When Will US Light Tight Oil (LTO) Peak?

64 thoughts to “When Will US Light Tight Oil (LTO) Peak?”

1. Excellent analysis. The EIA 2014 energy outlook report released today seems to agree with those assumptions, as they expect a shale peak by 2016 and a plateau until 2020 followed by a decline, however the rate of their projected decline appears to be more gentle than what’s expressed by the presented analysis.

   Here is a link to the report:
   http://www.eia.gov/forecasts/aeo/er/pdf/0383er%282014%29.pdf

   It is also worth noting that the EIA administrator (Adam Sieminski) has mentioned that US shale requires $90 to remain profitable and could possibly be profitable at $80 to $85.

   http://www.ft.com/intl/cms/s/0/dbc0f7d2-6666-11e3-8675-00144feabdc0.html?siteedition=intl#axzz2nf3TL5Xr

   Regards,
   Nawar

2. Thanks Nawar. The EIA seems to expect a lot more LTO than the USGS.

   I suppose they may know something we don’t, but the decline is likely to be much steeper than the EIA forecast.

   Dennis

3. It is also worth noting that the EIA administrator (Adam Sieminski) has mentioned that US shale requires $90 to remain profitable and could possibly be profitable at $80 to $85.

   Hm… which isn’t currently the case according to the latest Bakken Update.

   1. Hi Vineyard,

      That depends on which price the EIA is referring to. If Brent is higher than $61, then LTO is profitable at current Bakken OPEX, well costs, royalty and tax rates, and transport costs, as oil companies run out of room in the sweet spots and well EUR decreases, then these higher prices will be needed. That is still a few years away, but the key word is “remain” in that sentence. The EIA is aware that EUR will decrease, though I think this will happen more quickly than the EIA believes, unless the USGS has underestimated the TRR. (mean estimate for the North Dakota Bakken is 8 Gb according to the USGS, US Geological Survey)

      DC

      1. Thanks for the reply.

         I terms of costs, I’ve always got the Bernstein Research Studies in mind.
         http://www.businessinsider.com/alliancebernstein-shale-oil-boom-ending-2013-6
         http://www.ft.com/intl/cms/s/0/ec3bb622-c794-11e2-9c52-00144feab7de.html#axzz2nimx7Cpe

         The later is interesting. If “U.S Oil” = Shale, then wells added in 2011 have already a slight profitablity problem and 2012 wells arn’t profitable in the first place.

4. DC,

   As the vast majority of wells and oil are drilled/produced in only 4 counties, of which are all approx 2,000 sq miles each. At 320 ac/well or 2 per square mile, why does everyone refer to 50,000 type numbers for the total of Bakken. It appears anything outside these 4 counties is marginal at best, and a more honest reserve value for the “field” would be calculated on the know sweet spots and economical to produce areas. These sweet spots will be responsible for the vast majority of Bakken oil produced, yet everyone seems to speak as though all areas of the Bakken will produce the same per acre.
   Of course these type of numbers would not look so nice on the glossy annual reports of the concerned companies. Like to hear your thoughts.

   1. Hi Toolpush,

      Lets use your 8000 sq mi estimate for the most productive 4 counties. James Mason published a paper in 2012 suggesting 4 wells per sq mi (2 in the middle Bakken and 2 in the Three Forks), so this would be 32,000 wells. Recently Continental has tested higher density drilling which is likely to double this density so that would be 64,000 wells. Not all areas will be drilled, let’s say it’s 70% of the total area, that would give us 45,000 wells which is pretty close to the NDIC’s estimate (note that Mason’s estimate was lower at about 40,000 wells for all of the ND Bakken Three Forks at 4 wells per sq mi).

      My models (which try to account for profitability on a point forward basis) have 21,500 wells in the Bakken, and 14,500 wells in the Eagle Ford ( 36,000 total). These estimates I believe are realistic for the economic assumptions I have made and in the case of the Bakken match the April 2013 USGS mean estimate for the Bakken TRR(8.5 Gb). Note that I first do a model without the economic assumptions to determine TRR, then the economic assumptions are added which reduces the number of producing wells in the model to maintain profitability. The ERR for the Bakken is 7.5 Gb.

      I hope to fill in some of these details at my blog soon.

      DC

5. This assumes the economic system holds together and credit stays available, what r the chances of that?

   1. Hi DaShui,

      I believe the chances are good.

      As energy supplies become stretched, prices will rise. This can have positive as well as negative effects. I will let you fill in the negative consequences, I will focus on the potential positive effects. As liquid fuels become more and more expensive, there will be increased demand for public transportation and railroad investment including possible electrification of the rail system, possibly coupled with HVDC transmission investment along rail corridors. The increased investment spending would help to get the economy producing at full employment. Alan Drake has a suggestion for rail electrification see:

      http://oilfreetransport.blogspot.com/2012/06/building-oil-free-cross-country.html

      If people begin to realize that the earth is not flat global warming is real and that carbon emissions need to be reduced, then we may see investment in wind, solar, geothermal, and nuclear power as well as an improved electric grid and battery and fuel cell system development for grid backup. Investment in all of these areas results in economic growth. As this growth raises living standards worldwide (and if externalities are taxed properly) maybe human population growth can be reversed to get the planet on a sustainable track. Although many think this can never happen, there are nations where without any immigration population would be decreasing, it is possible that when a certain income level is reached, this might become a reality worldwide.

      DC

      1. Hey thanks dc , up early today?
         As for public transportation, I think we are more likely to see south of the border style, 0ld pickup trucks with 10 people standing up while riding in the bed, than any hyper loops .

      2. DC, you say

         “As energy supplies become stretched, prices will rise.”

         Prices have fallen for Bakken oil to ~$72 from ~$95 per Ron’s post of ND October report

         You also say, “If people begin to realize that the earth is not flat global warming is real and that carbon emissions need to be reduced,” You must be kidding? There is a massive amount of data disproving this global warming propaganda. Ignoremy comment and just look out the window and see it snowing in Jerusalem and much of the mideast. The last time that happened was 100 years ago. Concurrent with that fact, note that the American Gepophysical Union just finished their annual meeting days ago. Here is their conclusion and their presentation can be found at the link below:

         At this year’s Fall Meeting of American Geophysical Union, held in San Francisco that I attended, prominent solar scientists made a presentation on weak Solar Cycle 24 and its consequences. They included:

         Nat Gopalswamy, astrophysicist, Solar Physics Laboratory, NASA Goddard Space Flight Center, Greenbelt, Maryland
         Leif Svalgaard, senior research scientist, W. W. Hansen Experimental Physics Laboratory, Stanford University, Stanford, California
         Marty Mlynczak, senior research scientist, Climate Science Branch, NASA Langley Research Center, Hampton, Virginia
         Joe Giacalone, professor and associate director, Lunar and Planetary Laboratory, University of Arizona, Tucson, Arizona
         They agreed that the current solar cycle is on track to be the weakest in 100 years and that is an unprecedented opportunity for studying the Sun during this period.

         http://wattsupwiththat.com/2013/12/13/leif-svalgaard-at-agu-on-the-current-solar-cycle-none-of-us-alive-have-ever-seen-such-a-weak-cycle/

         1. Hi Coolreit,

            I don’t think prices will stay low for long, and the more important price is the Brent Price because that has really replaced WTI as the World oil price. The Bakken price will typically trade at a discount to the Brent price of around 12 dollars because that is the typical transport cost. Do you think the the long term Brent crude price will be trending lower?

            No, not kidding about global warming. I will not bother to convince you that the earth is not flat, that smoking really is not good for your health, or even that the world was not created in 7 days.

            Yes the solar cycle has been very weak, and temperatures have been dropping precipitously as a result, its been very cold in Maine lately, so with that and snow in the Middle East. I am convinced.

            DC

            1. For the Bakken producers, Brent has no meaning whatsoever. They make investment decisions based on their price which is now roughly $37 less than Brent. I think Bakken production grinds to a halt without higher oil prices. $72 won’t do it. I also think that banksters/gov’t manipulate US oil prices like they manipulate gold prices, libor, currencies et.al. They want low oil prices to keep the American economy thriving. However, without higher oil prices, oil production will shrink. There will be a pop in US oil prices at some point when shortages or continued draws happen.

               You say, ” No, not kidding about global warming. I will not bother to convince you that the earth is not flat, that smoking really is not good for your health, or even that the world was not created in 7 days.

               Yes the solar cycle has been very weak, and temperatures have been dropping precipitously as a result, its been very cold in Maine lately, so with that and snow in the Middle East. I am convinced.”

               For all your wisdom and sophisticated models, you stoop to the lowest common denominator by suggesting that if I don’t believe in global warming, that I believe the earth is flat and smoking is good for my health. You should be able to provide untainted data to support your argument. It’s a little contradictory for you to stoop to such a demeaning critique, especially when you acknowledge later that the solar cycle is weak and we are experiencing cold in the mideast when the last time this occurred was 100 years ago. I presume you know this is not a fly by night event as well. I recall these solar cycles last roughly 12 years. Still believe in the global warming with 100 year lows in temperature cycles?

               1. Hi Coolreit,

                  I apologize. Citing flat earth or other theories that most people agree are incorrect is a very lazy way to argue. On that point we agree.

                  Can you explain clearly to me how we can know which data is “tainted”? I was kidding when I said I was convinced by cold weather in the middle east or Maine (where cold weather in December is pretty commonplace). I assume that you are aware of the distinction between weather and climate, citing a weather event or two proves nothing.

                  As for Anthony Watts or Monckton. I thought that you were joking. I also assume you understand what cherry picking is. If not, basically Monckton chooses a date when there was a very warm temperature and then a recent date when temperatures were low and he chooses an “untainted” dataset that gives him the conclusion he is looking for. I am not convinced by such arguments.

                  For more information try:
                  http://www.realclimate.org/index.php/archives/2013/11/global-warming-since-1997-underestimated-by-half/

                  or

                  http://contextearth.com/2013/11/19/csalt-ju-jutsu/

                  DC

            2. Whither went the warmer weather?

               Posted on December 16, 2013 by Anthony Watts
               17 years, 3 months with no global warming

               By Christopher Monckton of Brenchley

               The Long Pause just got three months longer. Last month, the RSS monthly global mean lower-troposphere temperature anomalies showed no global warming for exactly 204 months – the first dataset to show the full 17 years without warming specified by Santer as demonstrating that the models are in fundamental error.

               The sharp drop in global temperature in the past month has made itself felt, and not just in the deep snow across much of North America and the Middle East. The RSS data to November 2013, just available after a delay caused by trouble with the on-board ephemeris on one of the satellites, show no global warming at all for 17 years 3 months.

               clip_image002

               It is intriguing, and disturbing, that WattsUpWithThat is just about the only place where you will be allowed to see this or any graph showing the spectacularly zero trend line through 207 continuous months of data.

               CO2 concentration continues to climb. Global temperature doesn’t. Absence of correlation necessarily implies absence of causation. Game over, logically speaking.

               Continue reading →
               http://wattsupwiththat.com/
               Posted in Climate data | Tagged Global warming, temperature | 236 Comments

               1. C’mon, man. Sure the probability is between 0% and 100%, but you’re cherry picking. It happens from all sides, but look at the National Climatic Data Center for a while and see what you think.

                  So November is globally near the warmest on record but snow in Jerusalem should be given equal weight?

               2. No climate-change deniers to be found in the reinsurance business

                  ERIC REGULY | The Globe and Mail |Published Thursday, Nov. 28 2013, 3:29 PM EST

                  Eric Reguly wrote the Inexpensive oil vanishing at alarming rate article that Ron mentioned the other day.

                  I also noticed this one of his too about the tar sands… Alberta has failed on the economic diversification front

               3. “By Christopher Monckton of Brenchley”

                  Monckton? Seriously? You’re quoting Monckton?

6. “As energy supplies become stretched, prices will rise. This can have positive as well as negative effects. I will let you fill in the negative consequences, I will focus on the potential positive effects.”

   I take it you are not in the “giant debt bubble” school of thought, that would suggest that it is all going to stop when the credit dries up. While I generally hold with this school of thought, it is particularly difficult to apply to short term predictions. I certainly don’t under stand the US FED reserve, but their bond buying seems to be the current glue that holds things together. I haven’t seen anyone predicting when that will end. many have said it will end, it must end, but even then they haven’t explained why it will, or must.

   The only reason I focus on such details is because in a place like NY state where fracking has yet to commence in any meaningful way; a year one way or the other can make a huge difference. Add a couple years of life to this production model and the perception will be that benefits are worth the risk. Take a year or two off the production model, and perhaps a few, perhaps a lot less wells will be drilled in NY. I live and farm in NY state.

7. It’s a little off topic- well a long way off topic- but the tipping point at which wind is cost competitive with new coal fired electricity is either here or will be in the near future.

   http://www.bloomberg.com/news/2013-12-17/wind-power-rivals-coal-with-1-billion-order-from-buffett.html

   Given that world market natural gas prices are at least three of four times US domestic prices, I expect gas to go up enough that wind can outcompete new gas fired electricity gas too, and fairly soon.

   Now the effects such developments will have on oil supplies and markets is not easily predicted but my layman’s opinion is that hybrid and battery only electric cars are going to win a lot bigger share of the world market, and a lot sooner, than almost anybody suspects, wild eyed electric vehicle nuts excepted.
   The developing world is not going to be able to to afford very much ever scarcer and ever more expensive imported oil, and most governments are’t likely to allow more than a bare minimum to be imported to conserve precious foreign exchange reserves.

   A government unable to afford imported oil- or coal and natural gas for that matter- will likely be willing to invest in building a domestic renewable electricity industry which can charge up a lot of cars. And people faced with ten dollar gasoline and a short ration will be happy with an electric car even if it ail go only thirty or forty miles – which is a lot farther than they’ve ever ben able to go before.

   We rich westerners may sniff at such a car , but even thirty miles is a long long round trip to somebody used to walking or riding a bicycle.

   My maternal grandfather used to drive wagon from the family farm to town when he was a kid. The twenty five mile round trip took from before good daylight until just about dark- in the summertime.

   At least half the working people I know have two or more vehicles. I wouldn’t be surprised to see a half of them buy a cheap electric car ten years from now to use as the commuter vehicle if battery prices come way down and a gasoline is five or six bucks a gallon or higher here.

   Demand for oil may not be so strong as expected decade down the road, and this may have a substantial impact on oil production.

   1. Wild-eyed Volt-owning electric vehicle nut here. Beyond the green aspects, beyond the economics, driving electric is just a different experience. There are reasons the Telsa Model S just scored #1 in owner satisfaction by Consumer Reports, pushing the previous two-time winner Chevy Volt down to #3 spot. EV’s finishing #1 and #3 out of ALL cars isn’t just a fluke. The quiet, the torque, the fill-it-up-at-home convenience are as compelling as the long-term economics. It will take time for the driving public to learn of these other features, mostly through word-of-mouth from their EV-owning friends, but it will happen.

      1. Hi HVACman,

         I wish I had a Volt, my wife didn’t want another smallish car so I couldn’t talk her into the Volt, maybe when the prius gets a little older we will, get a Volt. The Tesla would be nice, but I just can’t justify dropping $64k on a vehicle, not that I could afford that, I saw one in Sonoma Valley, a very nice looking car. How is the Volt in snow? Or are you not in the snow belt.

         DC

         1. DC – Love it. I’m located in Redding, CA, so don’t see much snow here in-town, but drive all over far northern CA and southern OR to job sites year-round, which means a lot of winter mountain driving. I haven’t had to deal much with snow so far, but reports from Volt owners living in snow-country suggest it is a mountain-goat on ice/snow when fitted with Blizzak tires. There are a lot of videos online showing Volts climbing icy/snowy hills, etc.

            With all those long business trips, I’ve got 14,400 miles on it with 170 gallons burned, or 85 mpg net, That’s a little lower than the current national fleet average of about 98 mpg.

   2. Hi OldFarmer Mac,

      Have you ever looked at that U Delaware study on Renewable power and how it could provide 30% of load hours at current prices at 2008 equipment costs and 90% by 2030 at lower than current prices at anticipated 2030 equipment costs? Seems to mesh well with Bloomberg story you linked to.

      DC

8. http://www.bloomberg.com/news/2013-12-16/north-america-to-drown-in-oil-as-mexico-ends-monopoly.html

   Bloomberg in over drive! This story sounds just like the hype about Iraq a few years back. I wonder what things will look like in a few years?

   1. Of course publications such as Bloomberg get their corn pone by selling any idea they can with the maximum of hype and hot air, and next month they , maybe next week, they will run an article glorifying the prospects of the coal industry.

      But the fact that a very conservative, long termed oriented investor such as Buffet is moving into wind in a big way is nevertheless indicative that wind power is about ready for long pants.

      I personally believe oil and natural gas price are going to continue to rise sharply, due to actual in the ground shortages of easily and cheaply recovered reserves, and that the this rise will be limited only by the ability of the economy to support higher prices.

      Coal is plentiful and cheap at the source but end users are paying as much as five or six times the mine mouth price in the United States.And even cheap coal must be paid for by importing countries .

      If I’m right, then the tipping point at which photovoltaic and concentrating solar power will become truly cost competitive, in strictly dollars and cents terms, is considerably closer than we would otherwise expect.

      If the Mexicans are lucky, they will be able to reverse their decline for a few years but this increased output will not likely increase world supplies ; it will only offset declines in other old mature producing countries.

      I wonder too.

      If I ever buy another car it will get at least forty mpg.I don’t suppose I’ll ever own an electric car, given my age and that I never buy a car new enough to depreciate much.

      It will be a long time until there are plenty of cheap used electric cars for sale.

      1. Hi Old Farmer Mac,

         I have a 2004 Prius with 160,000 miles that runs great. I imagine you could find such a car for a couple of thousand, they are pretty reliable and with snow tires in the winter they are fine unless the roads are unplowed and the snow is more than 6 inches deep. I am a skier and have never had a problem getting to Sugarloaf from Bangor (about a 2 hour drive), in fact I love to drive in the snow, it means the skiing will be great. I have a Camry hybrid as well, but those only came out a few years ago so that would be a little on the pricy side.

         DC

         1. I drive a Prius with really good snow tires. The car rocks in the winter especially on a long snow covered hilly driveway that doesn’t have grit on it.

            Having some form of electric drive seems to greatly improve traction when climbing up a snow covered hill. I gather it is because of the available torque at low speeds.

            Wanted to buy an EV, but the Prius has been a good gateway proof of concept for showing that EVs perform well on snowy roads. Which should help sway the decision that an EV is a good option when the other family car is finally replaced because of age.

         2. I realize the Prius is a hell of a good car but I still can’t justify buying one based on operating costs since the trips I do make in a car are few and mostly involve open high way driving; I can get forty mpg out of a conventional stick shift compact car under these conditions.

            But if I could by a Leaf in good running order for three or four grand- or a later model plug in Prius or a Volt in that price class I would go ahead and do it, and install some pv to charge it.The auto bail out pissed me off so bad I swore publicly I would never buy another guvmint’ motors vehicle, but I would eat my words to own a Volt now , if I could get one cheap enough.

            I’ve been wanting to get some pv for a long time anyway, and the thought of going to town and back and running my errands mostly gasoline free would be enough for me to talk myself into doing it.

            But I don’t drive a car that much anymore, and unless I get an electric for a truly cheap price I won’t ever save enough on gas and maintenance to justify owning it. Nevertheless I really would like to own one, and be able to go for a casual drive for next to nothing except the wear on the tires!

            Now insofar as driving on snowy and icy roads are concerned, I have never had any trouble going anywhere on a plowed road here jun the mountains in any front wheel drive car I’ve ever driven, if it had good tires on it, and I’ve driven a bunch of them.

            We don’t get a whole lot of snow here where I am but sometimes it drifts, and sometimes the snowplows are a day or two getting here, and a full sized four by four truck is a potential lifesaver in such a situation- although a deep enough drift will stop a truck as quick as it will a car.

            But there’s never been a day in the last twenty years I couldn’t likely have made it from the driveway to the local hospital with my old Chevy 4×4 truck if I put on the chains and only four or five occasions I have had to use the chains on the public roads for some pressing business (- usually taking somebody to the hospital!).

            I do use ” mud and snow” tires on it of the sort farmers and loggers favor, instead of the “all weather” tires most people buy.They’re much noisier, they don’t last as long, and they don’t stop quite as well as the so called all weather tires but once you’re in the deep doo doo on or off the highway, they’re the answer and no mistake .

            There are probably on average about two or three days a year I wouldn’t be able get out with a front wheel drive car due to waiting for the snowplows.. That might be the day somebody close to me has a heart attack or stroke and an ambulance won’t arrive for hours. I still get a good deal of off road use out of it on the farm, so I’ll keep the old trap registered and ready to go.

            But ten to twelve mpg on the highway sure doesn’t do my wallet any good! And in case anybody wonders- in low range four by four first gear loaded to the gills with firewood on a muddy up and down hill farm track- it gets anywhere from a half a mile or so per gallon up to maybe two or three miles per gallon.

            Three miles per gallons is about as much as can be expected with such a truck even under favorable off road conditions.But even one mpg is a bargain compared to going out with the tractor to do the same off road hauling job and it taking three or four times as long – without a cab, never mind a heater! My trips of this sort are seldom longer than a couple of miles.

            1. Remember that the Prius will average about 50 MPG, if you don’t drive 70 MPH, if you get 40 on the highway in a Corolla, you will get about 50 from a Prius, lifetime average on my car is about 50 and I drive a lot of highway driving. I imagine the premium for a 2004 Prius over a Corolla would only be about 900 dollars. Over 50,000 miles, 1000 gallons or 3000 dollars for the Prius for fuel and 1250 gallons for the Corolla so an extra 750 in fuel for the Corolla, you lose 150 dollars at present prices for gasoline ($3/gallon). If prices increase to $4 per gallon you come out ahead by $100. If you drive 5000 miles per year, I think over the long run you save money with the Prius as prices rise.
               A Leaf would be nice, but more expensive, a Volt would be pricey as well. Depends how much you drive really, a Corolla, Civic, Fit, or even an Escort would be fine.

               Edit 12/20/13 At $900 cost differential divided by 250 gallons (over a 50,000 mile life) $3.60 per gallon average prices is the breakeven point, but if you don’t drive much (say 5000 miles per year), it would take a long time (10 years) to break even. I think prices will average much more than $3.60/gal over say 7 years or 35,000 miles which would be a 175 gallon fuel savings. So 900/175=$5.14/gallon average prices over the 7 year period to break even (not accounting for the opportunity cost of the extra $900 for a Prius. The prius is likely to have lower maintenance costs (over 160,000 miles I have needed no brake work, just oil and filter changes and tires and one front wheel bearing over 9.5 years).

               DC

            2. “I’ve been wanting to get some pv for a long time anyway, and the thought of going to town and back and running my errands mostly gasoline free would be enough for me to talk myself into doing it.”

               That was my thinking, as well. So, I leased a Leaf for 2 yrs. Great deal. Mitsu has just dropped the price of their EV, the i-MiEV. After tax credits, you’re potentially looking at a brand new 2014 4-door EV w/60mi range for under $13k…that includes a DCQC port (fast charge). Go for it!

      2. Buffett is probably just sucking off the gov’t breast again! In an earlier deal windmill deal, he got decades of feed-in tariffs from the gov’t to make money. Wind is a money loser without gov’t subsidies!

         1. Not correct. Also remember that if coal paid for its externalities it would be much more expensive than wind.

            DC

         2. It’s worth noting that he will collect the current subsidy- which runs out this month and may not be renewed.

            But it’s also worth noting that he didn’t put a billion in wind last year or the years previous.

            I really don’t know if the cost of wind has fallen enough to be truly competitive on a strictly dollars and cents basis, but I’m sure that if it hasn’t, yet, it will , pretty soon.

            The cost of coal and natural gas are both going to be going up- up a lot- a long time before a wind farm is ready for an overhaul job.The wind will always be free, except for taxes on it, which I expect will be levied on wind generated power within a few years – taxes above and beyond other existing taxes I mean.

            The cost of coal and natural gas are apt to double within fifteen years due to ordinary monetary inflation alone.

            1. OldFarmerMac,

               Also even for those who are not convinced that global warming is real, coal in particular has externalities that if accounted for properly would raise the price of electricity from coal fired power plants to 15 cents per KwH. Natural gas prices will rise, I am not sure about coal in the near term unless the externalities are taxed properly. Though new coal fired power plants are not much cheaper than new wind. If wind is overbuilt, with natural gas backup to take care of intermittency along with a smart grid that allows for prices to rise during high demand times so that there would be load shedding, we can get to 30 % wind power and eventually build to 90 % with wind (inland and offshore), solar, and battery, fuel cell, and vehicle to grid backup (the other 10 % comes from natural gas fired power plants and maybe some nuclear mixed in.

               DC

               1. the “real” inflation adjusted price of coal may not go up much for a long time, this is true- unless as you say the externalities are accounted for. but that’s a political decision, and coal plant operators and would be coal plant builders don’t seem to think it won’t be made anytime soon.

                  I think they are right in thinking so. externalizes should be accounted for of course, I’m just thinking they won’t be.

                  In the meantime, ordinary day to day monetary inflation will march on, barring collapse, because it’s a deliberate policy of central n banks, and because of real “constant money ” increasing costs all across the economy- all natural resources are in ever growing shorter supply, excepting wind and sun. so the cost of farming goes up beg cause water and land are less available , and supplies are more expensive – because tractors and fertilizer are made via fossil fuels which grow more expensive as extraction costs increase- there are endless positive inflationary feed back loops

                  but- and this is a very big but- well understood by somebody like Buffet, often forgotten by almost everybody else- a wind farm once built and financed is paid off over the years with these same ever depreciating dollars- while the energy produced will be sold- that portion not contracted at a fixed price- in an ever inflating energy market.

                  I don’t see any reason at all why oil, coal and ng prices won’t all double in fifteen years in nominal dollars due to inflation alone- and my personal guess s is that inflation will be worse than that.

                  inflation is the last resort sneaky tax- hardly anybody is able to seen thru the smoke and mirrors erected and blown by the economists and the banksters and the politicians ( of all stripes to some extent), but it’s a very simple concept-

                  all the money in the world buys all the goods and services in the world- when govts and banks create new money faster than producers create goods and services, there extra money chases the existing goods ands services and prices go up
                  inflation is deliberate policy

                  and incidental to deficit spending when productivity growth isn’t fast enough to offset it .
                   these rules seem to me to be as clear and elegant as the rules or laws of chemistry and physics-

                  although of course there are many reasons why money doesn’t flow freely thru the economy like energy thru the environment.

                  money gets held up, diverted, and forced into unnatural channels – but in very the end, prices are determined by money supply
                  if it’s actually there, it will get spent, and if there is enough of it, prices will rise in proportion to the excess.

               2. Hi Oldfarmermac,

                  The fears of rapid inflation are overblown until we get close to full employment. If there was deflation rather than inflation, that would be a major problem for anyone who was in debt. Most people owe money for mortgages so deflation would be a major drag on the economy. For goods that are scarce, prices will rise and they will be allocated by the market to their most desirable uses by market participants, there really is no more efficient way to do it that I have seen.

                  This is a problem for those with fixed incomes, if they assumed that there would be no inflation. For quite a long time we have seen moderate levels of inflation, without it economies have a difficult time adjusting to changing circumstances.

                  In Europe for example, Germany wants very low inflation, which works ok for Germany because it is doing well, for Spain and Greece, more inflation would help to get there economies moving (I am talking about 4 % inflation here), it is very difficult for economies to adjust nominal wages downward, so when there is unemployment inflation adjusts real wages lower so that employment can rise, as full employment is reached monetary policy can tighten up to get inflation back to 2%.

                  DC

               3. I generally agree with your remarks but sometimes the factors that increase inflation outweigh those that inhibit it, and inflation can occur even in a slow economy with high unemployment.

                  Remember stagflation?

                  Now as to what is a high or excessive rate of inflation, that is a matter of personal opinion.

                  A couple of percent seems to be the holy grail of central bankers, none at all or deflation the goal of creditors, runaway the hope of debtors.

                  My personal assessment of the mood or sensibilities of the country is that most people will accept five percent or thereabouts inflation as an every normal state of affairs, given the history of prices over the last few decades.

                  Most people would probably view any inflation rate much over five percent as a problem.

                  I think that the combination of stimulus policies and actual resource shortages will result in at least five percent, and probably higher inflation over the next decade and longer.

                  Five percent will double nominal prices in about fourteen years.

                  In terms of cash flow, this is a beautiful scenario for a wind farm owner with a fixed depreciating principle payment .Property taxes, insurance, management,and maintenance will all appreciate at about the overall inflation rate but all these together will be a minor expense compared to the capex and interest on it.

                  Profitability in terms of cash flow will grow like a well fertilized weed- absent price controls.

                  I just can’t see fossil fuel prices inflating at less than a rate considerably above overall inflation, due to depletion, growing population, etc.

                  Of course I’m using the layman’s terminology, not that of professional economists.

                  Energy inflation tends to spread thru the whole economy like a metastasizing cancer.

                  It’s true that producers and workers can “eat” some inflationary pressure by continuing to produce at lower profit margins and working for effectively lower wages- or actual lower wages if theory lose a good gob and take a worse paid one.

                  But a point comes when there is essentially no profit margin left to be sacrificed .

                  In our family business, which used to be raising apples and peaches, we experienced our unavoidable costs about doubling while our revenues grew by fifty percent.
                  It doesn’t matter how good an orchardist you are, you have to buy boxes to pack your production at the market price, machinery at the market price, fertilizer , insecticides, at market prices, pay taxes at the going rate, insurance at the going rate.

                  And you sell at the going price because farmers do not have any pricing power.

                  We “ate” the costs increases until there was nothing left, then we ran at a loss to please my old Daddy so he would have something to keep him interested in living- we concealed the loss from him of course.

                  Now the remaining local growers are getting twice the price we were getting when we shut down- and they’re just about breaking even.

                  Inflation of our costs drove us into earlier than desired retirement.

                  We liked growing apples so well we were willing to do it for less than we could make as hourly employees in local sweatshop environments such as textile and furniture plants.

                  A barber who has other income or savings can continue cutting hair for the local going ten bucks- which was five bucks a few years ago- if he owns his shop and has essentially trivial expenses other than his own time.

                  But a trucking company now pays as about as much for diesel as it does for a driver these days- a few years ago the driver cost a three times more than the fuel. drivers wages are flat to down to the point it’s almost impossible to hire one who is safe and dependable .

                  And margins are such in trucking that if fuel goes up a dollar here, the price of a dump truck by the hour will go up close to ten bucks- since there is essentially no profit left to be sacrificed in running a dump truck these days .

                  My point is that inflated costs simply must be passed on, after a while, even in a slow economy with lots of people out of work. Wages can be held down only to the extent out of work qualified people simply don’t apply for a vacancy.
                  There’s always doubling up with friends and family,, under the table work, food stamps and welfare to be considered .

                  Sitting at home with a beer and smoke watching tv and hustling a little really is an option when the wages available are so low that after commuting and taxes and child care, etc, are accounted for that the person in question is better off on welfare.

                  I know a lot of people on welfare.
                  They get by about as well as the ones still killing themselves trying to make ends meet on eight to ten bucks an hour, without having to go to work.

9. A probably belated heads up.

   I just spent some time reading the wiki on proppant. There are paragraphs devoted to “radioactive tracer material included in the proppant”, some with 5 year half life.

   How is it the anti fracking crowd didn’t splash that into headlines?

   1. Hi OldFarmerMac,

      I cannot reply above hopefully you will see this here.

      I do remember stagflation. That was notable because it is so rare, as I am sure you recall this was due to a tripling of oil prices over a very short period, and the economy needed to do a lot of adjusting.

      Lets think about resource shortages for a moment, especially energy. So far we have not seen an inordinate level of inflation with oil prices rising tripling in real terms. As oil, natural gas, and coal increase in price(in real terms, which it what matters IMO), other forms of energy wind, solar, nuclear, and others become more competitive and people switch to alternatives. This takes some of the pressure off fossil fuel demand and reduces their rate of price inflation. As diesel fuel prices rise more long haul freight will move to rail. I agree on the low wage problems, I was under the impression that welfare benefits were limited, so healthy individuals cannot stay on welfare forever, I am really not very familiar with how it works and it may vary state to state.

      DC

10. Another weekly inventory report and another big drop in “Total Commercial Petroleum inventories”:

    Summary of Weekly Petroleum Data for the Week Ending December 13, 2013

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.9 million barrels from the previous week. At 372.3 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 1.3 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 2.1 million barrels last week and are below the lower limit of the average range for this time of year. Propane/propylene inventories fell 2.7 million barrels last week and are well below the lower limit of the average range. Total commercial petroleum inventories decreased by 12.6 million barrels last week.

    We have seen drops in the “Total commercial petroleum inventories” virtually every week this fall–if my memory is correct, I think only one week stands out as an exception.

    1. So it looks like Propane and distillate are in short supply, some of that may be due to colder than normal weather, must be that global cooling. 😉

       DC

       1. Hi DC,

          I teach “Principles of Biology I and II” the introductory series for biology majors at my institution. I have a “capstone” lecture in the second of the two classes in this series in which I discuss seedless vascular plants. At the end of this lecture I discuss the Carboniferous period and tie in aspects of biology and chemistry that have been discussed in a variety of different contexts for almost two full semesters and how all of these concepts relate to global climate change. I use this lecture to drive home the point that the scale of the changes to our biosphere are massive and the time-frame of the changes very short. I also use this lecture to get them to reflect on the amount of chemistry, biology, and historical geology they had to learn in order to understand these changes and their consequences. Hopefully this will help them use their BS meter when some pundit or politician tries to debunk the topic.

          One of the lectures I cover early in the first semester that I reference in this “capstone” lecture is regarding the specific heat of water. One of the ways I drive home the point is to put an empty “Dixie cup” over a Bunsen burner. Of course the cup goes up in flames very quickly. I do this a second time, but for some reason the cup does not burn!! Everything appears the same–but of course it is not, there is water in the second cup. So when I hear people say things like, ”

          The Long Pause just got three months longer. Last month, the RSS monthly global mean lower-troposphere temperature anomalies showed no global warming for exactly 204 months – the first dataset to show the full 17 years without warming specified by Santer as demonstrating that the models are in fundamental error.”

          my simple retort is, You live in a Dixie cup world. We know water (in both liquid and solid form) is absorbing enormous amounts of heat energy. Hopefully the analogy of the atmosphere to the cup is clear.

          Anyway, I am in the early stages of writing a book with the following tag “How Biology 101 can help you understand global climate change”….I am still working on that.

          Best,
          Tom

          1. Hi Tom,

             Only kidding about the global cooling. Have you checked webhubbletelescope’s
             context earth blog? Some pretty cool modeling.

             DC

             1. Hi DC,

                I knew you were joking–I actually thought you were referencing comments made above in a sarcastic manner.

                I did not realize Web had a blog–I remember many of his posts from the oil drum. I will check it out. Thanks for the heads up.

                Best,
                Tom

          2. Thanks for putting in this reference to ocean v. atmospheric heat capacity. Anyone who claims a ‘pause in warming’ is willfully ignorant at this pt. IMO, as the information is out there. Radioecoshock provides a format for info dissemination that is perhaps more accessible to many than reading in-depth papers. He interviews the authors. Here’s a decent starting pt. for those so inclined:

             I found the 10/15/13 show particularly informative.

    2. And another interesting question is what percentage of US crude oil inventories consists of condensate?

       1. Why is this important?

          Wikipedia says, “Some very early internal combustion engines—such as the first types made by Karl Benz, and early Wright brothers aircraft engines—used natural gasoline (condensate), which could be either drip gas or a similar range of hydrocarbons distilled from crude oil. Natural gasoline has an octane rating of about 30 to 50, sufficient for the low-compression engines of the early 20th century. By 1930, improved engines and higher compression ratios required higher-octane, refined gasolines to produce power without knocking or detonation.
          Beginning in the Great Depression, drip gas was used as a replacement for commercial gasoline by people in oil-producing areas. “In the days of simple engines in automobiles and farm tractors it was not uncommon for anyone having access to a condensate well to fill his tank with ‘drip,'” according to the Oklahoma Historical Society. Sometimes it worked fine. “At other times it might cause thundering backfires and clouds of foul-smelling smoke.”[11]”

          If condensate is natural gasoline that may need upgrading to attain higher octane level, why should this not be included in crude plus condensate #?

          1. Condensate is not of much use in producing distillates like fuel oil, jet fuel and diesel (and longer chain petroleum products). So counting a barrel of condensate as the same as a barrel of 40 gravity crude oil does not provide an accurate measurement of the value of the crude oil inventories.

11. Hi Coolreit,

    The energy content of a barrel condensate(4.6 billion BTU/barrel) is only 78% of the energy content of crude (6 billion BTU/barrel).

    http://www.eia.gov/totalenergy/data/annual/pdf/sec12.pdf

    DC

    1. API gravity is a measure of how heavy or light a petroleum liquid is compared to water. If its API gravity is greater than 10, it is lighter and floats on water. If the gravity is less than 10, it is heavier and sinks.

12. Off topic comment: Huge hit in natural gas storage today, down 285 Bcf to 3,248 Bcf. That is the lowest point for week 51 since 2008 when it stood at 3,167 Bcf. Five year average decline for week 51 is -131. That puts us at 210 Bcf below the five year average for this week of 3,458 Bcf. The price at this moment stands at $4.44 per MMBtu. That is a new high for this year. Actually the highest since mid 2011. Back on August 8th of this year it was at $3.27 per MMBtu.
    EIA Weekly Natural Gas Storage Report
    And: American Oilman Gas Storage Report

    The American Oilman Gas Storage Report has not been updated yet. But you get a better look at the historical figures there. Also you can click on “View Graph” and get a really great overlapping chart of five years of natural gas storage.

    1. 285 BCF may be an all time weekly withdrawal record, or close to it.

       As Citi Research noted, because of the “Red Queen” effect, they estimate that the US has to replace 100% of current natural gas production in about four years, just to maintain the current production rate.

       1. I would think that this would lead to higher prices, which would make Nat Gas production more profitable, once profits become positive (if they are currently negative), we may see a rise in output, at least briefly. Just like previous shale gas plays the Marcellus will eventually run out of room in the sweet spots, I do not have any clue how soon this might occur. I have heard that Pennsylvania data is not very good so it is pretty hard to get a handle on the Marcellus. Short term we may see a bump up in nat gas output, if prices continue to rise. Interesting.

          Note that for November heating degree days were about 5 % above normal for areas where most homes heat with gas.

          DC

          1. Based on the Citi Research report (which puts the decline from existing wells at about 17 BCF per day per year), in round numbers the industry has to add the productive equivalent equivalent of the peak production rate of three Barnett Shale Plays per year, just to maintain current production.

             And we are seeing some pretty significant regional declines, e.g., Texas + Louisiana combined marketed natural gas production down about 6% year over year (EIA).

13. “It’s not the shale boom that’s endangering the Saudi oil industry- it’s something worse”

    http://www.albawaba.com/business/saudi-oil-production-541611

    Excerpt:

    Rising Saudi energy demand is a bigger threat to Saudi Arabia than surging US shale output, Jadwa Investment bank says in a study published on Wednesday. . .

    Our review of specialized public domain industry information suggests that production from US tight oil and shale gas formations may not grow as fast and as much as most commentators suggest, mainly because wells in such formations have low productivity and short lives. Further, we believe that the prospects for exploiting shale formations in other countries may be hampered by local economic, political and environmental factors.”

14. Jeffrey Brown and Dennis Coyne:

    Thank you for the condensate answer!

    1. Coolreit,

       Your welcome, and again I apologize for my comments regarding climate change, sometimes people will disagree, but I should try to do so politely.

       One could argue, I suppose, that the Catholic Church believed that Galileo was wrong. There have been times when the mainstream scientific view was incorrect, I don’t think this is one of those times.

       I would liken the “skeptical” view of global warming as being closer to the “controversy” over cigarette smoking in the 1960s and 70s. In the case of global warming, fossil fuel producers support the “skeptics”, just as tobacco companies supported the smoking “skeptics”. I would still be interested in your take on “tainted” data, is it Mr. Watts who decides what data is trustworthy?

       DC

15. Kay at BPA posted this article this week on teh Niobrara shale…

    New oil boom lurks in Denver-Julesburg Basin

    By Mark Jaffe, The Denver Post, Posted: 12/15/2013 12:01:00 AM MST

    This passage from the article has been stuck in my head…

    The basin has been drilled for a century, and there are already about 20,000 vertical wells, some decades old, some abandoned.

    “The biggest challenge here is logistics,” said Anadarko’s Holly. “We are drilling horizontal wells in some sections in the midst of 32 vertical wells. And so the technology, the precision and accuracy we have to have in steering our wells is critical.

    “We are coming very close to existing vertical wells,” Holly said. “Applying the right technology and putting the horizontal in the right spot to avoid the existing wells is key.”

    Sounds like scraping the barrel to me!

16. Videos from last week’s Radical Emission Reduction Conference that the Tyndal Center for Climate Change Research hosted are available here.

    Radical Emission Reduction == Radical Energy Demand Reduction

    Either way you look at things here at POB the end result is the same. So might as well look into what the conference had to offer.

    1. Great info aws!

       Thanks. Maybe I’m a radical now, I like the idea of radical emission reductions.

       DC

17. this is somewhat off topic again but highly relevant to the future of oil and by extension coal and

    http://www.nytimes.com/2013/12/20/business/international/canadian-review-panel-approves-plans-for-an-oil-pipeline.html?rref=science&_r=0

    note this will be a federal decision for Canada,; the locals are likely to either get bought off or steam rollered

    1. That pipeline to the Pacific does two things for the Canadians:

       1) It will elevate the price of their oil. By shipping it to the Pacific, the oil sands suddenly will have more than one customer. This, of course, elevates the price they can charge the US, too.

       2) It moves the US interdiction crater southwards in the SLBM scenario a few threads back. Maybe even move it onto the ingress highways inside the US rather than inside Canada.

18. FYI the bizzare upward revision of GDP this morning (14% in one rev) is attributed about 40% to increased Q3 gasoline expenditures.

Comments are closed.