantly inflating the EURs of shale oil and gas wells.
And while there are undoubtedly some improvements in technology, there are also a limited number of sweet spots on which highly prolific shale wells can be drilled.
Rollo, maybe I should back up that charge against “what US CEOs say” with a bit of history, so you won’t think I’m firing blanks.
The first major shale play was the Barnett Shale, which is located mostly to the north of Dallas and Fort Worth, Texas. Drilling in earnest in the play began in 2000, with drilling activity peaking in 2008.
Operators in the play became incensed in 2013 when the Bureau of Economic Geology at the University of Texas published a study which projected the average EUR from Barnett Shale wells would be only 1.44 billion cubic feet.
An article which appeared in the Fort Worth Star-Telegram at the time (and which I will attach below since it is no longer available on the web) is key to understanding the sort of highly inflated EURs which US CEOs throw around.
As Jim Fuquay, the author of the article explains, the 1.44 bcf figure “is well below many industry estimates of at least 2 billion cubic feet (bcf) of gas and as much as 3 bcf per well.”
Fuquay noted that industry insiders claimed that “While shale wells are known for having production fall rapidly in early years, operators say it also levels out for years or even decades.”
“Indeed, that projected lifespan is one cause of differing estimates on EUR among the various researchers and producers,” Fuquay adds.
“Most producing lives are 40 to 60 years,” said Gregg Jacob, Devon Energy’s business unit manager for the Barnett Shale, Fuquay reports. “That’s one of the reasons Devon expects its 4,800-plus Barnett Shale wells to produce the equivalent of nearly 3 billion feet of gas, natural gas liquids and oil over their lives, he said.”
Fuquay goes on to add that
Fuquay concludes his article as follows:
So now, with the benefit of four more years of production history, how is the the University of Texas forecast turning out?
Below is a graph of the original forecast, and I have penciled on top of it the actual production history for the past four years — 2011, 2012, 2013 and 2014 — from the Texas Railroad Commission’s Barnett Shale Report.
http://i.imgur.com/p682Q4g.jpg
What the graph shows is that production in 2011 and 2012 was higher than the UT study had predicted. But for the last two years decline has not leveled off as the UT study concluded, much less what industry insiders claimed. In 2014 and 2013 y-o-y decline was about 9%.
If this trend continues, then the EURs will be substantially less than what the UT study predicted, not to mention those of the US CEOs.
Here’s the article in the Fort Worth Star-Telegram:
Page 1:
http://i.imgur.com/9sYN3BB.jpg
Page 2:
http://i.imgur.com/3PcM4OX.jpg
Page 3:
http://i.imgur.com/ZNrTbiR.jpg
Page 4:
http://i.imgur.com/mZzO4PN.jpg
Some very good info. You might consider putting it together as a guest post.
What prices did the forecasts assume? Is it reasonable to exclude the effect of very low prices due to Marcellus production?
The decline rate has to be given time to reach the quasi steady state. Physically, it’s impossible for decline rates to be zero. The ability to produce wells at the low gas rate/low decline rate period will depend on liquid loading. Liquid loading is caused simply the amount of water and condensate the well produces, the well design, temperatures, and the production method. This is a really key issue but I don’t see much being discussed.
I take it that some wells produce very clean gas that needs little treatment to be marketable but it seems obvious that even with very high prices there must be a lower limit at which a gas well is simply a money loser.
How low can gas production go in a well before it is simply not worth the trouble of maintaining the production at say a price of five bucks per thousand ?
I know stripper wells can be produced down to less than a barrel a day sometimes when oil prices are up in the hundred buck range. My impression is that the operator turns the pump on and off in such a well , running it only a few hours a week as needed as the oil trickles into the well bore.
OFM
Although your question is directed to gas wells nearing the end of their productive life, a conference call this week by one of the pipeline companies in the Marcellus may show how current economics are affecting gas producers right now.
Apparently Cabot – one of the big Marcellus E&P guys – is going to ‘constrain’ (choke back) production from producing wells,with an industry wide total on the order of 500MMcfd, which is a lot of gas. It would seem that unhedged production is not viable economically.
In a somewhat related vein, the plans to continue to drill and fracture – albeit at a slowing pace – would signal the need to honor (or lose) existing lease agreements. That would be in sync with several forums for PA mineral rights groups whose contributors are saying the ‘time’ – frequently 5 years – is approaching with no retention/producing wells on their properties.
The vast scale in acreage in the Marcellus (much larger than the Bak and EF) is squeezing the operators up there along with the low pricing.
Mac, it depends on the liquid ratio. Gas wells always produce water. If the reservoir is very cold, the gas is mostly methane, and there is no water drive the produced water is negligible. Such a well reaches a limit when the pressure is so low the OPEX to operate the well, the gas compressor and other equipment at the surface exceed the gas revenue.
But a more typical well produces water, and a small amount of condensate. So, either the pressure drops and the gas/liquid mixture can’t reach the surface, or the liquid ratio increases because water enters the well in excessive quantities.
We can get around the problem by pumping the well, using gas lift, soap injection (the soap foams the mix and the foam reaches the surface), changing the completion, and other methods, but it costs money.
I can’t say what’s the lower limit in the USA at say $8 per thousand cubic feet. I’ve worked in overseas areas, offshore, and those wells reached a limit at 2 million cubic feet of gas per day. But those wells have to earn a living carrying platform OPEX. And when the crew flies in by helicopter it sure costs a lot more.
This is one reason why the tight zone fracked wells have such different resource estimates. There’s uncertainty regarding the tail length.
Don’t forget that on average world oil production from all currently wells is decling at 2%/yr, possibly more. At 2%, that is 1.9 Mb/d/yr. that has to be made up before production can increase. Iran and Kazakhstan may just help offset the decline. I’m in Ron’s camp to the extent that it is closer than most observers realize.
A few years ago, ExxonMobil put the decline rate from existing wells worldwide at 4%/year to 6%/year. I’m guessing the 6%/year is more realistic, and probably conservative, given the combination of higher decline rates from smaller conventional fields and from tight/shale plays in the US. In any case, at 6%/year, in round numbers we need about 5 mbpd of new C+C production per year (or a new Saudi Arabia every two years), just to maintain current global C+C production.
http://www.globaltimes.cn/content/898998.shtml
Rollo wrote:
“IF some of the following occur then I think the can may be kicked down the road for a little longer.”
Perhaps not much longer. Lifting sanctions will probably allow Iran to increase production by 1 to 2 mbpd. I very much doubt ISIS/Libya/Yemen, etc problems will go away. They are much likely to get worse. The bottom line, is that there are simply too many young people, that have there entire education based upon a single religion. LTO only works at much more expensive oil, and it does solve a pending shortage with diesel. At best If Air travel was eliminated, it would probably free up about ~10 mbpd for other stuff. That would buy the economy some time, but it airtravel will only disappear after another big oil spike, which will also crush the global economy.
The issue I see, is the world may have a very difficult time handling another financial meltdown. In the West employment is already high, and too may idle hands leads to riot, revolutions and wars.
By the time those events you list start increasing production in a significant way they’ll be needed to plug the decline gap elsewhere.
Well it looks like Russia might have a little bit of umf left.
From an article in the Wall Street Journal:
This is consistent with what the IEA is reporting:
The United States and Saudi Arabia may have thrown down the gauntlet in the geopolitical and geofinancial struggle between the US-aligned powers and the BRICS, but Russia has certainly not demured and has risen to the challenge.
I don’t think there’s any doubt that conventional oil (read “expensive” oil) has peaked.
But there’s lots of expensive oil scattered around the globe, such as Argentina’s impressive shale oil and gas reserves, as well as Venezuela’s massive oil reserves in the Orinoco Basin.
And it is clarion that, in the ongoing geopolitical and geofinancial contest currenty playing out between Russia and China on the one hand, and on the other hand the US and its allies, that everyone involved considers those oil and gas assets to be worth fighting for.
Can or will these fields be developed fast enough to counter the depletion of conventional fields?
Much, of course, depends on what happens in the future on the geopolitical and geofinancial fronts.
Someone is going to get that Venezuelan oil, as it is the last large chunk that has a EROEI that makes sense in this diminished world.
The Orinoco Heavy Oil is hyped. And as time goes by, the current production practices Pdvsa uses are reducing the ability to recover a lot of that oil. The Maduro dictatorship seems to have the country by the throat, but the Cuban designed repression makes popular resistance very difficult. Also, I note absolute indifference by the international community to do anything as the country descends into chaos. This tells me the current exodus of a large portion of the professional and educated cohort will continue until they close the borders.
Fernando Leanme says:
I’m at a loss to know what you are talking about. China is doing plenty. To wit:
And there is no indication that China is going to turn off the money spigot anytime soon to Venezuela:
OOh doom gloom we will run out. Same crap for 40 years.
Think about this. If it does get expensive, rare and hard to get, none of the 3rd world countries will have any, Only the US and few other places will have any, and all economic activity will grind to a hault in 80% of the world.
If that’s what you want to say just say it.
I tend to believe the opposite. the more expensive it gets the more reserves will be brought online and it will tend to self regulate., Just like a real market always does.
Not if Russia and China have anything to say about it.
But you have articulated the neocon/neoliberal point of view.
Brainpimp, every day I read articles like this one which was just posted yesterday:
Palm grower DekelOil greases the wheels as production is set to soar…
Historically, palm oil production was concentrated in Malaysia and Indonesia, but landowners have been criticised for causing widespread environmental damage and suitable plots are running out.
Borneo is already a waste land of palm oil plantations. The forests are mostly gone and what tiny bit of forest that is left is going fast. And now because the forest in Malaysia and Indonesia are almost gone, they are cutting down the forest of Africa and South America… to grow palm oil.
Palm oil is used primarily for food. We are destroying the earth in order to feed the earth. But that is just one of a thousand stories I could tell you about how the earth is being destroyed by 7.3 billion people. Stories about how nothing else matters but profits and people.
Doom and gloom are already here you fuc…. expletive deleted…
If palm oil is what will save us, were doomed. Who does seriously believe this?
JW, it’s not what will save us. Palm oil is just for cooking and eating and in some cases cosmetics. It is also being touted about as a kind of fuel. But to concentrate on any of that is to completely miss the point. Palm oil cultivation is one of the things that is destroying the earth.
We are wiping out the habitat of all the wild species of the earth as if there were no tomorrow. And there just might not be a tomorrow, not very many of them anyway.
Due to being able to avoid carbon taxes in Europe by using bio-fuels to produce electricity, the Dutch have pushed the palm oil production tremendously. Another effect is the increased use of wood (generally pelletized) for heating. The US is now exporting a lot of wood to the UK to be burned for heating purposes.
Poorly thought out laws and taxes to help prevent one type of environmental destruction can cause other types of environmental destruction. The laws and taxes must be carefully constructed and applied.
Uncle Sam may find he still has testicles depending on who is in control of Washington and the mood of the country a few years down the road when the crisis hits.
If so then our humongous military industrial complex plus the width of the Atlantic and Pacific are pretty good indications that a a very large portion of Venezuelan oil will wind up in American cars and trucks.
In the last analysis the folks who get their cookies by posing as high and mighty moralists looking down on the rest of us generally will turn into rednecks just like me. The reason is simple.
An empty stomach always trumps principles. I do not steal or cheat people but if I had no food or had a hungry child I would not hesitate to rob and steal as circumstances demanded. ( I would however make a determined effort to rob and steal from people who got to be unduly prosperous by means less than upright in my opinion.)
I expect an empty gas tank and or a lack of income will trump all moral concerns when the oil shit hits the fan. PC types who insist on the last finest distinction of equal treatment for everybody will soon find reasons to justify modifying their positions.
People often remark that one reason we westerners believe or claim to believe that our culture is superior to most or all others is that this belief provides some moral justification for colonization. This is no doubt true but realists in power generally admit at some time or another that they don’t give a hoot or a damn about morality, that morality is mostly only a useful tool to keep the foot soldiers and cannon fodder under control.
I see Uncle Sam exporting some democracy down Venezuela way within a decade or two unless by a miracle it turns out we don’t actually NEED Venezuelan oil.
Unless maybe we allow the Chinese to establish such a powerful presence in South and Central America that they feel safe in installing some nuclear missiles and telling us to fuck off.
(For those who are convinced the old Russian commies were never a threat to us I will if somebody actually wants to debate the issue begin by posting the names of the countries they occupied starting In WWII and continued to occupy until they could not hold their empire together any longer due to their fucked up economic system more than anything else.
And while I know it is about as heinous a crime as can be imagined by lefty liberals who think differently, I am not at all concerned about the morality of THIS PARTICULAR possible takeover – because I believe the PEOPLE of Venezuela would be FAR better off IF we pulled off such a takeover successfully.
I have talked to many people who have been in the Middle East. Virtually every one of them tells me in private that they believe the people there would be far better off IF we had stayed there long enough for Western style rule of law to become established.
India is well on the road to becoming a modern democracy – maybe fifty or a hundred or two hundred years sooner than other wise because the English established the foundation necessary for the transition.
Unfortunately peak resources and environmental destruction are probably going to wipe out modern India before the country can become fully modernized. Ditto most of the world. Maybe all of it.
It’s not at all clear which position you are articulating, that of an amoral realist like Kissinger or that of a necon like Cheney, Rumsfeld or Hillary Clinton.
It’s worth remembering, though, that there was a time in US history when the moral realists — sandwiched in between Wilsonian idealism and the rise of amoral realism in the 1970s, held sway in US foreign affairs. Folks like E.H. Carr, Reinhold Niebuhr and Hans Morgenthau had the emperor’s ear.
Then after 1989 the neocons triumphed. Heaven help us from these incompetent bumblers.
It is a Darwinian world. LIKE IT or LUMP IT.
Isolationists every where after Wilsons time allowed the rise of the nazis to occur unimpeded until after they invaded and occupied a substantial portion of Europe. If Hitler had left running the war to his generals and stuck to managing politics there would probably be a Third Riech today that would make any place less backward politically than North Korea look pretty good. Hardly anybody realizes just how close run that race was.
I agree that we have not had the best of leadership in recent times but then leadership is a relative matter.
I am not especially impressed with any particular leaders of my time .
As Elrond the Elf Lord said , paraphrased, the wise are reluctant to give advice, even to others who are wise, ”for all courses may run ill” .
I am not ADVOCATING any particular course of action militarily.
I AM simply speculating on some likely possibilities as I see things.
When it comes to questions involving natural resources I do advocate pedal to the metal development of renewable power and strict laws protecting the environment and doing every thing possible to encourage conservation of natural resources of all sorts.
Mother Nature is not a living sentiment entity and the universe does not exist just to provide us a place to pretend we are gods or god like.
Morality is always a relative affair. Momma rabbits no doubt take a dim view of momma foxes feeding baby rabbits to little foxes.
The contest is not always to the strong nor the race always to the swift but that is the way to bet.
War is the way we generally resolve issues concerning resources once the stress level is high enough.
It seems extraordinarily unlikely to me at least that we will find a way to do away with war.. …..although mutual assured destruction has worked for over half a century now to prevent direct open conflict between the truly big powers.
There simply are not any risk free paths to be taken by any world leader. Anybody who thinks safety can be absolute is a fool.
Safety is a relative matter.
Staying in bed virtually guarantees you won’t die in a car wreck but vastly increases your chances of dieing from circulatory troubles.
Staying home and never engaging in international aggression is a POSSIBLE formula for eventually being surrounded by an enemy powerful enough to invade or strangle ones OWN country.
Of course the time scale for that sort of scenario is a long one – a generation or two or three or maybe longer.
War will cease to be a problem only if and when our numbers decrease to the point that it is no longer potentially profitable for the aggressor.
People that are few enough and far enough apart do not engage in war. Every body else does , at least occasionally , as evidenced by history.
If I were the all powerful dictator of this country we would very likely never NEED Venezuelan oil.
We would be pedal to the metal on FREEING ourselves from the need for IMPORTED fossil fuels and after that from needing fossil fuels at all.
We need to build out renewables at breakneck speed and use the extra time this gives us to implement huge birth reduction policies. Obviously I think this is an extremely low probability event; if indeed it is not too late already. Failing this some sort of painful die-off is a certainty. 27 more healthy years is all I ask for, to get me to 80. Fortunately I have no children.
Mac, Pat Buchanan wrote that Wilson caused the rise of Nazi Germany and Stalinism. I tend to agree with him.
It took me a while to absorb the hard reality that USA lost in Vietnam. But by the time the USA lost the Iraq war I found it much easier to accept. The neocons, are a pox on both sides.
@ Old farmer mac
I know of no realist, either of the moral or amoral variety, who was an isolationist, or who did not consider Hitler to be a threat to the life of the nation.
As Rabbi David Novak wrote of Reinhold Niebuhr, who was probably the most influential moral realist of the 1930s:
And as Niebuhr himself wrote in Christian Century on March 25, 1931:
Hillary Clinton is a neocon?
In every aspect except in name.
@ Ilambiquated
In order to illustrate the point I’m trying to make about Hillary, here’s an excerpt from an article by John J. Mearsheimer, one of the most influential realists of today (if indeed “influential realist” is not an oxymoron, since realists have been marginalized to the point to where they have almost no influence whatsover in Washington these days):
So to sumarize,
• Moral realists do war with dread and only to defend the life of the nation, with the bar to determine what “a threat to the life of the nation” is being quite high.
• Amoral realists do war with dread and only to defend vital national interests, with the bar to determine what a “vital national interest” is being quite high.
• Neocons do war for fun and profit. They cherish war, celebrate it. Almost anything and everything becomes “a threat to the life of the nation” and a “vital national interest.”
Probably no one has ever summed up the combination of idealism and self-interest, which has become the hallmark of the neocons, better than Cortés’ devoted companion, Bernal Díaz del Castillo: “We came here to serve God and the king, and also to get rich.”
• Neocons do war for fun and profit. They cherish war, celebrate it. Almost anything and everything becomes “a threat to the life of the nation” and a “vital national interest.”
What a lot of people miss is that traditionally the US military is a government-owned operation (as opposed to the more recent trends to give as much work to contractors as possible).
So if you put a lot of people in uniform and run the military as it has been run in the past, the government provides: Free health care to those in uniform and their families. Provides generous retirement benefits to those who serve at least 20 years. Provides free housing to many military families. Provides defense department schools to some families. Provides government run stores.
And so on.
If the US government expanded the military and continued to provide the services it has provided in the past, it becomes a very big jobs and support system for citizens.
Now, putting everyone on the government payroll may not be the most efficient use of resources, or the best way to jump start the economy, but if the government was allowed to and encouraged to put much of the country on its payroll, it would be a way to give people financial support in exchange for labor.
However, a war machine that primarily benefits military contractors just sucks up government money and transfers it into relatively few pockets.
I’d be curious to see what the EROEI is of invading and continually maintaining security of an oil producer like Venezuala (or Iraq or Iran for that matter). How many barrels a day does it take to supply and transport planes, tanks, artillery, food, and other equipment. Not to mention loss of production due to unrest.
I don’t disagree that that scenario is a possibility since it’s already happened before in 2003. It’s just a shame because I’d venture to guess that solar and wind have a better EROEI than using an oil powered military machine to access resources that are already being produced.
Whether or not they sell oil to us doesn’t really matter. It’s a global market, so if they sell to, say, China, then China demands less from countries we can buy from. I think people miss this point quite a lot.
Although, I know you were talking about once we’re in this new post peak world I really don’t think people will be aware. High prices will lead to recession/depression and prices will be low. The entire media will trump the line “plenty of supply! There’s just no demand. I mean, Look at the low prices!” oblivious to the fact that scarce supply caused the depression and lack of demand.
I really think, after all that has occured since 2003, that your average person will be just as unaware of what is happening in 10 years as they are today. Afterall, we’ve already experienced the plateau, continued record prices, a near depression, and anemic GDP growth, yet not one person I ever talk to can put any of that together.
Just like last time they’ll blame bankers, politicians, oil companies “gouging” people (which makes literally zero sense of they think about it for 5 seconds). Let’s face it, we hear are all like Cassandra – we see what’s happening and can even describe all its mechanisms, but the masses are incapable of understanding.
When I got my Chevy Volt my well educated pharmacist friend said “yeah, too bad gas prices are so low”. I bought it because low gas prices made it dirt cheap to buy right now. Fast forward just 2 months – yesterday he was talking about how quickly gas just went up…
Your average person, even when they’re well educated in the sciences, just cannot fathom that fossil fuels created this world we live in today. I think it is because not only do economists ignore the sciences, but people with a strong education in the sciences also separate economics from the laws of chemistry and physics. They basically separate the interactions of matter and organisms from human interactions. Like all these laws apply to everything that happens to every bit of matter in the universe, except humans. It’s baffling.
HI Brian,
Generally speaking I think your arguments are sound.
But while the PEOPLE in general, ranging from the Joe and Suzie Sixpacks to the cpa’s and lawyers may not realize what is going on, the people at the top of the heap with intelligence agency folks at their beck and call will understand.
And in order to protect their own positions they will go to war rather than deal with a deep recession or outright depression.
”Whether or not they sell oil to us doesn’t really matter. It’s a global market, so if they sell to, say, China, then China demands less from countries we can buy from. I think people miss this point quite a lot.”
This is true only so long as there is oil enough sold in an open market to go around.
Once oil is no longer AVAILABLE in adequate quantities to BE sold to both countries ( not to mention the rest of the importing countries ) one or both countries will probably take whatever action is necessary to obtain sufficient oil so long as it exists above ground and can be obtained by hook or crook or outright force.
Oil taken by force is no doubt in my mind two or three times as expensive as the nominal per barrel price , or maybe even more expensive.
But our armed interventions in Sand Country over the last generation or so have enabled us to continue with business as usual.
In that sense the military cost has been affordable. The end of business as usual would probably have cost us even more in blood and treasure , given that we almost for sure would NOT have pursued the path of efficiency and conservation.
It may sound awesomely callous of me to put it in the following terms but I personally have known three or four young men and women killed in automobile accidents for every one I have known who got killed in our overseas adventures since Vietnam days.
And as far as tanks and planes and bombs are concerned , if we had not wasted the resources is making and using them then we would have wasted these same resources on something else just as useless or counter productive as likely as not.
Time is both our greatest friend and our greatest enemy when it comes to the question of successfully transitioning away from oil in particular and fossil fuels in general.
It’s a race between depletion and economic collapse brought on by a combination of unaffordable energy and environmental destruction on the one hand –
and on the other-
progress in the basic sciences, engineering, and energy technologies in combination with the economic job of building out renewables to a degree sufficient to enable us to continue living a modern lifestyle without fossil fuels.
Personally I think a few countries such as the USA and Canada have a fair shot at a successful transition but that most of the world does not.
In the long run we Yankees and our best buddies , given that we have a lot of remaining resources, can probably hog enough more to eke out the transition –
IF we are lucky in our leadership.
If we don’t all fry in a nuclear WWIII.
I personally have known three or four young men and women killed in automobile accidents for every one I have known who got killed in our overseas adventures since Vietnam days.
These days, deaths are not a good measure of casualties of war. The percent of casualties that leave surviving but disabled veterans (whether diagnosed or not) is much, much higher than it used to be due to better armor and trauma medicine.
And, of course, war disabilities (including PTSD aka shell shock) have always been high – now they’re higher.
The cost of oil, in blood and tears, is very, very high.
what about all of the non-Americans that were killed or injured?
Don’t they factor into the equation at all?
It seems to be hard to get Europeans and N. Americans to focus on the millions of deaths caused by the faulty foreign policies of their countries.
No one is going to invade Venezuela. The extent of the ‘takeover’ need only involve the installation of a friendly puppet. It was already tried once, and due to I believe the extraordinary personal appeal of Chavez with the rank and file (military), the coup did not stick.
The USA won’t make the same mistake twice, and Chavez is no longer anyway.
Whether or not the poorest in that society have been better off under Chavez/Maduro or would be under a US puppet is open to debate, but the welfare of the poor is largely irrelevant to the politics of oil.
” the welfare of the poor is largely irrelevant to the politics of oil.”
True indeed.
But where Uncle Sam goes and stays the locals generally wind up far far better off than under the governance of a local puppet.
The locals get lots of jobs and the streets get safer and infrastructure starts creeping outward from military and oil industry.. The rule of law generally takes root in the case of countries occupied and managed as colonies by a country such as England or the US – if the occupation lasts LONG ENOUGH.
Now as to the US making the same mistake twice you have more faith in our leadership than I do, lol.
There is a saying among tradesmen- If you have been trying without success to fix something with a hammer, and no other tools are available, you can always try a bigger hammer.
I am by no means predicting that the US WILL ever invade and annex another country but when or if things get really desperate …..
Old political rule books are often tossed out the window when the stakes are life and death.
And a government friendly to the US does not NECESSARILY have to be a puppet government.
Hopefully the local people there will be able to get rid of their current highly corrupt government and establish a better one.
Right now poor Venezuelans are sucking wind, getting poorer, and hating Maduro. Id say his support is down to 15 %.
If the USA wants to knock him off all they have to do is have a program to issue visas to Venezuelans with engineering degrees and technicians with 10+ years in the oil and power generation industry. Couple that with an indictment of Diosdado Cabello for trading drugs, and that’s it.
Old farmer mac said:
The Progressive Economics Forum from Canada did a whole series of posts from a group of people who would beg to disagree with you.
They hail from Canada and Australia, countries which are junior partners to the United States in the Anglo-American world, but whose economies largely depend on energy and other primary materials exports.
If falling into a staples trap or the resource curse is a problem for them, one can imagine what it must be like for a country not part of the Anglo-American club.
I have talked to many people who have been in the Middle East. Virtually every one of them tells me in private that they believe the people there would be far better off IF we had stayed there long enough for Western style rule of law to become established.
The problem we had was that the Bush administration didn’t take the generals seriously when told how much of a commitment it would take for us to be in the Middle East long enough to stabilize everything.
And once we got in and realized how much we would need to spend in terms of resources and lives, we still didn’t want to make the long term commitment.
Among relatively recent wars, only during WWII was the country told to make an all-out effort to win. Lifestyle sacrifices were mandatory.
@ Boomer II
John Mearsheimer explains in Iraq War: realism vs. neoconservatism why he believes the neocons in the “the Bush administration didn’t take the generals seriously when told how much of a commitment it would take for us to be in the Middle East long enough to stabilize everything.”
Thanks for that link.
I follow US military strategy discussions as much as I can. It’s a subject that has interested me at least as far back as Vietnam.
I don’t really have a problem with a large US military because, as I said, it puts people to work. But I want it to be a military that doesn’t have to fight wars. Let them train and go to school and provide rescue services during natural disasters and raise families.
Mac,
I think it would be helpful for you to read more about the history of the M.E., and the entanglement of the UK and US there. A good book: “The Battle for God”, by Karen Armstrong.
It makes it pretty clear that the UK and US worked quite hard to prevent democracy from developing in the ME., and in many ways prevented an indigenous, natural process of democratization from happening.
Foreign invasion and colonization have been the problem, not the solution.
There’s an old story of a visitor asking a choking patient how he can help: the patient finally gasps out…”get off my oxygen line”.
That’s pretty much where we are.
For OFM,
I know you are aware of this, but….from Wiki
The 1953 Iranian coup d’état, known in Iran as the 28 Mordad coup, was the overthrow of the democratically elected Prime Minister of Iran Mohammad Mosaddegh on 19 August 1953, masterminded by the United States (under the name TPAJAX Project) and backed by the United Kingdom (under the name “Operation Boot”).[3][4][5][6]
Mossadegh had sought to audit the documents of the Anglo-Iranian Oil Company (AIOC), a British corporation (now BP) and to limit the company’s control over Iranian petroleum reserves. Upon the refusal of the AIOC to co-operate with the Iranian government, the parliament (Majlis) voted to nationalize Iran’s oil industry and to expel foreign corporate representatives from the country.[7][8][9] Following the coup in 1953, a military government under General Fazlollah Zahedi was formed which allowed Mohammad-Rezā Shāh Pahlavi, the Shah of Iran (Persian for an Iranian king),[9] to effectively rule the country as an absolute monarch. He relied heavily on United States support to hold on to power until his own overthrow in February 1979
Rinse and repeat, over and over.
Paulo , yes.
See my seven ten pm reply to Nick which may be up or down thread. I can never tell exactly where and why replies wind up where they do.
Actually I agree Nick with what you have to say.
And I agree with the people who asked if the local folks who have been killed and maimed and impoverished matter. They do. They really do.
But it is the Darwinian struggle for survival that I am talking about.
The people in this country have as a general rule never given a flying fuck about the people in Vietnam for instance. I know dozens of people who protested the Vietnam war. I cannot remember a single goddamned one of them ever having anything to say about the fate of the South Vietnamese people after we pulled out. They were concerned about themselves and the PEOPLE THEY KNEW AND IDENTIFIED WITH.
We as you point out have NOT encouraged freedom and democracy in the Middle East for the last century – we have done just the opposite most of the time. Our actions have been calculated to further our own ends and fortunes with near zero regard to the needs of the people who live there-
Up until recently. And when we tried to do better recently – even though we would of course never been there if not for the oil- we did not have the will power to stick to the job. Stabilizing Iraq to the point that the old bad guys all died out and young guys with respect for law could come into power would have taken two generations at least.
We have not actually occupied those countries and operated them as colonies in the sense that the English colonized and operated the infant country that became the USA – or India.
A western occupation can be in my estimation good for a backward corruptly governed country – but IF and ONLY IF it lasts for a very long time.
The nation building exercises in the Middle East have failed because as Boomer II points out above the then current American government did not realize that such things take decades rather than years.
Japan and West Germany were stabilized after WWII within a fairly short time – this was possible ONLY BECAUSE both countries were well developed , civilized countries with a history of rule of law and more or less honest competent government PREVIOUS to WWII – at least in comparison to middle eastern countries that instead of being ruled by law were ruled my men.
So there were men in both countries that were ready to become HONEST policemen, HONEST tax collectors, HONEST lawyers.
A country such as Iraq in my opinion could succeed WITH HELP in becoming a country ruled by law rather than powerful individual men over the course of not less than two generations.
If the occupation were to last for a shorter time, the old rulers and their corrupt underlings would still be around and the country would almost for sure fall back into their clutches.
Modern Russia has fallen into the clutches of some of the same corrupt men and their underlings as controlled the country before the old commie government collapsed.
Japan and West Germany were stabilized after WWII within a fairly short time – this was possible ONLY BECAUSE both countries were well developed , civilized countries with a history of rule of law and more or less honest competent government PREVIOUS to WWII – at least in comparison to middle eastern countries that instead of being ruled by law were ruled my men.
Also, those countries formally surrendered and their citizens stopped fighting. In the wars the US has fought since then, there hasn’t been a surrender, and even if there would have been, it wouldn’t have meant much because small groups would likely have continued to fight.
We’ve been fighting wars which end when we decide we’re done with them. We haven’t been able to define what goals we’ve wanted to accomplish and how to determine when those goals have been achieved.
Formal occupation, like we have done in the past, might have worked, but it is something that extends for decades. We used to establish military bases, bring in troops and their families, and create little Americas on conquered land. That’s not so doable when there aren’t surrenders, and when the US military would rather spend its money on weapons and mobility than on building troop housing, schools and hospitals for their families, and so on.
it is the Darwinian struggle for survival that I am talking about….Our actions have been calculated to further our own ends and fortunes with near zero regard to the needs of the people who live there-
The problem isn’t that the policies were selfish or immoral. It’s that they were ineffective and short sighted. They were developed by small groups of people who didn’t understand what they were doing, because they did it in isolation without democratic consultation.
we did not have the will power to stick to the job
No, we willing to stay. But, we were kicked out by people who didn’t trust us, because of our history.
Stabilizing Iraq to the point that the old bad guys all died out and young guys with respect for law could come into power would have taken two generations at least.
Every year, every decade we stayed by force would have made the situation worse. The whole concept of democracy fell into disrepute in the middle east because nascent parliaments were suppressed by colonial authorities. Force and violence became the only thing that had credibility in the ME.
We have not actually occupied those countries and operated them as colonies in the sense that the English colonized and operated the infant country that became the USA – or India.
The British did. They really did, for generations. Read the history – the book I mentioned is very good.
Japan and West Germany were stabilized after WWII within a fairly short time – this was possible ONLY BECAUSE both countries were well developed
They were the aggressors, and they knew it. Our victory had legitimacy, our occupation had legitimacy. The ME colonization never did. That’s why, as Boomer II says, they surrendered in a way that people in the ME never did.
Biofuels Bubble Turns to Bust
New EU regs regarding BioFuels
BRUSSELS / AMSTERDAM / JAKARTA – Today, the European Parliament agreed new EU laws to limit the use of crop-based biofuels.
EU law makers ruled that biofuels can compete with food production, contribute to climate change, and put pressure on land use – and so have set a limit on the quantity of biofuels that can be used to meet EU energy targets (at no more than 7% of transport energy).[1]
With Europe the world’s biggest user and importer of biodiesel – from crops such as palm oil, soy and rapeseed – the vote will have a major impact around the world, notably in the EU’s main international supplier countries Indonesia, Malaysia and Argentina. It is likely to signal the end to the expanding use of food crops for transport fuel.
Ron. Here I am courting disfavor again. But, if you could set off every nuclear bomb that now exists, in the next 10 minutes, you could not destroy the earth.
Okay, okay, we are destroying the fucking earth as we know it! We are destroying the habitat of every wild creature on earth.
Sometimes clueless, you truly astonish me. You don’t seem to have a fucking clue as to what is going on with the earth’s ecosystem.
Well you don’t get everything wrong, at least you got your moniker correct.
And so the Anthropocene begins.
In order to save ourselves we must all sound alarms as loudly, and as articulately as possible. I know you believe it is too late for us Ron, and I respect that opinion–it is one I held until my son was born six years ago. It is one I can bear witness to no longer. I must find a way to affect changes that provide a path for some form of human decency to continue, somewhere on this planet.
I am teaching Ecology this fall, and I am considering a major change to my normal fair–one focusing on anthropogenic change. I teach, I write.
Ron you run this blog. If we all but play a part….maybe we can dare to hope.
Best,
Tom
Cave Bio, I sympathize with your position. I have grandchildren and even some great-grandchildren. It just tears my heart out whenever I contemplate their future. But I am simply unable to deny reality. I wish I could.
If we all do our part, and we should do our part, but it will make no difference whatsoever. There are 7.3 billion people on this earth and our part, or even the efforts of a large organization like Greenpeace, are so tiny in comparison that it is almost microscopic.
Africa is not just being deforested for palm oil, it is being deforested for lumber and land is cleared for cattle grazing. And the millions of people who live in the forest live largely on bush meat. The animals are being killed for food. What will they eat when the animals are all gone? And that will be soon.
The problem is not just humans, it is human nature. It is just in our nature to compete for territory and resources.
Ron, I did my part more than you ever could. Married 49 years and no children. Therefore, no children, grandchildren or great grandchildren to destroy the earth. We each make our choices of how best to respect the planet. I like my choice, and you like yours. But, I am content knowing that my carbon footprint is less than yours and your legacy.
Clueless, I am sure that’s why you did it. You said to your wife, 49 years ago, “the world is overpopulated so we must do our part by not having any children.”
So now sleep well every night secure in the knowledge that you have done your part.
Ron,
I agree that humanity is wiping out large animals (and a lot of smaller ones). One can imagine the world as a big farm, with relatively small parks. It’s a great tragedy.
But, do we have evidence that wiping out other mammals and terrestrial creatures will make the earth non-viable for humans?
Nick, I’m sorry, I completely forgot. Humans are all that counts.
Fuck all the other animals, they don’t matter as long as humans survive.
Ron,
That’s not what I’m saying. What part of “great tragedy” isn’t clear??
But, even if we agree that these extinctions are a very bad thing, and should be stopped…there’s still the other idea that’s worth discussing: that these extinctions threaten humanity.
http://www.salon.com/2015/05/04/weve_driven_60_percent_of_the_earths_large_herbivores_to_the_brink_of_extinction_and_entire_ecosystems_may_pay_the_price/
Hi Ron,
Do you vote? A single vote makes no difference so why bother, right?
You may decide that clearly the votes taken together add up and will decide the outcome of the election.
Individual actions may seem like they make no difference, but in the aggregate they make a very big difference.
Then there is the argument that why should we use less oil so that someone in Asia can use more of it. Very simple, the oil will deplete eventually anyway and by preparing for that reality by ramping up alternative sources of energy we will be better prepared for the future.
In the process we will have developed technology that we ca share with the rest of the World.
I imagine you have seen fairly significant social changes over your lifetime, why do you think we can’t change the types of energy we use in the economy? Such change will be exceedingly difficult and may require much higher oil prices, but perhaps $200/b oil in 2014$ in 2025 is possible, it would cause some change in energy choices, if it didn’t crash the economy.
In the US, we pay about half the cost for transportation fuel as most European nations, if they can do it, so can we. In Europe, they could reduce fuel taxes in the face of high fuel prices, so that the cost of fuel might be similar in both places.
Hi Ron ,
I would not go so far as to say we are going to wipe out EVERY wild creature.
I think that cockroaches and rats at least are going to do very well. 😉
Actually if nucs could be repeatedly detonated at the correct natural frequency in the correct location, it would be possible to knock the earth from orbit. This was worked out by some famous physicist, or so one of my professors told me in engineering school.
Ron,
I have a different view on palm oil. Palm oil plantations are managed forests and the cellulosic yield of managed forests is in some cases triple the cellulosic yield (around 15 T per ha) of natural forests. So in terms of CO2 assimilation, palm oil forests are much better than natural forests. However regarding bio diversity, palm oil forests have a clear disadvantage.
Heinrich, yours is the typical anthropocentric view. There are no such thing as a palm oil forest, they are palm oil plantation and do not resemble forest in any way. No wildlife lives there.
Images of Palm Oil Plantation destruction
Heinrich,
The time estimate for a palm oil plantation to become carbon neutral is 400 years. But carbon accounting is not nature. To make that plantation a natural forest had to be destroyed with all of it’s myriad of animals and plants. These were the product and survivors of millions of years of evolution. The winners in the natural order. Gone, destroyed.
There is no way to repair or replace that destruction and it is beyond the ability of accounting, yields or economics to assess it’s true value.
Ron and MarbleZeppelin,
I agree 100% about bio diversity. However, to be fair it is important to say that managed forests are much better than natural forests regarding CO2 assimilation. I know the numbers from Europe very well. Around 1700 Europe has been without natural forests due to large charcoal conversion. This was the time when managed forests started and the cellulosic yield today is excellent at more than 10 tons per ha and much better than natural forests. We should allow emerging countries to develop their forests as well as they undergo the same transition as we and also North America did two hundred years ago. I would rather say the developed countries should do more to convert their wasteland to forests again.
I’m not quite clear on what you mean when you talk about CO2 “assimilation”. Are you simply saying that farmed trees can produce more cellulose for human use than can natural forests?
To be fair, humans are animals and also the result of evolution and natural selection. Any organism would do what we are doing if it had the ability. The fallacy is in thinking that we are consciously aware enough to intentionally change our behaviors away from what is immediately beneficial to what is sustainable.
Yeast in a wine vat does what benefits of NOW, and this leads to its own destruction. We don’t seem to be acting any differently on a collective level.
If 1,000,000 people stop buying products with palm oil, then prices will go down… To the point at which 1,000,000 new consumers are brought in due to the lower prices.
The invisible hand pushes one way and its the same hand that makes yeast have a giant fiesta when it has an unspoiled, competitionless environment.
Start thinking of humans as being just as mindless on a group level as any other animal and it will no longer bother you – we’re just doing what every other organism does. When cyanobacteria oxygenated the atmosphere they destroyed themselves. In the process they laid the seeds for the future existence of heterotrophs like you, me, and all the fish in the sea.
The problem is not palm oil products, the problem with palm oil is it qualifies as a bio-fuel and is being burned to generate electricity.
At least the EU has recently banned Palm Oil as a fuel source. Probably still too little too late!
The fallacy is in thinking that we are consciously aware enough to intentionally change our behaviors away from what is immediately beneficial to what is sustainable.
Obviously, humans aren’t as smart and forward thinking as we’d like.
But, humanity has learned to do intelligent things, as a group, many times before. And, clearly we’ll do the same thing about fossil fuels. Really, the problem is we’re not getting there fast enough: so, the question is how to improve on the current pace, to minimize Climate Change and other harm?
I bet it can be made carbon neutral if the former forest is removed and used for furniture and/or dumped in pits dosed with h2s.
I know! It lasts forever. Silly rabbits.
Think about this. If it does get expensive, rare and hard to get, none of the 3rd world countries will have any, Only the US and few other places will have any, and all economic activity will grind to a hault in 80% of the world.
If that’s what you want to say just say it.
I tend to believe the opposite. the more expensive it gets the more reserves will be brought online and it will tend to self regulate., Just like a real market always does.
What does expensive mean when the definition of a dollar changes?
ELM + Putin = Very nasty scenario for NATO (oil importing and in massive debt) countries.
Buckle up!!!!
Mr. BP, higher prices do increase our ability to extract oil from difficult reservoirs. But to do it we require more inputs. We use more personnel, hardware, chemicals, AND energy.
The struggle to keep squeezing oil out of the ground gets so expensive many of us will switch to something else. I’m a refugee from the communist dictatorship run by the Castro family, and I’m hoping we can overthrow the regime, so we can invest in biofuels from sugar cane, soy, and palm oil. If I get named Energy Minister in a new, democratic regime I will also secure a long term contract to buy coal from Colombia, and the USA, and have an undersea pipeline laid from Florida to Western Cuba. The coal will be burned in a high efficiency power plant, and also will be used to feed a syncrude CTL plant rated at 100,000 bopd. But we will need oil prices to be around $110 per barrel.
So you see, not all third world countries will sit on their hands. Some will take action. I’m pretty sure countries like Pakistan will start building nuclear reactors, Chile will build a mix of hydro, geothermal, solar and wind. And so on.
Hi Brainpimp,
It is not a question of “running out of oil” and it never was. The point is that oil will become more difficult to produce and more expensive as a result. It may be correct the more expensive oil will cause output to increase, but keep in mind that a tripling of oil prices (in nominal terms) since 2003 has only increased C+C output by less than 1% per year over those 10 years (69 Mb/d in 2003 to 76 Mb/d in 2013). Let’s assume output can continue to increase by 1% per year for the next 10 years (I believe this is a very optimistic estimate), how do you think the World economy will fare if oil prices rise to $330/b (triple the 2013 average Brent price) by 2023? The likely scenario based on past discoveries of oil, past oil production, likely future discoveries, and likely future reserve growth is that peak oil output in 2018+/-2 years due to high oil prices, limited oil output and reduced oil demand. At some point oil prices rise to a level which will cause a recession, my guess is about $160/b and possibly as low as $130/b in 2020 will be a high enough oil price (in 2014$) to cause a recession.
What does this “reserves growth” mean? It seems to be the key words in the whole text.
Hi JW,
Initial estimates of reserves tend to be very conservative in non-OPEC nations, over time as knowledge increases through drilling and geological sampling and through applying enhanced oil recovery (EOR), reserves usually increase over time (this excludes discoveries of new oil fields). The increase in reserves is called reserve growth. There is substantial disagreement about how large this effect is, the USGS expected about 600 Gb of reserve growth in 2000 from a total of about 800 Gb of reserves at the time (BP data excluding oil sands reserves and deducting 300 Gb of OPEC reserve inflation). There are also those who believe there is no reserve growth or that it is very small.
From 1983 to 2013 US 2P reserves grew by about 72%, 36 Gb of reserve growth when initial 2P reserves at the end of 1983 were about 50 Gb. Jean Laherrere estimates 2P C+C less extra heavy reserves at the end of 2010 at 850 Gb. If those 850 Gb of 2P reserves grow by 72% over the next 50 years, that would be about 600 Gb of reserve growth.
I would define reserve growth to be the difference between the initial reserves we say exist, which have to be filed according to fairly strict and obsolete USA regulations, and the actual reserves the field/reservoir eventually produces.
In some, rather extraordinary cases the eventual recovery can be FOUR times the initial reserve filing. But I think 20 to 25 % is the increase we can expect for newish fields. The older the field, the less reserve growth is feasible.
In cases where I don’t have to file SEC documents I prefer to use the P50 value, but this needs to be done with caution. It works well if the filing is for a group of reservoirs with very different properties. It also works ok for an old field operated under a production sharing agreement with clauses to reduce taxes as the field becomes marginal.
Hi Fernando,
I am inflating reported proven reserves in the US by a factor of 1.8, based on the ratio of 2P to 1P reserves reported by the UK (an average of 1.9 from 1990 to 2013). The US EIA gives pretty detailed reporting of reserves and new discoveries from 1977 to 2013. I used data from 1983 to 2013 and reserve growth was 72% of end of 1983 2P reserves from 1984 to the end of 2013. As oil prices increase and technology improves reserve growth will continue, there are a lot of contingent resources that are not a part of 2P reserves, over time these resources will move into the 2P reserve category, along with the possible reserves. Note that this reserve growth comes from all discoveries, not only new discoveries, and my estimate for 600 Gb of reserve growth is for a 90 year period from 2010 to 2100. If reserve growth was only 25% over that 90 year period, and Jean Laherrere’s 850 Gb estimate for 2010 is correct, that would be about 200 Gb of reserve growth, I think that is too low by at least 200 Gb.
I suspect reserve growth will be lower simply because fields are much older. On the other hand it could go a bit higher with higher prices.
For example, I think I can squeeze 5 % of ooip in old Louisiana oil fields by pumping fresh water with a bit of ions and some tricks. But that requires a huge price increase.
Hi Fernando,
I agree reserve growth will be somewhat slower. Remember for the US reserve growth from 1983 to 2013, we are talking about some of the oldest fields in the World. Reserve growth averaged 2.7% per year (from estimated 2P reserves) over that period. Do you really expect for the World (which on average has fields that are not as old as those in the US) that reserve growth will be lower by a factor of 3?
I could see it falling a bit, maybe to 2% per year on average, but a factor of 3 lower seems too much.
Let’s look at a possible scenario. Consider a one percent per annum world production rate decrease in crude oil through 2050. Also assume that population rise levels out at the expected 10 billion in 2050.
Current gallons/day of crude oil per capita = 0.448
2050 gallons/day of crude oil per capita = 0.230
That is about one-half the amount per capita today, which means that efficiency changes, logistics changes, unconventional oil, and other energy sources would have to take up the slack of missing oil production just to keep the “status quo” of so called “oil abundance”.
Personally, though I am quite conservative with my energy use, I currently use slightly more than 0.5 gallons per day of gasoline for my car, which implies slightly more than 1 gallon of crude per day needs to be pumped, refined and the gasoline delivered for me to just do that. The average American uses well more than that.
That would mean my car would have to get twice the mpg of my current vehicle before 2050 or I would have to switch to electric. Quite possible, but what about all those up-coming car users in Asia and probably Africa? The squeeze would be on.
Big changes will be forced upon us, even at a slow decline rate.
You still have a problem if you switch to electric. The electricity has to be generated.
Sounds obvious and did not need to be stated. Fernando, why is that a problem for me or the larger framework of oil production descent?
We use energy in things other than transportation. Try running a steel smelter, a cement plant, a refinery, or one of those Google server farms.
We’re talking about Peak Oil, right?
You seem to have wandered way wide of the scenario I presented. Oil is not generally used to produce electricity and is easily replaceable in that context. Electricity can be produced many ways, all you need is mechanical rotary motion or sunlight on certain semiconductors.
You are right, I was thinking of fossil fuels in general. By 2040 all of them should have peaked.
Solar power isn’t viable with existing technology. I think you need to sit down and work out the numbers, and stop focusing on the issue as your individual problem in your particular setting.
Yes and they will peak mostly because we will no longer need them to produce energy.
Solar power with current generally sold commercial panels (about 16% efficient) produces more energy than oil production per acre of land use and at lower cost with far less destruction to the environment. New technology solar PV is more than two times as efficient and is currently commercially available right now.
Did you know that a focused heat/PV combination system has been invented that makes fossil fuels look pathetic?
The solar energy hitting my house just this day is enough to meet my electric energy needs for the month. Come on Fernando, I know you are a smart guy, take off the blinders and look around and add up all the numbers.
Hi MarbleZ,
Fernando is concerned with the intermittancy of solar and the expensive nature of backup such as batteries or fuel cells. An HVDC grid with wind and solar widely dispersed will need very little backup and some of that backup can be provided by natural gas over the medium term. The strategy is to overbuild the wind and solar resource by a factor of two to three over a wide interconnected area and move the power around. For those rare occasions where there is no wind and no solar available (about 1% of the time and an even smaller percentage of load hours), backup will be used (we could burn trash with a gasifier to provide backup).
And a lot of people and businesses will have their own systems with backup, so the problem will not be much of a problem. The cars will act as backup storage also.
I don’t see the problem, Germany solved the high output problems with new technology breakers and switching systems. The US power producers are entrenched in the past and not serving the needs of society now and in the near future. They are like Henny Penny screaming the power grid is falling.
I agree pretty much.
I’d say that we probably won’t need that much overbuilding – perhaps only 25-50% over average demand. Other things will be cheaper: Demand Side Management, moderate use of batteries for daily variance, creation of synthetic fuels from surplus power for seasonal generation lulls of perhas 2-5% of total kWhs, including storage with possibly H2, methane, ammonia, etc.
Hi Nick,
The University of Delaware study suggests that overbuilding wind is cheaper than backup, I assumed you had read that study, if not it is at link below:
http://www.sciencedirect.com/science/article/pii/S0378775312014759
From the abstract:
We find that the least cost solutions yield seemingly-excessive generation capacity—at times, almost three times the electricity needed to meet electrical load.
This is because diverse renewable generation and the excess capacity together meet electric load with less storage, lowering total system cost.
At 2030 technology costs and with excess electricity displacing natural gas, we find that the electric system can be powered 90%–99.9% of hours entirely on renewable electricity, at costs comparable to today’s—but only if we optimize the mix of generation and storage technologies.
I think it’s an excellent start, and perhaps it’s really enough for the moment, given that it shows that almost all FF generation can be replaced at costs comparable to today’s grid.
Still, they were computationally constrained, so they couldn’t optimize the model forever. And, I think I found their error: they didn’t look at less efficient ways of generating power from hydrogen.
You see, if you overbuild even by 50%, you’re going to have essentially free power for most of the time. And if you only need 5% of kWhs from storage for seasonal backup, 50% overbuilding provides enough power even if efficiency is very, very low, say 10%. That means that you can go with the very cheapest forms of storage and generation regardless of efficiency. They chose fuel cells for their hydrogen option, which give a high 44% round trip efficiency, but also a high capital cost of $1,683 per kW. Instead, they should have tested ICE generation. It’s far less efficient (perhaps 15% round trip), but it’s far, far cheaper to buy and install (well below $500 per kW), and that’s the critical parameter.
Make sense?
There will be days when electricity is over-produced by solar and wind power. How about storing it as heat and running steam turbines during the next slack time? Also, pumped hydropower is a great way to store excess electric energy. Either on hilltops or down in old mines.
Solar power isn’t viable with existing technology.
It is viable right now. What it can’t do is maintain current BAU (a lot of which we’d likely be better off without, anyway).
What freaks some people out is that solar brings change and they don’t want change.
However, as oil becomes harder to find and more expensive to get, that brings change, too.
Change is coming. We can either do our best to adjust willingly, or we can wait until our options run out and we are forced into changes very much not to our liking.
I think using Google servers as an example, is a rather poor choice to support your point. You could Google it yourself 🙂
http://www.cnbc.com/id/101417698
Google makes huge investment in clean energy
But more than any other, Google is the most aggressive in advancing a clean energy agenda, analysts say. Google has made 15 wind and solar investments totaling more than $1 billion.
“We’ve invested over a billion dollars in 15 projects that have the capacity to produce two gigawatts of power around the world, mostly in the U.S., but that’s the equivalent of Hoover’s Dam worth of power generation,” said Rick Needham Google’s director of energy and sustainability, standing along Google’s solar arrays at its headquarters in Mountain View, Calif.
And that was back in the days before Elon Musk revealed his gigawatt powerpack batteries. I get the impression that there is currently a rather impressive array (no pun intended) of cash rich entrepreneurial and dare I say, engineering talent working overtime to make most of what you say obsolete.
Ron,
Excellent post. Quick question. You mentioned at the beginning of the post that some countries increased production since 2005… but more suffered declines.
You wouldn’t happen to have a chart showing a breakdown for the individual countries?
Steve
No but I will create one for you.
Ron,
I didn’t intend for you to spend time to create that chart. I thought you had one you put together in the past. You spend enough of your time working on your site.
Steve
No problem it only takes a few minutes.
There were 17 gainers and 17 losers from 2005 to 2014. I have two charts here. The first includes the USA which sort of distorts the rest of the field.
This second graph I have left out the USA in order to amplify what the rest of the field has been doing.
Hope this is what you were looking for.
Notice that Qatar is among the gainers here. The OPEC MOMR says Qatar has declined since 2005 but that is crude only. This is EIA data which includes condensate. Qatar has mostly natural gas and their condensate has increased by about 600,000 bpd.
My version of this, using BP data going back to the 60s, it’s a secular trend in a big way – the decline was evident even from the start. What its implications are is another matter, of course.
http://i777.photobucket.com/albums/yy52/TheDudePeakOil/HeadcountofcountriesYOYchangeinoilproduction1965-2011.png
I did something similar and included the oil price:
http://21stcenturysocialcritic.blogspot.com.es/p/change-in-oil-price-versus-time.html
I showed one of the graphs here and it didn’t get any comments. If we add the oil price we can see many countries are unable to react to a price signal.
Ron,
Thanks a million. Looks like 2015-2025 will be a much different graph… aye?
steve
I think I’ll update it in June when the new BP workbook is out. Sure the US will join the ranks of countries with blue bars but big woop – won’t even more nations have joined the decliners’ club? And what was the picture like in 1935?
Following is a chart 2005 to 2012 Rates of Change in ECI Ratios for (2005) Top 33 net exporters (ECI Ratio is ratio of production to consumption). From 2005 to 2012, 26 of the Top 33 showed a declining ECI Ratio (only seven increased). From 2005 to 2013, 28 of the Top 33 showed a declining ECI Ratio, only five increased: Canada, Colombia, Azerbaijan, Iraq and Kazakhstan.
In other words, as of 2013, 85% of the (2005) Top 33 net exporters were trending toward zero net exports (when the ECI Ratio = 1.0).
(No luck trying to post an image, got the usual error message. Okay, I think I figured it out. The website will will currently post GIF images but not JPEG images.)
Chart now posted below.
Here is the link:
http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps5a656e89.jpg
Yo Jeff, see assay stuff below. Quite surprised to see the low API number on these huge export sources.
Yep, Brent and WTI are at the top end of the major global crude oil types.
(Oddly enough, I was able to post an image this time. Seems to be some kind of random error regarding images.)
Which meansssssssssssssssss global refineries want API 32, not 42 and the narrative of shale oil should export because markets would be bigger for that thin stuff is bogus.
I agree that there may not be that much demand for very light crude oil (roughly 40 to 45) and condensate (45 plus) globally, and as the Reuters article noted that I have re-p0sted several times, US refiners are increasingly reluctant to buy more “Imitation WTI” type blends of heavy crude and condensate.
As I have previously noted, it took roughly (based on EIA data and projections) half of the global oil and gas rig fleet to increase US 40 API gravity and lower crude oil by only 0.3 mbpd from 2011 to 2014. Given generally higher costs in areas outside of the US and Canada, given the fact that the average Bakken well is declining rapidly, with an average rate of a little over 100 bpd, with a median rate of less than 100 bpd, I have a hard time seeing how tight/shale plays globally will do much for 40 API gravity and lower production.
Yup, yup.
There is perhaps increasing reason to suspect that 40 ain’t the right number. Maybe 35 is, given just how much of those numbers are exporting.
Is API of LTO about 42 ?
The LTO assay is fuzzy. There was a quote of 42 as the average for one of the 4 NoDak counties.
There is a famous example of an official Bakken assay being pulled from (changed on) a site just as a Congressional hearing was examining volatility and railcars blowing up.
The official Bakken claim is 39, which is WTI’s number, but lo and behold there are official efforts to change WTI’s definition because of Bakken buildup in Cushing. Odd how that happened.
Not all refineries have heavy crude upgrading kit. The light ends are marketable abroad.
But how much?
Obviously, refiners wouldn’t use 42 API plus very light crude oil and condensate as the sole source of C+C input, since they would lose the heavy products and most of the very profitable (and in demand) distillate product output.
So, I would assume that in order to maintain their distillate output, there is an upper limit on very light crude and condensate as a percentage of C+C inputs. My theory is that US refiners hit that limit in late 2014, as documented in the Reuters article that I have frequently re-posted:
http://www.reuters.com/article/2015/03/23/us-usa-refiners-trucks-analysis-iduskbn0mj09520150323
Jeffrey, refiners use a linear program to estimate the best input blend as a function of market prices for their refined products.
The input blend is a mix of cargoes or inlets they can purchase.
Overseas refineries can take the light ends, but they will bid a price which optimizes their refining margin.
The best way to find out is for the USA congress to stop restricting trade and allow oil exports.
(Oddly enough, I was able to post an image this time. Seems to be some kind of random error regarding images.)
I’ve been encountering the same issue, not quite sure what to make of it.
I’ve been getting the ‘Page Not Found’ error upon occasion but there doesn’t seem to be any rhyme or reason to it.
As noted above, it looks like I can currently post GIF images but not JPEG images (I had no problem with JPEG images until recently).
I suspect it has nothing to do with the file type.
Test
I tried posting the following image as JPEG (which I had been able to post until recently), and got the usual response:
I tried posting the same image as GIF, and following is the result. Of course, all I know about JPEG versus GIF is that they are spelled differently.
However, I copied your JPEG file and tried posting it, and it worked. I don’t know, maybe the system has gremlins in it.
Test:
Hey Jeff,
I don’t know, maybe the system has gremlins in it.
LOL! that’s pretty much my conclusion as well. I do know quite a bit about graphic file formats and my hunch is this has something to do with the peakoilbarrel hosting service.
Hi Jeff and Fred,
I have also been having problems with images lately, Ron may be running out of space and maybe has reduced the image size that can be posted, but I doubt it.
Anyway a GIF will tend to be smaller than a jpeg which is usually smaller than a png or bmp image format. I have determined that image files larger that roughly 65 kB (actually its somewhere between 60 kB and 69 kB) cannot be posted.
Trying something different for images:
Hi JeffandFred.
I took a quick look at the image size, and noted that thee “Jpeg test” image was tiny, about 9k.
My thought is that the problem might have something to do with file size as opposed to image format. The graph above is 25k, and seems to be presenting nicely.
If this is the issue, the answer might be to tailor one’s images to be below 75k (or whatever the limit turns out to be.) Not a problem for those of us who spend a lot of time with Photoshop…I don’t know how lesser mortals do it : ) .
-Lloyd
Yeah interesting observation. In the past I have been able to post jpeg images in the 300 to 400 k range with out any problem. I have recently pared that down to about 90 k and under. This goes back to my theory that there has been some kind of bandwidth issue happening with this site.
Hi Ron,
We could see increases from places we do not expect. As far as I recall you were not expecting US output to rise by almost 4 Mb/d back in 2010, and I did not expect such a rise either.
If oil prices rise to $80/b by the end of 2015, US output will be rising rather than falling and peak may not arrive until 2017 or 2018. The World may peak before this if the US increases (and Canadian increases) do not offset declines elsewhere. I expect an undulating plateau around 77 Mb/d +/- 2% until 2020 if the economy doesn’t crash and oil prices remain between $80 and $120/b from 2016 to 2020.
Dennis, I had called peak 2014 2015 well before the price collapse. Of course I expected US production to climb by about 1 million bpd during 2015 and that 1 million bpd to be part of the peak. However I am sticking to my bet. Even if prices do rise shale oil, in 2016 will not be all that great.
Of course I may be wrong but my estimate does not depend entirely on what happens to the price of oil or whether shale oil goes bust or not. Several countries that have shown increases in the last few years have now peaked and will not add anymore but may decline instead. They include Oman, Colombia, Kuwait, the UAE an a few others. Of course Russia is included in the equation also.
” Of course Russia is included in the equation also.”
Ron,
In the “Theoildrum” time you was quite sure that Russia was at peak production, and that is ‘a few’ years ago already.
Certainly the years of high oilprices did miracles, but depletion went on, so the only gamechanger might be strong rising LTO production in Russia, which seems unlikely but not impossible.
High oilprices with QE is unsustainable, so LTO and other expensive to produce oil is just kind of salve on the wound.
Han, I don’t recall saying that Russia was at peak back then. Please post the link if you have it. I remember saying that Russian increase in production was slowing down, and indeed that was exactly what was happening.
However I am just quoting here what the Russians themselves are saying. And these Russians are saying that Russia will peak in 2015. I am not going to argue with them on that point, though you might.
Ron, I don’t have the link. I followed your comments on TOD in general more closely than from others (because of your straightforward way of thinking), that is why I recall it. Who’s recall is correct isn’t that important and the difference is small.
No, I am not going to argue with them. Only with what seems to be overly optimistic predictions I argue sometimes, because some kind of optimism
is very dangerous.
The plan is part of the United Arab Emirates’ strategy of increasing its crude oil output potential to 3.5 million barrels per day by 2017-18. The UAE’s actual current production is around 2.8 million bpd.
http://www.reuters.com/article/2015/04/21/us-emirates-abudhabi-oil-idUSKBN0NC0O720150421
ADNOC plans to drill around 160 wells per year in the next couple of years, Kayoumi said. “It is a considerable increase – the number of rigs has built up considerably in offshore, it could be more than a 50 percent increase.”
But of course 700,000 bpd is nothing compared to what the world needs.
Suppose oil prices fall to $35.
Hi Watcher,
Then Ron’s guess will be correct and mine will be wrong. Until oil prices rise again, and then there will be a new peak and we may both be wrong.
There is no guess. There is no wrong. There are only probabilities and there is no way to evaluate that one’s, and that one’s is all that matters.
I’m reminded of a scene in “Pure Country,” starring George Strait:
Hi Watcher,
There are certainly different probabilities of different futures, but nobody knows what those probabilities are, nor what set of probable futures actually exist. You often comment about the future, everyone’s assessment of the probability of different future scenarios is different.
Ya, great, so where is the equal time for $35.
Hi Watcher $35/b for say a yearly average Brent price is very unlikely. You are welcome to present such a scenario of course. Do you think oil prices will remain below $60/b over the long term? I have presented some scenarios with oil at $60/b for the Bakken and Eagle Ford. If the Brent crude price remains at $35/b in 2014$ over the long term, peak oil is between Dec 2014 and Dec 2015, in my view.
I think oil prices remaining at $35/b long term is a highly unrealistic scenario, not really worth spending any more time on.
I don’t think there is any chance oil prices will fall to $35. I think WTI will move up to $65 and Brent between $70 and $75 before they hit resistance. I think it is very likely that they will then trade in that range for the rest of the year.
Of course that is just a guess but I think an educated guess.
Suppose WTI’s definition changes to something less desirable. This was reported and posted here.
Link please.
Hi Ron,
That sounds good too me, surprisingly optimistic, are you ok 🙂
Dennis, I really don’t understand your comment. What kind of prognosis for the price of oil, for the rest of the year, did you expect me to give?
Usually you won’t guess. I thought you were leaning towards $60/b or less, due to economic crisis maybe.
Your assessment sounds positively upbeat, usually that is not the case. The smiley face indicates an attempt at humor, obviously not funny though, sorry.
Assay tidbit.
Urals blend is apparently 80% of Russian export.
API: 31,78
Sulphur Level: 1,35
Country: Russia
Product %wt
C1 to C4 2.62
Naphtha 10.13
Kerosene 8.05
Gas Oil 25.87
Atmospheric Residue 46.91
Comparison: Brent
API: 37.9
Sulphur Level: 0.45%
Country: UK
Product %wt
C1 to C4 2.5
Naphtha 20.3
Kerosene 14.2
Gas Oil 20.3
Atmospheric Residue 42.7
Basra Light Crude:
API: 30.2
Sulphur Level: 2.92
Country: Iraq
Location: Mina Al Bakr, Basra, Southern Iraq
Product %wt
C1 to C4 1.6
Naphtha 14.4
Kerosene 12.5
Gas Oil 17.1
Atmospheric Residue 54.5
From
http://abarrelfull.wikidot.com/ they have more than just those 3
Looked for Bakken on that site. Nada.
A few others:
Light Saudi Arabian crude lists an API of 34. Heavy Saudi Arabian crude is 27.
Kuwait 31.
Gas intensive Qatar has a Dukhan variant at 40. And an Al Shaheen variant at 27.
Iran lists 2 fields at 30 and a 3rd field, called Iranian Light Crude at 34.
Here’s Venezuela’s assay for Bachaquero:
API: 17
Sulphur Level: 2.4%
Country: Venezuela
Product %wt
C1 to C4 1
Naphtha 8
Kerosene 2
Gas Oil 19
Atmospheric Residue 70
That variant is listed as extra heavy, there is a “heavy” variant at 24, no details.
Columbia, ramping up lately, two variants, one 24 and one 29.
Seriously, it’s hard to make a case for API 42 shale liquid being oil.
API OF EXPRESSO? FREE LTO at Starbucks. Global POS system crashed. STORAGE PROBLEM SOLVED.
http://www.nytimes.com/2015/04/25/technology/system-crash-for-starbucks-leads-to-free-coffee-for-some.html
Watcher, we call it oil if the liquid is a liquid at reservoir conditions. Very high temperature and pressure high gas ratio reservoirs CAN have a 42 degree API condensate. Gas molecules cool and lose pressure as they move from these reservoirs to the surface equipment , and the heavier molecules condense (ie turn into condensate). But as a general rule a 42 degree API liquid is called oil. I believe the 45 degree cut off is reasonable.
Bakken Crude according to the NDIC is 36 to 44 API, WTI is 40.
There are many crudes between 39 and 44 API, historically these have commanded a premium price because they are easy to refine into gasoline and diesel fuel.
http://en.wikipedia.org/wiki/List_of_crude_oil_products
Oh btw, saw mention NoDak Guv Dalrymple says extraction tax is going from 6 to 5% on 1 January, regardless of price.
One possible future scenario based on C+C less extra heavy oil URR=2800 Gb and extra heavy oil (XH) URR of 600 Gb for a total potential resource of 3400 Gb. The scenario to 2100 has cumulative C+C at 3000 Gb and 1940 Gb of cumulative C+C output to 2040. Output is on a plateau from 2016 to 2020, if we call the midpoint of the plateau the peak, it would be 2017. I think the decline rate after the peak is more interesting than the date of the peak itself. The annual decline rate is less than 1% until 2025 and then remains around 1% until 2040.
Off topic slightly but a lot of us are worried about what is happening in Baltimore. Well I have good news. Things are about to calm down. A special agent, Deputy Sheriff Bryana Patterson, has been sent in from Frederick County to to get things under control. Oh, she happens to be my granddaughter. That gentlemen assisting her is Maryland Governor Larry Hogan.
Best wishes and safe return for your granddaughter and her family, Mr. Patterson.
Hear hear! Congrats! And may she help bring some peace to Baltimore.
We all owe a big thanks to our men and women in uniform. The Texas terrorist attack could have been a massacre, but was thwarted by these true to life heroes.
Unfortunately, riots and terrorist attacks have become the new normal.
“The annual decline rate is less than 1% until 2025 and then remains around 1% until 2040.”
Dennis, and the export annual decline rate ?
2040 is 25 years from now. Nothing will remain that constant over that period.
Indeed, I agree. But suppose it is about 1% constantly, how much would be the export decline ? Considerably more, that is what I want to put under attention.
In reality, when decline sets in, oilprices will rise far above $ 100 which causes demand destruction. What happens to percentages then, we have seen already.
Hi Han,
As exports decline, oil prices will rise and there will be some demand destruction.
How much exports will decline, I will leave to Jeffrey Brown, but would suggest it depends on overall output and oil demand in oil exporting nations, I only have predicted one half of this equation, and do not know what will happen to demand in specific nations. Overall World demand for oil depends on both income and oil prices.
Over the 2011 to 2013 period Brent was at about $110/b for roughly a 2 year period and the increase in income swamped the effect of high oil prices and World demand increased by roughly 2 Mb/d. Based on this history, oil prices between $105 and $110/b in 2014$ will not reduce demand for oil if World GDP grows at the 2011 to 2013 rate(2.65% using IMF GDP at market exchange rates). The IMf predicts about 3.1% GDP growth for 2015 to 2020 in the April 2015 World Outlook. Link to IMF World outlook data below.
http://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weoselagr.aspx
Report at
http://www.imf.org/external/pubs/ft/weo/2015/01/index.htm
A big question is how fast the economy can adjust to declining oil output, I agree that oil prices will rise to above $110/b, what is not clear is if the world economy can adjust to higher prices.
From 2003 to 2013 average Brent prices rose from $30 to $109, about a 13.8% average annual rate of increase over those 10 years. I doubt the World economy would handle a repeat of this very well. Possibly an increase at half this rate of increase (6.9% per year) for 10 years from $80/b could be managed. This would put us at $156/b(2015$) in 2025 if oil prices started at $80/b at the end of 2015. I am using Brent as the World price.
The Oct 2013 IMF Economic Report predicted US GDP growth for Q1 2014 (just 3-6 months away) as 3.3%.
Final revision measurement was -2.5%.
It’s immoral to quote them.
Hi Watcher,
I focus on the World as a whole and annual changes in output.
The IMF has been too optimistic in the past looking back at historical estimates. For example World GDP grew at about 3.4% from 2012 to 2014, but if you look back at previous forcasts they were predicting about 4.9% growth for those years about 5 to 10 years ago. Occasionally their forecasts are too low, but mostly they are too high. Currently their forecasts are for about 3.9% growth in PPP terms (which is the preferred measure that they use in most of their tables). If they are too high by a similar percentage for 2016 to 2020, then GDP growth will only be 2.7%. About 3.2% GDP growth would split the difference.
I’ve repeatedly pointed out the enormous difference between rates of change in production in oil exporting countries, versus rates of depletion in CNE (Cumulative Net Exports), and I frequently use the Six Country Case History (the six major net oil exporters, excluding China, that hit or approached zero net exports from 1980 to 2010).
As the combined Six Country production rose slightly from 1995 to 1999, they had already shipped 54% of their combined post-1995 CNE. In 1999, when their combined production was 2% higher than 1995, they shipped–in one year–23% of their remaining post-1995 CNE:
http://i1095.photobucket.com/albums/i475/westexas/Slide2_zps55d9efa7.jpg
Globally, by definition the remaining supply of post-2005 Global CNE* has been depleted, and the only question is by what percentage. Based on the 2005 to 2013 rate of decline in the (2005) Top 33 net exporters’ ECI Ratio (ratio of production to consumption), I estimate that we have already burned through about 30% of post-2005 Global CNE, through 2014, and the data suggest that the rate of depletion of remaining post-2005 Global CNE is accelerating.
*Combined estimated post-2005 CNE from the (2005) Top 33 net exporters, total petroleum liquids + other liquids, EIA
Hi Jeffrey,
Han was asking a different question about the annual decline rate of net exports. I will just make up some numbers. If net exports was 30 Mb/d and all of the decrease in C+C was a reduction of net exports, then at a C+C output of 75 b/d and a 1% annual decline rate would mean that net exports would decline at about 2.5% per year. Over time I would expect the proportion of output that are net exports to increase, but it depends on demand growth in exporting vs importing nations.
I don’t know whether average demand in exporting nations will grow faster or slower than in nations that import oil. As oil prices increase substitutes such as EVs, rail, light rail, telecommuting, and moving closer to work will become more competitive and will tend to reduce the demand for oil. How these opposing tendencies will balance is difficult to determine.
My point was, and is, that net export declines are mathematically* “Front-end” loaded, in that the bulk of post-export peak CNE tend to be shipped early in the decline phase, and a rough, but fairly consistent, rule of thumb is that about half of post-export peak CNE are shipped one-third of the way into the net export decline period (the Six Countries shipped 54% of post-export peak CNE one third of the way into the net export decline period). And a corollary to this is that the rate of depletion in remaining post-export peak CNE tends to accelerate with time.
Hi Ron,
The model can be thought of as a general trend if conditions do not change to a large degree. Over the period from 1982 to 2014 there were many changes in the World, but C+C output followed a pretty steady trend with some small amount of fluctuation above and below trend (in the range of +/- 3%). Clearly the model cannot predict such fluctuations.
Dennis, with a +/- 3% range, it could be quite difficult to tell if there is actual descent or just the normal variance, at least from the production data. What indicator do think would be best to track to determine if oil descent is really occurring? Or, how far would production have to descend to be fairly sure of continued descent?
Robert Hirsch has suggested a fall of 4% below the peak which I would define in terms of the trailing 12 month average C+C output. In Dec 2014 the EIA data was 77.8 b/d for the trailing 12 month average of C+C output, my model goes up to 78.2 Mb/d in 2015 and remains at that level until 2019. If output falls to 74 Mb/d and it is not due to an economic crisis and prices remain high (I would expect at least $165/b at that point), then peak oil will probably be here.
The fluctuations in output will make it difficult to judge the peak until 2025. The peak in 1979 took 16 years to surpass, then we remained on a plateau from 2005 to 2011, so deciding if any apparent peak in oil output is real is not straightforward.
In 1979, it was clear there was an oil shock with a rapid increase in prices with prices more than doubling over a two year period, leading to a severe recession (the Iranian revolution and the Iran Iraq war took about 10% of oil supply off the market in a short period.)
In 2005 to 2011 high oil prices slowed economic recovery from the financial crisis and by 2012 it was clear that C+C output was rising and oil prices eased as new supply came to the market.
I think using a 5% decrease in output from the trailing 12 month peak with 12 month average Brent prices remaining above $150/b (in 2015$) will tell us that the peak in oil output has arrived, if the peak arrives in 2015 as some predict, I would use a lower price level such as $90/b.
Thanks for the very complete answer. It makes sense to look for at least a five percent drop from current production levels, that should get it beyond the range of normal variance.
With the caveat, if it occurs during BAU and appears to be caused by a mix of geology and economics. If other factors such as war or some other apocalyptic occurrence are the cause of the drop then the possibility of production recovery might well be in the mix. Also one must be aware of the effect of disruptive technologies.
Judging this properly is a tough case due to the multivariate and dependent variable situation.
Hi MarbleZ,
There are too many variables to predict anything in the future accurately. The model assumes that oil reserves will continue to be developed as they have since 1960 and is based on production and discovery data from the past. Using Webhubbletelescope’s Oil shock Model to estimate extraction rates of C+C less extra heavy oil from the proved producing reserves (also estimated by the model), I assume that extraction rates will increase at a gradually decreasing rate after 2014. I used the trend from 2009 to 2014 for the rate of increase in extraction rate and it gradually decreased until remaining fixed after 2023.
Implicitly, this scenario assumes there is no severe economic crisis, which is optimistic. Clearly when such a crisis occurs extraction rates will decrease and annual decline rates will increase.
A more realistic scenario would guess that such a crisis might arrive in 2035 (obviously a guess) and would have extraction rates declining and then leveling off at some lower level. Chart with such a scenario below.
Just put up the post;
Changes to Total Global Debt Affects The Oil Price
http://fractionalflow.com/2015/05/03/changes-to-total-global-debt-affects-the-oil-price/
The punch line;
” …, but turmoil in many key [oil] consuming regions and the difficulties in formulating the right monetary policies mean the world may not be able to respond with adequate [oil] demand.”
On Iran:
Biden transcript at Washington Institute 30/4/2015
“In contrast, without this deal, they already have enough material -— if further enriched -— for as many as eight nuclear bombs. Already, right now, as I speak to you. The result if the final deal is concluded, for a decade, breakout time for one weapon’s worth of highly enriched uranium would be extended from the current two to three months to no less than a year. And for years after that, stockpile limitations and other constraints on Iran’s enrichment program would produce a longer breakout timetable than exists today.”
http://www.washingtoninstitute.org/policy-analysis/view/30th-anniversary-gala-dinner
If further enriched. In 2006 Stratfor said Iran would have weapons grade material. I remember having a polite discussion to let them know I thought they were full of bulldinky. The Iranians haven’t got the capability to enrich to weapons grade. They do want to be close enough just in case the Pakis, Israelis, Saudis, or sone other nation starts behaving improperly. The way that turkey Netanyahu keeps threatening Iran simply ratchets up their commitment to have the capability to respond to the nut heads who control Israel.
“New data from the U.S. Department of Energy shows that overall U.S. energy consumption is slowing and is not expected to grow much at all over the next 25 years despite both a growing economy and population. Overall, U.S. energy consumption is expected to grow 0.3 percent annually between now and 2040. That’s half the expected U.S. population growth rate and dramatically less than the projections for U.S. economic growth through 2040 — 2.4 percent.”
http://www.climatecentral.org/news/energy-use-decline-economic-growth-18950
In other words energy consumption rises 8 % total, but GDP rises 80 % total, in 25 years. Sure.
Yeah, more likely energy consumption will fall.
The US uses less oil now than in 1979, with GDP 2.5x larger.
How accurate have DOE predictions proved to be in the past and is there a monetary penalty applied to the specific people who release them? If not, it is immoral to quote them.
Nonsense.
Yes, if you’re one of those making predictions that can harm people and risk nothing yourself.
I think Ron is generally right.
But the important part isn’t when the peak occurs, it is how fast the decline is. The only reason peak oil is worrying is that the global economy, as it is currently structured, is highly dependent on oil. All that matters, in the end, is the price, and how much of the real economy is focused on energy extraction instead of other productive uses. If we can (and it’s a big if) get to a situation where we adjust our economy, the way we live, and how we produce and consume goods, we might be able to begin reduce our oil demand year over year and keep the price affordable. This might mean that the world grows poorer in a lot of ways, the population is sharply reduced, but it doesn’t have to mean the end of human civilization by any stretch of the imagination.
The general consensus here and among all but the most optimistic forecasters is that peak will occur sometime between 2015 and 2020. I agree. Taking a look at all the production coming down the pipe, and assuming that the world demand continues to grow at its past rate, there will not be enough oil to meet the demand. The price will go up. How fast I can’t say.
By 2020:
– “Baseline” demand increase of ~5 million BPD
– Iranian, Saudi, Iraq, Kazakhstan, UAE, offshore and deep water projects, “reserve growth” amount to around the same amount in a best case scenario
– Decline rate on existing wells averaged to about 2% means that the world loses 1.4 million bpd every year
So we’ll need to find an additional 7 million BPD from somewhere else. That’s probably an impossible order. As such, I’m predicting a major economic depression between 2020 and 2025. What sort of order arises out of that is hard to say.
Americans are well armed and demand more energy than anyone else. If their supplies are threatened they will descend into tribal warfare quicker than any Yemeni, Tutsi or Hutu.
Current scientific knowledge about the origins of human violence does not seem to bear out your statement.
http://goo.gl/AQhlKl
If their supplies are threatened they will descend into tribal warfare quicker than any Yemeni, Tutsi or Hutu.
But this is a pointlessly general statement.
What is the likely mechanism for the conduct of these wars? What sort of war can you fight victoriously with little or no oil, and fight it to accomplish your goal?
These are the important matters that should be examined. They dictate who gets the oil and who is enslaved.
Americans shooting each other to take each other’s stuff.
(I apologise for any perceived ambiguity.)
That is reasonable if there were a non uniformity of distribution within the US, in which case blue states are in big trouble.
Seems more likely to see country by country non uniform distribution, though.
Facts talk more than a 1000 words. Great job. The problem is not what happen on the past until now, and the forecast based simple on most probable scenario.
The forecasts provided are acceptable, accepting most of what the industry know and apply.
The present looks as the world is living a glut on oil. Yes this is the case, and now when we know more about the unconventional potential, we know more and for the challenges we have, on conventional and unconventional oil resources.
The world is living “glut” for a moment, and we learn lessons after lessons. The glut is temporarily, and the world is on the bring of a early “peak oil”. This early peak oil need can be postponed only by intensive drilling, and intensive investments, on existing technologies, which need only high oil prices.
In case this will happen, I think it will happen, the problem of oil demand supply will have a quick fix for a short time, but soon may come the worse, the high demand will not be supported with supply, and the crude oil prices will sky-rock again, harming the weakest economies on the world who cannot afford the prices. This scenario will be painful, even some countries may have more possibility than the others, the world need economic growth.
The energy, and oil in particular, is the blood of the economy, and if the world will starve for oil, the economy will be shaken, and the societies will have problems.
The solutions are not easy, however as the world is awashed on oil resources, heavy oil, and the bypassed oil on conventional oil reservoirs and on addition the unconventional LTO, the right technologies to increase the production from these resources, will give the world all what we need for decades away from now. This must be solved now, and not delayed.
Call for advanced technology from companies who need and want to benefit more from every dollar they spend, will be one of the accelerators the industry need. More than anything else the oil industry need knowledge, the knowledge on technology peak will bring the oil peak, but if the technology goes up, the oil production will go up and the peak oil will be postponed further much further than we can expect. A simple advice for those who want, the breakthrough new technology ideas which open the door for real technological advancement, will be found only on individuals, and not on groups who are followers, these of course will help on further advancement, but initially they need the breakthrough idea to open for them a new page on the R&D. If a new page on R&D will not be open, all the respectful researchers will continue to give only small changes on the existing technologies. A cooperation of these researchers with the individuals who have new breakthrough idea, will change this world.
The energy, and oil in particular, is the blood of the economy, and if the world will starve for oil, the economy will be shaken, and the societies will have problems.
Peak Oil is real and we need to get off oil the sooner the better, if for no other reason than because of the environmental consequences! If industrial civilization survives I’m sure we will be using petroleum products in may industries for a long long time to come but hopefully not anything like the way we use them today.
I thought some folks in here would find this interesting:
U.S. Sanctions & Saber Rattling Doesn’t Stop The U.S. From Importing Russian Petroleum
http://srsroccoreport.com/u-s-sanctions-saber-rattling-doesnt-stop-the-u-s-from-importing-russian-petroleum/u-s-sanctions-saber-rattling-doesnt-stop-the-u-s-from-importing-russian-petroleum/
If we consider just NET petroleum imports, Russia ranked 4th in Jan. 2015.
steve
This peak oil business has got to come to an end, nobody wants peak oil and everybody stomps their feet and throws a real hissy fit about this peak oil business. It just isn’t true. Who needs orangutans anyhow? Nobody. sarc/
In the old days, there was one car for the whole family. My Dad walked to work, the car sat in the driveway all week long and on Sundays or Saturdays, it was a drive to Grandma’s house out in the country a couple of times during the summer months. The other two weekends was the drive to the aunts and uncles to their farms to play in the shelter belts like you’re Robin Hood. There was room on the streets for the kids in the neighborhood to play games, to run and play, to not worry about traffic unless the bus drove by once an hour. A trip on an airplane was not going to happen at all.
No pickup truck to drive 45 miles to the job every day, no boat, no cabin at the lake, no nothing. A grill didn’t use propane. Nowadays, everybody wants a boat, plenty of gas, fishing ain’t fishing unless you have a 3/4 ton pickup truck for 40 grand and a boat for 35 grand to catch five pounds of perch or walleye on a weekend. Very expensive fish. I can go to the grocery store and buy coho salmon for ten bucks a pound, save 75 grand and not to mention the days you don’t catch any fish at all. The fishing is always good, it’s catching them that isn’t so great at times. The grocery store has fresh caught fish from the ocean and you don’t have to drive 75 miles one way to catch them. You can fly them 3000 miles and it costs much less.
These days, I use cottonwood bark for the fire for the grill. The very best for grilling. Not too hot a fire, just right. Coho salmon is the very best salmon to eat.
Don’t it make you wanna go home?
I am somewhat of a snob when it comes to a grill and have a nice one , gas fired. I also have a retired friend who is or was a very competent chef and we have experimented with just about everything you can find or buy to fire a grill. Apple cherry mesquite various other fruit woods hickory etc etc.
Surprisingly enough for burgers the best in our opinion is yellow poplar allowed to burn down to coals. Dirt cheap or next to free over half of the US. Loggers leave the crowns behind and very few people want poplar for use as firewood. But I burn it and glad to get it if it is easy of access. A single armful is enough for to keep a grill hot for an hour. Save that gas!!
1st pink of the year is an absolute treat….1 hr from water to grill. (We use alder, here) I catch our years supply of coho off our dock and we have a freezer full of sockeye steaks. Tonight we are having home grown chicken and I am marinating elk ribs for later on this week….to cook on the grill.
Total year meat supply required 5 gallons fuel, but could do it with none. 1 tank of propane for winter grilling.
Charcoal out of our negative carbon pyrolyzer is super for grilling. Only a tiny amount needed, rest of it goes into ground-from air by way of weeds, leaving gas behind to go into generator- cloudy day booster for PV.
Used to get year’s supply of deer with a couple of spoonfuls of powder into my good muzzle loader- out the shop window, deer obligingly standing in front of my sight-in target.
Secret key to paradise- not many people. And those not stupefied by TV.
FYI for us oil internet nerds, just another prospective. I bought 2000 shares @ an average price of $5.26 in January, today $8.61. Is the party over ? or just beginning ?
California Resources Corporation Announces Its First Quarter 2015 Financial Results
4:00 pm ET April 30, 2015 (BusinessWire) Print
California Resources Corporation (NYSE:CRC), the newly independent California-based oil and gas exploration and production company, today announced an adjusted net loss(1) of $97 million ($0.25 per diluted share) for the first quarter of 2015, compared with an adjusted net income of $223 million ($0.57 per diluted share) for the first quarter of 2014. Adjusted EBITDAX(2) for the first quarter of 2015 was $198 million compared with $705 million for the first quarter of 2014.
Highlights Include:
— Record quarterly total production of 166,000 BOE per day and record crude oil production of 108,000 barrels per day
— First quarter 2015 Adjusted EBITDAX of $198 million
— Capital investment of $133 million in the first quarter of 2015
— Operating cash flow of $115 million in first quarter of 2015
Todd Stevens, President and Chief Executive Officer, said, “We completed our first full quarter as an independent company and are strongly encouraged by our results even with the challenging commodity market. Following the spin-off, we responded to this rapid price decline by swiftly reducing the capital for the remainder of 2014 and cut our 2015 capital investment program to $440 million, a reduction of about 80 percent compared to 2014. We brought our drilling rig count from 27 in November down to the 3 rigs that we are operating currently. We invested $133 million for the quarter, which was below our guidance. We worked with our lender groups to deliver on our credit amendment that provides flexibility through the end of 2016 to implement our deleveraging plan. Lastly, we also delivered record crude oil and total production, as well as cost reductions, for the quarter and we are in detailed discussions with various parties regarding the full suite of deleveraging options available in our broad portfolio.”
Mr. Stevens added, “As I have stated before, we are committed to living within our cash flows and our capital investment rate is coming down to a level consistent with our expected cash flow for the year. Our asset base provides us the operating flexibility to adjust our capital program rapidly during the course of the year based on market conditions, as well as the ability to shift our capital between basins and drive mechanisms to optimize returns throughout the commodity price cycle. We believe with this year’s capital investment program, we will see our 2015 average crude oil production increase over 2014 levels with overall average production essentially flat compared to 2014.”
First Quarter Results
The adjusted net loss was $97 million ($0.25 per diluted share) for the first quarter of 2015, compared with an adjusted net income of $223 million ($0.57 per diluted share) for the first quarter of 2014. The 2015 quarter reflected higher oil volumes and lower production costs, depreciation, depletion and amortization and exploration expenses, more than offset by significantly lower realized oil, NGL and gas prices and higher interest expense as a result of our capital structure as an independent company.
Daily oil and gas production volumes averaged a record 166,000 barrels of oil equivalent (BOE) in the first quarter of 2015, compared with 154,000 BOE in the first quarter of 2014. Average oil production increased by 14 percent or 13,000 barrels per day to a record 108,000 barrels per day in the first quarter of 2015. NGL production decreased by 1,000 barrels per day and natural gas production was unchanged at 242 million cubic feet per day.
Realized crude oil prices decreased 55 percent to $46.44 per barrel for the first quarter of 2015 from $102.32 per barrel for the first quarter of 2014. The decrease reflected the drop in global oil prices and widening differentials to Brent related to California fundamentals, including recent refinery events. Realized NGL prices decreased 64 percent to $21.55 per barrel in the first quarter of 2015 from $60.39 per barrel in the first quarter of 2014. Natural gas realized prices decreased 41 percent in the first quarter of 2015 to $2.84 per thousand cubic feet (Mcf), compared with $4.78 per Mcf in the first quarter of 2014.
Production costs for the first quarter of 2015 were $242 million or $16.20 per barrel, compared with $256 million or $18.43 per barrel for the first quarter of 2014. A significant portion of the decrease resulted from lower energy and gas costs, as well as improved well servicing efficiency. General and administrative expenses were $76 million or $5.09 per barrel for the first quarter of 2015, compared with $77 million or $5.54 per barrel for the first quarter of 2014.
Operating cash flow was $115 million for the first quarter of 2015, compared with $740 million for the first quarter of 2014.
First Quarter Operational Activity
CRC drilled 55 wells in the first quarter of 2015, of which 2 were drilled for primary production, 45 wells were drilled for steamfloods primarily in the Kern Front field in the San Joaquin basin, 7 were focused on waterflood fields primarily in the Wilmington field in the Los Angeles Basin and 1 was focused on unconventional reservoirs. Of the 45 steamflood wells drilled in the San Joaquin basin, 3 were exploration wells. Capital efficiency continued to improve in the first quarter of 2015 with average drilling costs coming in lower than the 2014 levels.
Current Market Conditions
The oil and gas industry continues to experience low commodity prices, particularly in oil, which began in the second half of 2014. CRC responded by swiftly reducing capital investments, adopting a 2015 capital program of $440 million compared to $2.1 billion in 2014, a reduction of approximately 80 percent. CRC also reduced its rig count to three in the first quarter of 2015 and continues to implement operating cost reductions.
Hedging Update
Recently, CRC extended it existing hedging program to protect its capital plan by hedging 30,000 barrels per day of its expected fourth quarter 2015 oil production. For this tranche, CRC purchased Brent-based puts with a $60 floor and sold calls with a weighted-average ceiling of $73.
dood, you’re pimping your order book on a peak oil blog. Is this allowed?
Watcher,
We must remember, we should show some respect to those who feel the need to add the label “CHIEF” in front of their screen name. This sort of person I would imagine needs all the MENTAL STROKING he can get.
So, in the light, maybe we should congratulate him on his nice stock purchase and hope he doesn’t get the FINANCIAL ENEMA of his life when the shale energy industry collapses.
Get my drift?
steve
Watcher and Steve comments are just childish nonsense. I am not a broker or dealer and if anyone here invests in CRC. It’s not going to affect myself at all. I’m just a guy who is looking for a financial opportunity from the current oil price drop. Which I believe is temporary. CRC stock price has had a direct correlation with the price of oil since it’s spinoff from OXY six months ago and it should. CRC operational activities are exactly what this blog talks about everyday but is not involved in the shale play. If one spends a few hours reading their SEC filings. They will find they own huge amounts of recoverable oil and lost very little money in the first quarter of 2015 with unsustainable low oil prices.
Talk is cheap. But some of us put our money behind our talk. I filled my financial gas tank when oil was cheap and so far have been rewarded handsomely. I do believe $70 to $80 oil is going to be the new short term norm and view this as easy money left on the table. Invest at your own risk and don’t be last to the dinner table.
Use the knowledge learned from this website to better your financial situation.
This Investor Shark discussing the Carnage and how not to get killed in the Oil Investing
ie. Stay away from Shale and invest in wells close to refineries.
http://portal.ransquawk.com/headlines/imf-threatens-to-cut-off-the-lifeline-it-has-been-lending-to-greece-unless-european-partners-write-off-large-volumes-of-the-country-s-sovereign-debt-04-05-2015
Pretty big stuff. Hits the euro, lifts the dollar, drops oil. Reaction suggest this is rumor, unconfirmed.
Watcher,
Yen didn’t react much to it. Dollar put in weekly reversals against all of it’s counterparts last week. (You have to look at daily chart against the Euro but you can still see it) Dollar is going to rebound from here. Looks like the dollar dip was bought. Which makes sense until the FED backs down from it’s interest rate hike ambitions. If this Friday’s NFP numbers just meets expectations the dollar is going to rip higher.
Of a lot more importance is the whole issue of expungement and the smashing of the success narrative.
That will be an enormous political challenge for Merkel and the rest who agreed. It’s $320 billion. If they write off 1/2, it’s like Greece had their beach vacations paid for and then forgiven. Tough sell.
Totally agree they are damned if they do, damned if they don’t. Right now there is 50/50 chance of it going either way.
The money is just digits on a screen. But it’s the credibility behind the actions that matters. You bailout or let Greece of the hook then everybody else will expect the same. Then it wont be too long before currency is no longer credible. If you don’t let Greece off the hook or bail them out you better be prepared to deal with what happens after, be prepared to bailout banks as credit default swaps come into play and whatever else might need to be done in the aftermath.
Personally i’d like to see us get away from the idea that no one is allowed to default or fail. But i also realize if they let all who need too and should default, actually default and losses are actually assigned instead of papered over. It ends in global depression.
The money is just digits on a screen. But it’s the credibility behind the actions that matters.
I would have phrased that a little different, but not much. Not so much credibility as a narrative that all is normal and this is how the system was intended to work all along.
Money was supposed to be provided to avoid choking off economic activity. Since 2008, however, it has been printed in the hope that it will generate economic activity. Not support, Generate. Not underpin. Create.
Given we’re 7 yrs later and the ECB is RIGHT THIS MOMENT creating ANOTHER 1 Trillion Euros from nothingness would seem to make clear it hasn’t worked and doesn’t work — other than as a desperation mechanism to keep the wheels turning.
Those wheels turning are presented as normalcy. 18 trillion in US debt pushing the wheels along . . . insignificant.
Pushing on a string vs pulling…which is more productive?
Watcher,
I am not so sure about a dollar rebound. The US economy is now in a steep freefall. Most manufacturing surveys are at multiyear lows. Inventory/Sales ratio is in deep recessionary territory. There is no reason to see a rebound for the economy as long as the oil price is low. Furthermore emerging countries are selling Treasuries at a torrid pace which brings long term interest rates higher. Look out for an unprecedent depression during the summer in the US. The only way out is a steep fall of the US dollar. The FED hates to do it, yet it is the last option left – short interest rates cannot go lower.
Late in the day today the IMF backpedaled and said they didn’t intend to suggest big cuts to debt are required.
This is how things will always be about numbers on a screen. When upheaval looms, just change them or more preferably . . . extend and pretend.
Only oil can end this.
A factor in recent price Volatility ?
http://www.businessinsider.com/r-iraqi-forces-plead-for-help-as-islamic-state-closes-in-on-refinery-2015-5
“An elite special forces commander who was wounded last week in clashes at the refinery and evacuated through an eastern route that has since been cut off by the militants said they had taken over the Salahuddin 1, Salahuddin 2 and al-Shamal sub-refineries.
“Also most of the crude storage in the northern part of the refinery and fuel and gas tanks in the southern part are under their control,” he added, describing the soldiers as being in a state of “total shock and disarray”.”
Another – ” SHALE – where Money goes to DIE” Article.
http://www.businessinsider.com/david-einhorns-pitching-a-new-investment-idea-at-a-big-wall-street-conference-2015-5
Interesting that he comes out now, not when they were trading 2x higher. I think his short is in trouble. So the play is frackers should go out of business, all of them? That would reduce oil supply by how much? What would happen to the price of oil in that case?
I don’t know what his motivation is, but I do know that for the first time I can remember, the Bloomberg and CNBC talking heads are talking about things discussed here, such as continuously higher debt, cash burn and depletion, in a big way.
Had to do a lot of errand running over lunch and both channels were hitting this guys presentation in a big way, like what he was talking about is some kind of revelation, something no one has ever pointed out.
Talk about MSM living in a bubble.
One of Einhorn’s quotes, I think I’m typing pretty close to what he said, “The companies have cut CAPEX, production is no longer growing, but they are still cash flow negative. A business that is burning cash and is not growing is worth nothing.”
I was talking to a guy I know who is CFO of a service company that does frack jobs and cementing. The guy has been reduced to working part time, 10 hours per week, and the company completely shut down their fracking operations and laid everyone off in that division. The only active part of the company is their cementing operation.
That link to Einhorn doesn’t get me anywhere – (just says ‘more to come’). anyone got another link that works, thanks.
Einhorn is talking his book, too.
Never ever forget that hedgies get big by 2% of yearly assets and 20% of profits. Their skills will be in gathering assets under management. Not wise investment. They can swing for the fences and miss often, losing only 2% each time, and hitting the road to get more AUM as salesmen.
But if they hit just one (2 bagger) home run on 5 billion under management, it’s 1 billion in their pockets.
Link works for me for some reason. More of the fracker is just fracked :
http://www.ft.com/intl/cms/s/0/a63c522c-f293-11e4-892a-00144feab7de.html#axzz3ZDW0OBvQ
http://www.zerohedge.com/news/2015-05-04/us-shale-sector-crashes-after-david-einhorn-repeats-what-everyone-knows-already
Google is ur pal.
Einhorn’s analysis is based on $68 WTI, $61/BOE for Pioneer, forever.
????
Let me repeat – he is basing his numbers on the assumption that the long term (25 years!!) price of oil is $68, because thats what the futures strip is showing right now.
Please raise your hand if you believe this price forecast.
Ok. So what price should he use? It is incredibly difficult to predict future crude prices, so LENDERS build price decks based off of the strip. Clearly lenders are not applying the lending practices they have in the past, because their price decks cannot support lending funds if they were. As I have said, 50% of PDP PV10 is common. Many are now over 100 percent.
What I have read and heard the guy saying is what many here have been posting for months, or in Rune’s case about 3 years.
Most of these companies realized in the high 20s or low 30s per BOE in the first quarter, but spent considerably more than that in OPEX, CAPEX, etc.
Most are reporting losses, but what would be even more interesting is “cash burn per share”.
Maybe someone should write an article on “cash burn per share” once all of the 10Q are in?
For example:
Whiting Petroleum Q1 2015
Net cash from operating activities: $202,139,000
Net cash used in investing activities: $1,021,610,000
Cash burn: $819,471,000
Shares outstanding: 202,125,192
Cash burn per share $4.05
But hey, they decreased cash burn per share by diluting the shareholders, just like they decreased their earnings loss per share. LOL!!
One thing I note that is relevant to US production peaking this year. Almost all of the companies seem to have spent about one half of 2015 guided CAPEX in quarter number 1. Assuming that holds, look for a major reduction in US oil production in Q4, 2015.
I don’t know what number is right. I do believe $68 is not going to buy you a barrel of oil 5 years from now. Not if Ron is even halfway right about current peak in the next couple of years.
Here’s another view at http://af.reuters.com/article/energyOilNews/idAFL1N0XV1QF20150504
Some on Wall Street remained optimistic about the company and sector despite Einhorn’s criticisms. For these investors and advisers, the fate of the companies depends primarily upon oil prices.
“He is right if oil prices remain under $60; he is dead wrong if prices go beyond $75,” said Fadel Gheit, an analyst at Oppenheimer & Co.
I think he is disingenuous in saying PXD did not lay out price sensitivity, while he himself did not stress test his case at $100 or higher priced oil (all of which we have seen in the last several years).
I will repeat my first question. If as he suggests all high cost producers go home, what happens to total supply? Per his graphs, LTO is 5% of global supply today. What do you think oil prices will do if we suddenly lost 4M barrels/year?
You can manipulate cashburn/share by doing a secondary.
He uses $68 and gets negative NPV. He also looks at futures prices predicted from last June (I think around $90?) and gets a real company value less than half the present share price. Both calculations use the most optimistic operating costs and resource base that the company has been using fin recent presentation, and the calculations are for one of the better performing companies. Maybe at $130 the company values would support current share prices otherwise they may well be F’d as he implies at the end.
And the way that will be presented, Jeffrey, is celebration of how the oil companies have cut costs.
Well, if they aren’t fracking and aren’t paying the people to frack, because they aren’t fracking, it’s pretty dicey to call that “cutting costs”.
Link to his full presentation:
http://www.bloomberg.com/news/videos/2015-05-04/einhorn-attacks-frackers-says-pioneer-burns-cash
Oil Wars: Fracking, Manipulation, and the Future of Our Energy System
by Karl Grossman
http://www.commondreams.org/views/2015/05/03/oil-wars-fracking-manipulation-and-future-our-energy-system
Man camps dieing:
http://www.bloomberg.com/news/articles/2015-04-15/oil-s-new-boomtowns-head-toward-bust
So Rockman was right when he wrote a few weeks ago that the shale-oil industry is in a state of panic.
Hello Ron. In Western Siberia many not fully drilled oil fields. Including such large as Priobskoye-field. Not infill wells drilling. And RAN has always conservative forecast, as accountants.
Please elaborate, in both Russian and English. We may have better translation resources than online.
Рон в статье написал, что в оценках РАН излишний оптимизм.
В Западной Сибири много не полностью разбуренных нефтяных месторождений. В том числе в стадии разбуривания есть такие крупные, как Приобское (запасы – 5 млрд. тонн). Бурение на них нельзя назвать уплотняющим. И у РАН всегда скорее консервативный, пессимистичный прогноз.
Here’s what google translate says your Cyrillic text is:
Ron wrote in the article that the Russian Academy of Sciences estimates too optimistic.
In Western Siberia, a lot is not completely drilled oil fields. Including the drilling stage there are large as Ob (stocks – 5 billion. Tons). Drilling on them can not be called a sealing. And RAS is always more conservative, pessimistic.
Why do you think the Russian Academy of Sciences is “always” pessimistic?
Watcher: Russian to English Translation of Misha’s comment (fairly accurate to “Ob” I think ?). And, I really have know idea what he means by sealing.
“Ron wrote in the article that the Russian Academy of Sciences estimates are too optimistic . In Western Siberia, a many oil fields are not completely drilled oil fields . Including the drilling stage there are large as Ob (stocks – 5 billion Tons). Drilling on them can not be called a sealing . And RAS is always more conservative , pessimistic .”
Fernando (below) is most probably right. I do know that the Ob River Basin has serious pollution problems (from oil extraction). My first impression was Ob referred in some way to Overburden which makes no sense. Incidentally, the Ob River oil is “rich” in brines containing zinc, copper, lithium, cadmium, etc which I think are a large part of the contamination problem, but beyond that I know nothing.
Watcher, you may have a better translator but this blog does not. This is an English Language blog.
He could paste both. Doug has translation resources, and Russian info unfiltered by whoever would be good to see. He pasted only Russian, both would be better.
Interesting way it would be read. If he is a random guy then his info has the same value as all commenters everywhere. If he has semi official info, then people will want to call it propaganda. Though we don’t seem to do that with other official sources too very much.
I believe our Russian friend claims the Priobskoye field isn’t fully developed. I haven’t been in the area for many years, but I remember the field. A large portion is located under the Ob River flood plain, and that’s a pretty difficult setting. There’s also a section to the South with fairly low quality sands.
I don’t think additional production from this field will make a difference, because they may be forced to shut in a lot of wells elsewhere. I imagine Tatarstan must be in terrible shape.
Nod, and thanx Doug, I was more focused on what seemed to be a definitional point about “fully developed” vs “infill”.
Znasz jakieś języki obce, Ron? Ja się męcze z czytaniem angielskiego tekstu od kiedy ten blog powstał 😛 Pozdrawiam po polsku! (ps. masz fajną wnuczkę :D)
Kam, speak English if you expect a reply from me. I am not impressed that you speak a second language.
http://www.cnbc.com/id/102647881
Saudi in the know says only Allah knows about the future price of oil.
But barring Uncle subsidizing American tight oil in a big way – which seems unlikely to me – domestic tight oil production is going to start falling within the year.
The next question is whether the very small handful of countries such as Iraq that are increasing production can make up the American decline..
My bet is that oil will be up substantially within twelve months barring the world economy in general having a heart attack.
But it could be that efficiency is increasing faster than realized. I can think of only ONE really old full size pickup with a carburetor and humongous v8 engine and no overdrive that is still in regular use.
Does anybody have figures on how many miles all the new Chinese cars are being driven?
Something tells me they are more like what American car nuts call ” trailer queens” than regularly used cars. A trailer queen is a car that is hauled around to shows and maybe to the drag strip and very seldom actually driven. Something tells me that given that most of the buyers are getting their first car, they were biking or walking or taking mass transit to work the day before they bought the car.
If so then they are probably putting very few miles on the odometer.
China may be putting a hell of a lot of oil into storage. I would if it were possible for me to do so and I had the money.
(From 2011)
http://www.tsinghua.edu.cn/publish/ess/7835/20120719144509070242457/%5B8%5D%20Huo_EP_2012.pdf
VKT – Vehicle-use intensity, expressed in kilometers of travel per vehicle per year.
LDV – Light-duty passenger vehicle.
The combined VKT of private and business LDVs varies significantly across cities, ranging from 15,000 km to 27,000 km (Fig. 1a). According to the statistical analysis on the survey data, the 90% confidence range of VKT of private and business LDVs is (7600 km, 33,100 km).
Hi Old Farmer Mac,
If oil prices follow the futures prices through Dec 2015. Then the declines in LTO output may not be very pronounced in 2015. The scenario below with 120 new wells per month added from May 2015 to 2028 has oil prices under $75/b through 2016. I have also increased well cost by 3% per year starting in Jan 2016, added to well cost to cover future P+A assumed at $500k per well and increased OPEX by 4% per year (in constant dollars). Basically I have tried to cover some of Shallow sands concerns that my model is too optimistic. Most will still think this is too optimistic, the oil price forecast is in line with futures prices through Dec 2015, but may be too optimistic beyond that.
When oil reaches 150, it had better be under lock and key or it will be stolen more often than bought.
EOG burned $486 million of cash in the first quarter. CEO says remaining quarters CAPEX will be below first quarter. Another sign of late 2015 significant drop in US production.
learner2. I don’t necessarily disagree with you that prices will go above $68 WTI. My point is to ask how are the banks so sure the price will climb in the next 12-18 months to keep lending money to drill and complete more wells? How are they arriving at price decks which are much higher than the present strip or even last years strip??
Hi shallow sand,
Prices only need to go to $80/b by 2016, maybe the banks are using the EIA’s AEO 2015 reference case for oil prices beyond 2015. Chart with reference case for Brent Crude prices in 2013$/b, WTI about $5/b lower (range of 4 to 6 $/b).
Dennis,
Maybe the banks will think that oilprices won’t stay a long time above $ 80. They must have learned that oilprices never will follow that straight line that the EIA pictures. EIA and many others are living in another world. Office world with four walls surrounding them.
DC Wrote:
“Prices only need to go to $80/b by 2016, maybe the banks are using the EIA’s AEO 2015 reference case for oil prices beyond 2015. Chart with reference case for Brent Crude prices in 2013$/b, WTI about $5/b lower (range of 4 to 6 $/b).”
Cash Burn of Shale drillers was high when Oil was at $100 bbl, If prices rise to $80, they still will have high cash burn. I very much doubt LTO will have a positive cash flow until Oil is above $110 and stays there.
LTO drillers, really drill wall street for money, not in an oil field. Unless the Fed starts printing again, and by the summer, we are on course for another 2008 liquidity crisis. If this happens, all of the shale drillers will go bust in a short period once wall street takes away the punch bowl.
Who is Alex Kuhlman? http://www.oildecline.com
The Future of Solar Energy
An Interdisciplinary MIT Study led by the MIT Energy Initiative
http://mitei.mit.edu/futureofsolar
I visited a zoo in the state of confusion, one of the states in America, or it was maybe Minnesota, same difference, the state of confusion and the State of Minnesota, both the same.
The zoo housed an orangutan inside a zoology building, in a cage with bars and a glass encasement in front of the bars. I was observing the orangutan, the size of the animal, the color of the hair, what not, looking in interest to what is in the world of creatures out there. One second later there was a good-sized amount of orangutan saliva right in front of my nose. Without the bars and glass, plus temporarily blinded by the initial attack, I’m certain the orangutan would have attacked again; I would have been vulnerable. I would not have survived.
A grown adult chimpanzee behind bars, a test animal for the Mayo Clinic, was not where he wanted to be, and, given the chance, would have ripped you to shreds. Once the you turn your back, the lunge to attack will be launched by the chimpanzee. It will happen. From a placid disposition to an aggressive animal jumping to the bars of the cage. It happened.
The orangutan’s last memory of a human was not pleasant for the orangutan by any means, of taken aback, disdainful anger for how he or she was treated. Any other animal would know that the orangutan did not belong where he or she was, in a cage. Not ignorant humans, they know more, but not necessarily better. If you were an orangutan, would you want to be in a cage?
During the Vietnam War, a US soldier during a field exercise, out there, one day spotted an orangutan. The orangutan saw the soldier’s lunch, the soldier, wanting to befriend the orangutan, offered a banana to the orangutan. Went on for three days, then on the next, the soldier offered some of the lunch to the orangutan; however, it wasn’t enough. The orangutan wanted it all, the soldier balked and the orangutan slapped the soldier silly. The orangutan played the GI for a fool, ate his lunch.
A digression.
I bought a shale oil stock company. It had lost 95 percent of its share price and was at a bargain basement price, so I bought a few shares. Now, it has lost 98.5 percent of its share price and it just don’t look good. Should have sold at a minor loss, but the share price seemed to rebound, that was before the oil price began to drop. Now, the basket of oil eggs has tipped over and the state of panic has begun.
From a state of confusion to a state of panic, it’s gettin’ to be helter skelter. What? Me worry?
Heckle and Jeckle are making me look like a moron for buying a stupid for fools only shale stock and falling for it hook, line and sinker. A fall from grace, as it were.
I wish I were an orangutan, just to help them survive the maelstrom of pell mell out-of-control humans.
If you work it right, you’ll have a free lunch every day.
Nice story Ronald. I think that at one time or another, many of us have felt the same way as that chimp or orangutan, about the society and plight we have been dropped into when we were born. At a minimum sometimes I really feel like trying to shake some sense into people. I know it won’t do much good so I don’t but we too are trapped in a zoo, or an asylum run by the inmates. We just get to pretend that we are free. At least the apes know what is wrong and where they want to be.
As long as we can ignore or forget the bad results, everything we do seems fine or we can pretend it’s fine. Those pesky environmentalists and scientists, sick people and dying animals keep reminding us of the unpleasantness we try to ignore. Just not very grateful are they?
Those pesky environmentalists and scientists, sick people and dying animals keep reminding us of the unpleasantness we try to ignore. Just not very grateful are they?
Yeah the Staghorn and Elkhorn corals on my local reefs have been especially ungrateful, they have taken to bleaching and dying and are making the reefs downright ugly thereby scaring off all those tourists…
Yes, the coral just gives up at the first sign of trouble, we humans have barely gotten started messing things up. You would think nature would evolve human-proof animal and plant life, but no, things just go belly up instead. Armored deer that poop tire popping pellets, bees that grow twice as big and get nasty when they ingest pesticides, birds with glass penetrators on their beaks, whales that lay mines to take out the whaling ships, that kind of evolution. Oh yes, chickens and cattle that explode when you try to slaughter them or put them in a cage. Pigs with giant porcupine quills and large tusks. How about spiders that are not only poisonous but act together like ants and think humans are delicious?
Nature is far too mellow and laid back, how did we get produced? Accidents happen.
See there is an upside to everything – no pesky tourists.
Wow, trippy.
Ronald – Don’t beat yourself up. A lot of people bought SandRidge Energy, or some such stock. You probably knew [or suspected] that it was a coin toss when you bought.
Public Service Message
This is a bit off topic but a comment made by OldTech back in May 2014 reminded me of some of the research I found studying the effects of diet and resulting disease. http://peakoilbarrel.com/us-individual-states-production-bakken-area-gom/comment-page-1/#comment-34927
The diseases caused by obesity in developed countries and to a lesser extent around the world are having a huge negative effect on society and the individual. About 60% of individuals can produce large amounts of insulin quickly, so sugar surges from eating sugar and high glycemic index foods (starches including breads and potatoes) are quickly formed into long chain fats and instead of being taken into the cells as they should are deposited in external fat sites as well as along the arterial walls. This also stresses the pancreas.
Here is a study that mostly matches my earlier (over a decade ago) findings and gives good eating guidelines to help prevent disease. It also nicely explains the reasoning behind the recommendations without going into the complex biochemistry.
http://www.mayoclinicproceedings.org/article/S0025-6196(11)63262-X/pdf
Good luck.
RE: Russian oil production
Russia’s oil production was 43,83 million tons in April 2015, or 10.67 mbd using 7.3 barrels per ton conversion rate. That was another monthly (post-Soviet) record. Production in January-April was 175,233 thousand tons, or 10.66 mbd, up 1.2% from the same period of 2014.
The joint study by the Energy Research Institute and The Analytical Center for the Government of the Russian Federation predicted that Russian oil production had reached a peak at 523 million tons in 2013 and would gradually decline to 522 million tonnes by 2015.
In fact, Russia’s production was 526,8 million tons in 2014 (10.56 mbd).
It is true that production is increasing very slowly, but it is not declining.
GOM Oil Spill – No Problem.. :-<
http://news.slashdot.org/story/10/05/11/1440206/oil-leak-could-be-stopped-with-a-nuke
Anyone have an update on that Pemex blowout ?