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Plato Oil is the moment in time when, on a global scale, the maximum rate of oil production (per year) is reached. The moment after which oil production, by nature, must decline at the same price level and the same volume can only be achieved only at higher price level. Since Earth is a closed system, next to this production event, there must be an equal demand event: Peak Oil Consumption. As higher price level tent to put economy in recession Peak oil consumption is achievable only on relative low (say below $100 per ballel price levels).  

Peak can be achieved at different time for each country on the earth that produces oil. Some some of which are already   beyond peak oil production That leads to the assumption the world as a whole soon reaches if not reached the plato oil production and from this point absolute number can only slowly decline. On consumption side while some countries like China and Arab countries (as well as other countries with rapidly growing population) still experience significant growth in oil consumption, some countries are already well beyond Peak Oil Consumption by now. That's probably true for several European countries with very low population growth.

See also Hubbert peak theory

April 27, 2016 | OilPrice.com

An extensive new scientific analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved conventional oil reserves as detailed in industry sources are likely "overstated" by half.

According to standard sources like the Oil & Gas Journal, BP's Annual Statistical Review of World Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of proved conventional reserves.

However, according to the new study by Professor Michael Jefferson of the ESCP Europe Business School, a former chief economist at oil major Royal Dutch/Shell Group, this official figure which has helped justify massive investments in new exploration and development, is almost double the real size of world reserves.

Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications which runs authoritative reviews of the literature across relevant academic disciplines.

According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, "the five major Middle East oil exporters altered the basis of their definition of 'proved' conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their 'proved' conventional oil reserves of some 435 billion barrels."

Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands – despite the fact that they are "more difficult and costly to extract" and generally of "poorer quality" than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels.

Jefferson's conclusion is stark: "Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the 'peak oil' issue remains with us."

The study referred to here is: Overview A global energy assessment,

See also: Where did all the oil go? The peak is back

 


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Old News ;-)

[Oct 15, 2017] The global oil supply report from HSBC

Oct 15, 2017 | peakoilbarrel.com

FreddyW

says: 10/14/2017 at 10:01 am
A bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC:

YouTube clip:
https://www.youtube.com/watch?v=7KfVJBNX2U4

The report:
https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view

It contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration.

[Oct 15, 2017] Timing of peak global oil production

Notable quotes:
"... I already picked the peak, 2015. So I was slightly off, but not by all that much as you can clearly see by the chart. I think we are on the peak plateau right now. ..."
Oct 15, 2017 | peakoilbarrel.com

Ron Patterson says: 10/14/2017 at 7:31 am

I already picked the peak, 2015. So I was slightly off, but not by all that much as you can clearly see by the chart. I think we are on the peak plateau right now.

The actual 12-month peak could be anywhere from 2017 to 2019 but no later than that. Well, in my humble opinion anyway.

Dennis Coyne says: 10/14/2017 at 11:39 am
Hi Ron,

The question was about US LTO, you have picked the World C+C peak, but as far as I remember you have not said anything recently about US LTO except that it will be before 2025.

So far the 12 month centered average for US LTO peaked in June 2015.

If US LTO output continues at the August output level (4750 kb/d) for 5 months, then a new 12 month centered average peak will be reached by Aug 2017 (average output from Feb 2017 to Jan 2018). US LTO output has risen about 600 kb/d over the past 12 months so an assumption of no further US LTO output increases over the next 5 months is a conservative estimate in my view.

[Oct 15, 2017] US Baker Hughes Rig Count

Oct 15, 2017 | peakoilbarrel.com

Energy News: 10/13/2017 at 1:13 pm

US Baker Hughes Rig Count (Oct 13)

http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

[Oct 15, 2017] Oil production in Iraq has increased by more then one million barrels a day since July 2014 when oil prices last averaged 100 dollars. More than any other country

Notable quotes:
"... A bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC: YouTube clip: https://www.youtube.com/watch?v=7KfVJBNX2U4 The report: https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration. ..."
Oct 15, 2017 | peakoilbarrel.com

Energy News: 10/14/2017 at 1:02 pm

I was just having a quick look at countries that have come back from outages, sanctions, conflict, wildfires. Not sure if this list is complete?

Energy News says: 10/14/2017 at 1:55 pm
Iraq's oil production has increased by 1.4 million b/day since oil prices last averaged $100 in July 2014. More than any other country
Chart on Twitter: https://pbs.twimg.com/media/DMHrqLZXkAAFiro.jpg
FreddyW says: 10/14/2017 at 10:01 am
A bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC:

YouTube clip:
https://www.youtube.com/watch?v=7KfVJBNX2U4

The report: https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration.

[Oct 14, 2017] Over half a million barrels per day are now shut down at Gulf due to hugrage season. Lost oil production due to Nate was around 8 million barrels

Oct 14, 2017 | peakoilbarrel.com

Energy News says: 10/11/2017 at 4:22 pm

2017-10-11 BSEEgov: From operator reports, it is estimated that approximately 32.68 percent of the current oil production in the Gulf of Mexico remains shut-in, which equates to 571,854 barrels of oil per day. It is also estimated that approximately 20.51 percent of the natural gas production, or 660.55 million cubic feet per day in the Gulf of Mexico is shut-in.
https://www.bsee.gov/newsroom/latest-news/statements-and-releases/press-releases/bsee-tropical-storm-nate-activity-4
Estimate of "Lost" Gulf of Mexico crude production due to Hurricane Nate is 7.82 million barrels of oil.

Also, Genscape GoM production chart: https://pbs.twimg.com/media/DL4r7v6UEAA75uK.jpg

[Oct 11, 2017] OPEC, IEA and drillers/service companies are raising the problem of the lack of investment, but they all stay away from discussing the fall in discoveries and lack of attractive prospective projects

Oct 11, 2017 | peakoilbarrel.com

George Kaplan says: 10/10/2017 at 7:28 am

OPEC SECRETARY GENERAL: 'WORLD CAN'T AFFORD SUPPLY CRUNCH'

https://www.energyvoice.com/video-2/152718/watch-opec-secretary-general-world-cant-afford-supply-crunch/

(Possible paywall, I can't quite figure out how it works on Energy Voice)

"This is particularly evident when we look at investment. While investments are expected to pick up slightly this year and in 2018, it is clear that this is not anywhere close to past levels and it is more evident in short-cycle, rather than long-cycle projects, which are the industry's baseload.

"The issue of a potential investment shortfall was a recurring theme at last week's Russia Energy Week conference, with President Vladimir Putin, as well as many oil and energy ministers making reference to the critical investment challenge.

"As we have all learned from previous price cycles, such pronounced and long-term declines in investments are a serious threat to future supply. But given our projected future demand for oil, with our upcoming World Oil Outlook 2017 expecting demand to reach over 111 million barrels a day by 2040, an increase of almost 16 million barrels a day, the world simply cannot afford a supply crunch."

It's noticeable that OPEC, IEA and drillers/service companies, even the Aramco CEO are raising the lack of investment more and more, but they all stay away from discussing the fall in discoveries and lack of attractive prospective projects. Part of it is real concern, though it's noticeable they don't offer much in the way of solutions, and definitely none that might impact their bottom lines in the short term, but part is pre-emptive arse-coverage.

A lot of factors seem to be lining up for an economic bust next year, but then they have looked like that for a few years (maybe the low oil price has contributed to staving off the problem), if it happens a supply crunch might go unnoticed for some time, and only come appear as the real problem it will be when there is some sort of recovery expected.

[Oct 07, 2017] The EIA is making these projections because knuckleheads in the C suite at US shale companies went hog wild at the first sign of oil price improvement and made thesegrowth projections for their individual companies, and the EIA just totaled them up

Notable quotes:
"... This year's rise is likely to be closer to about 500,000 barrels, far off an initial forecast by the U.S. Energy Information Administration, according to Hamm, the chairman of Continental Resources Inc. and a pioneer in the shale industry. ..."
"... The EIA projection is "just flat wrong," failing to take into account a new discipline among U.S. drillers, Hamm said in an interview Thursday on Bloomberg TV. "We have capability of producing a whole lot, but you have to get a return on investment," he said, adding, "that's where people have been this last quarter and this year." ..."
"... . "When we're lagging the Brent world price by $6 a barrel, that's not putting America first, that's putting America last. And that's the result of this exaggerated amount that EIA has out there." ..."
"... Once it's clear the EIA is off base, prices could rise to $60 a barrel from around $50 now, Hamm said. ..."
Oct 07, 2017 | peakoilbarrel.com

Bob Frisky

says: 09/22/2017 at 6:06 pm
Shale oil entrepreneur Harold Hamm is back doing interviews on the business networks again. Now he is speaking out against how the oil prices are low due to the EIA.

Shale Billionaire Hamm Slams 'Exaggerated' U.S. Oil Projections

https://www.bloomberg.com/news/articles/2017-09-21/shale-billionaire-hamm-slams-exaggerated-u-s-oil-projections

Billionaire oilman Harold Hamm says the government was way too optimistic with its prediction of more than 1 million new barrels a day in U.S. production, and the snafu is "distorting" global crude prices.

This year's rise is likely to be closer to about 500,000 barrels, far off an initial forecast by the U.S. Energy Information Administration, according to Hamm, the chairman of Continental Resources Inc. and a pioneer in the shale industry.

The EIA projection is "just flat wrong," failing to take into account a new discipline among U.S. drillers, Hamm said in an interview Thursday on Bloomberg TV. "We have capability of producing a whole lot, but you have to get a return on investment," he said, adding, "that's where people have been this last quarter and this year."

The government scenario has contributed to worries about an oversupply that puts U.S. oil at a steep discount to international crude, according to Hamm. "It's distorting," he said . "When we're lagging the Brent world price by $6 a barrel, that's not putting America first, that's putting America last. And that's the result of this exaggerated amount that EIA has out there."

Once it's clear the EIA is off base, prices could rise to $60 a barrel from around $50 now, Hamm said.

shallow sand says: 09/22/2017 at 11:38 pm
The EIA is making these projections because knuckleheads in the C suite at US shale companies went hog wild at the first sign of oil price improvement and made these growth projections for their individual companies, and the EIA just totaled them up.

Every Shale CEO bashes OPEC. OPEC tried to give shale a break by cutting production, and shale absolutely blew it, just like shale absolutely blew it in late 2014 by not pretty much shutting down. Instead, shale has lied about profitability for 3 years, and the world E & P industry has paid the price.

Too bad Oilpro shut down. Lots of non-US E & P Industry folks posted there. They absolutely could not stand US shale and the US shale CEO smack talk. Hundreds of thousands out of work, because of shale smack talk and Wall Street encouragement of same, which crashed oil prices below $30.

Shale better come through. No one seems to be taking serious the possibility of a supply shock if it cannot.

When shale clearly peaks, what is to keep OPEC and Russia from suddenly making a big cut, driving prices past $200 and crashing Western economies? Why wouldn't they afterthe hubris of US shale CEO's, the Wall Street guys who pull their strings, and the US business media who report everything they say as gospel?

George Kaplan says: 09/23/2017 at 2:08 am
I'd guess a lot of the non-US E&P people complaining about LTO would by from offshore, and I think that side has been just as much to blame for boom and bust mentality with rose tinted specs. (see below the UK investment which went nuts when oil went above $100 and now they have nothing much left). I'd question with the jobs are going to come back offshore even with a big price rise. As I keep pointing out, there have to be discoveries before development, and there have to be lease sales before that. We're not seeing either, and though exploration is down compared with 2011 to 2014, there's still a significant amount going on, but wildcat, frontier success rates are what have fallen the most (even with the best seismic methods and computer models we have ever had).

[Oct 07, 2017] The American public, and the politicians that govern it, have been lied to and completely deceived about shale oil and shale gas abundance.

Oct 07, 2017 | peakoilbarrel.com

Mike says: 09/23/2017 at 7:07 am

Shallow, I too miss the hell out of Oilpro. That community could debate the unconventional shale phenomena without bias and with a clear understanding of how it has completely changed the world oil order.

American's, on the other hand, simply enjoy cheap gasoline; they don't care how they get it, what it costs, who ultimately pays for it or that it will not last forever. The American public, and the politicians that govern it, have been lied to and completely deceived about shale oil and shale gas abundance. It is a matter of American nationalistic pride to believe what one reads on the internet and to otherwise be stupid about our hydrocarbon future.

I suggested to you several years ago that OPEC and the rest of the world's producing oil countries were not dumb; they read shale oil K's and Q's and have the same access to SEC filings we do. They know the shale oil phenomena is failing financially and that in the process America is drilling the snot out of its last remaining, bottom of the barrel oil resources. OPEC's production cuts in late 2016, in my opinion, were an effort to give the US shale oil industry just enough rope to eventually hang itself. It has done just that; in the past 24 months it has bankrupted out on another $50B, borrowed yet another $50B and is now back over $300B of upstream long term debt with no current ability to pay that back. Hope (for higher oil prices) is not a plan. The Bakken and the Eagle Ford have peaked and now well productivity in the Permian is starting to fade. In a few more years the rest of the world will have the US right back it its teet and will dictate what the price of oil well be. I think in the next 12-18 months we are going to see big reserve impairments in the US, again, and a pretty big shale oil company will end up the toilet, bankrupt. They'll be a bunch of fist pumping going around the world when that happens.

Harold Hamm is whiner; he has always blamed OPEC for lower oil prices, demanded that OPEC cut more production, he needs more pipelines, fewer regulations (where are those, by the way?), needs to be able to export his oil, warned OTHER shale oil companies in the Permian not to overproduce and drive the price of HIS oil down, the sun is always in his eyes now its the EIA's fault. He, like the rest of America's shale oil industry, is desperate for attention and desperate for help. Once again, Shallow, you are spot on.

shallow sand says: 09/23/2017 at 8:31 am
Mike. It might be worth mentioning here the recent judgment a small OK producer won against Devon Energy.

Apparently one of Devon's high volume fracs destroyed one of the the conventional producers' wells.

When I read about these frac hits, I really worry that US is not properly managing these shale oil resources.

From some reading it appears frac hits are a big deal in PB, and that just a few years in, PB shale could wind up unperformimg due to reservoir damage from these massive fracs.

What do you (or others) think?

[Oct 07, 2017] If you're not bringing new production and the global decline rate is 5 percent then annual loss is about four and a half million barrels per day

So if we assume that since 2014 at least 8 million barrels per day were lost due to aging fields. Who provided additional supply to keep it steady. Something is fishy here.
Notable quotes:
"... If you're not bringing new production online and the global decline rate is call it 5% then each year from now until 2020 we should see a loss of about four and a half million barrels per day off of supply ..."
"... And in 3 years that's 13 million barrels per day supply reduction and there is no way countries can feed themselves with that quick level of scarcity. ..."
"... Venezuela dropping to 0 while the Lybian civil war flames up again – and there isn't 3 MB/D spare capacity left. Nobody besides SA perhaps does frenetic infill drilling for capacity he don't need and use. Or develops fields and put them on idle. ..."
"... Venezuela is the best example of low oil prices making high one – the production will halt sooner or later. ..."
Oct 07, 2017 | peakoilbarrel.com

Watcher

says: 09/28/2017 at 1:46 am
Way too glib a presumption of supply shortage in the 2020 time frame.

If you're not bringing new production online and the global decline rate is call it 5% then each year from now until 2020 we should see a loss of about four and a half million barrels per day off of supply

And in 3 years that's 13 million barrels per day supply reduction and there is no way countries can feed themselves with that quick level of scarcity.

When one says "supply shortage" the consequence of significance is not higher prices; the consequence is unfilled orders.

Energy News says: 09/27/2017 at 12:48 pm
RIO DE JANEIRO, Sept 27 (Reuters) – Only one block in Brazil's prized offshore Santos basin received a bid in the country's 14th oil round on Wednesday, a sign low global oil prices may have reduced the allure of potential new crude and gas investments in Latin America's largest economy.

Karoon Gas Australia Ltd won the block with a signing bonus worth 20 million reais ($6.3 million), but the remaining 75 blocks in the basin received no bids, oil industry watchdog ANP said. Officials expected to sell up to 40 percent of the blocks, raising 500 million reais ($157 million).
http://www.reuters.com/article/brazil-oil-auction/update-2-brazils-prized-santos-basin-receives-single-bid-in-oil-auction-idUSL2N1M80O5

George Kaplan says: 09/28/2017 at 12:47 am
A lot more interest in the other basins though, especially Campos. It can't be just oil price that is against Santos, maybe it's similar to the mirror province in Angola, Kwamza, and it's turning out to be a bust.
Lightsout says: 09/30/2017 at 4:13 am
Hi George

Two more dry holes in the Barents sea.

http://www.worldoil.com/news/2017/9/28/lundin-petroleum-completes-drilling-of-boerselv-exploration-well

http://www.worldoil.com/news/2017/9/27/eni-norge-drills-dry-hole-near-goliat-field-in-the-barents-sea

George Kaplan says: 09/30/2017 at 5:04 am
I think this year has killed off a few of the promising frontier basins now – Kwanza in Angola – bust, deep water offshore Canada – mostly bust, Barents – mostly bust, Santos – looks bust, ultra deep US GoM – mostly played out or uncommercial, offshore Colombia – looks bust for oil, couple of West Africa areas – dry holes, offshore Ireland – half way to bust, UK North Sea – very poor lease sale, also one other lease sale (maybe Oman?) I think didn't do very well from memory.
George Kaplan says: 09/27/2017 at 6:34 am
MARKET SHOULD PREPARE MORE FOR OIL SQUEEZE THAN OPEC SUPPLY GAIN, CITIGROUP SAYS

Those in the oil market fearing a flood of OPEC supply next year will probably be better off preparing for a shortage, according to Citigroup Inc.

Five countries in the group -- Libya, Nigeria, Venezuela, Iran and Iraq -- may already be pumping at their maximum capacity this year, Ed Morse, the bank's global head of commodities research, said in an interview. Rather than a surge in output, there's a risk of a market squeeze emerging as early as 2018, driven by those nations because of weaker investment in exploration and development, he said.

"Fear in the market has been that OPEC production will rise dramatically," said Morse. However, "there could be a supply gap emerging, which could point to a tighter market," he said in Singapore on the sidelines of the S&P Global Platts APPEC Conference.

http://www.worldoil.com/news/2017/9/26/market-should-prepare-more-for-oil-squeeze-than-opec-supply-gain-citigroup-says

Eulenspiegel says: 09/26/2017 at 10:16 am
Geology has to do a lot with oil prices – the run up in price the last 40 years is mostly due to geology.

Why? The original oil was the kind of very conventional land based oil. Once discovered, the most costly thing was the infrastructure to transport it away.

This came to a limit in the 70s. After this, more and more expensive projects where necessary.

Off shore oil, deep sea oil, small spots on land, arctic oil and last fracking oil. And old fields with injections, infill, pressure control.

All things with big investments – much more than "we build an oil terminal for supertankers and drill a few holes".

And so the market gets more and more unstable – these big investments have to pay out, even when done by a state. And you have bigger and bigger planning time lags, so the classical pork cycle can get investors in the false moment.

US fracking oil adds to the chaos – it's expensive, but fast rampup – but not able to replace deep sea oil due to it's pure size.

Old cheap fields are in decline, or not longer cheap as the chinese giants on secondary or tertiary recovery enhancements. So more and more expensive technology with long planing horizonts comes to a short paced market, together with the political chaos describes by you.

And geology gets more complicated, so the long project times you describe will get longer.

I, without a mathematically model, expect a chaotic market in the future until oil gets (hopeful) phased out and put in the steam engine age.

Low oil prices make high oil prices, and high ones low. The demand is very inelastic on the short term, trucks have to drive and people have to drive to work (and the aunt wants the chrismas visit). Only mid way demand gets flexible, a japanese car instead a SUV next or a house nearer at the job. Or a company reduces work travelling.

Many 3rd world countries have regulated gas prices – so a price spike don't reduce demand here on the short term. That makes things even more scary when something happens on the political scale.

Venezuela dropping to 0 while the Lybian civil war flames up again – and there isn't 3 MB/D spare capacity left. Nobody besides SA perhaps does frenetic infill drilling for capacity he don't need and use. Or develops fields and put them on idle.

Venezuela is the best example of low oil prices making high one – the production will halt sooner or later.

[Oct 04, 2017] China's Oil Demand Is Far Ahead Of Last Year's Pace by Robert Rapier

How comes? Annual world demand raises around 1.5 million BPD per year. So since 2014 it rose probably 4 million BPD. And there is no sizable new discoveries. Iran and Libya cards were already played and total from them is less then 4 million barrel per day. US output is stagnant. Canadian is down. Where all this additional oil is coming from ?
Iran is currently exporting about 3 million BPD of crude and condensate vs. less than 1 million BPD when the sanctions were in place.
Libya and Nigeria have increased production by about 0.5 BPD undercutting the 1.2 million BPD OPEC production cut.
Turkey already threatened to close their border with Iraqi Kurdistan, halting the 0.6 BPD of oil that the Kurds are exporting through Turkey.
Venezuela problems might take another million BPD off the global market.
KSA has recently been forced to borrow $12.5 billion after borrowing $17.5 billion last year.
Notable quotes:
"... The cartel revised global oil demand growth for 2017 upward by 50,000 barrels per day (BPD) to 1.42 million BPD. ..."
"... China's oil demand rose by 690,000 BPD in July, marking a 6 percent year-over-year (YOY) increase. China's total oil demand reached 11.67 million BPD in July. Year-to-date data indicates an average growth of 550,000 BPD, more than double the 210,000 BPD growth recorded during the same period in 2016. ..."
Oct 04, 2017 | oilprice.com
Monthly Oil Market Report which covers the global oil supply and demand picture through July.

OPEC crude oil production decreased by 79,000 BPD in August to average 32.8 million BPD. This marks the first OPEC production decline since April and was primarily driven by sizable outages in Libya.

The cartel revised global oil demand growth for 2017 upward by 50,000 barrels per day (BPD) to 1.42 million BPD. The group reports strong growth from the OECD Americas, Europe, and China. Global oil demand for 2018 is expected to grow by 1.35 million BPD, an upward revision of 70,000 BPD from the previous report. Growth next year is expected to be driven by OECD Europe and China.

China's oil demand rose by 690,000 BPD in July, marking a 6 percent year-over-year (YOY) increase. China's total oil demand reached 11.67 million BPD in July. Year-to-date data indicates an average growth of 550,000 BPD, more than double the 210,000 BPD growth recorded during the same period in 2016.

China's gasoline demand was higher by around 0.10 million BPD YOY, driven by robust sports utility vehicle (SUV) sales, which were around 17 percent higher than one year ago. China's overall vehicle sales in July rose by 4 percent YOY, with total sales reaching 1.7 million units.

The numbers from China are interesting given the constant refrain of weakening Chinese demand. This seems to be wishful thinking based on China's investments in clean technology.

[Sep 27, 2017] Interviewed this morning, Harold Hamm calls EIA STEO projections flat out wrong. US will be lucky to achieve 9.35 million b/day by December

Sep 21, 2017 | peakoilbarrel.com

Energy News, 09/21/2017 at 3:43 pm

Interviewed this morning, Harold Hamm calls EIA STEO projections flat out wrong.

US will be lucky to achieve 9.35 million b/day by December.

https://www.bloomberg.com/news/articles/2017-09-21/shale-billionaire-hamm-slams-exaggerated-u-s-oil-projections

[Jul 23, 2017] Most of us have underestimated how successful light-tight frac oil has now become but what is more important we underestimated how successful MRC and associated technology has been for many gulf nations. They postponed the day of reckoning for at least a decade.

Notable quotes:
"... Not only will enhanced recovery affect the economics of present unconventional operations, it has the potential to greatly expand the application to numerous, older conventional sources as well as undeveloped – yet recognized – formations with hydrocarbons within them ..."
"... But the problem isn't so much whether oil is still in the ground, but how much it costs to get it out. ..."
"... New technologies that don't reduce costs to make oil profitable to drill aren't all that helpful in keeping the oil flowing. Right now we have LTO because the system accepts financial loss. That could change if alternatives promise a better financial return. ..."
"... The way I understand the term Maximum Reservoir Contact (MRC) is that it refers to multiple laterals being drilled from a single vertical wellbore. ..."
"... From what I have read MRC technology is a great fit for a number of fields in the gulf countries and may be practical in other places including USA. Of course one of the problems applying it here is that I think you need a unitized field, or at least a very large area to be implemented. ..."
"... At that time, I was amazed to learn of the multi lateral, extended reach drilling using ultra sophisticated whipstocks in the mid east, offshore, and – if memory serves – Sakhalin. Probably do need large reservoir to be viable. ..."
"... The article says this: "On the supply side, global oil production advanced by 0.5 percent to reach 92.2 million BPD." You know, factoring in both population growth and world economic growth, this isn't much. There might be a crunch coming. ..."
Jul 23, 2017 | peakoilbarrel.com

New technologies did postoned the day f reconing, but they can't increase the total amount of oil availble so the effects are temporary. Adn they are costly. right now low oil price is financial scam.

dclonghorn

says: 07/20/2017 at 1:05 pm

I agree with George that getting stuff wrong is no reason to quit trying. To do so would be stupid. To look back at why projections were wrong is a much more interesting thing. To that end, I have been looking back at predictions from the 2005 to 2010 period, starting with Simmons and progressing to the oil drum and some others. I do not have the technical expertise that many of these people had, but looking back is a lot easier than looking forward.

In my opinion, there are two big reasons the projected decline hasn't come about yet. First, most of the work done was based upon inferred data. Because, the GCC countries don't release much, most of the folks making these projections took whatever info was available and ran with it. I don't blame them for this, as I believe they did what they could with what was out there, but I think they went too far in some instances, and confirmation bias is evident.

A part of Mr Simmon's efforts to deal with the lack of hard data was his review of many SPE papers dealing with various issues. I believe one of these papers is a key to understanding how KSA and others have exceeded projected production. Paper (SPE 88986) deals with well "Shaybah-220 A Maximum Reservoir Contact (MRC) Well and its implications for developing tight-facies reservoirs." https://www.onepetro.org/download/journal-paper/SPE-88986-PA?id=journal-paper%2FSPE-88986-PA

This paper by N.G. Saleri describes the efforts to develop the Shaybah Field. After some initial efforts to produce there were unsatisfactory, Aramco kept on trying and came up with the Shaybah 220, a well with eight laterals of around 40,000 feet of reservoir contact, and producing around 12,000 bbls per day for its first year. Saleri describes this as a "disruptive technology".

Simmons devoted a lot of attention to Shaybah, calling it "The difficult last Giant". He included a discussion of horizontal and MRC wells including the aforementioned paper, but I don't think he fully appreciated these MRC wells. They have allowed KSA to produce lots of oil in many fields that were in decline. Another example is shown by the 2008 paper by Mr Asaad Al-Towalib on "Advanced completion technologies in successful extraction of attic oil reserves in a mature giant carbonate field." In this paper they describe how this technology was adapted to produce the attic oil of Abqaiq, KSA's oldest giant. To summarize, Abqaiq had been produced since the 40's, and had produced about 57% of the original oil, but had around 25 feet of attic oil in poorer reservoir that they had not been able to produce. They tried to produce this attic oil via vertical and conventional horizontal wells with little success. They improved their technology and eventually completed many successful MRC wells with geosteering which allowed them to follow structure, and intelligent completions which delay the effects of coning.

So, much as most of us would have underestimated how successful our light-tight frac oil has now become, many underestimated how successful MRC, and associated technology has been for many gulf nations.

I think the next question is what happens next, so using Abqaiq as an example, after successfully producing that attic oil is there another encore or does it become just a depleted field? They have also used this technology to get more out of Ghawar and many other fields, do they have room to run, or are they done?

coffeeguyzz says: 07/20/2017 at 1:52 pm
dclonghorn

That is simply an outstanding display of, and description of, a serious effort in understanding what is unfolding in the world of hydrocarbon production.

I would suggest that the entire concept of MRC is being currently applied in this 'shale revolution' primarily in the area of maximizing recovery rates, aka better fracturing/completion processes.

Not only will enhanced recovery affect the economics of present unconventional operations, it has the potential to greatly expand the application to numerous, older conventional sources as well as undeveloped – yet recognized – formations with hydrocarbons within them

Boomer II says: 07/20/2017 at 2:05 pm
But the problem isn't so much whether oil is still in the ground, but how much it costs to get it out.

New technologies that don't reduce costs to make oil profitable to drill aren't all that helpful in keeping the oil flowing. Right now we have LTO because the system accepts financial loss. That could change if alternatives promise a better financial return.

Glenn E Stehle says: 07/20/2017 at 2:24 pm
coffeeguyzz,

The way I understand the term Maximum Reservoir Contact (MRC) is that it refers to multiple laterals being drilled from a single vertical wellbore.

I've seen this done in the Devonian in west Texas, but that is a conventional reservoir. Has it ever been tried in US shale?

The only thing I've heard of that sounds like MRC is this project (see attached graphic), but it is still in the pilot stage.

Oxy believes it can lower cost per lateral by between $0.5 and $1.0 million, and reduce operating cost by over 50% with this technology.

https://seekingalpha.com/article/4069021-occidental-petroleum-corporation-2017-q1-results-earnings-call-slides

coffeeguyzz says: 07/20/2017 at 3:01 pm
Glenn

I kind of 'flipped' the MRC concept in dc's post of 'more iron meeting' oil to 'more oil meeting iron' via the greatly enhanced fracturing/conductivity recently taking place in the shales.

Regarding multilaterals, the early (2007-2009) Bakken wells regularly contained 2 or 3 lateral from one vertical.
They used the term "turkey legs' and can still be easily seen on the ND DMR Gis map.

Virtually no one except Slawson still does this and even then, only rarely.

(Correction, might still be done in Madison formation, especially Bottineau county. Would have to check. Gis map is easiest way to literally see this).

BHP said a year ago that they would attempt to try this in the future, but I've not kept close track of their efforts.

dclonghorn says: 07/20/2017 at 3:47 pm
Thank you very much coffee, I appreciate your kind words. From what I have read MRC technology is a great fit for a number of fields in the gulf countries and may be practical in other places including USA. Of course one of the problems applying it here is that I think you need a unitized field, or at least a very large area to be implemented.

Do you know if other areas have adopted this?

coffeeguyzz says: 07/20/2017 at 6:54 pm
dc

I'm pretty sure you know a whole lot more about this stuff than I do.

I started digging into it a few years back when the series of stunningly high IPs started to emerge from the Deep Utica.
Big buzz developed about feasibility of sharing hardware/facilities to develop Marcellus and Utica together.

At that time, I was amazed to learn of the multi lateral, extended reach drilling using ultra sophisticated whipstocks in the mid east, offshore, and – if memory serves – Sakhalin. Probably do need large reservoir to be viable.

Time will tell if this approach makes sense in the shales. Like everything else, economics will be the ultimate determinator.

Boomer II says: 07/20/2017 at 10:03 am
The article says this: "On the supply side, global oil production advanced by 0.5 percent to reach 92.2 million BPD." You know, factoring in both population growth and world economic growth, this isn't much. There might be a crunch coming.
MASTERMIND says: 07/20/2017 at 12:53 pm
The 1973 so-called "oil embargo" which reduced oil supply to the USA by somewhere around 3% or 4%. It slammed the US economy, caused the largest stock market crash since the great depression, doubled gasoline prices, severely damaged US industry and caused a 55 MPH national speed limit which remained in effect for ten years.

Just wait until we experience a 10% or 20% drop in oil supplies. In a few years or sooner we certainly will. When it hits the economic and social damage will be catastrophic.

The end of Western Civilization, from China to Europe, to the US, will not occur when oil runs out. The economic and social chaos will occur when supplies are merely reduced sufficiently. As former Saudi Oil Minister Sheikh Yamani once said "The Oil Age may come to an end for a shortage of oil".

Watcher says: 07/21/2017 at 11:16 am
Bakken NGLs.
http://badlandsngls.com/uploads/1/BadlandsPresentationforBakkenConfMay16.pdf

They are talking about 25-30% and the verbage talks about it being in railcars . . . the suggestion is it's part of the total Bakken flow of 1 million bpd. 25-30% of that is ethane? What a scam this would be.

[Jun 15, 2017] Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption

Jun 14, 2017 | economistsview.typepad.com

im1dc, June 14, 2017 at 03:54 PM

The Reducing Ocean Shipping CO2 Paradox

Hey, maybe they should go back to sails...

http://maritime-executive.com/article/big-ships-account-for-most-of-shippings-co2

"Big Ships Account for 80 Percent of Shipping's CO2"

By Paul Benecki...2017-06-13...20:16:44

"At Nor-Shipping 2017, researchers with DNV GL released a study that points to the difficulty of reducing the industry's CO2 output below current levels. The problem is structural: big cargo vessels emit 80 percent of shipping's greenhouse gases, but they're also the industry's most efficient ships, and squeezing out additional improvements may be a challenge.

Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption, according to Christos Chryssakis, DNV GL's group leader for greener shipping. Unfortunately, these are already the fleet's most efficient vessels per ton-mile. "This is a paradox, but if we want to reduce our greenhouse gas emissions, we actually have to improve the best performers," Chryssakis says."...

libezkova - , June 14, 2017 at 05:58 PM
That's a valid observation.

Similar situation with trucking, but in the USA around one half of gas consumption goes into private cars. So by improving efficiency of private fleet by 100% you can cut total consumption only by 25%. All this talk about electrical cars like Tesla Model 3 right now is mostly cheap talk. They by-and-large belong to the luxury segment.

[Jun 03, 2017] Energy production and GDP

www.counterpunch.org

pgl , June 03, 2017 at 11:03 AM

Jun 03, 2017 | economistsview.typepad.com
Menzie Chinn:

http://econbrowser.com/archives/2017/06/why-did-the-president-rely-upon-a-consultants-report-for-his-decision-on-the-paris-accord

"the President cited this NERA study, commissioned by the American Council for Capital Formation, and the U.S. Chamber of Commerce. Why didn't the President rely upon his own experts within the White House?"

Because his CEA is not yet staffed. The NERA "study":

http://assets.accf.org/wp-content/uploads/2017/03/170316-NERA-ACCF-Full-Report.pdf

NERA uses its "model" to forecast that the cost to real GDP by2040 will be a 9% shortfall and the cost to employment will by 31.6 million jobs. Now that sounds BAD, BAD. But it sort of reminds me of the kind of "quality analysis" we might expect from the Heritage Foundation. Of course that is what the American Council for Capital Formation, and the U.S. Chamber of Commerce paid NERA to do.

libezkova - , June 03, 2017 at 01:29 PM
Any 2040 forecast of GDP needs to be based on the forecast of the price of fossil fuels.

http://corporate.exxonmobil.com/en/energy/energy-outlook

libezkova - , June 03, 2017 at 01:44 PM
They predict:

"World GDP doubles from 2015 to 2040, with non-OECD GDP increasing 175 percent and OECD GDP growing 60 percent"

im1dc - , June 03, 2017 at 02:16 PM
I learned much reading this about Russia's taxing of its crude oil...you may find it interesting as well...

Careful though, Irina Slav neglected to mention that Russia never stopped producing as much oil as it could during OPEC's deal to cut production so this is hardly a balanced article

Putin and the Russian Oligarchs are not going to cut production, Mother Russia (Putin) needs the cash flow (as do the other OPEC cheaters)

http://oilprice.com/Energy/Energy-General/OPEC-Cuts-Send-Russias-Oil-Heartland-Into-Decline.html

"OPEC Cuts Send Russia's Oil Heartland Into Decline"

By Irina Slav...Jun 03, 2017,...2:00 PM CDT

"Western Siberia is to Russia what the Permian is to the U.S. Well, kind of. Kind of in a sense that it's one of the longest-producing oil regions and there's still a lot of oil in it. Yet, thanks to the production cut deal with OPEC, Russian companies have had additional motivation to move to new territories in the east and the north, where taxes are lower.

In Russia, the older the fields, the higher the taxes operators have to pay. Now that the country has pledged to continue cutting 300,000 bpd for another nine months, the most obvious choices for the cut are the mature Western Siberian fields. In the first quarter of 2017, for example, output at Rosneft's Yugansk field fell by 4.2 percent, Bloomberg reported.

Production at other Western Siberian fields is set for a decline as well, with the daily output rate from lower-tax deposits in the Caspian Sea, Eastern Siberia, and the North seen to rise to 866,000 bpd by the end of the year, or 74 percent on the year. The shift away from mature fields to new ones will continue over the medium term, according to BofA analyst Karen Kostanian, as overall Russian output grows. No wonder, as tax relief on new projects sometimes reaches 90 percent.

Lukoil's output from the Filanovsky field in the Caspian, for instance, is taxed at 15 percent at a price per barrel of US$50. The average for mature fields is 58.1 percent, in a combination of mineral resource tax and export duty.

And this is not the end of it: in 2018, the Kremlin will test a new tax regime for the oil industry as it seeks to maintain production growth and the respective revenues, contributing a solid chunk of federal budget revenues. The new regime, Deputy Energy Minister Alexei Texler told Reuters, will first be introduced for a selection of 21 fields with a combined output of 300,000 bpd for a period of five years.

In case the government is happy with the results from the test, the new regime would be expanded to the whole industry. Hopes are for a substantial increase in output thanks to the new tax regime: up to 20 percent over the five-year period. These hopes seem to be limited to the Energy Ministry, however, the Finance Ministry worries that the new regime will make it harder to control the flow of tax money. The treasury is also against combining the new regime with already existing tax incentives for the industry.

So, the move away from what Bloomberg calls the oil heartland of the world's top producer is all but inevitable. It will come at a cost for the state coffers of some US$25 a barrel of Western Siberian oil, or US$2.7 billion annually, according to a Renaissance Capital analyst, but the cost will be worth it. The cost would increase, too, if the current output cut arrangement with OPEC fails to push up prices, which for now is exactly what we are seeing, while the ramp-up in the U.S. oil heartland continues."

libezkova - , June 03, 2017 at 04:18 PM
"With enough thrusts pigs can fly. It is just dangerous to stand were they are going to land." This quote is perfectly applicable to OPEC and Russia oil production now.

Neglecting maintenances and using "in fill" drilling just shorten the life of the traditional oil fields. And new large oil fields are difficult to come by.

My impression is that most of "cuts" in production by Russia and OPEC are "forced moves". Production was declining from mid 2016 when old investment were already all put into production and few new investments were made since late 2014.

If we assume the lag period of two years, than in mid 2018 we will feel the results of decisions to cut investments made in 2016.

In this situation announcing cuts allow to save face.

The net result is the same -- the oil price should rise to the level when it is economical to develop "more expensive oil" (deep see drilling, Arctic oil and such) as replacement rate in traditional fields is insufficient to maintain the production.

As long as The US government allow shale companies to generate junk bonds (which will never be repaid representing kind of hidden subsidy) along with "subprime oil", shale can slightly compensate the decline in production, but my impression is that this card was already played. Despite all hoopla from WSJ and other major MSM.

The fact that oil production for some time was artificially kept flat or slightly rising is strange and might be politically motivated (Saudi) which put other producers in situation when they were force to follow Saudi lead or lose customers. China played Russians against Saudi pretty well and got what they want at lower prices.

Those "intensification of production" were short term measures which in a long run are detrimental to old oil fields output.

They might even lessen the total amount of oil that can be extracted from a given field.

The key question here is: Does Russian oil firms has the amount of money needed to maintain production on the current level (at the current oil price levels ) or not.

Obama has a chance to move the US personal fleet to hybrid and more economical cars. He lost this chance. SUV is now dominant type of personal cars int he USA, the trend opposite to what it should be. Even hybrid SUVs like RAV4 hybrid get only around 33 miles highway, less in city traffic.

Transition to Prius type cars (with their around 50 miles per gallon) would allow US consumers to save almost half of oil spend on personal transportation (which probably represent around 60% of total US consumption http://needtoknow.nas.edu/energy/energy-use/transportation/ )

[May 30, 2017] Looks like the Chinese have been filling their SPR over the last two years

May 30, 2017 | peakoilbarrel.com
George Kaplan says: 05/24/2017 at 9:57 am
There's a plausible sounding theory, even though posted on Zero Hedge, that the Chinese have been filling their SPR over the last two years, and that is about to stop. This would mostly account for why OECD storage levels only took about 35% of the supply-demand imbalance. If they do stop then about 1 mmbpd of demand would suddenly be lost, but it might also imply that the real economy demand growth in the period since January 2015 has only been half what it looks to have been. Taking account of the sudden drop and a slower growth in demand would mean a longer time would be needed to draw down OECD stocks. However if the China SPR scenario is correct then almost all the drawdown would come from OECD. By my reckoning this would push a balancing out to late 2018 (although by then we may be seeing some bigger supply drops as the pipeline for new project start-ups will be drying up). But if the balancing is pushed out then the chances of many FIDs this year or next will decline and the possibility of a sudden supply crunch in 2019 through 2022 would be greater. The green curve below gives possible drawdown under this scenario. The red one was a previous assumption that the OECD stocks would be drawn down at only about 35% of the imbalance (as happened when they were rising). I seemed a bit iffy when I fitted it that way, and I think the China SPR filling is a better explanation.

Watcher says: 05/24/2017 at 6:00 pm
SPRs in general try to have 90 days of domestic consumption in them. This was a standard put into place mostly in Europe. China has embraced it.

The US at 750ish million barrels and having a consumption (net of production) of about 11 million bpd (remember, this is real stuff . . . consumption, no refinery gain BS allowed) and so not quite 70 days domestic consumption.

China, at net consumption of about 7 million bpd X 90 needs an SPR of 630 million barrels. That's about what they have, but of course with 5% consumption growth they'll have to adjust up, but for now . . . all is well.

There probably is no flow in or out of China for SPR reasons. Already full. Have been for a while.

Dennis Coyne says: 05/25/2017 at 12:30 pm
Hi Watcher,

Crude inputs to refineries and blenders was 16.2 Mb/d for the 2016 average.

https://www.eia.gov/dnav/pet/pet_pnp_inpt_dc_nus_mbblpd_a.htm

So 700/16.2 is 43 days for SPR alone. For commercial crude stocks plus SPR it is 1200 Mb so 1200/16.2=74 days.

https://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_m.htm

George Kaplan says: 05/25/2017 at 2:29 pm
This is the chart Zero Hedge had, or linked to – the key is Xinhua CFC, who have Chinese data not otherwise available and charge a lot of money for it. I don't know how you'd go about checking if it's correct.

Energy News says: 05/26/2017 at 4:26 am
Hello, don't forget that Xinhua doesn't publish China's SPR figures. The SPR figure in the chart is an estimate based on (Production + Imports – Refinery Inputs). I'm not sure if all the teapots are included in the official refinery data.

I think Zero Hedge borrowed the chart from here:
Scotiabank pdf file: http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/SCPI_2017-04-12.pdf

Latest figures from Xinhua news agency
2017-05-26 Chinese oil inventories month/month April changes: crude +1.64%, oil products -7.87% (gasoline -0.27%, diesel -14.4%) – OGP/BBG

Chart showing March

Energy News says: 05/26/2017 at 8:49 am
China's April diesel stocks fall for second straight month -Xinhua
http://af.reuters.com/article/energyOilNews/idAFL4N1IS2EJ
George Kaplan says: 05/26/2017 at 1:54 pm
So are the numbers you are posting supporting or not the Zero Hedge theory and/or my projection based on it? And if not why?
Energy News says: 05/27/2017 at 1:34 pm
I guess that Chinese demand must be higher than estimated. Like this article was suggesting

Bloomberg – October 11th 2016
China's appetite for oil.
Fuel use grew by about 5 percent in the first half of 2016, according to China's biggest oil refiner, faster than the 0.4 percent derived from government data. That "official" number is clouded by rising gasoline exports - blends that don't show up in official figures, according to the International Energy Agency, Sinopec Group and Energy Aspects Ltd.
Chinese authorities are also having trouble tracking refinery activity because of the surge of processing by independent refiners, known as teapots, according to Energy Aspects' Meidan.
http://www.bloomberg.com/news/articles/2016-10-10/gasoline-cocktails-mix-with-gaps-in-data-to-cloud-china-oil-view ?

[May 30, 2017] Soon, GOM will start declining. Onshore conventional is like the sun setting. Just 60 or so straight hole rigs active, half of the 1998-99 trough. Alaska doesnt appear to add anything. Unless demand tank maybe its time to be bullish?

Notable quotes:
"... Unless demand tanks, per Tony Seba's theories, maybe its time to be bullish? When it is clear US shale has hit the wall, price could sky? ..."
May 30, 2017 | peakoilbarrel.com
shallow sand says: 05/26/2017 at 10:07 pm
Enno's shaleprofile.com is full of facts. I went back and looked at his 1/17 summary of all US oil producing shale fields. Interesting that despite adding over 13,000 new wells since the peak in 3/15, US as of 1/17 was still 600K bopd below the 3/15 peak.

I do realize data is somewhat incomplete due to TX. I also realize not all wells are included. Still, going to take a lot of CAPEX to climb the ladder back to 5, 6 and maybe 7 million bopd from the shale fields.

Soon, GOM will start declining. Onshore conventional is like the sun setting. Just 60 or so straight hole rigs active, half of the 1998-99 trough. Alaska doesn't appear to add anything.

Unless demand tanks, per Tony Seba's theories, maybe its time to be bullish? When it is clear US shale has hit the wall, price could sky?

[May 30, 2017] XOM – Potential 2nd Downgrade

Notable quotes:
"... unlike its peers such as Chevron and BP, Exxon Mobil is not targeting meaningful growth in production. ..."
"... Shell, Chevron, and BP carry debt loads of $91.6 billion, $45.3 billion and $61.8 billion, respectively. " ..."
May 30, 2017 | peakoilbarrel.com

Longtimber says: 05/30/2017 at 4:18 pm

XOM – Potential 2nd Downgrade – unless APPL or Bazos jumps to the rescue. / sarc

"However, unlike its peers such as Chevron and BP, Exxon Mobil is not targeting meaningful growth in production.

Although Exxon Mobil is working on a number of shale oil, conventional oil and LNG projects which will come online in the near term, they will largely help the company in offsetting the negative impact of field declines and asset sales - Shell, Chevron, and BP carry debt loads of $91.6 billion, $45.3 billion and $61.8 billion, respectively. "

https://seekingalpha.com/article/4077223-exxon-mobil-make-s-and-ps-warning

[Apr 17, 2017] China crude oil imports increased to a record 9.21mb/day in March 2017 versus 8.32mb/day in February 2017

Apr 17, 2017 | peakoilbarrel.com
Energy News says: 04/15/2017 at 10:35 am
China crude oil imports increased to a record 9.21mb/day in March 2017 versus 8.32mb/day in February 2017 (7.33 barrels per ton conversion) – Chinese customs data. I guess China is still filling it's SPR.

Before I had read this I had been wondering why news articles were saying that world oil inventories had decreased a little. Inventories often build into April. Also news agencies estimates are still saying that OPEC oil exports are holding steady and have not decreased in line with their production cuts, I guess that they have been exporting from their inventories.

inventory declines, news clips

Reuters Apr 11, 2017 – Nordic bank SEB said global oil inventories in weekly data have dropped by 42 million barrels in the last four weeks.
http://uk.reuters.com/article/uk-oil-opec-storage-idUKKBN17D1NH

Bloomberg 2017-04-04 – Since mid-February, between 10 million and 20 million barrels have left the Caribbean
https://www.bloomberg.com/news/articles/2017-04-03/oil-traders-said-to-drain-caribbean-hoards-as-opec-impact-hits

Clipper Data Apr 6, 2017 – This week we have seen Iranian barrels drop to 5 million barrels, while barrels offshore of United Arab Emirates have halved in the last week, dropping to just under 10 million barrels.
http://blog.clipperdata.com/floating-storage-holding-up-despite-iran-drop

[Mar 25, 2017] The few larger, new discoveries are also in frontier, and therefore generally more expensive, regions

Mar 25, 2017 | peakoilbarrel.com
George Kaplan says: 03/23/2017 at 7:18 am
It's looking like the shorter cycle times for LTO just means the the volatility acts over higher frequency but doesn't go away. A fundamental problem remains that all the E&Ps use basically the same model, and therefore they all make essentially the same decisions at around the same time, and therefore you get boom and bust. Volatility may be the biggest contribution to delaying or preventing long term investment in bigger (principally deep water and oil sand) projects, but I think the impact of the big drop off in discoveries is significant, and not being fully appreciated.

The backlog of discoveries are mostly difficult and expensive developments that were not considered as top prospects when oil was over $100.

The few larger, new discoveries are also in frontier, and therefore generally more expensive, regions. E&Ps are turning to gas, or near field developments, or are giving up on offshore altogether. Much higher, and stable, prices might be needed to get these big projects going. If high prices cause a fast demand collapse, by whatever mix of mechanisms, then they might well not get done.

[Feb 26, 2017] Militarists from Obama administration essentially continued Bush II policies and wasted money in Middle East, Afghanistan and Ukraine, instead of facilitating conversion of passenger cards to hybrids (and electrical for short commutes)

Feb 26, 2017 | economistsview.typepad.com
im1dc : Reply Saturday, February 25, 2017 at 10:08 AM

, February 25, 2017 at 10:08 AM
Update US Crude Oil production, market, and exports

http://maritime-executive.com/article/us-oil-exports-hit-record-levels

"U.S. Oil Exports Hit Record Levels"

By MarEx 2017-02-24

"U.S. oil exporters set a new record last week: shipments leaving the country averaged 1.2 million barrels of crude per day, roughly double the levels seen at the end of last year.

Analysts told Bloomberg that the rising American exports are driven in large part by falling domestic prices. West Texas Intermediate futures (the domestic benchmark) are trading below the international Brent standard by $2 per barrel or more, and are now cheaper than some Middle Eastern grades of lesser quality. This makes American crude more attractive to Asian buyers.

There is also an incentive for traders to sell their oil abroad: U.S. storage is costly. If the price of crude is not expected to rise, brokers have no incentive to hang on to their supply and pay rent on a tank to put it in."...

ilsm -> im1dc... , February 25, 2017 at 01:16 PM
From the report:

The greens might not be happy US is polluting to ship gasoline and distillates out!

ilsm -> ilsm... , February 25, 2017 at 01:19 PM
See: http://www.eia.gov/petroleum/supply/weekly/

Table 1, open the .xls see data 2 for Feb 17 2017 at the bottom.

im1dc -> ilsm... , February 25, 2017 at 02:00 PM
ilsm, that is the previous week I believe.
libezkova -> ilsm... , February 25, 2017 at 04:33 PM
You are just regular incompetent chichenhawk. And it shows. Try to read something about US oil industry before positing. It is actually a very fascinating topic. That's where the battle for survival of neoliberalism in the USA (with its rampant militarism and impoverishment of lower 50% of population) is now fought.

If you list also domestic consumption, you will understand that you are completely misunderstanding and misrepresenting the situation. The USA is a huge oil importer (Net Imports: 6.075 Mbbl; see ilsm post), not an exporter. You can consider it to be exported only after drinking something really strong.

It refines and re-export refined products and also export condensate and shale light oil that is used for dilution of heavy oils in Canada and Latin America. That's it.

US shale can't be profitable below, say, $65 per barrel (so called "break-even" price for well started in 2009-2016), and if interest on already existing loans (all shale industry is deeply in debt; ) and minimum profitability (2.5%) is factored in, probably $77.

That's why production is declining and will decline further is prices stay low because there is only fixed amount of "sweet spots" which can produce oil profitably at lower prices. In 2017 they are mostly gone, so what's left is not so attractive at the current prices. And this is an understatement.

The same is true to Canadian sands. Plans for expansion are now revised down and investments postponed.

So in order to sustain the US shale industry prices need to grow at least over $65 this year

And those war-crazy militarists from Obama administration essentially continued Bush II policies and wasted money in Middle East, Afghanistan and Ukraine, instead of facilitating conversion of passenger cards to hybrids (and electrical for short commutes).

The US as a country waisted its time and now is completely unprepared for down of oil age.

The net result of Obama policies is that SUVs became that most popular type of passenger cars in the USA. That can be called Iran revenge on the USA.

The conflict between Donald Trump and the US Deep State can be explained that deep state can't allow Trump détente with Russia and stopping wars on neoliberal expansion at Middle East. That's why they torpedoed General Flynn. It is not about Flynn, it was about Trump. To show him who is the boss and warn "You can be fired".

Due to "overconsumption" of oil inherent in neoliberalism with its crazy goods flows that might cross the ocean several times before getting to customer, US neoliberal empire (and neoliberalism as social system) can well go off the cliff when cheap oil is gone.

The only question is when it happens and estimates vary from 10 to 50 years.

So in the best case neoliberalism might be able to outlive Bolshevism which lasted 74 years (1917-1991) by only something like 15 years.

[Feb 25, 2017] Due to overconsumption of oil inherent in neoliberalism with its crazy goods flows that might cross the ocean several times before getting to customer, US neoliberal empire (and neoliberalism as social system) can well go off the cliff when cheap oil is gone.

Feb 25, 2017 | economistsview.typepad.com
im1dc :

, February 25, 2017 at 10:06 AM
Gee, I can't imagine what could go wrong with this

Click and look at the map and inset to understand

Israel to become an energy, NG, superpower?

http://maritime-executive.com/article/noble-energy-sanctions-leviathan

"Noble Energy Sanctions Leviathan"

By MarEx...2017-02-24

"Noble Energy has sanctioned the first phase of the Leviathan natural gas project offshore Israel, with first gas targeted for the end of 2019.

Noble Energy is the operator of the Leviathan Field, which contains 22 trillion cubic feet (Tcf) of gross recoverable natural gas resources.

The announcement was hailed by Israeli Prime Minister Benjamin Netanyahu who has played a key role in negotiations with Noble. Netanyahu says the discovery of large reserves will bring energy self-sufficiency and billions of dollars in tax revenues, reports The Times of Israel, but critics say the deal gave excessively favorable terms to the government's corporate partners...

Production will be gathered at the field and delivered via two 73-mile flowlines to a fixed platform, with full processing capabilities, located approximately six miles offshore."...

im1dc : , February 25, 2017 at 10:08 AM
Update US Crude Oil production, market, and exports

http://maritime-executive.com/article/us-oil-exports-hit-record-levels

"U.S. Oil Exports Hit Record Levels"

By MarEx 2017-02-24

"U.S. oil exporters set a new record last week: shipments leaving the country averaged 1.2 million barrels of crude per day, roughly double the levels seen at the end of last year.

Analysts told Bloomberg that the rising American exports are driven in large part by falling domestic prices. West Texas Intermediate futures (the domestic benchmark) are trading below the international Brent standard by $2 per barrel or more, and are now cheaper than some Middle Eastern grades of lesser quality. This makes American crude more attractive to Asian buyers.

There is also an incentive for traders to sell their oil abroad: U.S. storage is costly. If the price of crude is not expected to rise, brokers have no incentive to hang on to their supply and pay rent on a tank to put it in."...

ilsm -> im1dc... , February 25, 2017 at 01:16 PM
From the report:

I did not see any input to the NPR.

The greens might not be happy US is polluting to ship gasoline and distillates out!

ilsm -> ilsm... , February 25, 2017 at 01:19 PM
See: http://www.eia.gov/petroleum/supply/weekly/

Table 1, open the .xls see data 2 for Feb 17 2017 at the bottom.

im1dc -> ilsm... , February 25, 2017 at 02:00 PM
ilsm, that is the previous week I believe.
libezkova -> ilsm... , February 25, 2017 at 04:33 PM
You are just regular incompetent chichenhawk. And it shows. Try to read something about US oil industry before positing. It is actually a very fascinating topic. That's where the battle for survival of neoliberalism in the USA (with its rampant militarism and impoverishment of lower 50% of population) is now fought.

If you list also domestic consumption, you will understand that you are completely misunderstanding and misrepresenting the situation. The USA is a huge oil importer (Net Imports: 6.075 Mbbl; see ilsm post), not an exporter. You can consider it to be exported only after drinking something really strong.

It refines and re-export refined products and also export condensate and shale light oil that is used for dilution of heavy oils in Canada and Latin America. That's it.

US shale can't be profitable below, say, $65 per barrel (so called "break-even" price for well started in 2009-2016), and if interest on already existing loans (all shale industry is deeply in debt; ) and minimum profitability (2.5% is factored in, probably $77.

That's why production is declining and will decline further is prices stay low because there is only fixed amount of "sweet spots" which can produce oil profitably at lower prices. In 2017 they are mostly gone, so what's left is not so attractive at the current prices. And this is an understatement.

The same is true to Canadian sands. Plans for expansion are now revised down and investments postponed.

So in order to sustain the US shale industry prices need to grow at least over $65 this year

And those war-crazy militarists from Obama administration essentially continued Bush II policies and wasted money in Middle East, Afghanistan and Ukraine, instead of facilitating conversion of passenger cards to hybrids (and electrical for short commutes).

The US as a country wasted its time and now is completely unprepared for down of oil age.

The net result of Obama policies is that SUVs became that most popular type of passenger cars in the USA. That can be called Iran revenge on the USA.

The conflict between Donald Trump and the US Deep State can be explained that deep state can't allow Trump détente with Russia and stopping wars on neoliberal expansion at Middle East. That's why they torpedoed General Flynn. It is not about Flynn, it was about Trump. To show him who is the boss and warn "You can be fired".

Due to "overconsumption" of oil inherent in neoliberalism with its crazy goods flows that might cross the ocean several times before getting to customer, US neoliberal empire (and neoliberalism as social system) can well go off the cliff when cheap oil is gone.

The only question is when it happens and estimates vary from 10 to 50 years.

So in the best case neoliberalism might be able to outlive Bolshevism which lasted 74 years (1917-1991) by only something like 15 years.

[Feb 21, 2017] Chinese oil demand growth

Feb 21, 2017 | peakoilbarrel.com

Reuters calculated Chinese oil demand growth of 2.5% in 2016, based on official data-a three-year low-down from 3.1% in 2015."

> > > > > > > >

[Feb 13, 2017] Mexican oil production is dropping

Feb 13, 2017 | peakoilbarrel.com
George Kaplan says: 02/11/2017 at 4:40 am
I looked at Mexico production by area as below. The numbers in brackets show percentage year on year change for exit rate 2016 to 2017. Only the small area in northern offshore, which is not LMZ or Cantarell, is not declining. Even KMZ looks like it might be turning over. If it goes like Cantarell as Nitrogen and or water start hitting the producers then the will be a big acceleration, if not then the decline might flatten out as the other fields make up increasingly less of the mix. The plateau that KMZ achieved after N2 injection was started is now quite long for an offshore field.

[Feb 13, 2017] Oil industry, and particularly Shale Oil Sands part, lives in hope for the last 3 years.

Notable quotes:
"... For the past eight years we were fed the constant stream of stories of mythical economic "recovery" and all the wealth created in this period from the bankers and economist. And as a result of all that illusory "wealth" retail sector was able to sell goods to consumers with empty wallets and maxed credit cards only by smashing prices to the bone – leaving almost nothing for the profit. ..."
"... Imagine the state of economy without this extra unconventional 5-6 mbd and $100 per barrel as a consequence. ..."
Feb 13, 2017 | peakoilbarrel.com
Ves says: 02/10/2017 at 4:16 pm
Steve,
Oil industry, and particularly Shale & Oil Sands part, lives in hope for the last 3 years. And that is not reality, because hope means dream. Unless someone's live in reality, here and now, they are dreaming. They are dead weight, and tomorrow which will fulfill all their hopes is never to come.

Shale and Oil Sands are mostly North American origin of production with 5-6 mbd. where we have the most consumption per capita in the entire world.

For the past eight years we were fed the constant stream of stories of mythical economic "recovery" and all the wealth created in this period from the bankers and economist. And as a result of all that illusory "wealth" retail sector was able to sell goods to consumers with empty wallets and maxed credit cards only by smashing prices to the bone – leaving almost nothing for the profit.

Imagine the state of economy without this extra unconventional 5-6 mbd and $100 per barrel as a consequence.

[Feb 13, 2017] There is strong evidence that the US economy can survive only oil prices below 100 dollars per barrel without sliding into recession

Feb 13, 2017 | peakoilbarrel.com
Dennis Coyne says: 02/10/2017 at 9:10 am
Hi Likbez.

I disagree that it implies subsidies. What is implied is that when oil is scarce, the price of oil will increase and more of the expensive oil will be profitable to produce. Eventually the high oil price will lead to greater efficiency in the use of oil (as measured by real World GDP per barrel of oil consumed) and also some substitution of natural gas, and electricity for oil in the transportation sector and after 10 to 20 years demand for oil might fall below the supply of oil and lead to lower prices.

My main point is that the supply of oil depends on profits, not on net energy or exergy of the oil produced. Profits will depend on revenue minus costs and revenue will be determined by the oil price which is a function of both supply and demand for oil.

likbez says: 02/12/2017 at 10:43 pm
There is strong evidence that the US economy can survive only oil prices below $100 per barrel without sliding into recession. Some researchers put this magic "perma-stagnation" oil price as low as $60 per barrel. I think understanding of this fact is partially behind this prolonged "oil price crush".

So it might well be that we do not have the freedom of "arbitrary" oil prices in the US economy. and in worst case scenario we have oil prices already close to the celling, unless the economy is restructured.

That's why your line of thinking about this problem might be wrong. In other words, this is a very serious situation for the USA. "The long emergency" as James Howard Kunstler aptly called it (not that I agree with his line of thinking or endorse his book).

Meanwhile the US is wasting time and money on the wars of neoliberal expansion, which partially is "brut force" way of securing privileged access to remaining oil deposits. Around 5 trillion was spent so far, or 167 millions of Toyota Priuses at $30K per car, or half of the US passenger fleet (there were 260 million registered passenger vehicles in the United States in 2014)

So instead on concentrating on this fundamental problem that nation is facing, the USA is just "waiving dead chicken" with the military force. If we add the possibility of Seneca cliff that situation might be even worse then I described. The nation does need radically cut the amount of oil spend on personal transportation. Using all ways for this that are technologically feasible. Because this is the lowest hanging fruit. But very little was done in this direction on both federal and state levels.

Meanwhile we expanded the fleet of SUVs for personal transportation - this is now the most popular "form factor" for personal car, which overtook sedans. Growth of the fleet of hybrid cars is unacceptably slow (over 4 million units sold through April 2016; Japan, a much smaller and compact nation, sold 5 millions).

Even such a symbolic act as switching of all personal government cars to hybrids was not done by Obama administration, which preferred only talk about the problem and opened spigot for shale junk bond. The only their "real" achievement was "Iran deal" which probably was instrumental in crashing oil prices. Which probably helped Obama much more than it helped the USA economy as whole, but we should not inspect the teeth of the horse that was given as a gift, as old saying goes.

Also attempts to lessen huge traffic jams in large cities like NY and SF are feeble, despite the fact that the technology is available both to reroute the cars and to optimize traffic lights.

Converting existing roads network into "one way" network is almost unheard outside the city center, even when two more or less adequate parallel roads exists with the short distance of each other.

Variation of the number of lines each way is practiced very rarely, in some city centers and selected bridges.

Green wave for traffic using Wifi connections between traffic lights and cameras is in a very rudimentary stage.

The only progress that I noticed is that more and more traffic lights at night autodetect the presence of the car on intersection and switch to green light if there is not traffic in "main" direction.

[Feb 12, 2017] Wall Street Pouring Money Back Into Oil And Gas

Feb 12, 2017 | www.zerohedge.com

Submitted by Nick Cunningham via OilPrice.com, Despite the near record increase in U.S. oil inventories last week – an increase of 13.8 million barrels – oil prices traded up on February 8 and 9 as traders pinned their hopes on a surprise drawdown in gasoline stocks, which provided some evidence of stronger-than-expected demand. The abnormal crude stock increase took inventories close to 80-year record levels at 508 million barrels, and is another bit of damming evidence that should worry oil bulls. But the oil markets were not deterred. In fact, that has been a defining characteristic of the market in recent weeks – optimism even in the face of some pretty worrying signals about the trajectory of the market "adjustment" process. More signs of optimism abound. Wall Street is pouring the most money into oil and gas companies in the U.S. since at least 2000, according to Bloomberg. In January alone, drillers and oilfield service companies raised $6.64 billion in 13 different equity offerings. "The mood is absolutely different," Trey Stolz, an analyst at the investment banking firm Coker & Palmer Inc., told Bloomberg. "Go back to a year ago and the knife was still falling. But today, it feels much, much better."

[Feb 12, 2017] Selling assets to pay down dividends and buy back stocks is liquidation

Feb 12, 2017 | peakoilbarrel.com
Rune Likvern says: 02/11/2017 at 4:31 pm
From what I have seen it is generally accepted that EROEI for FF has been and will continue (lots of peer reviewed papers documenting this) to be in a downward trend. Then it is open for projections how fast this downward trend will develop and its consequences.

What matters is net affordable energy that will be made available for societies.
In the short term it is about flows, longer term; size and quality of remaining stocks.

Selling assets to pay down dividends/buy back stocks is liquidation.

Further up in this post Nathanel shared some great insights;

"Personally, from my background in general financial analysis, the two really big metrics I've been watching lately: Dividends in excess of current earnings mean a company in decline. Borrowing money to pay the dividend means a company which is in unmanaged, uncontrolled decline. (Managed decline would involve liquidating assets to pay dividends, and *paying off* debt.) "

"Look at what they do and not what they say."

Several big oil companies have used money for stock buy backs, but another trend I found interesting is also how they move into renewable (solar and wind). This should be an indicator about what these companies find profitable.
Just to be clear, I think renewables are great, but we also need to recognize the dominant role of FF.

AlexS says: 02/11/2017 at 9:43 pm
"The oil majors were not spending on CAPEX and were selling assets to pay dividends to their shareholders."

They are spending on capex (although they cut spending in 2015-16) and they are buying assets, not only selling.

[Jan 28, 2017] Crude Oil: So Much For That Rally by Johanna Bennett

Notable quotes:
"... Light, sweet crude for March delivery recently fell 90 cents, or 1.67%, to $52.88 a barrel on the New York Mercantile Exchange. Meanwhile, brent, the global benchmark, dropped $1.02, or 1.8%, to $55.22 a barrel on ICE Futures Europe. ..."
"... We believe the market will soon get the catalyst it has been waiting for to push higher – better inventory stats. Getting ahead of this catalyst is a good risk-reward proposition in our view. ..."
blogs.barrons.com
If you were hoping crude oil prices would end the week on a positive note after yesterday's rally, you're likely to be disappointed.

U.S. and brent crude futures fell Friday as worries about U.S. drilling activity once again weighed on the market following the release of data showing that the number of active rigs rose for a second consecutive week.

Light, sweet crude for March delivery recently fell 90 cents, or 1.67%, to $52.88 a barrel on the New York Mercantile Exchange. Meanwhile, brent, the global benchmark, dropped $1.02, or 1.8%, to $55.22 a barrel on ICE Futures Europe.

Crude prices have oscillated between gains and losses over the past several weeks as investor sentiment has shifted almost daily. OPEC and its allies have so far followed through on promised production cuts, yet fears linger that U.S. drilling will hurt efforts to curb global supply.

Crude prices settled Thursday at their highest prices in several weeks. But today's decline pushed futures contacts into the red for the week. If U.S. and brent crude contracts settle at current levels, prices will fall more than 0.6% for the week.

But Vikas Dwivedi and his team at Macquaire recommend increasing oil exposure, pointing to a tightening sour crude market and storage trends. But he warns that 2018 looks challenging.

We believe the market will soon get the catalyst it has been waiting for to push higher – better inventory stats. Getting ahead of this catalyst is a good risk-reward proposition in our view. However, we caution against turning a rally into a structural trade. Our balances indicate the market is oversupplied again in 2018. Key 2018 drivers include the return of approximately 1.2 MM BPD of post-deal (OPEC and NOPEC ex U.S.) supply and 0.6 MM BPD of U.S. supply growth + global.

The Energy Select Sector SPDR Energy ETF (XLE) fell 1.3% in recent market action, while the iShares U.S. Energy ETF (IYE) dropped 1.2%.

Elsewhere in the ETF realm, the United States Oil Fund (USO) declined almost 1.8% and the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL lost 2%. The U.S. Brent Oil Fund (BNO) also fell 2%.

[Jan 23, 2017] Oil depletion might take care of the climate change

Jan 23, 2017 | economistsview.typepad.com
libezkova : January 23, 2017 at 01:26 PM , 2017 at 01:26 PM
It might well be that "human induced climate change" enthusiasts are barking to the wrong tree.

Oil depletion might take care of the "climate change" (as well as "excessive" humans) even without Trump or and other politician. This is probably a matter of a decade or two.

The key here is proactive switching the use private car fleet to more economical model and without draconian measures such as $4 per gallon gas or $1K per cubic centimeter of engine volume tax the process is very slow.

Obama administration was pretty inactive in this area, despite all rhetoric.

There is no justification of using full size SUV or light truck for communizing to work unless you agree to pay extra for this privilege.

-->

[Jan 11, 2017] What percentage of US oil consumption is food transtoration

Jan 11, 2017 | peakoilbarrel.com
Watcher says: 01/10/2017 at 11:36 am
What % of US oil consumption is food transport? This got tricky quickly.

Average US person eats about 5.4 pounds of food a day. That's just the food. Average meal travels 1500 miles to reach your mouth.

First tricky item - packaging. It has to transport, too. Amazing variance on this. Glass jar of pickles vs paper around candy bars. The only estimate out there is numbers for municipal solid waste and estimates of % of that is food packaging. Year 2000 US waste generation 4.5 pounds/day/person, and growing. Probably over 6 by now based on the curve, but will use 5 lbs/day cuz round number.

31% of that is packaging and half of that number is food packaging. Some 2006 study. So 15% of 5 lbs a day is 0.75 pounds added to the 5.4 pounds of food is 6.15 pounds shipped a day per person.

For 1500 miles.

Eyeballing some charts looks like typical/average truck hauling weight for stuff hauled is 60,000 lbs. Typical diesel mileage 6 miles/gallon.

6.15 pounds X 320 million mouths = about 2 billion pounds of food moved each day
1500 miles / 6 = 250 gallons truck burned
2 billion lbs / 60,000 lbs = 33,333 truck trips X 250 gallons/truck trip = 198.4K bpd to move food.

Ain't much. Maybe there's an error in there. Top of my head . . . things not included, hauling spare parts for the food moving trucks, spare parts for the packaging gizmos, plastic packaging, agricultural consumption itself.

[Edit] Blurb says 17% of total US oil use is agricultural, up and downstream (fertilizer plus fuel). This would be far more than food transport.

Oldfarmermac says: 01/10/2017 at 12:26 pm
I am suspicious of that fifteen hundred mile figure, but it may be accurate. Or it may have assumed a life of it's own, after being tossed out by one or two people who really just guessed at it.

Most of the food that is produced in truly huge amounts, staple food, is shipped by water, and or by rail, if it travels a LONG way. A VERY limited amount of food, in relation to the total amount, is air freighted.

Here in the USA, it's not too likely that very much in the way of unprocessed or processed staple food is shipped more than a thousand miles by truck. Exceptions will be mostly fresh high retail value produce, shipped as directly and quickly as possible from grower to retailer.

The REAL food miles come at the very tail end of the distribution chain. I never owned an eighteen wheeler, but I did once own a C70 Chevy which would legally haul about sixteen thousand pounds of apples to market. The farthest local growers usually go with their own truck of this sort is about a hundred miles, one way. Thirty gallons of diesel would take me that far, and home again.

The people who actually bought my apples at retail, after they were picked up at the wholesale market and delivered around town in smaller trucks, usually bought no more than five pounds at a time.

I'm guessing, pulling numbers out of my hat, but I suppose a typical shoppers average grocery purchase weighs from about twenty five to thirty pounds, up to a hundred pounds,depending on family size, and is made on roughly a weekly basis, on average.

And I'm guessing that the average trip to the super market is at least six to ten miles, round trip. THAT's where the food miles really pile up. A liter of gasoline burnt to get fifty pounds home, the last five miles, times around a hundred million households, times fifty weeks, adds up. FAST.

Watcher says: 01/10/2017 at 1:58 pm
Maybe. The pickle jar weighs a LOT and there's not much food weight part of that. The whole packaging thing is a significant thing, and that's another food item I didn't include, disposal of it.

I'm going to guess the 1500 mile thing came from the coasts' pop centers and their daily bread from Iowa and Nebraska. The various websites talking about this like to talk about a head of Imperial Valley California lettuce going to England. X calories burned for 1 or two calories delivered to the mouth. But that sort of thing definitely would drag the average up. 1500 miles maybe is legit.

I am surprised the total transport is south of 1 mbpd, if it truly is. As for shipping, I can't see Iowa bread going to NYC any way but by truck. Not going to fly it there. And the canals don't reach.

Everybody driving the last 5 miles to the store . . . maybe that really doesn't show in the diesel calc. Oh! Of course. The issue is not diesel. It's the 60,000 pounds per trip. A car is carrying the much lower weight per your estimate. Will redo.

Watcher says: 01/10/2017 at 3:20 pm
14 billion pounds of food move the last 5 miles by car per week, probably at 150 lbs per weekly load (family of 4 at 6 lbs/day/mouth incl packaging)

14 billion / 150 lbs = 93 million car trips per week.

5 miles in a 25 mpg car is 0.2 gallons. X 93 million /7 and /42 = an additional 63,000 bpd from the car trips added to the trucks above. About 260K bpd for food transport.

Hmmm of course if it's 5 miles each way that's a X 2 on the 63K. And SUVs for that trip, not a Datsun. Might be up nudging 400K.

Watcher says: 01/10/2017 at 8:07 pm
It occurs to me that Pepsi and Coke may not be food, and they are heavy.

I'm having problems with this 400ish K number because the famous 2004 pie chart of US oil consumption said 65% transportation, and of that 65% it was only 37% passenger cars, 18% heavy trucks and 27% light trucks (sums to 45%), and that was before SUVs (called light trucks) had swept up sales. Though F-150s may have arrived.

0.37 X 0.65 is only 24% of consumption. Trucks light and heavy rather more. So what are they hauling. Food as a daily consumable would seem to be the dominant hauled stuff, but apparently not.

Oldfarmermac says: 01/10/2017 at 5:18 pm
Most of the grain or flour that goes from the midwest to the northeast probably gets there by rail, where it will then be baked into bread, packaged, and shipped by truck to food distribution centers, or directly to supermarkets. But the distribution center food warehouse seems to rule these days, because it's better to load a truck up to the doors with a variety of stuff all destined for one address or maybe two or three, than it is to have a truck stop to deliver bread and nothing but bread to a bunch of different stores. That means a lot more total time and miles invested in stop and go driving, compared to the one stop load. That still happens, but not as often as in the past.

Grain is milled into flour near where it's grown, when possible, because this reduces total shipping costs, being that the weight and volume of flour is less than the weight of whole unprocessed grain, plus the tailings are used mostly in livestock rations, and customer for that product is most definitely NOT in NYC, lol.

Most of the cows,hogs and chickens we eat are raised in confinement, and are raised in the mid west and southeast, closer to the feed supply, and where land and water are cheaper, and neighbors less fussy, and mostly in localities where neighbors are relatively few in number.

Nobody's ever going to operate a modern supersize hog farm anywhere close to the BIG APPLE, 😉

clueless says: 01/10/2017 at 2:08 pm
Watcher's conclusion is probably right – not much fuel used to transport food compared to the total available. On the other hand, some random thoughts. 5.4 pounds/day/person is too high. Babies, young children, seniors, etc. Second, the 1500 miles is too high. Some of the basics make up a significant amount of the weight – like liquid milk, along with other dairy products, cheese and eggs. These products generally will never go 1500 miles. Vegetables, seafood, fruit, etc yes. But, chicken, pork and beef – I think that 1500 miles is too high.

OOPS! Of the 5.4 lbs, 30% – 40% is wasted.

Watcher says: 01/10/2017 at 3:16 pm
Pre oil, railroad cars had no refrigeration to speak of in summer months. That's where the term cattle car came from. Had to ship beef alive to the cities.

40-50% of a steer by weight is not edible.

Oldfarmermac says: 01/10/2017 at 6:04 pm
I am not at all sure just HOW much of a cow winds up as nekkid ape chow these days, but YOU most definitely don't WANT to know much about what goes into processed meat products, if you plan on eating them.

Fifty years ago when I had the "insider tour" of a huge and extremely famous hog slaugher plant that you get only by personal invitation from management,even back then, they bragged about selling everything but the squeal.

I'm pretty sure that well over fifty percent of the live weight of a cow winds up as nekkid ape chow these days, but how much over I can't say. Fifty to fifty five percent would be a reasonable guess. Farmers have been breeding cows for more milk and meat, and less waste, since the beginning. For the last seventy five years or so, this breeding has been based on high tech such as artificial insemination, a solid understanding of genetics, and very sharp pencils. So a typical cow TODAY is going to yield significantly more more than she did a decade or two back.

[Jan 11, 2017] Over 80- percent of convential fields are in decline!

Jan 11, 2017 | peakoilbarrel.com
BloomingDave says: 01/09/2017 at 11:30 pm
HSBC Global Research Report on Global Oil Supply
"Will Mature Field Declines Drive the Next Supply Crunch?"

Short answer: "yes."
What with 81% of conventional fields in decline!

https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view

texas tea says: 01/10/2017 at 7:23 am
I have been making the points as outlined in that piece for sometime i repeat long carbon based energy. dumb money indeed 🎉

[Jan 08, 2017] Long carbon based energy perspectives

Jan 08, 2017 | peakoilbarrel.com
texas tea says: 01/05/2017 at 5:00 pm
https://wattsupwiththat.com/2017/01/05/energy-and-society-from-now-until-2040/

long carbon based energy

Key conclusions of the report:

Developing countries, like China and India are urbanizing and their populations are becoming more affluent, this will increase global energy demand 24% by 2040. This includes the ExxonMobil prediction that energy use efficiency will double (figure 4).

The world population will increase from 7.3 billion today to over 9 billion in 2040, with a much larger middle class population (defined as >$14,600 and <$29,200 yearly for a family of 4) using energy than today. World GDP will effectively double by 2040. Living standards will rise dramatically, especially in the developing world.

Natural gas consumption will increase 54 quadrillion BTUs by 2040. Nuclear and renewables will increase 24 and 20 quadrillion BTUs, respectively. The 2040 energy mix will remain about the same as today (figure 5 and Table 1).

Rising electricity demand will drive the growth in global energy between now and 2040. The increase in the number of homes with electricity, industrialization of the developing world and our increasingly digital and plugged-in lifestyles will drive this growth. Half of global electricity demand is from industrial activity; thus good jobs can be lost if electricity costs are too high. Jobs will move to locations where electricity is cheap, an example is the new Voestalpine steel plant in Corpus Christi, Texas.

Crude oil and natural gas will remain the world's primary energy source. Even in 2040 oil and natural gas will supply 57% of all energy demand, this is an increase from 56% today. Oil demand will grow 18% through 2040 and natural gas demand will grow 44%. The developing world will account for the largest increases. Unconventional ("fracked") oil and gas, oil ("tar") sands, and deep water oil production will account for over 25% of the liquid supply in 2040.
Carbon dioxide emissions will increase, at least until 2030."

[Jan 08, 2017] 01/04/2017 at 8:58 am

Jan 08, 2017 | peakoilbarrel.com
High taxes create a "tax shield". The price at the pump in Europe is approx. 1/3 oil and refining and 2/3 tax and duty (see http://euanmearns.com/energy-prices-in-europe/ ). Consumption is therefore less responsive (inelastic) to the international oil market price compared to the USA. Also, Europeans have adapted to this over time and drive smaller and more fuel efficient cars.

Several oil producers have cut back on subsidies during the last couple of years. This should restrict domestic demand increase. Most oil exporters' oil consumption/capita will probably level off and never come close to the US figure. However, given the level of population growth and demographics (young people) in MENA their domestic consumption is unlikely to reduce significantly (slight increase seems more likely).

Watcher says: 01/04/2017 at 11:47 am
"Most oil exporters' oil consumption/capita will probably level off and never come close to the US figure."

US per capita consumption 0.061 bpd.

Exporters:
Canada 0.066
KSA 0.135
Kuwait 0.156
Qatar 0.145
UAE 0.09

The only major exporter not there is Russia at 0.02, but President Trump will help them increase.

Not an exporter but FYI Singapore is highest I've seen at 0.24.

Jeff says: 01/04/2017 at 2:58 pm
_most_ oil exporters.

In 2012 ( http://www.indexmundi.com/map/?v=91000 ): Ecuador (0.11), Libya (0.051), Kazakhstan (0.12), Iran (0.23), Iraq (0.22), Venezuela (0.27), Oman (0.46)

Watcher says: 01/04/2017 at 7:19 pm
mazama says ecuador may drop to imports this year. They don't list any Libya exports. Kazakhstan and Iran are legit. And the bible doesn't track Iraq.
AlexS says: 01/04/2017 at 4:09 pm
"The only major exporter not there is Russia at 0.02, but President Trump will help them increase."

How? Will he help to increase car fleet in Russia?

KSA and its neighbours use a lot of oil for electricity generation.
Russia uses natural gas, nuclear, hydro and coal.

Watcher says: 01/04/2017 at 7:11 pm
How? Will he help to increase car fleet in Russia?

Precisely.

Chris says: 01/05/2017 at 12:58 pm
Just to add information, in Europe, taxes are split in two parts: excise (typically fixed amount) and VAT (variable amount). For gas in Belgium, excise are about 0.60 per litre or half the price of gas. So price variations due to oil international prices are attenuated. Add to these that taxes decreases when oil price increase and increase when oil price decrease. This is a way to guarantee revenue for the State when oil prices decrease.

[Jan 08, 2017] A future oil supply trajectory

Notable quotes:
"... Desperate, broken men chase their dreams and run from their demons in the ..."
"... . A local Pastor risks everything to help them. ..."
Jan 08, 2017 | peakoilbarrel.com
George Kaplan says: 01/02/2017 at 4:43 am
After the Jean Laherrere post on global reserves I had a go at predicting a future supply trajectory myself. It is based on 620 Gb developed declining at 4.35% annually; 150 Gb discovered and undeveloped with about 120 identified from identified conventional projects on companies' books and 30 from shale; and 25 Gb undiscovered represented by a linear decline from current discovery numbers over twenty years. That gives 795 Gb reserves remaining – about what he had.

Note the figures in the legend give the overall production in the years shown on the chart.

Extra heavy oil is given as 30 kbpd coming on stream every year until 2023 representing the drop off in tar sands development and probable falls in Venezuela production, and then 200 kbpd added for every year after. As the projects take about 5 years to complete this would represent about 8 in development at any one time, but also requiring projects for 3 or 4 upgraders, 1 or 2 pipelines and a new refinery to be ongoing in parallel.

For new conventional projects I assumed a one-year ramp up, a ten-year plateau and 10% yearly decline to shut down after 25 years. The numbers coming on line until 2022 I've taken from what is currently on the E&Ps books with some probable short-term projects that could be developed in time. After that I just made reasonable guesses, assuming an extra three-year development time from discoveries for ne fields.

The results aren't very different from Dennis Coyne's except there isn't a new peak (in 2018 which he is predicting – I don't know where that extra production could come from based on current development activity) and there is a big gap in 2019 to 2022 reflecting the capital cuts over the past 3 years.

The biggest issue for me is that, assuming exporter countries maintain the same overall internal demand at about half current production, then net exports would fall by 50% in 2032 and to zero by 2041. There is also a 20% decline in available exports between 2018 and 2023. Things wouldn't be quite so clear cut as some countries will continue to export while other producers become net importers.

If this is close to reality I don't see it making transition very easy. Apart from added renewables and nuclear, and increasing efficiencies there will be a turn to gas if there is sufficient easily available, a loss in demand from recession (depression in a lot of places I suspect), and I think also an inevitable turn back to coal maybe with another push to in-situ gasification.

Nathanael says: 01/02/2017 at 5:59 pm
OK, I have to bring in a not-directly-oil-related comment, because it's related to demand. My non-oil projections for growth of electric cars - which are the key technology displacing oil usage. I believe since they are superior technology, they are essentially production-limited. I believe price issues will be automatically addressed by economies of scale as production increases.

So my production projections see a big increase in electric car sales in 2018 (thanks to models we already know about). I believe the high sales in 2018 cause much, much more capital , which causes much more investment by car companies. This takes 2-5 years to pay off. So I see a huge increase in production (and therefore sales) in the 2020-2023 time range.

Specifically - to get back to oil - I believe sometime in that time range, 2020-2023, is when electric car sales per year become large enough to displace an amount of oil exceeded the natural decline rate of oil fields (I've seen different estimates for that rate, but it's a close enough range that it doesn't matter for this projection). This is still well before market saturation is reached.

So combine this with your projection out to 2022, along with Laherrere's and Coyne's projections out to 2022, all of which are similar. Before sometime in the 2020-2023 range, we can expect petroleum demand to remain solid. But after that, demand will be dropping faster than the natural drop in supply. There will be a *glut* of oil. There will be no new drilling, or at least not profitably.

If a bunch of oil projects are started in the 2016-2023 period which start producing after 2023, they won't pay off, they'll be big money-losers and make the glut worse. (With a three-year project time, the glut will remain brutal for three years afterwards as old projects go online.)

At that point, low oil prices become the determining factor in the size of reserves. High-priced producers go bankrupt and shut down. Refineries, now with excess capacity, go bankrupt and shut down. Refineries have to retool to optimize for aircraft kerosene production instead of gasoline production. I think it's about this time - after a bunch of bankruptcies which leave wells in a derelict state - that the regulators start going after the survivors to cover their environmental liabilities preemptively, making them plug wells properly. I'm not exactly sure how the rest of the shakeout happens, but I'm glad to be totally out of the industry before then.

Survivalist says: 01/03/2017 at 8:43 pm
Thanks George. That's a fascinating chart. Thanks for breaking out the different production sources. How the world is going to get by on 20% less available exports by 2018 to 2023 is going to be interesting. Zero available exports by 2041! That's gonna be a damned mess.
Dennis Coyne says: 01/02/2017 at 6:13 pm
Hi George,

When oil prices rise in 2017 and 2018 there will be increased output from Russia and OPEC, in my view.

A lot of output in those nations has relatively short time for development, they just need to develop already discovered reserves, there will also be some increase in US LTO output and Canadian oil sands output with higher oil prices. Possibly the peak will be lower, but I expect a at least a 50% probability that the 2015 peak will be surpassed.

George Kaplan says: 01/03/2017 at 6:37 am
Dennis – can you say what those resources are – i.e. field names, expected production, time to develop. Because I know of nothing like that, and can't think of anything in the past where 1 or 2 mmbpd has been bought on line from FEED to plateau in 18 months, which is what you seem to be assuming. I can only think of Iran as a possible source – but most of their stuff is gas flood, that needs big compressors to provide the injected gas – it is impossible to go through a design, procurement and start-up cycle on such systems in under 24 months.
Dennis Coyne says: 01/03/2017 at 11:55 am
Hi George,

There are combined cuts of 1.7 Mb/d. That production from OPEC and Russia can be brought online in June 2017. Also infill drilling will increase in other nations as oil prices increase.. My scenario is pretty conservative relative to IEA and EIA Outlooks.

US lto can ramp up quickly with high oil prices.

Dennis Coyne says: 01/05/2017 at 10:42 am
Hi George,

I do not have information on specific fields and developments.

The IEA and EIA do have this information and their future outlooks are quite a bit more optimistic than what I have presented. I believe that those estimates are too optimistic and yours may be too pessimistic.

A problem with your analysis is that you seem to assume no reserve growth just as Jean Laherrere does. I believe an assumption of no future reserve growth leads to too pessimistic an outlook.

US reserve growth from 1980 to 2005 was about 63%. I have assumed C+C minus extra heavy reserves will grow by about 300 Gb from 2010 to 2060 or 300/850=35% over 50 years. Perhaps that is too optimistic, time will tell. Also I assume LTO resources in the US are only about 40 to 50 Gb, possibly too optimistic, but less so than the EIA.

Caelan MacIntyre says: 01/01/2017 at 7:37 pm
Oil price appears to be shyly creeping up maybe because it's testing the ceiling at where the economic engine starts sputtering and backfiring?

A little late, but, just-viewed (and recommended)

The Overnighters
Desperate, broken men chase their dreams and run from their demons in the North Dakota oil fields . A local Pastor risks everything to help them.

"The Overnighters is a feature documentary produced, directed and photographed by Jesse Moss was awarded the Special Jury Prize for Intuitive Filmmaking [etc.]

'The director, Jesse Moss, plays it as it lays. An observational, near-invisible presence, he fills the frame with the faces of economic deprivation and bad choices, neither judging nor sugarcoating. What emerges is a blue-collar meditation on the meaning of community and the imperative of compassion.' ~ The New York Times, Critics' Pick, Jeanette Catsoulis

'A remarkable nonfiction essay on golden rules and grand intentions and oil booms that do not pay off for everyone a rich and troubling documentary highlight of the year.' ~ The Chicago Tribune, Michael Phillips

'Like a punch in the gut. I can't remember the last time a documentary hit me so hard layered, provocative, and surprisingly intimate" ~ Leonard Maltin

'If John Steinbeck were writing in the second decade of the 21st century, 'The Overnighters' is precisely the story he'd want to tell' ~ Salon, Andrew O'Hehir

Another year; another section of the Russian-roulette rollercoaster ride (where corkscrews could mean missing rivets )

GoneFishing says: 01/01/2017 at 7:49 pm
A ten percent drop in oil production over 12 years appears quite manageable. All we need is a twenty percent efficiency gain in that time to handle it easily. It will help push EV production.

[Jan 08, 2017] In the oil business, the long emergency is now.

Jan 08, 2017 | href="In%20the%20oil%20business,%20the%20long%20emergency%20is%20now.">

[Jan 08, 2017] the coming bust in supply might be a bit different from previously – something changed in the oil industry in December 2014

Jan 08, 2017 | peakoilbarrel.com
George Kaplan says: 01/04/2017 at 8:11 am
The EIA market and finance report for 3Q2016 is out today.

https://www.eia.gov/finance/review/pdf/financial_q32016.pdf

Oil and gas supply is now falling. The chart below shows pretty clearly why there was a glut: over investment leading to over supply, which is now correcting. Nothing much to do with demand reduction that I can see. One thing I haven't seen discussed, and can't find find a lot of analysis on, is how much either direct motor fuel subsidies (e.g. in producer countries and some other developing countries) or high taxes in Europe tend to reduce the impact of prices on demand changes. I'd be interested in any opinions or references.

George Kaplan says: 01/04/2017 at 8:14 am
This is the a boom and bust cycle combined with the end of life in a mature basin looks like (for the UK – only one new field approval this year to September).

George Kaplan says: 01/04/2017 at 8:17 am
And this is why the coming bust in supply might be a bit different from previously – something changed in the oil industry in December 2014 and I don't think things will play out quite as they have previously, even with rapidly rising prices, given the debt load.

[Jan 08, 2017] Mexico might flip from being a net exporter of petroleum products to a net importer of petroleum products in 2016

Jan 08, 2017 | peakoilbarrel.com
Ron Patterson says: 01/02/2017 at 4:53 pm
According to the Energy Export Databrowser they were still exporting about 600,000 bpd in 2015. That year their exports dropped by 21%. It is entirely possible that export dropped past zero in 2016 and they became a net importer.

However I guess we will just have to wait until we have the total 2016 data. But if anyone else has any further data I would love to hear it.

AlexS says: 01/03/2017 at 1:01 am
"I had read somewhere that the value of imported refined products was near to equaling the value of their exported crude."

Correct.
The drop in Mexico's net exports of crude oil and refined products was much steeper in value terms than in volume terms. It declined from US$26.2bn in 2011 to U.S.15.6 bn in 2014 and just 400 million in 2016.

Mexico: value of the foreign trade of crude oil and refined products (billion U.S. dollars)
source: PEMEX

AlexS says: 01/03/2017 at 1:37 am
"It would be interesting to compare the money they earn exporting crude to the money they spend importing refined products. Either way, Mexico is on the brink. Just as Indonesia had to fall back on other forms of revenue, like destroying their forests, once oil exports became oil imports, Mexico will have to find something else to lean on once oil doesn't pay the bills."

A sharp drop in the value of net crude and product exports had a negative impact on Mexico's foreign trade balance, which deteriorated from virtually zero in 2012 to a deficit of US$14-15 in 2015-2016.

But that's not critical, as oil and product exports now account for only 5% of Mexico's total exports, down from 16% in 2011.

Mexico's foreign trade balance (US$ billion)
source: PEMEX

AlexS says: 01/02/2017 at 7:04 pm
Mexico: net exports of crude and refined products (kb/d)
Source: Pemex
http://www.pemex.com/en/investors/publications/Paginas/petroleum-statistics.aspx

AlexS says: 01/03/2017 at 1:47 am
I think Mexico needs to build a new refinery of modernize existing refining capacity. That would solve the problem of rising product imports.

[Jan 08, 2017] Denmark might be the first country in the coming years where oil and gas production stopped

Jan 08, 2017 | peakoilbarrel.com
George Kaplan says: 01/03/2017 at 7:02 am
Has there been a country before in which oil and gas production has stopped? I can't think of one, but Denmark might be the first in coming years, what with DONG pulling out of fossil fuels, cancellation of an oil project last year (I think the last real prospect for them – I've forgotten the name though) and now this:

"Maersk pulls plug on North Sea field"

Paywall (but limited number of articles free): https://www.energyvoice.com/oilandgas/north-sea/127957/maersk-pulls-plug-northsea-field/

"Maersk Oil today confirmed it would cease production on its North Sea Trya field. The operator said it had failed to identify an economically viable solution for the full recovery of the remaining resources in the Denmark's largest gas field. Maersk Oil COO Martin Rune Pedersen said: "Tyra has since 1984 been the main hub for gas production and processing in the Danish North Sea. The Tyra facilities are approaching the end of their operational life, and together with our partners in DUC we have assessed solutions for safe decommissioning and possible rebuilding of the Tyra facilities."'

As I recall the seafloor had been subsiding as the reservoir pressure has been reduced. Jacking up existing facilities or rebuilding would be expensive for the remaining gas resource. I think the hub receives associated gas from some oil fields which will need to be rerouted as part of the decommissioning.

[Dec 26, 2016] Vehicle Sales Forecast: Sales Over 17 Million SAAR Again in December, On Track for Record Year in 2016

Dec 26, 2016 | www.calculatedriskblog.com
by Bill McBride on 12/26/2016 09:53:00 AM The automakers will report December vehicle sales on Wednesday, January 4th.

Note: There were 27 selling days in December 2016, down from 28 in December 2015.

From WardsAuto: December Light-Vehicle Sales to Push U.S. Market to New Record

December U.S. light-vehicle sales are forecast to finish strong enough for 2016 to top 2015's record 17.396 million units. However, actual volume largely will be determined by results in the final third of the month, because a major portion of December's deliveries typically occur after Christmas.

The forecast 17.7 million-unit seasonally adjusted annual rate is below November's 17.8 million, but above December 2015's 17.4 million.
...
Despite the drop in December's volume, total 2016 sales will end at 17.41 million units, barely edging out the all-time high set last year.
emphasis added

Here is a table (source: BEA) showing the 5 top years for light vehicle sales through November, and the top 5 full years. 2016 will probably finish in the top 3, and could be the best year ever - just beating last year.

Light Vehicle Sales, Top 5 Years and Through November
Through November Full Year
Year Sales (000s) Year Sales (000s)
1 2000 16,109 2015 17,396
2 2001 15,812 2000 17,350
3 2016 15,783 2001 17,122
4 2015 15,766 2005 16,948
5 1999 15,498 1999 16,894

[Dec 22, 2016] Oil Consumption Is Immune To A Transport Transformation

Notable quotes:
"... ...in 2016, 96 percent of all new vehicle sales featured a combustion engine. IHS Markit estimates the average vehicle life globally to be about 15 years, which means that the impact of new vehicle technologies is expected to take time to materially affect the vehicle fleet and overall fuel demand. ..."
oilprice.com

...in 2016, 96 percent of all new vehicle sales featured a combustion engine. IHS Markit estimates the average vehicle life globally to be about 15 years, which means that the impact of new vehicle technologies is expected to take time to materially affect the vehicle fleet and overall fuel demand.

[Dec 22, 2016] Huge Decline In U.S. Proved Oil And Gas Reserves

Proved reserved are price dependent and low price leads to the decline of proved reserves estimates.
oilprice.com

Proved reserves of crude oil in the U.S. declined by 4.7 billion barrels or 11.8 percent from their year-end 2014 level to 35.2 BBbls at year-end 2015. Natural gas proved reserves decreased 64.5 Tcf to 324.3 Tcf, a 16.6 percent decline.

... ... ...

Proved reserves are volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

[Dec 20, 2016] What's shocking about that chart AlexS is that even with the sharp price increases of oil between 2000 and 2014, the oil R/P ratio has still steadily declined. With investment having been crushed in the last few years, looks like we are facing a Seneca cliff

Notable quotes:
"... What's shocking about that chart AlexS is that even with the sharp price increases of oil between 2000 and 2014, the oil R/P ratio has still steadily declined. With investment having been crushed in the last few years, looks like we are facing a Seneca cliff. ..."
Dec 20, 2016 | peakoilbarrel.com

AlexS says: 12/19/2016 at 8:28 am

George,

The situation with global natural gas is different.

1) There is significant spare capacity in a number of countries. For example, Russia has reduced gas production in the past few years due to falling demand from Europe, but can easily increase it if demand returns.

2) There are significant developed and undeveloped proven reserves. Reserves/production ratio is much higher for natural gas (see the chart below).

3) Natural gas resources are generally explored less than oil. Potential for increase in proven reserves is much bigger for natural gas.

The countries and regions with significant resource potential and able to sharply increase production include: Iran, U.S., Russia, East Mediteranean, several countries in Asia (including China).
Several countries in Africa are not producing at full potential.

Global proven reserves / production ratio for oil and natural gas
source: BP Statistical Review of World Energy 2016

VK says: 12/19/2016 at 4:27 pm
What's shocking about that chart AlexS is that even with the sharp price increases of oil between 2000 and 2014, the oil R/P ratio has still steadily declined. With investment having been crushed in the last few years, looks like we are facing a Seneca cliff.
Synapsid says: 12/19/2016 at 5:46 pm
George Kaplan,

I got a bit of a shock when I read the caption in small print: Data excludes onshore Canada, US lower-48 onshore, and US shallow-water.

AlexS says: 12/19/2016 at 6:01 pm
The chart is named "Annual conventional oil and gas volumes discovered".

Onshore Canada production is dominated by oil sands; US lower-48 onshore – by tight oil.
Conventional output in both cases is from mature fields; and there were no major conventional discoveries for many years.

US shallow-water GoM is also a mature province. New discoveries were made in deepwater GoM.

[Dec 16, 2016] Deplete America first as national policy. The US is wasting its precious oil deposits like there is no tomorrow

Dec 16, 2016 | peakoilbarrel.com
Instead of switch to hybrids and smaller cars as well as using nat gas for local city tranport they are trying to comsume as much as possible. Without high tax of SUVs and opther "oil waisting" personal tranporation veiches it is impossible to sustain the US economy. the only question is when it falls from the cliff.

Boomer II says:

12/15/2016 at 1:00 pm
I've never understood the urgency of using up US oil so quickly. Better to buy someone else's at a cheap price and save ours for a time when it is depleted elsewhere.
robert wilson says: 12/15/2016 at 1:50 pm
Burn America First
shallow sand says: 12/15/2016 at 3:44 pm
I was going to type deplete America first, LOL.
likbez says: 12/16/2016 at 10:54 am
Its' not only the USA. KAS, Iran and Russia are doing the same. There are a lot of short termism obsessed politicians besides Obama administration

Especially KAS in 2014-2016. Who were instrumental in the current oil price crash.

But behavior of the Iran and Russia was also deplorable. Iran decided to get back its former market share at all costs. But they like KAS are governed by religious fanatics, so what we can expect?

At the same time Russia, which theoretically should be a rational player and have enough space and steel to build huge national oil reserves, using it as alternative currency reserves, did nothing. Instead Russia also increased oil production selling its national treasure left and right, while prices were hovering below $50.

Another bunch of short termism obsessed suckers. So much about Putin as a great statesman. And what he got in return for his stupidity - only additional sanctions and allegations that he fixed elections for Trump. Such a huge payoff.

IMHO of big oil producing nations only China behaved rationally.

Oil is not renewable resource and burning it in large SUVs and small trucks carrying one person to commute to work is a suicide. That's what the USA is doing on the national scale. Add to this all those wars for the expansion of the US neoliberal empire, the USA is fighting, which also consume large amount of oil and it looks even worse. See
http://www.ucsusa.org/clean_vehicles/smart-transportation-solutions/us-military-oil-use.html

The U.S. military is the largest institutional consumer of oil in the world. Every year, our armed forces consume more than 100 million barrels of oil to power ships, vehicles, aircraft, and ground operations-enough for over 4 million trips around the Earth, assuming 25 mpg.

So out of the total US oil consumption (let's say 20 MB/day) around 0.3 MB/day is consumed by military. I think that the figure in reality might be twice larger that cited as it is not clear how consumption of planes operating in Iran, Syria, Libya, Yemen (and generally outside the USA) is counted. But even 0.3 Mb/day is approximately the same amount that Greece, or Sweden, or Philippines are consuming. The latter is a country with over 100 million people.

In twenty-forty years this period would probably be viewed as really crazy.

[Dec 15, 2016] 12/14/2016 at 7:41 pm

Dec 15, 2016 | peakoilbarrel.com
According to OPEC Monthly Oil Market Report for December, the group's crude oil production rose by 150 kb/d from 33.72 mb/d in October to 33.87 mb/d in November. These estimates are based on secondary sources.
http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR%20December%202016.pdf

The IEA's estimate from its Oil Market Report shows an even bigger growth: by 300 kb/d to 34.20 mb/d, led by increases from Angola along with Libya and Saudi Arabia. The group's output stood 1.4 mb/d higher than a year ago.
https://www.iea.org/oilmarketreport/omrpublic/

According to a Reuters survey, in November, OPEC produced a record 34.19 million barrels per day (bpd) from 33.82 million bpd in October.
https://www.rt.com/business/369348-oil-russia-budget-opec/

OPEC countries are pumping oil at the highest rate for the past several years, ahead of the announced output cuts in January 2017.

OPEC crude oil production, 2014-16
Source: OPEC Monthly Oil Market Report, December 2016 (secondary sources)

AlexS says: 12/15/2016 at 5:40 am
China's crude oil production increased 3.6% in November from the previous month to about 3,915 kb/d, the highest since July.
Output was down 382 kb/d (8.9%) from the same month last year.
Crude production has fallen 294 kb/d (6.9%) in the first 11 months of 2016 to 3,984 kb/d.

Comment from Bloomberg:

"China's output has declined this year as state-owned firms shut wells at mature fields that are too expensive to operate at current prices. The country needs oil above $50 a barrel to stabilize production, according to analysts at Sanford C. Bernstein, as well asFu Chengyu, the former chairman of both Cnooc Ltd. and China Petroleum & Chemical Corp. Production is forecast to drop 335,000 barrels a day this year, followed by a further slide next year of 240,000 barrel a day, the International Energy Agency said Tuesday.
"November's output pickup is probably just a blip, which won't likely persist," said Gao Jian, an analyst with Shandong-based industry consultant SCI International. "For the next six months, unless oil prices stay above $50 a barrel, we we won't see solid recovery."
The rise in production last month was in anticipation of higher crude prices amid OPEC meetings, said Amy Sun, an analyst with Shanghai-based commodities researcher ICIS-China.

China's annual crude output is seen falling to 200 million tons this year (about 4 million barrels a day), down roughly 7 percent from nearly 215 million tons last year, according to estimates from SCI International and ICIS-China."

https://www.bloomberg.com/news/articles/2016-12-13/china-oil-output-rebounds-from-7-year-low-on-opec-led-price-gain

China's crude + condendate production (mb/d).
Source: China's National Bureau of Statistics

AlexS says: 12/15/2016 at 5:47 am
China's C+C production in 2002-2016 (mb/d)

Heinrich Leopold says: 12/15/2016 at 6:51 am
AlexS,

It could be also a clever strategy to buy cheap oil from the market and leave China's oil in the ground as a strategic oil reserve.

AlexS says: 12/15/2016 at 7:40 am
I agree. It was a rational decision to cut output from high-cost fields, which was loss-making at low oil prices, rather than maximizing production.

I think that, with oil prices at $50-60, China will be able to temporarily stabilize output

shallow sand says: 12/15/2016 at 11:35 am
Yes, the US clearly needs some kind of energy policy, and I think one thing that highlights how badly this is needed is the ability of anyone who can raise the money to be able to drill 96 horizontal wells in one section of land (two if the laterals are the two mile variety).

But, I guess any mention of conservation in the US industry these days is heresy.

I would not be too critical of Chinese production falling. Seems to me they are buying up all the cheap oil they can from overproducing nations, and storing it. Makes sense to me.

[Dec 13, 2016] A Real Opportunity For An Oil Price Recovery

Dec 13, 2016 | oilprice.com
by Dan Dicker

Dec 11, 2016 | OilPrice.com


The OPEC production agreement, which we called correctly, has already helped hoist the profitable oil stocks we held, but what about 2017? One way I've looked at oil and oil stocks is by looking at the crude curve – the differentials between monthly contract prices. And a recent big move in the curve makes 2017 look very positive indeed.

I've seen all kinds of futures curves in my 30+ years of trading oil, and many analysts believe that the crude curve is really predictive of the future –but more often than not, it is merely an outline of what traders and hedgers are thinking.

here's a look at Thursday's curve:

... ... ...

These numbers represent an enormous change from the numbers we saw even two weeks ago, before the big OPEC deal in Vienna. Since 2014, we had been seeing a deep contango market, where oil prices in the future were a lot higher than where they were trading in the front (present) months. But what does a contango market mean?

Many like to look at contango markets as a signal of crude storage, and that has merit – but I like to look at the curve through the eyes of its participants: when the oil market is collapsing, as it has been since 2014, players in the futures markets know that the costs of oil recovery fall well above the trading price, and will buy future oil contracts banking on a recovery. This drives buying interest away from the present and into the future and creates our contango. This kind of market is dominated by the speculators, who are willing to buy (bet) on higher prices later on.

In contrast, the hedging players are in retreat in busting markets, dropping capex and working wells and trying merely to survive to see the next boom. It's when prices begin to recover and they gain confidence in future prices that they try to hedge and plan for the coming up-cycle. This is when speculators, if they are buying, are likely to move closer to the front months if they're buying while producers (commercials) are looking to sell futures 12-24 months out. Suddenly, you have a curve that is being more dominated by commercial players, selling back months and creating the backwardation we're starting to see right now.

You may remember that I was able to nearly predict this year's bottom in oil prices by looking for that flattening move of the crude curve in February. This latest move from a discount to a premium curve has moved more than two dollars in the last week alone. This gives me added confidence in oil prices for 2017:

Let's look, as a practical matter, why a premium (backwardated) market is absolutely REQUIRED to see a long-term recovery in oil.

Imagine you're a shale producer and you've seen prices move from $45 to $52. You've been waiting for a move like this to restart some non-core acreage that you could have working by the middle of 2017. With a deep contango market, you might have gotten $55 or even more for a hedged barrel of crude in June of 2017.

But you're not alone in looking to come out of your bunker, hedge some forward production and restart some idle wells – every other producer is trying to do the same thing. If all of you could depend on a future premium, every producer would hedge out new production and ultimately add to the gluts that have been already slow to disappear.

Related: The OPEC Effect? U.S. Rig Count Spikes Most In 31 Months

If you think about it, a premium market works to DISCOURAGE fast restarts and quick restoration of gluts that a two-year rebalancing process has only slowly managed to fix – and this is a good thing. Producers have to be wary of adding wells so quickly, even in a market that is clearly ready to again rise in price. In a truly backwardated market, the futures work to keep the rebalancing process on track and production increases slow. That governor on production is the key to keeping a rallying market strong, and the frantic addition of wells at a minimum.

The proof of all this is in the type of curves we see depending on how the markets are trading.

Now, take another look at the December-December spread chart I put up and you'll see that a Contango market was a critical component to the bull markets we saw in oil prior to 2014. Unless something very strange is happening, a Contango curve is indicative of a strong market, while a backwardated one indicates a market under pressure. It's something I've watched closely for more than 30 years to help me find major trends.

And convinces me today that oil will have a constructive 2017.

By Dan Dicker for Oilprice.com

[Dec 13, 2016] Both China and India experienced record crude oil demand in November

Dec 13, 2016 | peakoilbarrel.com
shallow sand, 12/13/2016 at 12:05 am
Read on CNBC that both China and India experienced record crude oil demand in November, 2016, with China up 3.4% yoy and India up 12.1% yoy.
Boomer II, 12/13/2016 at 12:28 am
"Read on CNBC that both China and India experienced record crude oil demand in November, 2016, with China up 3.4% yoy and India up 12.1% yoy."

I went looking for something about this and have found nothing on CNBC or anywhere else. Do you have a link?

Watcher, 12/13/2016 at 2:48 am
China's consumption growth was 5% last year. India 7%.

Of course it's growing, maybe even accelerating. Population does.

There really isn't much doubt how this ends, once ppl get past the pearl clutching.

likbez,, 12/13/2016 at 10:52 am
According to Yahoo ( http://finance.yahoo.com/news/iea-ups-oil-demand-forecast-095410829.html ):

IEA also upped its forecast for global oil demand for this year and next year due to revised estimates for Russian and Chinese demand. It saw growth of 1.4 mb/d for 2016, 120,000 barrels a day above the previous forecast. Growth in 2017 is now seen at 1.3 mb/d, an increase of 110,000 barrels a day from its previous estimate.

likbez, 12/13/2016 at 11:40 am

Realistically the only country that can substantially increase its oil production in 2017 in Libya. But that requires the end of the civil war in the country which is unlikely. Iran card was already played.

Iraq is producing without proper maintenance. At some point they might have substantial difficulties.

[Dec 13, 2016] IEA ups oil demand forecast for 2017, says next few weeks are 'crucial' for markets after OPEC deal

Notable quotes:
"... The IEA also upped its forecast for global oil demand for this year and next year due to revised estimates for Russian and Chinese demand. It saw growth of 1.4 mb/d for 2016, 120,000 barrels a day above the previous forecast. Growth in 2017 is now seen at 1.3 mb/d, an increase of 110,000 barrels a day from its previous estimate. ..."
finance.yahoo.com

...OPEC ... crude output in November was 34.2 million barrels per day (mb/d) - a record high - and 300,000 barrels a day higher than in October.

The IEA also upped its forecast for global oil demand for this year and next year due to revised estimates for Russian and Chinese demand. It saw growth of 1.4 mb/d for 2016, 120,000 barrels a day above the previous forecast. Growth in 2017 is now seen at 1.3 mb/d, an increase of 110,000 barrels a day from its previous estimate.

[Dec 13, 2016] OPEC Monthly Oil Market Report

Notable quotes:
"... Peak oil is not just about cars. Oil is the reason why our civilization exists in its current form. Oil is why we have 7 billion people on this planet. Oil is about agriculture and food supply, it is about distribution of everything we buy and not least it is about the raw materials for many if not most of our goods. It is about almost every economic and social transaction that takes place. ..."
"... It is unbelievable what misinformation has been spread by the media. I attended a public forum of the Australian Energy Council and one participant thought that OPEC had increased oil production. My presentation on the need to replace oil by natural gas as transport fuel (instead of exporting it as LNG) was met with silence and did not spark a debate. Another participant was running away when he heard the word peak oil. ..."
"... Further re climate, most agree CO2 is a greenhouse gas but estimates of the temperature change caused by a doubling of its concentration have been coming down over the last 15 years. In other words, it may not warrant the type of policy response that is being promoted at present. ..."
"... Meanwhile the IPCC projections continue with climate sensitivity estimates of 3 to 6 degrees when the more recent estimates of ECS and TRC are consistently under 2 degrees. So contrary to what is alleged above, there is lots of doubt about the IPCC models. ..."
"... I agree with author. If you look at 2 previous OPEC meetings, the players claim disorder and inability to control output only to find resolution the day after the meeting. I believe OPEC is setting up for a freeze as we are only 1% oversupplied now. If the OPEC big wigs need to fatten the bank accounts, what better way than to set up your own long call on the cheap? ..."
"... Balance this with Iran and Iraq incapable of proper well maintenance and we will soon see inadequate supply not later than 2qtr 17′. ..."
Dec 13, 2016 | www.opec.org
is out with crude only production numbers for October 2016. All charts are in thousand barrels per day.

OPEC crude only production reached 33,643,000 barrels per day in October. This includes Gabon. Since May, OPEC production has increased 1.05 million barrels per day.

World oil supply is very near its November 2015 peak.


steve from virginia says: 08/10/2014 at 12:30 pm
All this oil tens of billions of barrels all of it non-renewable, never to be seen- or made use of again for a hundred million or more years, for all practical purpose, ever!

the greatest bulk of it put into cars where it is wasted, by people driving aimlessly in circles from gas station to gas station for entertainment purposes only By way of this idiocy we destroy ourselves and our futures. We aren't doomed, we are damned.

Mike, Sydney says: 10/10/2014 at 6:05 pm
The big mistake most energy illiterates make is to talk about their cars when the peak oil subject comes up. Most hope or assume that another form of fuel or energy will power their ride post oil.

Peak oil is not just about cars. Oil is the reason why our civilization exists in its current form. Oil is why we have 7 billion people on this planet. Oil is about agriculture and food supply, it is about distribution of everything we buy and not least it is about the raw materials for many if not most of our goods. It is about almost every economic and social transaction that takes place.

When oil becomes expensive our economies and societies will implode, jobs and goods imported from far away will disappear. This will apply worldwide. The citizens of Addis Ababa are just as dependent as the ones in Amsterdam or Atlanta.

We have exhausted most of our soils and lost the skill to eke out a living from Mother Nature without fertilizers and machines. Could it be that the least "developed" countries will lead post oil because our "developed" nations are the least able to cope without oil?

Ron Patterson says: 10/10/2014 at 6:45 pm
Mike, that's exactly what I have been trying to tell folks for years. Most just don't want to believe it. They see solar, wind and other such things as keeping BAU going for awhile.

Why don't you post over on the post section. We get a lot more traffic over there.

Peak Oil Barrel

Argh says: 04/06/2015 at 1:35 pm
Big mistake thinking that this crisis will not arrive with plenty of time to avoid it. Oil prices will rise slowly over time. However we create energy, we will find a way to pay for locomotion or create food.

Oil is down 50% This is because of new sources of supply combined with continuing energy efficiency improvement. Doomed or damned, don't hold your breath. I am sure you will find something else -- perhaps global warming, now climate change, to scare people with.

Don Wharton says: 06/10/2015 at 7:54 pm
Argh. Your comment suggests that you are a militantly ignorant troll. 97% of the competent climatologists fully support the IPCC global warming summary model. There is no reasonable doubt about this science.

In my opinion there has been a revolution in drilling technology over recent years. However, the measured rate of additional improvement is now very modest as measured by the US EIA.

Most of the recent improvement is explained by the discovery and exploitation of sweet spots which are being rapidly drained. For an objective look at prospects going forward for oil and gas you should read David Hughes' Drilling Deeper report.

This is an exhaustive analysis based on a data base of all existing US oil and gas wells. It impressively documents a future of peak oil and gas based on fully exploiting fracking technology. I don't see any magical technology that will get the projected fossil fuel resources required for business as usual. It is just not there.

Nick G says: 12/15/2015 at 2:43 pm
Oil is the reason why our civilization exists in its current form.

Not really. There's nothing magical about oil. 100 years ago civilization was pretty recognizable, and it didn't require oil.

Oil is about agriculture and food supply

For the moment. Batteries and synthetic fuel can move tractors. Electricity (from many sources) can create fertilizer.

it is about distribution of everything we buy

Rail works awfully well.

is about the raw materials for many if not most of our goods.

Meh. It produces some of our raw materials. But plastic can be produced from a lot of different hydrocarbons, and it's production doesn' necessarilly create CO2, so we could produce plastic from coal for centuries. That's plenty of time for a smooth transition.

jay says: 09/24/2016 at 7:36 am
"Not really. There's nothing magical about oil. 100 years ago civilization was pretty recognizable, and it didn't require oil." You missed his point entirely. The reason there is 7 billion people now is because of oil and what it has done for industrial, agriculture ect ect ect.

There was 1.7 billion people 100 years ago. How many people do you think would be here if not for oil and all it has done?

">For the moment. Batteries and synthetic fuel can move tractors. Electricity (from many sources) can create fertilizer<".

This is lack of a better word retarded for you to even consider that a battery will be used even in the distant future to power agricultural machinery on a mass scale. Maybe the little ride on mower you cut grass with, but that is it.

" Rail works awfully well."

Ya it does, but when it gets to a terminal, it will have to be unloaded and transported then. Which basically happens now, so what is your point? And your last comment I wont even pick apart because you obviously know little to very little about the uses of oil and the advantages it has brought humanity.

Johnny Honda says: 10/13/2015 at 2:44 am
@ Steve from Vaginia: Did you ever consider that some People have to drive to *work* and *produce* so that you can sit around and swing your testicles and so that your mommy can prepare your lunch and dinner?

So when you sit around the whole day you can think what happens in 300 years, when most of the oil and gas has been used up. We don't have time for that, but we are sure that People will find a solution.

Rubber Johnny says: 10/13/2015 at 5:59 am
One or the solution will be not driving to work and wasting time in gridlock so we can have more time to swing our balls be 'productive' on our own and our real community's terms. Real community that includes momma

Rubber Johnny

Argh says: 04/06/2015 at 1:30 pm
Oil will get more expensive, some day slowly. Right now the cost is down (50%!!!) because of new sources and efficiency improvements. I think that those who predict doom will be disappointed.
SRSrocco says: 10/12/2015 at 1:23 pm
Argh,

The falling EROI destroys your lousy assumption in spades. Your time might be better spent burning books or working on one of the dozen worthless Presidential campaigns.

Steve

RSAldeen says: 04/29/2015 at 1:50 pm
Oil is very precious raw material, our demand for oil increases day after day, year after year and century after another. The search and use other sources such as atomic, wind, tide, solar, geothermal and others will continue but the prospects / trend to keep on using oil as a main source of energy still quite high and will continue with time due to the following reasons:
Matt Mushalik says: 05/12/2015 at 7:25 pm
Thanks for the graphs. Saudi Arabia may be ramping up production ahead of the air-conditioning season. Around 600 kb/d are needed in the hottest month.

It is unbelievable what misinformation has been spread by the media. I attended a public forum of the Australian Energy Council and one participant thought that OPEC had increased oil production. My presentation on the need to replace oil by natural gas as transport fuel (instead of exporting it as LNG) was met with silence and did not spark a debate. Another participant was running away when he heard the word peak oil.

Greg Surgener says: 08/20/2015 at 3:57 am
Matt,

Im lost by ur comments. 1st of all the graphs clearly show that Opec has increased production by 2+m/d in the last year.

2ndly, Saudi's oil output charts above are for just Oil not NG. Ive never been there, are you suggesting they run generators from oil for electricity and subsequent air conditioning. Why wouldn't they run thier power plants on Natural Gas? Please educate me.

No doubt that investor sentiment and market makers are playing a significant role in price decline, as opposed to actual supply/demand issues. How do you find out how much the Opec nations have sold oil short in the various markets. Not a bad deal for them, if they can lay rigs down World wide and make the money in the commodity markets while doing so. But prices can only slide so far and for so long before that game is up. It seems like if short selling or hedging slows, buyers will outweigh sellers and the price should rise soon

Your thoughts?

Greg

Ron Patterson says: 08/20/2015 at 5:41 am
Greg, Saudi Arabia is very short of natural gas and have been for several years now. They would love to run all their power plants and desal plants on natural gas if they just had enough of it. They don't. They do burn a lot of natural gas but their supply is far short of what they need.
Nick G says: 12/15/2015 at 12:48 pm
Ron,

As best I can tell, KSA is short of NG because they've fixed the price at a very low level to subsidize domestic companies that use NG.

What have you seen about that?

Ron Patterson says: 08/20/2015 at 8:43 am
...Saudi is producing flat out right now just like every other OPEC country except Iran. Sanctions are holding Iran back. Political violence is holding Libya back, but they are still producing every barrel they can. It's just that violence keeps them from producing any more.
Keith says: 08/29/2015 at 4:55 am
A few comments:

Most polls show a split of about 60 40 in terms of views on climate science, rather than 97 3 despite what POTUS may have tweeted.

Further re climate, most agree CO2 is a greenhouse gas but estimates of the temperature change caused by a doubling of its concentration have been coming down over the last 15 years. In other words, it may not warrant the type of policy response that is being promoted at present.
http://climateaudit.org/2014/09/24/the-implications-for-climate-sensitivity-of-ar5-forcing-and-heat-uptake-estimates-2/

Meanwhile the IPCC projections continue with climate sensitivity estimates of 3 to 6 degrees when the more recent estimates of ECS and TRC are consistently under 2 degrees. So contrary to what is alleged above, there is lots of doubt about the IPCC models. The latter point comes from peer reviewed science, by, among others, Nic Lewis.

Keith says: 08/29/2015 at 6:44 am
Another point of interest is the relative steadiness of Venezuelan production. Allegedly various of the empresas mixtas (Joint Ventures between PDVSA and International Oil Co.'s) are not proportionally funded by PDVSA as they should be. As a result production is down or is not reaching targets. Apparently contractor companies will not accept new contracts from PDVSA unless they set up an escrow account or other arrangement that guarantees payment in foreign currency. It is surprising therefore that Venezuelan production shows a slight rise since December.
skykingww says: 10/22/2016 at 4:35 pm
Yes one day we will be without oil that is pumped from the earth. This is not going to happen for 100's of years. Our intellect will probably find chemical or biological solution to this problem long before we run out. If not humanity will survive. Global warming, yes its real and one day the Sun will double in size and engulf the earth. I am not worried about either. I hate winter anyway.

The problem humanity will face and not discussed near enough is the lack of clean drinking water. Everyday it becomes harder to deliver enough clean water to all areas in need. States fight over the rights to what little water pass through their terrain every year. Many times it has to be pumped from other states at a premium. The worlds population grows larger every second. crops demand more and more. Ethanol was forced on us without thought as usual by the oil fear mongers. You do not grow food to solve a commodity problem.

The land resources, water resources, and corrosive properties that Ethanol introduced far out weigh any benefit accomplished but still its forced down our throats destroying everything its poured into. So please build those oil pipelines all across the country and pump that oil at rates that keep our prices low so I can drive in circles any time I feel like it. I am not going to worry about it because about the time we run out of oil we will need those pipelines to pump clean water to all that need it.

Eric Sepp says: 11/01/2016 at 2:56 pm
I agree with author. If you look at 2 previous OPEC meetings, the players claim disorder and inability to control output only to find resolution the day after the meeting. I believe OPEC is setting up for a freeze as we are only 1% oversupplied now. If the OPEC big wigs need to fatten the bank accounts, what better way than to set up your own long call on the cheap?

OPEC will shut in wells before the Fed adjusts interest rates resulting in magnified downward pressure on oil.

Balance this with Iran and Iraq incapable of proper well maintenance and we will soon see inadequate supply not later than 2qtr 17′.

cmejunkie says: 11/14/2016 at 4:05 pm
Angola: October 2016 decline – chiefly due to Dalia maintenance (though might have peaked in this cycle as no major is rushing to invest in Angola's deepwater wells). http://www.brecorder.com/markets/energy/europe/314268-angolan-oct-crude-oil-exports-to-fall-as-dalia-enters-maintenance.html

[Dec 11, 2016] 2016 should see a new record for OPEC exports due to ramp-up in production and exports from Saudi Arabia, Iran and Iraq.

Dec 11, 2016 | peakoilbarrel.com
AlexS says: 12/08/2016 at 5:40 am
BP's numbers for oil exports (available from 1980) and production less consumption (available from 1965) are slightly different, which may reflect changes in inventories and other balancing items.

According to BP, Middle East oil exports in 2015 was 20.6 mb/d, the record for the period from 1980.
Production less consumption was 20.5 mb/d vs. all-time high of 20.8 mb/d in 1976-1977.
But 2016 should see a new record due to ramp-up in production and exports from Saudi Arabia, Iran and Iraq.

Middle East oil exports (mb/d)
Source: BP Statistical Review of World Energy

[Dec 09, 2016] It looks like shale oil is a USA phenomenon with no appreciable production anywhere else in the world but the shale oil phenomenon has given the entire world the illution the peak oil does not exist, an idea that had no valid support in the real world

Notable quotes:
"... The real danger is that the media, as well as the general public, has been sold the idea that peak oil has now been discredited because of shale oil. It has not. And that only increases the dramatic shock effect it will have when it finally becomes obvious that peak oil has arrived. ..."
"... Of course some will agree but say that "No big deal, renewables will make peak oil a non event!" And these folks are in for an even bigger shock than the peak oil deniers . Well, in my opinion anyway. ..."
"... To me, that is like a farmer saying I estimate next year and beyond that the cost of seed, chemicals, fertilizer, fuel, labor, real estate taxes, etc, will fall by 60%. I am not familiar with any commodity based business where that is reality. Yet almost ALL US LTO did the same thing, 30-60% reduction. ..."
"... The point is, had they not done that, they would have basically lost ALL of their proved reserves at 2015 prices. My point is, how can a company that is losing large amounts, pre-reserve write downs, have any economic reserves? If the costs cannot all be recovered for the well at SEC prices, there are no reserves for that well. ..."
"... 2016 SEC prices are about $10 lower. We shall see what they come up with. ..."
"... I also agree peak oil will be obvious before long, I think eventually (by 2020 at least unless a big recession intervenes) oil prices will rise, maybe to $100/b. Most will expect a big surge in output, but any surge will be small (1 Mb/d at most) and likely short lived (if it happens at all). ..."
Dec 09, 2016 | peakoilbarrel.com
Survivalist says: 12/07/2016 at 5:06 pm
Hi Ron. Thanks for your awesome website. The word blog doesn't do it justice.. It is truly the best, and attracts a great group of commenters. May I ask how you might see 'serious depletion' playing out, roughly speaking? Do you have any predictions or wild ass guesses on the slope of the production decline or perhaps where world crude plus condensate production might be by 2020 and/or 2025? Given your wisdom and insight into human nature what are your feelings about the human response to these future conditions?
Ron Patterson says: 12/07/2016 at 6:57 pm
Do you have any predictions or wild ass guesses on the slope of the production decline or perhaps where world crude plus condensate production might be by 2020 and/or 2025?

Not really. We all had a pretty good idea where things were heading until shale oil raised its ugly head. No one that I know of predicted that. But now it looks like shale oil is a USA phenomenon with no appreciable production anywhere else in the world.

My strong feeling right now is that the shale oil phenomenon has given the entire world the idea that peak oil is, or was, an illusion or an idea that had no valid support in the real world.

But peak oil is as real as it ever was. The amount of recoverable oil in the ground is finite. We may have had the numbers wrong in our personifications because of shale oil. But that does not change the big picture. The peak oil phenomenon is as real as it ever was.

The real danger is that the media, as well as the general public, has been sold the idea that peak oil has now been discredited because of shale oil. It has not. And that only increases the dramatic shock effect it will have when it finally becomes obvious that peak oil has arrived.

Of course some will agree but say that "No big deal, renewables will make peak oil a non event!" And these folks are in for an even bigger shock than the peak oil deniers . Well, in my opinion anyway.

shallow sand says: 12/07/2016 at 7:27 pm
Ron.

Like the "US phenomenon" comment.

2016 10K will be out in late February-early March for US LTO producers.

It will be interesting to compare 2014, 2015 and 2016. In particular I am waiting to see the estimates of future cash flows to see how much more the engineering firms let them slash future estimated production costs and estimated future development costs.

In my opinion, there was a lot of hocus pocus in those particular numbers, which, of course provide the basis for proved reserves and PV10.

The amounts slashed from 2014 to 2015 were incredible, for example Mr. Hamm's CLR dropped its estimate of future production costs by 60%.

To me, that is like a farmer saying I estimate next year and beyond that the cost of seed, chemicals, fertilizer, fuel, labor, real estate taxes, etc, will fall by 60%. I am not familiar with any commodity based business where that is reality. Yet almost ALL US LTO did the same thing, 30-60% reduction.

The point is, had they not done that, they would have basically lost ALL of their proved reserves at 2015 prices. My point is, how can a company that is losing large amounts, pre-reserve write downs, have any economic reserves? If the costs cannot all be recovered for the well at SEC prices, there are no reserves for that well.

2016 SEC prices are about $10 lower. We shall see what they come up with.

Oldfarmermac says: 12/08/2016 at 3:15 pm
"And these folks are in for an even bigger shock than the peak oil deniers . Well, in my opinion anyway."

I think the odds are pretty good that Ron is right. We can hope that Dennis C and the others who think production will stay on a plateau for a while and then gradually decline rather slowly are right.

If they are, and the electric car industry does as well as hoped, then the economy national and world wide can probably adapt fast enough to avoid catastrophic economic depression brought on specifically by scarce and expensive oil.

If for some reason, any reason, oil production declines sharply and suddenly, for a long period or permanently, we are going to be in a world of hurt.

People need not starve, at least in richer and economically advanced countries, but millions of people could lose their jobs and a lot of businesses dependent on cheap travel would fail. The effects of these lost jobs would expand outward thru the economy doing Sky Daddy alone knows how much damage.

In poor countries, starvation is a real possibility.

The time frame I have in mind in making this comment is out to twenty or thirty years. After that, it's anybody's guess what the population will be, and what the economy will be like.Hell, it's anybody's guess as far as next week is concerned, so far as that goes.

Dennis Coyne says: 12/07/2016 at 6:30 pm
Hi Ron

I agree.

Plateau until 2019 or 2020 then some decline slow at first and gradually accelerating. Unless a recession hits in that case acceleration is more rapid.

Ron Patterson says: 12/07/2016 at 7:00 pm
Thanks Dennis, on the rare occasion where we agree. :-)
Dennis Coyne says: 12/07/2016 at 8:00 pm
Hi Ron,

I also agree peak oil will be obvious before long, I think eventually (by 2020 at least unless a big recession intervenes) oil prices will rise, maybe to $100/b. Most will expect a big surge in output, but any surge will be small (1 Mb/d at most) and likely short lived (if it happens at all).

Whether oil prices spike and this leads to either Great Depression(GD) 2 or a lot of EV and plugin sales is unknown, it might be the latter at first with GD2 following between 2025 and 2030. It will depend on how quickly oil output falls, I think it might be 1% or less until 2030 if oil prices are high with faster decline rates once the depression hits.

As usual big WAGs by me. Of course nobody knows, but your insights on how things might play out would be interesting.

Guy Minton says: 12/07/2016 at 8:00 pm
You are a smart man, Dennis 😊
Dennis Coyne says: 12/07/2016 at 8:01 pm
Hi Guy,

When I agree with Ron of course. LOL.

BloomingDave says: 12/07/2016 at 9:07 pm
Hi Dennis,
If I am not mistaken, you have moved up your estimate of global petroleum peak, and perhaps the pace of the decline.
Just months ago, your opinion was that it would not occur until 2025. Are you moved by any specifics that you would like to share?
Thank you, and as a follower of your good work, I appreciate your insight.
Javier says: 12/09/2016 at 6:48 am
Yes, that is a change of position. It used to be 2025. Another advance and we are in.

[Dec 09, 2016] EIAs Short-Term Energy Outlook Peak Oil Barrel

Dec 09, 2016 | peakoilbarrel.com
VK says: 12/07/2016 at 1:17 pm
Steve at SRS Rocco report has a new, very informative post up showing that Middle East oil exports are lower today than 40 years ago!

"According to the 2016 BP Statistical Review, the Middle East produced 30.10 mbd of oil in 2015 compared to 22.35 mbd in 1976. This was a growth of 7.75 mbd. However, Middle East domestic oil consumption increased from 1.51 mbd in 1976 to 9.57 mbd in 2015. Thus, the Middle Eastern economies devoured an additional 8.06 mbd of oil during that 40 year time-period."

Would be great to see an update on the global export land model that Jeff Brown (westexas) used to update us on. How much C+C is available on the global markets as of today after domestic consumption?

Jeff says: 12/07/2016 at 2:04 pm
I´m not Jeff B. but if I remember last version of BP stats. correctly, the net export market has been on a bumpy plateau between 2005-2015. It has varied between 41-44 Mb/day (approx.). 2015 set a record which was just slightly higher than 2005. It´s possible that 2016 will be slightly higher.
Survivalist says: 12/07/2016 at 3:31 pm
I like this link.

http://mazamascience.com/OilExport/

World exports have been bumpy flat for 10 years or so.

Ecuador might be an importer soon'ish.

I like this site as I take an interest in observing the changes as exporters become importers. The country charts provide some rough idea of those timings.

Jeff says: 12/08/2016 at 3:39 am
2015 was indeed a net export record. The increase came mainly from Canada, Iraq and Russia. Iran may boost net exports in 2016, Kazakhstan will also add some. At least to me it seems unlikely that net-exports will grow substantially above the 2015/16-level. Increase from the mentioned countries will be needed to compensate decline in Mexico, Colombia, etc (+problems in Venezuela). Seems more likely it will continue on the plateau or decline. Nigeria and Libya are wildcards.

mazamascience also use BP-data but seems to give a much higher number, ~48Mb/day. Don't know why.

AlexS says: 12/08/2016 at 6:01 am
How do you calculate world total net export numbers if total global exports = total global imports?

Meanwhile, BP statistics for world oil exports (not net exports) show a rising trend.
I expect further increase in 2016, due to rising exports from Saudi Arabia, Iran, Iraq and Russia.

AlexS says: 12/08/2016 at 6:50 am
The IEA Oil Market Report, November 2016 on Iran's oil production and exports:

"With gains of 810 kb/d so far this year, Iran has emerged as the world's fastest source of supply growth. Crude oil output rose by 40 kb/d in October to reach a pre-sanctions rate of 3.72 mb/d and shipments of crude oil climbed well above 2.4 mb/d, a rate not seen in at least seven years.
For six straight months, the National Iranian Oil Co (NIOC) has been exporting more than 2 mb/d of crude – double the volume seen under sanctions."

AlexS says: 12/08/2016 at 6:54 am
Iraqi oil production and exports in 2016 were also above 2015 levels

source: IEA OMR, November 2016

AlexS says: 12/08/2016 at 6:59 am
According to JODI, Saudi Arabia's crude and refined product exports in January-September 2016 was about 460 kb/d higher than 2015 average.

Watcher says: 12/08/2016 at 10:16 am
So that says KSA domestic consumption is 2ish mbpd?

Are we comfortable with that?

AlexS says: 12/08/2016 at 10:36 am
3.3 mb/d in 2015

http://peakoilbarrel.com/texas-update-november-2016/#comment-587974

Watcher says: 12/08/2016 at 4:32 pm
But that's not what your chart says, in controvention to BP's data.

Your chart says KSA exports at 9. Production is known or thought to be 10.5. And since consumption is all liquids, that chart's products level is the correct number.

9 subtracted from 10.5. Leaves 1.5 consumption.

This looks bogus.

Did email BP. Waiting.

AlexS says: 12/08/2016 at 5:13 pm
10.5 is crude only.
Total liquids (including condensate and NGLs) was 12.0 mb/d in 2015 (BP number)
Jeff says: 12/08/2016 at 7:00 am
BP data. Only include countires if production > consumtion. Net export = sum(production – consumption).

Compared with your figure, US, for example, is thus not included, Canada has a lower value (import light), etc.

[Nov 28, 2016] I think oil prices are a long way away from being high enough to save the shale oil industry.

Notable quotes:
"... I do not understand the financial behavior of shale oil development, no. In the Bakken and the Eagle Ford it was indeed about reserve "growth," as Alex points out. Growth at the expense of profitability. That model failed (look at the debt, debt to asset ratios and losses for operators in those two shale oil plays) because the price of oil collapsed. ..."
"... Now, in spite of that, the Permian is using the same business model; growth at the expense of profitability. It is borrowing billions in the bottom of a price down cycle (it thinks) believing prices have no where to go but up. ..."
"... I think oil prices are a long way away from being high enough to save the shale oil industry. ..."
"... We may be overthinking all this and Alex is right again; it may be a simple matter of everyone taking advantage of a loosey goosey monetary policy in America. Money gets printed, Central Banks give it away, lenders are in desperate need of miniscule yields and CEO's and upper management borrow it, make millions personally on bonuses and incentives for growing reserves, then walk away from the whole shebang (Sheffield) before the loans come due. America looks the other way because they get cheap gasoline. ..."
Nov 28, 2016 | peakoilbarrel.com
Mike says:

11/27/2016 at 12:12 pm
I do not understand the financial behavior of shale oil development, no. In the Bakken and the Eagle Ford it was indeed about reserve "growth," as Alex points out. Growth at the expense of profitability. That model failed (look at the debt, debt to asset ratios and losses for operators in those two shale oil plays) because the price of oil collapsed.

Now, in spite of that, the Permian is using the same business model; growth at the expense of profitability. It is borrowing billions in the bottom of a price down cycle (it thinks) believing prices have no where to go but up. I would say this particular shale play might work, except that from the data I see the UR's on those wells are going to be pitiful at best, far less than the Bakken. Unless it is by the shear number of wells those operators are not going to have a lot of reserves that will appreciate with rising prices. It will therefore fail too, just like the others, perhaps for different reasons, I don't know. I think oil prices are a long way away from being high enough to save the shale oil industry.

We may be overthinking all this and Alex is right again; it may be a simple matter of everyone taking advantage of a loosey goosey monetary policy in America. Money gets printed, Central Banks give it away, lenders are in desperate need of miniscule yields and CEO's and upper management borrow it, make millions personally on bonuses and incentives for growing reserves, then walk away from the whole shebang (Sheffield) before the loans come due. America looks the other way because they get cheap gasoline.

John S says: 11/27/2016 at 1:46 pm
http://fuelfix.com/blog/2016/11/22/pioneer-denied-request-to-reclassify-oil-wells/

Happy Thanksgiving Mike! This article is for you! The RRC just refused to allow Pioneer to reclassify oil wells in the Eagle Ford to .. wait for it .GAS WELLS.

I believe Pioneer just admitted the you, Shallow, Alex, and the others have been right all along about the GOR going up, up and up.

It seems that Pioneer is trying to take advantage of the "high cost gas tax credit" designed to encourage gas production in HIGH COST low permeable tight gas reservoirs.

Interestingly, this move by Pioneer has initiated a discussion about whether there should be a new category for classifying wells. Hmmm sounds like the industry is about to hit the new Texas Legislative session up for some new tax relief to encourage horizontal drilling in its new favorite geological province the Permian Basin. But it will apply to the Barnett, Haynesville, Eagle Ford, and all those other disasters.

Mike says: 11/27/2016 at 7:22 pm
Happy Thanksgiving to you too, John -- I had actually seen this before. Scoundrels they are, one and all; Pioneer too, a Texas Company start to finish. The TRRC will roll over in another year or so, watch.
Dennis Coyne says: 11/27/2016 at 8:01 pm
Hi Mike,

Despite the CEOs not worrying about profits, I would think at some point the people buying the bonds or stock of these companies would realize that the Emperor is naked.

Eventually when enough investors get burned, the money will stop flowing. Maybe not in 2016, and perhaps not in 2017, but if oil prices remain low for the long term as experts in the field seem to suggest is a likely event (though nobody really knows future oil prices), the money will dry up. In that case these companies are done.

Dennis Coyne says: 11/27/2016 at 8:04 pm
Hi Alex,

Eventually the piper must be paid, low oil prices (for another 2 years) will be the LTO focused companies undoing in my opinion.

[Nov 28, 2016] IEA expects oil investment to fall for third year in 2017

Notable quotes:
"... "Our analysis shows we are entering a period of greater oil price volatility (partly) as a result of three years in a row of global oil investments in decline: in 2015, 2016 and most likely 2017," IEA director general Fatih Birol said, speaking at an energy conference in Tokyo. ..."
"... Oil prices have risen to their highest in nearly a month, as expectations grow among traders and investors that OPEC will agree to cut production, but market watchers reckon a deal may pack less punch than Saudi Arabia and its partners want. ..."
"... BMI's outlook is more optimistic than groups like the International Energy Agency, which said last week that the industry might cut spending in 2017 for a third year in a row as companies continue to grapple with weaker finances. Oil prices still hover around $50 a barrel, less than half the level of the summer of 2014. ..."
"... The chart below shows Exxon's E&P capex in 2007-2015 (in US$bn). There was a sharp increase in US capex (both in absolute in relative terms) following the XTO deal. In 2015, the company cut spending both in the US and abroad ..."
Nov 28, 2016 | peakoilbarrel.com
AlexS says: 11/26/2016 at 5:50 am
IEA expects oil investment to fall for third year in 2017

Thu Nov 24, 2016
http://www.reuters.com/article/us-iea-oil-investment-idUSKBN13J08H

Investment in new oil production is likely to fall for a third year in 2017 as a global supply glut persists, stoking volatility in crude markets, the head of the International Energy Agency (IEA) said on Thursday.

"Our analysis shows we are entering a period of greater oil price volatility (partly) as a result of three years in a row of global oil investments in decline: in 2015, 2016 and most likely 2017," IEA director general Fatih Birol said, speaking at an energy conference in Tokyo.

"This is the first time in the history of oil that investments are declining three years in a row," he said, adding that this would cause "difficulties" in global oil markets in a few years.

Oil prices have risen to their highest in nearly a month, as expectations grow among traders and investors that OPEC will agree to cut production, but market watchers reckon a deal may pack less punch than Saudi Arabia and its partners want.

The Organization of the Petroleum Exporting Countries meets next week to try to finalize to output curbs.

"Our analysis shows that when prices go to $60, we'll make a big chunk of U.S. shale oil economical and within the nine months to 12 months of time, we may see a response coming from the shale oil and other high-cost areas," Birol told Reuters, speaking in an interview on the sidelines of the conference.
"And this may again put downward pressure on the prices."

Birol said that level would be enough for many U.S. shale companies to restart stalled production, although it would take around nine months for the new supply to reach the market.

The IEA director general said it is still early to speculate what Donald Trump's presidency in the United States will have on energy policies.

"Having said that, both U.S. shale oil and U.S. shale gas have a very strong economic momentum behind them," Birol said.

"Shale gas has significant economic competitiveness today, and we think it will be so in the next years to come."

AlexS says: 11/26/2016 at 7:50 am
Оpposite view on 2017 global upstream capex from BMI Research:

Oil Firm Spending Seen Up in 2017 for First Time Since 2014

September 23, 2016
https://www.bloomberg.com/news/articles/2016-09-23/oil-firms-seen-spending-more-next-year-for-first-time-since-2014

• Capital spending seen growing 2.5% in 2017 and 7%-14% in 2018
• U.S. independents, Asian giants seen spurring spending growth

The oil industry may be ready to open its wallet after two years of slashing investments.

Companies will spend 2.5 percent more on capital expenditure next year than they did this year, the first yearly growth in such spending since 2014, BMI Research said in a Sept. 22 report. Spending will increase by another 7 percent to 14 percent in 2018. It will remain well below the $724 billion spent in 2014, before the worst oil crash in a generation caused firms to cut back on drilling and exploration to conserve cash, the researcher said.

North American independent producers, Asian state-run oil companies and Russian firms are prepared to boost investments next year, outweighing continued cuts from global oil majors such as Exxon Mobil Corp. and Total SA, BMI said, based on company guidance and its own estimates. Spending will increase to a total of $455 billion next year from $444 billion this year, BMI said.

"North America is where we're really expecting things to turn around," Christopher Haines, BMI's head of oil and gas research, said by telephone. "We've seen a push to really reduce costs, reduce spending and take out any waste and inefficiency. These companies have gotten to the point where they're all set up to react."

BMI's outlook is more optimistic than groups like the International Energy Agency, which said last week that the industry might cut spending in 2017 for a third year in a row as companies continue to grapple with weaker finances. Oil prices still hover around $50 a barrel, less than half the level of the summer of 2014.

shallow sand says: 11/26/2016 at 1:18 pm
From what I am reading, Permian hz wells will be drilled in greater numbers in 2017, regardless of price.

These wells are generally less prolific than those in the Bakken and EFS. However, the money has been raised and therefore it will spent.

To me, a good question is how much money is being diverted away from longer term projects that will ultimately produce more oil, to drill these Permian wells?

The Permain wells have no staying power. Under 50 bopd after 24 months is the rule, not the exception. Under 200,000 cumulative in 60 months is the rule, not the exception.

We shall see.

AlexS says: 11/26/2016 at 4:00 pm
"To me, a good question is how much money is being diverted away from longer term projects that will ultimately produce more oil, to drill these Permian wells?"

shallow sand

The companies that are postponing longer term projects are not the same companies that are planning to increase drilling in LTO plays.

Boomer II says: 11/26/2016 at 4:12 pm
"The companies that are postponing longer term projects are not the same companies that are planning to increase drilling in LTO plays."

I assumed he meant investment money. If investors want to be in gas and oil, are they picking the companies with best chance of long-term success (if there is such a thing anymore)?

AlexS says: 11/26/2016 at 4:53 pm
"I assumed he meant investment money. "

Yes, but international oil majors and U.S. shale companies generally have different investor base.

Oil majors are viewed as defensive stocks, slowly growing, but with strong balance sheets, paying high dividends and buying back shares.

On the contrary, shale companies are viewed as high risk – high reward stocks, with aggressive growth strategies, highly leveraged.

shallow sand says: 11/26/2016 at 6:46 pm
I meant both.

ExxonMobil, Chevron, ConnocoPhillips, Hess, Marathon and Oxy all have significant LTO production and all are, or were considered international upstream producers.

I agree the supermajors are defensive stocks. But there were many "growth" stock US companies which explored and produced offshore/internationally or both, prior to the LTO boom.

I may be wrong, we shall see.

AlexS says: 11/26/2016 at 7:39 pm
Most of large US E&Ps and mid-sized integrateds have divested their overseas assets during the years of shale boom.

I'm not sure that Exxon and Chevron are planning to increase their shale exposure in the near term. For Exxon, US upstream operations were hugely loss-making in 2015-16. And it has recently made two relatively large discoveries outside US.

shallow sand says: 11/26/2016 at 11:10 pm
AlexS. Are those XOM international discoveries primarily oil or gas?

Also, for the international assets you refer to which US companies divested, do you know whether the buyers are aggressively developing them? Just a guess, but I suspect maybe not.

11/30 is a big day, hoping for a cut, hard to say if it occurs whether it will be adhered to, other than by maybe the Gulf States.

AlexS says: 11/27/2016 at 6:33 am
shallow sand,

Both are oil discoveries:

1) Liza discovery offshore Guyana, with potential recoverable resource of 800 million to 1.4 billion oil-equivalent barrels

http://news.exxonmobil.com/press-release/exxonmobil-says-second-well-offshore-guyana-confirms-significant-oil-discovery

2) Owowo field offshore Nigeria with a potential recoverable resource of between 500 million and 1 billion barrels.

http://news.exxonmobil.com/press-release/exxonmobil-announces-significant-oil-discovery-offshore-nigeria

shallow sand says: 11/27/2016 at 9:27 am
AlexS. Thank you for the information.

Interesting to note Nexen is a partner in both ventures, while Hess and Chevron are in one each.

I agree XOM has sustained significant losses in North America, but they continue to spend money on new wells. Had they not spent the money they have in North America (both shale and tar sands) would the money have been spent elsewhere. A tough one to know the answer to.

I recall XOM was going to partner in Russia on projects and those were halted for political reasons? Did those projects go ahead without them?

AlexS says: 11/27/2016 at 6:39 pm
shallow sand,

I'm not saying that Exxon stopped investing in U.S. upstream. My point is that oil supermajors, like Exxon, Chevron, BP, Shell and Total are not diverting investments from deep offshore, LNG and other long-term projects to U.S. shale. They cut upstream capex both in U.S. and in overseas projects.

The chart below shows Exxon's E&P capex in 2007-2015 (in US$bn). There was a sharp increase in US capex (both in absolute in relative terms) following the XTO deal. In 2015, the company cut spending both in the US and abroad

[Nov 28, 2016] Oil companies shoulder pain of downturn with lower output

Notable quotes:
"... In the second quarter of 2016, the companies reduced production by nearly 930,000 bpd, according to Morgan Stanley. ..."
"... Large oilfields, such as deepwater developments off the coasts of the United States, Brazil, Africa and Southeast Asia, typically take three to five years and billions in investment to develop. ..."
"... "Still, unless investment rebounds relatively soon, this steep downward trend is likely to resume in 2018 and beyond." ..."
"... We haven't even begun to see a "steep downward trend" yet. As to "softening" – there is less new production coming on next year, overall and for the IOCs, than this – highlighting Canada, Brazil etc. doesn't change that. ..."
"... Also when are they going to actually understand that the companies don't ever "slash" output, like its a choice – depletion does it for them. ..."
"... I don't know when peak decent reporting happened but it's well into decline now (another big internet age negative). ..."
"... Also, the author quotes a report by Morgan Stanley (that we haven't seen). Apparently, those "109 listed companies that produce more than a third of the world's oil" are covered by MS equity research team. And changes in their output may not fully reflect trends in overall global oil production. ..."
"... But I agree that articles in Reuters, Bloomberg and other MSM sources often misinterpret third party research. A recent example are numerous article about USGS assessment of TRR in the Wolfcamp formation ..."
Nov 28, 2016 | peakoilbarrel.com
AlexS says: 11/26/2016 at 5:25 am
Oil companies shoulder pain of downturn with lower output

Nov 24, 2016
http://www.reuters.com/article/us-oil-production-idUSKBN13J0I0

The world's listed oil companies have slashed oil output by 2.4 percent so far this year.

The aggregated production of 109 listed companies that produce more than a third of the world's oil fell in the third quarter of 2016 by 838,000 barrels per day from a year earlier to 33.88 million bpd, data provided by Morgan Stanley showed.

In the second quarter of 2016, the companies reduced production by nearly 930,000 bpd, according to Morgan Stanley.

The firms include national oil champions of China, Russia and Brazil, international producers such as Exxon Mobil and Royal Dutch Shell, as well as U.S. shale oil producers like EOG Resources and Occidental Petroleum.

The drop in oil companies' output is particularly compelling given the increase in 2015, when third-quarter production rose by some 1.9 million bpd.

"Clearly, we have seen a large swing in the year-on-year trend in production, from strong growth as recent as a year ago, now to steep decline. This is the outcome of the strong cutbacks in investment," Morgan Stanley equity analyst Martijn Rats said.

Capital expenditure for the companies combined more than halved from $136 billion in the third quarter of 2014 to $58 billion in the same period this year, according to Rats.

Oil executives and the International Energy Agency have warned that a sharp drop in global investment in oil and gas would result in a supply shortage by the end of the decade.

Large oilfields, such as deepwater developments off the coasts of the United States, Brazil, Africa and Southeast Asia, typically take three to five years and billions in investment to develop.

Cost reductions and increased efficiencies have only partly offset the drop in production as a result of the lower investment. Technological advancements have also helped boost onshore U.S shale production.

"These declines should temporarily soften in 2017 as new fields are coming on-stream in Canada, Brazil, the former Soviet Union and U.S. tight oil probably stabilizes," Rats said.

"Still, unless investment rebounds relatively soon, this steep downward trend is likely to resume in 2018 and beyond."

George Kaplan says: 11/26/2016 at 6:03 am
We haven't even begun to see a "steep downward trend" yet. As to "softening" – there is less new production coming on next year, overall and for the IOCs, than this – highlighting Canada, Brazil etc. doesn't change that.

When is someone in Reuters or Bloomberg going to figure out that 2017 + 3 (or 5) + 1 (for FEED and FID approval at the beginning and ramp up at the end) = 2021 (or 2023) so there is no way to cover drops "at the end of the decade" now. Also when are they going to actually understand that the companies don't ever "slash" output, like its a choice – depletion does it for them.

And how about this paragraph

"Cost reductions and increased efficiencies have only partly offset the drop in production as a result of the lower investment. Technological advancements have also helped boost onshore U.S shale production."

He/she has suddenly started to talk about company finances rather than production, but without actually telling the reading public.

Cost reductions caused the drop for heavens sake. "Increased efficiencies" and "technological advancements" – do you think the author has the faintest idea what that actually means and how it is related to anything else he says.

I don't know when peak decent reporting happened but it's well into decline now (another big internet age negative).

AlexS says: 11/26/2016 at 8:29 am
"When is someone in Reuters or Bloomberg going to figure out that 2017 + 3 (or 5) + 1 (for FEED and FID approval at the beginning and ramp up at the end) = 2021 (or 2023) so there is no way to cover drops "at the end of the decade" now."

It should be actually 2015 + 3 (or 5), as pre-FID projects have been posponed since end-2014 – early 2015.

Also, the author quotes a report by Morgan Stanley (that we haven't seen). Apparently, those "109 listed companies that produce more than a third of the world's oil" are covered by MS equity research team. And changes in their output may not fully reflect trends in overall global oil production.

But I agree that articles in Reuters, Bloomberg and other MSM sources often misinterpret third party research. A recent example are numerous article about USGS assessment of TRR in the Wolfcamp formation

[Nov 19, 2016] 11/16/2016 at 3:49 pm

Notable quotes:
"... I am a petroleum Geologist drilling wells in the Wolfcamp, the USGS report means nothing. They periodically review basins to assess how much petroleum is there, we have been drilling Horizontal wells in the Wolfcamp for almost a decade, and vertical wells for many decades. Right now there are as many rigs running drilling this rock formation as there are in the rest of the country combined, so it is already baked in to the US production data. This is not like a Saudi Arabia field with a low drill and complete and development cost, it will take many billions of drilling capital to get a small percentage of the oil in place. The big deal is that the area is fairly resilient to low oil prices and will cushion the drop in US production due to lack of investment in other basins. ..."
"... I think when seismic, land, surface and down hole equipment is included, the number is much higher. With $20-60K per acre being paid, land definitely has to be factored in. Depending on spacing, $1-5 million per well? ..."
"... In reading company reports, it seems they state a cost to drill and case the hole, another to complete the well, then add the two for well cost. This does not include costs incurred prior to the well being drilled, which are not insignificant. Nor does it include costs of down hole and surface equipment, which also are not insignificant. ..."
"... Land costs are all over the map, and I think Bakken land costs overall are the lowest, because much of the leasing occurred prior to US shale production boom. I think a lot of acreage early on cost in the hundreds per acre. Of course, there was quite a bit of trading around since, so we have to look project by project, unfortunately. For purposes of a model, I think $8 million is probably in the ballpark. ..."
"... I would not include equipment for the well, initially, as OPEX (LOE is what I prefer to stick with, being US based). The companies do not do that, those costs are included in depreciation, depletion and amortization expense. ..."
"... Once the well is in production, and failures occur, I include the cost of repairs, including replacement equipment, in LOE. I am not sure that the companies do that, however. ..."
"... I think the Permian is going to be much tougher to estimate, as there are different producing formations at different depths, whereas the Bakken primarily has two, and the Eagle Ford has 1 or 2. ..."
"... What most interests me are suggestions that there is so much available oil in Wolfcamp and what that will do to oil prices and national policy. Seems like any announcement of more oil will likely keep prices low. And if they stay low, there's little reason to open up more areas for oil drilling. ..."
"... The key question is what part of these estimated technically recoverable resources are economically viable at $50; $60; $70; $80; $90, $100, etc. ..."
"... In November 2015, the EIA estimated proven reserves of tight oil in Wolfcamp and Bone Spring formations as of end 2014 at just 722 million barrels. ..."
"... AlexS. Another key question, which is price dependent, is how many years will it take to fully develop the reserves? ..."
"... If oil prices go back to $100/b in 2018 as the IEA seems to be concerned about, it could ramp up at the speed of the Eagle Ford ..."
"... It's impossible for IEA to make statements like: "the end of low cost oil will negatively affect economic growth", "geology is about to beat human ingenuity" etc. ..."
Nov 19, 2016 | peakoilbarrel.com
JG 11/16/2016 at 3:49 pm
I am a petroleum Geologist drilling wells in the Wolfcamp, the USGS report means nothing. They periodically review basins to assess how much petroleum is there, we have been drilling Horizontal wells in the Wolfcamp for almost a decade, and vertical wells for many decades. Right now there are as many rigs running drilling this rock formation as there are in the rest of the country combined, so it is already baked in to the US production data. This is not like a Saudi Arabia field with a low drill and complete and development cost, it will take many billions of drilling capital to get a small percentage of the oil in place. The big deal is that the area is fairly resilient to low oil prices and will cushion the drop in US production due to lack of investment in other basins.
Mike says: 11/17/2016 at 8:28 am
Thank you, JG -- Straight from the horses mouth, respectfully. The USGS lost all credibility with me as to estimating TRR in the Monterrey Shale in California. It baffles me, after five years of publically discussing unconventional shale oil resources, that modelers, internet analysts and predictors completely ignore economics, debt and finances. Extracting oil is a business; it must make money to succeed. If it does not succeed, all bets are off regarding predictions.
Dennis Coyne says: 11/17/2016 at 8:49 am
Hi Mike,

The Monterrey shale estimate was by the EIA not the USGS. The EIA had a private consultant do the analysis and it was mostly based on investor presentations, very little geological analysis.

It would be better if the USGS did an economic analysis as they do with coal for the Powder River Basin. They could develop a supply curve based on current costs, but they don't.

Do you have any idea of the capital cost of the wells (ballpark guess) for a horizontal multifracked well in the Wolfcamp? Would $7 million be about right (a WAG by me)?

On ignoring economics, I show my oil price assumptions. Other financial assumptions for the Bakken are $8 million for capital cost of the well (2016$). OPEX=$9/b, other costs=$5/b, royalty and taxes=29% of gross revenue, $10/b transport cost, and a real discount rate of 7% (10% nominal discount rate assuming 3% inflation).

I do a DCF based on my assumed real oil price curve. Brent oil price rises to $77/b (2016$) by June 2017 and continue to rise at 17% per year until Oct 2020 when the oil price reaches $130/b, it is assumed that average oil prices remain at that level until Dec 2060. The last well is drilled in Dec 2035 and stops producing 25 years later in Dec 2060.

EUR of wells today is assumed to be 321 kb and EUR falls to 160 kb by 2035. The last well drilled only makes $243,000 over the 7% real rate of return, so the 9 Gb scenario is probably too optimistic, it is assumed that any gas sales are used to offset OPEX and other costs, though no natural gas price assumptions have been made to simplify the analysis.

This analysis is based on the analyses that Rune Likvern has done in the past, though his analyses are far superior to my own.

shallow sand says: 11/17/2016 at 9:00 am
I think when seismic, land, surface and down hole equipment is included, the number is much higher. With $20-60K per acre being paid, land definitely has to be factored in. Depending on spacing, $1-5 million per well?
Dennis Coyne says: 11/17/2016 at 10:07 am
Hi Shallow sand,

I am doing the analysis for the Bakken. A lot of the leases are already held and I don't know that those were the prices paid. Give me a number for total capital cost that makes sense, are you suggesting $10.5 million per well, rather than $8 million? Not hard to do, but all the different assumptions you would like to change would be good so I don't redo it 5 times.

Mostly I would like to clear up "the number".

I threw out more than one number, OPEX, other costs, transport costs, royalties and taxes, real discount rate (adjusted for inflation), well cost.

I think you a re talking about well cost as "the number". I include down hole costs as part of OPEX (think of it as OPEX plus maintenance maybe).

shallow sand says: 11/17/2016 at 11:19 am
Dennis. The very high acreage numbers are for recent sales in the Permian Basin.

In reading company reports, it seems they state a cost to drill and case the hole, another to complete the well, then add the two for well cost. This does not include costs incurred prior to the well being drilled, which are not insignificant. Nor does it include costs of down hole and surface equipment, which also are not insignificant.

Land costs are all over the map, and I think Bakken land costs overall are the lowest, because much of the leasing occurred prior to US shale production boom. I think a lot of acreage early on cost in the hundreds per acre. Of course, there was quite a bit of trading around since, so we have to look project by project, unfortunately. For purposes of a model, I think $8 million is probably in the ballpark.

I would not include equipment for the well, initially, as OPEX (LOE is what I prefer to stick with, being US based). The companies do not do that, those costs are included in depreciation, depletion and amortization expense.

Once the well is in production, and failures occur, I include the cost of repairs, including replacement equipment, in LOE. I am not sure that the companies do that, however.

I think the Permian is going to be much tougher to estimate, as there are different producing formations at different depths, whereas the Bakken primarily has two, and the Eagle Ford has 1 or 2.

An example:

QEP paid roughly $60,000 per acre for land in Martin Co., TX. If we assume one drilling unit is 1280 acres (two sections), how many two mile laterals will be drilled in the unit?

1280 acres x $60,000 = $76,800,000.

Assume 440′ spacing, 12 wells per unit.

$76,800,000/12 = $6,400,000 per well.

However, there are claims of up to 8 producing zones in the Permian.

So, 12 x 8 = 96 wells.

$76,800,000 / 96 = $800,000 per well.

Even assuming 96 wells, the cost per well is still significant.

If we assume 96 wells x $7 million to drill, complete and equip, total cost to develop is $.75 BILLION. That is a lot of money for one 1280 acre unit, need to recover a lot of oil and gas to get that to payout.

Dennis Coyne says: 11/17/2016 at 1:22 pm
Hi Shallow sands,

I am neither an oil man nor an accountant, so regardless of what we call it I am assuming natural gas sales (maybe about $3/barrel on average) are used to offset the ongoing costs to operate the well (LOE, OPEX, financial costs, etc), we could add another million to the cost of the well for surface and downhole equipment and land costs. Does an average operating cost over the life of a well of about $17/b ($14/b plus natural gas sales of $3/b of oil produced)seem reasonable?

That would be about $5.4 million spent on LOE etc. over the life of the well (assuming 320 kbo produced). Also does the 10% nominal rate of return sound high enough, what number would you use as a cutoff? You use a different method than a DCF and want the well to pay out in 60 months. This would correspond to about a 14% nominal rate of return and an 11% real rate of return (assuming a 3% annual inflation rate.)

AlexS says: 11/17/2016 at 9:05 am
"The Monterrey shale estimate was by the EIA not the USGS. The EIA had a private consultant do the analysis and it was mostly based on investor presentations, very little geological analysis."

Exactly. USGS' estimate as of October 2015 is very conservative:

"The Monterey Formation in the deepest parts of California's San Joaquin Basin contains an estimated mean volumes of 21 million barrels of oil, 27 billion cubic feet of gas, and 1 million barrels of natural gas liquids, according to the first USGS assessment of continuous (unconventional), technically recoverable resources in the Monterey Formation."

"The volume estimated in the new study is small, compared to previous USGS estimates of conventionally trapped recoverable oil in the Monterey Formation in the San Joaquin Basin. Those earlier estimates were for oil that could come either from producing more Monterey oil from existing fields, or from discovering new conventional resources in the Monterey Formation."

Previous USGS estimates were for conventional oil:

"In 2003, USGS conducted an assessment of conventional oil and gas in the San Joaquin Basin, estimating a mean of 121 million barrels of oil recoverable from the Monterey. In addition, in 2012, USGS assessed the potential volume of oil that could be added to reserves in the San Joaquin Basin from increasing recovery in existing fields. The results of that study suggested that a mean of about 3 billion barrels of oil might eventually be added to reserves from Monterey reservoirs in conventional traps, mostly from a type of rock in the Monterey called diatomite, which has recently been producing over 20 million barrels of oil per year."

https://www.usgs.gov/news/usgs-estimates-21-million-barrels-oil-and-27-billion-cubic-feet-gas-monterey-formation-san

Mike says: 11/17/2016 at 1:24 pm
I am corrected, RE; USGS and Monterrey. I still don't believe there is 20G BO in the Wolfcamp. Most increases in PB DUC's are not wells awaiting frac's but lower Wolfcamp wells that are TA and awaiting re-drills; that should tell you something. With acreage, infrastructure and water costs in W. Texas, wells cost $8.5-9.0M each. The shale industry won't admit that, but that's what I think. What happens to EUR's and oil prices after April of 2017 is a guess and a waste of time, sorry.
Dennis Coyne says: 11/17/2016 at 8:54 am
Hi JG,

What is the average cost of drilling and completion (including fracking) for a horizontal Wolfcamp well?

Does the F95 estimate of 11 Gb seem reasonable if oil prices go up to over $80/b (2016 $) and remain above that level on average from 2018 to 2025?

Boomer II says: 11/17/2016 at 3:25 pm
What most interests me are suggestions that there is so much available oil in Wolfcamp and what that will do to oil prices and national policy. Seems like any announcement of more oil will likely keep prices low. And if they stay low, there's little reason to open up more areas for oil drilling.
AlexS says: 11/16/2016 at 3:53 pm
"Their assessment method for Bakken was pretty simple – pick a well EUR, pick a well spacing, pick total acreage, pick a factor for dry holes – multiply a by c by d and divide by b."

The EIA and others use the same methodology

AlexS says: 11/16/2016 at 4:09 pm
USGS estimates for average well EUR in Wolfcamp shale look reasonable: 167,ooo barrels in the core areas and much lower in other parts of the formation.

I do not know if the estimated potential production area is too big, or assumed well spacing is too tight.

The key question is what part of these estimated technically recoverable resources are economically viable at $50; $60; $70; $80; $90, $100, etc.

Significant part of resources may never be developed, even if they are technically recoverable.

Dennis Coyne says: 11/16/2016 at 5:17 pm
Keep in mind these USGS estimates are for undiscovered TRR, one needs to add proved reserves times 1.5 to get 2 P reserves and that should be added to UTRR to get TRR. There are roughly 3 Gb of 2P reserves that have been added to Permian reserves since 2011, if we assume most of these are from the Wolfcamp shale (not known) then the TRR would be about 23 Gb. Note that total proved plus probable reserves at the end of 2014 in the Permian was 10.5 Gb (7 Gb proved plus 3.5 GB probable with the assumption that probable=proved/2). I have assumed about 30% of total Permian 2P reserves is in the Wolfcamp shale. That is a WAG.

Note the median estimate is a UTRR of 19 Gb with F95=11.4 Gb and F5=31.4 Gb. So a conservative guess would be a TRR of 13.4 Gb= proved reserves plus F95 estimate. If prices go to $85/b and remain at that level the F95 estimate may become ERR, at $100/b maybe the median is potentially ERR. It will depend how long prices can remain at $100/b before an economic crash, prices are Brent Crude price in 2016$ with various crude spreads assumed to be about where they are now.

AlexS says: 11/16/2016 at 7:01 pm
Dennis,
where your number for proven reserves in the Permian comes from?

In November 2015, the EIA estimated proven reserves of tight oil in Wolfcamp and Bone Spring formations as of end 2014 at just 722 million barrels.

http://www.eia.gov/naturalgas/crudeoilreserves/

AlexS says: 11/16/2016 at 7:16 pm
US proved reserves of LTO

Dennis Coyne says: 11/16/2016 at 9:11 pm
Hi Alex S,

I just looked at Permian Basin crude reserves (Districts 7C, 8 and 8A) and assumed the change in reserves from 2011 to 2014 was from the Wolfcamp. I didn't know about that page for reserves. It is surprising it is that low.

In any case the difference is small relative to the UTRR, it will be interesting to see what the reserves are for year end 2015.

Based on this I would revise my estimate to 20 Gb for URR with a conservative estimate of 12 Gb until we have the data for year end 2015 to be released later this month.

My guess is that the USGS probably already has the 2015 year end reserve data.

AlexS says: 11/16/2016 at 9:26 pm
Dennis,

The EIA proved reserves estimate for 2015 will be issued this month. I think we will see a significant increase in the number for the Permian basin LTO.

Also note that USGS TRR estimate is only for Wolfcamp.
I can only guess what could be their estimate for the whole Permian tight oil reserves.
But the share of Wolfcamp in the Permian LTO output is only 24% (according to the EIA/DrillingInfo report).

Dennis Coyne says: 11/16/2016 at 10:09 pm
Hi Alex S,

http://www.beg.utexas.edu/resprog/permianbasin/index.htm

At link above they say Permian basin has 30 Gb of oil, so if both estimates are correct the Wolfcamp has 2/3 of remaining resources.

AlexS says: 11/17/2016 at 4:32 am
Dennis,

Wolfcamp is a newer play than Bone Spring and Spraberry. That's why its share in the Permian LTO production is less than in TRR.

Dennis Coyne says: 11/17/2016 at 8:21 am
Hi AlexS,

That makes sense. I also imagine the USGS focused on the formation with the bulk of the remaining resources. It is conceivable that the 30 Gb estimate is closer to the remaining oil in place and that more like 90% of the TRR is in the Wolfcamp, considering that the F5 estimate is about 30 Gb. That older study from 2005 may be an under estimate of TRR for the Permian, likewise the USGS might have overestimated the UTRR.

shallow sand says: 11/16/2016 at 5:18 pm
AlexS. Another key question, which is price dependent, is how many years will it take to fully develop the reserves?
Dennis Coyne says: 11/16/2016 at 5:38 pm
Hi Shallow sand,

If oil prices go back to $100/b in 2018 as the IEA seems to be concerned about, it could ramp up at the speed of the Eagle Ford (say 2 to 3 years). It will be oil price dependent and perhaps they won't over do it like in 2011-2014, but who knows, some people don't learn from past mistakes. If you or Mike were running things it would be done right, but the LTO guys, I don't know.

AlexS says: 11/16/2016 at 7:08 pm
shallow sand,

Yes, you are correct. And there are multiple potential production scenarios, depending on the oil prices.

Boomer II says: 11/16/2016 at 3:39 pm
From the USGS press release.

USGS Estimates 20 Billion Barrels of Oil in Texas' Wolfcamp Shale Formation

"This estimate is for continuous (unconventional) oil, and consists of undiscovered, technically recoverable resources.

Undiscovered resources are those that are estimated to exist based on geologic knowledge and theory, while technically recoverable resources are those that can be produced using currently available technology and industry practices. Whether or not it is profitable to produce these resources has not been evaluated."

Watcher says: 11/16/2016 at 4:11 pm
This is an important way to assess.

If it requires slave labor at gunpoint to get the oil out, then that's what will happen because you MUST have oil, and a day will soon come when that sort of thing is reqd.

George Kaplan says: 11/16/2016 at 3:16 pm
This follows on from reserve post above (two a couple of comments). In terms of changes over the last three years – there really weren't anything much dramatic. We'll see what 2016 brings, especially for ExxonMobil, but it looks like they already knocked a big chunk off of their Bitumen numbers already in 2015.

Note I went through a lot of 20-F and 10-K reports watching the rain fall this morning and copied out the numbers, I'm not guaranteeing I got everything 100%, but I think the general trends are shown.

Note the figures are totals for all nine companies I looked at.

Jeff says: 11/16/2016 at 3:20 pm
IEA WEO is out: http://www.iea.org/newsroom/news/2016/november/world-energy-outlook-2016.html presentation slides, fact sheet and summary are available online (report can be purchased). IEA seems to be _very_ concerned about underinvestment in upstream oil production. Several pages of the report is devoted to this, the title of that section is "mind the gap". More or less all of the content has been discussed on this website, including the issue with high levels of debt and that this can affect suppliers' capacity to rebound, and how much demand can be reduced as a result of a stringent carbon cap.

From the fact sheet (available free of charge):
"Another year of low upstream oil investment in 2017 would risk a shortfall in oil production in a few years' time. The conventional crude oil resources (e.g. excluding tight oil and oil sands) approved for development in 2015 sank to the lowest level since the 1950s, with no sign of a rebound in 2016. If there is no pick-up in 2017, then it becomes increasingly unlikely that demand (as projected in our main scenario) and supply can be matched in the early 2020s without the start of a new boom/bust cycle for the industry"

Presentation 1:09 – Dr. Birol gives his view: "depletion never sleeps"

George Kaplan says: 11/17/2016 at 3:42 am
I wonder who that paragraph is aimed at. As I indicated above the companies that would be investing in long term conventional projects don't have a very large inventory of undeveloped reserves (17 Gb as of end of 2015, some of this has gone already this year and more is in development and will come on stream in 2017 and 2018 (and a small amount in later years for approved projects). I'd guess there might only be less than 10 Gb (and this the most expensive to develop) that is currently under appraisal among the major western IOCs and larger independents; allowing for their partnerships with NOCs in a lot of the available projects that could represent 20 to 30 Gb total. That really isn't very much new supply available, and a large proportion is in complex deep water projects that wouldn't be ramped up fully until 6 to 7 years after FID (i.e. already too late for 2020). Really the main players need to find new fields with easy developments, but they obviously aren't, probably never will, and actually aren't looking very hard at the moment.
Jeff says: 11/17/2016 at 7:24 am
My interpretation is that this is IEAs way of saying that it does not look good. Those who can read between the lines get the message. Also, a few years from they will be able to say "see we told you so".

It's impossible for IEA to make statements like: "the end of low cost oil will negatively affect economic growth", "geology is about to beat human ingenuity" etc.

WEO have become more and more bizarre over the years. On the one hand they contain quantitative projections which tell the story politicians wants to hear. On the other hand, the text describes all sorts of reason of why the assumptions are unlikely to hold. Normally, if you don't believe in your own assumptions you would change them.

[Nov 19, 2016] Wolfcamp oil reserves

Notable quotes:
"... Right now there are as many rigs running drilling this rock formation as there are in the rest of the country combined, so it is already baked in to the US production data. This is not like a Saudi Arabia field with a low drill and complete and development cost, it will take many billions of drilling capital to get a small percentage of the oil in place. The big deal is that the area is fairly resilient to low oil prices and will cushion the drop in US production due to lack of investment in other basins. ..."
"... The USGS lost all credibility with me as to estimating TRR in the Monterrey Shale in California. It baffles me, after five years of publically discussing unconventional shale oil resources, that modelers, internet analysts and predictors completely ignore economics, debt and finances. Extracting oil is a business; it must make money to succeed. If it does not succeed, all bets are off regarding predictions. ..."
Nov 19, 2016 | peakoilbarrel.com

JG says: 11/16/2016 at 3:49 pm
I am a petroleum Geologist drilling wells in the Wolfcamp, the USGS report means nothing. They periodically review basins to assess how much petroleum is there, we have been drilling Horizontal wells in the Wolfcamp for almost a decade, and vertical wells for many decades. Right now there are as many rigs running drilling this rock formation as there are in the rest of the country combined, so it is already baked in to the US production data. This is not like a Saudi Arabia field with a low drill and complete and development cost, it will take many billions of drilling capital to get a small percentage of the oil in place. The big deal is that the area is fairly resilient to low oil prices and will cushion the drop in US production due to lack of investment in other basins.
Mike says: 11/17/2016 at 8:28 am
Thank you, JG -- Straight from the horses mouth, respectfully. The USGS lost all credibility with me as to estimating TRR in the Monterrey Shale in California. It baffles me, after five years of publically discussing unconventional shale oil resources, that modelers, internet analysts and predictors completely ignore economics, debt and finances. Extracting oil is a business; it must make money to succeed. If it does not succeed, all bets are off regarding predictions.
Dennis Coyne says: 11/17/2016 at 8:49 am
Hi Mike,

The Monterrey shale estimate was by the EIA not the USGS. The EIA had a private consultant do the analysis and it was mostly based on investor presentations, very little geological analysis.

It would be better if the USGS did an economic analysis as they do with coal for the Powder River Basin. They could develop a supply curve based on current costs, but they don't.

Do you have any idea of the capital cost of the wells (ballpark guess) for a horizontal multifracked well in the Wolfcamp? Would $7 million be about right (a WAG by me)?

On ignoring economics, I show my oil price assumptions. Other financial assumptions for the Bakken are $8 million for capital cost of the well (2016$). OPEX=$9/b, other costs=$5/b, royalty and taxes=29% of gross revenue, $10/b transport cost, and a real discount rate of 7% (10% nominal discount rate assuming 3% inflation).

I do a DCF based on my assumed real oil price curve. Brent oil price rises to $77/b (2016$) by June 2017 and continue to rise at 17% per year until Oct 2020 when the oil price reaches $130/b, it is assumed that average oil prices remain at that level until Dec 2060. The last well is drilled in Dec 2035 and stops producing 25 years later in Dec 2060.

EUR of wells today is assumed to be 321 kb and EUR falls to 160 kb by 2035. The last well drilled only makes $243,000 over the 7% real rate of return, so the 9 Gb scenario is probably too optimistic, it is assumed that any gas sales are used to offset OPEX and other costs, though no natural gas price assumptions have been made to simplify the analysis.

This analysis is based on the analyses that Rune Likvern has done in the past, though his analyses are far superior to my own.

shallow sand says: 11/17/2016 at 9:00 am
I think when seismic, land, surface and down hole equipment is included, the number is much higher.

With $20-60K per acre being paid, land definitely has to be factored in. Depending on spacing, $1-5 million per well?

[Nov 19, 2016] That 20-billion-barrel oil "deposit" in Texas, isn't.

Nov 19, 2016 | www.nakedcapitalism.com

Synapsid November 17, 2016 at 5:03 pm

[Nov 16, 2016] It looks like this month (Nov.) will probably be a new global oil supply record barring major disruptions anywhere

Notable quotes:
"... But it gets more apparent with each report they are concerned with a sudden drop in supply in the medium term (I think supply will decline gradually through 2017 but then accelerate in 2Q2018 and fall off a cliff in 2019 given current project planning. ..."
"... It is now becoming too late to do much that will impact supplies then and with the likelihood of low prices through next year and few attractive recent discoveries (and getting worse each quarter in that respect) there are unlikely to be many more FIDs next year than this – I think only 12 so far and more gas than oil – therefore that supply drought will probably extend through 2020. ..."
"... Decline rates could increase on existing fields at the same time as in-fill drilling marginal gains start to decline and the impact of reduced maintenance and brownfield spending during these low price years start to impact. ..."
"... People may point to US LTO fields to be able to quickly fill any gap, but I'd point out it took about 5 years for Bakken to ramp up to 1 mmbpd ..."
Nov 16, 2016 | peakoilbarrel.com

George Kaplan says: 11/11/2016 at 3:51 am

IEA OMR came out yesterday (summary only – have to wait two weeks for full details for free).

https://www.iea.org/oilmarketreport/omrpublic/

It looks like this month (Nov.) will probably be a new global oil supply record barring major disruptions anywhere. But it gets more apparent with each report they are concerned with a sudden drop in supply in the medium term (I think supply will decline gradually through 2017 but then accelerate in 2Q2018 and fall off a cliff in 2019 given current project planning.

It is now becoming too late to do much that will impact supplies then and with the likelihood of low prices through next year and few attractive recent discoveries (and getting worse each quarter in that respect) there are unlikely to be many more FIDs next year than this – I think only 12 so far and more gas than oil – therefore that supply drought will probably extend through 2020.

Decline rates could increase on existing fields at the same time as in-fill drilling marginal gains start to decline and the impact of reduced maintenance and brownfield spending during these low price years start to impact.

People may point to US LTO fields to be able to quickly fill any gap, but I'd point out it took about 5 years for Bakken to ramp up to 1 mmbpd, and that was when the sweet spots were available and with an industry not already loaded down with debt. That rate is not much better than a new conventional basin with similar reserves would have achieved (as long as it wasn't in Kazahkstan of course).

"It is not the role of the IEA to urge any oil industry player to take one course of action rather than another, and we are not doing so now. Over time, market forces will do their job and the oil price will respond to the signals provided by demand and supply. What the IEA has argued for consistently is the need for investments necessary to meet rising oil demand. Such investments ensure that the market remains close to balance and that prices are as stable and as fair for both producers and consumers as can ever be possible in such a dynamic industry."

Related to ExxonMobil – they are the only major company so far this year to have had a couple of good successes with exploration, that is a reverse previous history when they were known having much more success "drilling on Wall Street" to boost their reserves – part of the reason for the Mobil acquisition who always did pretty with with wildcatting.

It would be interesting to know how their reserves (and other companies as well) are broken down between developed and undeveloped for oil and gas, before Liza in Guyana and the Owowo (Nigeria) discovery this year they were pretty short of oil projects of any kind, irrespective of price, except in support of some OPEC countries on buyback contracts, and I don't know how that oil is counted against their reserves if at all.

Other majors might be in worse shape than them once the current bubble of projects works through.

[Nov 16, 2016] The cuts in maintenance and brownfield work, exhaustion of marginal in-fill drilling benefits and extended use of horizontal drilling over the last 15 years will mean that decline of existing fields is likely to accelerate

Notable quotes:
"... The approved projects coming on line are about 500 kbpd in 2019, 700 in 2020 and 200 in 2021. There will also be about 1 mmbpd still ramping up, but I think the supply will be slightly in deficit and any stock overhang will have largely gone by the end of 2018 (assuming demand stays as predicted). In terms of decline existing fields it is minimum 3.3% (based on Core labs) up to 5.5% by Rystad – but I think the cuts in maintenance and brownfield work, exhaustion of marginal in-fill drilling benefits and extended use of horizontal drilling over the last 15 years will mean this is likely to accelerate. ..."
"... I, like many, quote start-up date for end of project development but often it takes 12 to 18 months to ramp up to plateau, so all that lack of new supply in 2019 to 2021 can impact through to 2023. ..."
Nov 16, 2016 | peakoilbarrel.com
George Kaplan says: 11/12/2016 at 7:41 am
Price depends on supply and demand – I don't know what is going to happen in demand: it seems to be predictable until suddenly it isn't. Recessions can have reasonably large impacts to demand and these have proportionally larger impacts on price.

The approved projects coming on line are about 500 kbpd in 2019, 700 in 2020 and 200 in 2021. There will also be about 1 mmbpd still ramping up, but I think the supply will be slightly in deficit and any stock overhang will have largely gone by the end of 2018 (assuming demand stays as predicted). In terms of decline existing fields it is minimum 3.3% (based on Core labs) up to 5.5% by Rystad – but I think the cuts in maintenance and brownfield work, exhaustion of marginal in-fill drilling benefits and extended use of horizontal drilling over the last 15 years will mean this is likely to accelerate.

Note there will of course be other projects added, but another low price year in 2017 with additional cuts (e.g. see CoP, Statoil, PetroBras, Pemex news over the last weeks) and there just won't be enough time to get much online before 2021, especially as the service industries and development groups in the E&Ps are still getting thinned out (see Weatherford, Heerema, Hess news recently).

I, like many, quote start-up date for end of project development but often it takes 12 to 18 months to ramp up to plateau, so all that lack of new supply in 2019 to 2021 can impact through to 2023.

[Nov 16, 2016] OPEC increased production in October defying its own policy of cutting one million barrel a day. But steep deline of KAS production is probably in cards as they abuse infill drilling

Notable quotes:
"... It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to see how this infill drilling might one day impact the decline side of the curve. ..."
"... According to Bedford Hill and the oil engineers at the Hills Group, Saudi oil production will experience at SENECA CLIFF like decline. I agree. ..."
"... I'm no expert but from what I understand infill drilling causes what might have been a roughly Hubbert shaped production curve to flatten out at the top for a while and then in the future experience a steeper decline curve; basically representing future production on the Hubbert curve being brought forward to maintain a plateau at the peak. This does seem to move the curve profile from Hubbert to Seneca, so to speak. ..."
"... This image from Matt certainly represents a plateau at approx 72 million barrels a day taking place in all jurisdictions outside of Canada and USA. ..."
"... I'm very interested in the timing and the steepness of this impending decline. Figure 10 mentioned above shows the rig count in Kuwait, Saudi and UAE really taking of 'bigly' in 2010-2011 'ish. ..."
Nov 16, 2016 | peakoilbarrel.com
Survivalist says: 11/11/2016 at 10:23 pm
OPEC MOMR is out
OPEC up 236.7G

Angloa down 165G
Saudi down 51G
Venezuela down 22G
Iran up 27G
Iraq up 88G
Libya up 176G
Nigeria up 170G

Ron Patterson says: 11/12/2016 at 11:37 am
The page OPEC Charts has been updated with the October data.
Survivalist says: 11/12/2016 at 1:37 pm
I find figure 10 from this article interesting

http://euanmearns.com/oil-production-vital-statistics-october-2016/

It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to see how this infill drilling might one day impact the decline side of the curve.

SRSrocco says: 11/12/2016 at 1:50 pm
Survivalist

According to Bedford Hill and the oil engineers at the Hills Group, Saudi oil production will experience at SENECA CLIFF like decline. I agree.

Steve

Survivalist says: 11/12/2016 at 3:35 pm
I'm no expert but from what I understand infill drilling causes what might have been a roughly Hubbert shaped production curve to flatten out at the top for a while and then in the future experience a steeper decline curve; basically representing future production on the Hubbert curve being brought forward to maintain a plateau at the peak. This does seem to move the curve profile from Hubbert to Seneca, so to speak.

This image from Matt certainly represents a plateau at approx 72 million barrels a day taking place in all jurisdictions outside of Canada and USA.

http://crudeoilpeak.info/wp-content/uploads/2016/02/Incremental_crude_world_growth_decline_OPEC_US_Canada_2001_Oct2015.jpg

And this one from Euan that is addressing world conventional oil production looks similar enough.

http://www.euanmearns.com/wp-content/uploads/2015/06/C-Cdec141.png

I'm very interested in the timing and the steepness of this impending decline. Figure 10 mentioned above shows the rig count in Kuwait, Saudi and UAE really taking of 'bigly' in 2010-2011 'ish.

[Nov 16, 2016] It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to see how this infill drilling might one day impact the decline side of the curve.

Notable quotes:
"... It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to see how this infill drilling might one day impact the decline side of the curve. ..."
Nov 16, 2016 | peakoilbarrel.com

Survivalist says: 11/11/2016 at 10:23 pm

OPEC MOMR is out
Ron Patterson says: 11/12/2016 at 11:37 am
The page OPEC Charts has been updated with the October data.
Survivalist says: 11/12/2016 at 1:37 pm
I find figure 10 from this article interesting

http://euanmearns.com/oil-production-vital-statistics-october-2016/

It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to see how this infill drilling might one day impact the decline side of the curve.

SRSrocco says: 11/12/2016 at 1:50 pm
Survivalist

According to Bedford Hill and the oil engineers at the Hills Group, Saudi oil production will experience at SENECA CLIFF like decline.

I agree.

Steve

Survivalist says: 11/12/2016 at 3:35 pm
I'm no expert but from what I understand infill drilling causes what might have been a roughly Hubbert shaped production curve to flatten out at the top for a while and then in the future experience a steeper decline curve; basically representing future production on the Hubbert curve being brought forward to maintain a plateau at the peak. This does seem to move the curve profile from Hubbert to Seneca, so to speak.

This image from Matt certainly represents a plateau at approx 72 million barrels a day taking place in all jurisdictions outside of Canada and USA.

http://crudeoilpeak.info/wp-content/uploads/2016/02/Incremental_crude_world_growth_decline_OPEC_US_Canada_2001_Oct2015.jpg

And this one from Euan that is addressing world conventional oil production looks similar enough.

http://www.euanmearns.com/wp-content/uploads/2015/06/C-Cdec141.png

I'm very interested in the timing and the steepness of this impending decline. Figure 10 mentioned above shows the rig count in Kuwait, Saudi and UAE really taking of 'bigly' in 2010-2011 'ish.

[Oct 30, 2016] During the next upturn in the price things will be different, most of the easy oil was developed during the last high price cycle

Oct 30, 2016 | peakoilbarrel.com
Rune Likvern: 10/29/2016 at 11:10 am

I am working (on and off) on something on world crude oil supplies that may end up as a post on Fractionalflow.
I agree with Rystad Energy (ref Caelan's post further up. Disclosure, I have never had anything to do with Rystad) that global oil extraction will decline towards the end of this decade.

I look at this through the lenses of discoveries (and their sizes) not FID, expected changes to the oil companies' balance sheets at end 2016 (financial leverage will by default come up, assets/equity come down due to lower oil price and lower reserves [of which some will be rebooked at a higher price]), CAPEX constraints, their Reserves Replacement Ratios (RRR), likely near term (oil) price and cost developments to name the most important ones.

The chart below [note scaling on the right axis] is now my conceptual understanding of global crude oil supplies towards the end of 2018. We are soon entering November 2016 which makes me now expect the period with decline to last longer.

I expect capacity of about 5 Mb/d of global crude oil capacities to vanish by end 2018. That will have some implications. It took years with a high oil price ($100/b) to grow supplies with 5 Mb/d.
During the next upturn in the price things will be different, most of the "easy" oil was developed during the last high price cycle.

I do not expect the decline to accurately follow my suggested span. Depletion induced declines never sleeps and some portion of world crude oil supplies is now from sources (like LTO, "small" offshore discoveries) that depletes fast and other legacy sources are also in general decline.

The decline is already baked into the cake. It does not matter if oil prices moved above $80/bo as of next week. This would stimulate more drilling for tight oil, but for other developments, it would take anywhere between 2-4 years from these are FIDed (Final Investment Decision) until they flow.

The oil companies drew down their portfolios of discoveries being profitable at $80/bo during the high oil price period that ended during the summer of 2014, and still there are some developments in the pipeline that will start up during the next few years, but this portfolio is shrinking fast. The tight oil companies have drilled most of their sweet spots and are now cash flow constrained wrt drilling.

[Oct 28, 2016] World Oil Reserves

Notable quotes:
"... China and Mexico are in rapid decline at the moment but are supposed to have respectively, contingent 10 and 8 Gb and undiscovered 17 and 56 (!) – that has to be assuming a big shale resource for Mexico I'd guess. ..."
"... China has more rigs relative to its production than anywhere and this year is probably going to drill the most wells of any country. And yet they haven't found a new oil field for many years (quite a bit of gas though) and have only bought on a couple of small offshore fields recently. ..."
"... Norway and UK combined have developed a lot of their older contingent fields over the last few years, at very high cost and in some cases are now losing money on the investment. ..."
"... The biggest two confirmed finds are gas offshore Angola and Senegal (400+ and 800+ mmboe respectively), both probably need to be developed through LNG so might be years away given the current glut and normal schedules for such projects). ..."
"... In the North Sea reserves have been downgraded, not only because of price but also as some of the smaller finds no longer have options for tie backs because the possible hubs are coming to the end of their lives an new finds are in the 20 to 50 mmbbls range and heavy (also a number of dry wells there). I'd say it will likely be significantly worse than last year (which was the worst for 70 years) for both oil and gas discoveries. ..."
"... By coincidence, this morning: "BP dumps plans to drill for oil in the Great Australian Bight" ..."
"... I would imagine the reserve numbers by Rystad Energy are likely to be more FICTION than REALITY. I spent a few hours talking to Bedford Hill of the Hills Group on their "Thermodynamic Oil Collapse" model, and the more I find out about it, the more I am convinced the reserve numbers shown in the table above are completely out of touch with reality. ..."
"... According to the Hills Group Thermodynamic Oil Limit model, they took the total amount of energy in a barrel of oil and subtracted the waste heat. They then programmed into the software all the inputs from the oil industry. Bedford stated that according to the second law of Thermodynamics the amount of energy consumed in the production of oil continues to increase. Their model predicted the oil price collapse and forecasts that within a decade (+/- 4%) there will be no more net energy from a barrel of oil by the oil industry. ..."
"... There is this notion that SUPPLY & DEMAND or CREDIT & DEBT have distorted this thermodynamic oil limit. While these factors have changed the oil production graph, the Hills Group model suggests this has not changed the date. What has changed is that we have pulled future oil production forward which will make the Seneca Cliff much steeper. ..."
"... EROI is falling for new sources of oil but I don't know that it would count as "rapid" yet and it doesn't change much for already developed fields as they age – in fact if energy for the development stage is taken out then the EROI increases during operations. ..."
Oct 28, 2016 | peakoilbarrel.com
George Kaplan , 10/11/2016 at 4:36 am
The numbers are even harder to understand looking at some of the other individual countries. China and Mexico are in rapid decline at the moment but are supposed to have respectively, contingent 10 and 8 Gb and undiscovered 17 and 56 (!) – that has to be assuming a big shale resource for Mexico I'd guess.

China has more rigs relative to its production than anywhere and this year is probably going to drill the most wells of any country. And yet they haven't found a new oil field for many years (quite a bit of gas though) and have only bought on a couple of small offshore fields recently. Mexico has decided they need help from outside IOCs to find and develop all that resource.

Norway and UK combined have developed a lot of their older contingent fields over the last few years, at very high cost and in some cases are now losing money on the investment.

Exploration success is now very low, reserve are being downgraded and yet they are supposed to have 7 + 4 Gb contingent and 13 + 6 Gb undiscovered. The 13 Gb for Norway includes frontier territory in the Barents Sea, but I think it's turning out that there is more gas there (TBC).

George Kaplan , 10/10/2016 at 3:49 pm
It will be interesting to see the final discovery number for this year from IHS, Richmond Energy Partners, Rystad and Wood Mackenzie. I doubt if they will include the recent Alaska discovery given that the test well wasn't flowed – the announcement looks to be more of a ploy to get some tax break and/or outside money into the private company. The other supposed monster find by Apache in Permian shale is 3 Gb equivalent oil in place, I'd expect it to be at the lower end for shale recovery, say 3 to 5%, so that could be only around 75 to 125 mmbbbls oil.

In GoM Fort Sumter was 125 mmbbls (equivalent) but it cn only be developed through Appomatox so might be many years away before there is processing capacity for it. Anadarko announced Caisco, but with no numbers which is usually a bad sign. On the other hand Hopkins looks to have been downgraded maybe 50%, so it is only a tie back option. Kaskida has gone quiet (HTHP and high sand), Shenandoah/Coronado (very HTHP probably needing 20 ksi wellheads) looks like it might be relatively smaller as a development than expected (or a series of smaller projects) , Freeport MacMoran projects (such as Horn Mountain Deep) are all on hold while it tries to sell up. Next year there is only Thunder Horse extension (27,000 bpd) and the year after Stampede (75,000) and Big Foot (80,000) ramping up in late 2018 through 2019.

A couple of highly anticipated and expensive frontier wildcats have been dry (Total offshore Uruguay and Shell offshore Nova Scotia – still drilling a second well there though). The Bight Basin in Australia is delayed because of environmental concerns.

The biggest two confirmed finds are gas offshore Angola and Senegal (400+ and 800+ mmboe respectively), both probably need to be developed through LNG so might be years away given the current glut and normal schedules for such projects).

In the North Sea reserves have been downgraded, not only because of price but also as some of the smaller finds no longer have options for tie backs because the possible hubs are coming to the end of their lives an new finds are in the 20 to 50 mmbbls range and heavy (also a number of dry wells there). I'd say it will likely be significantly worse than last year (which was the worst for 70 years) for both oil and gas discoveries.

At some point soon there's surely going to be realisation, maybe starting with the investors, that oil and gas industry BAU as it's been for the past 40 odd years is over and isn't going to come back the same no matter what the oil price does. I don't know what comes in it's place though.

George Kaplan , 10/11/2016 at 2:52 am
By coincidence, this morning: "BP dumps plans to drill for oil in the Great Australian Bight"

http://www.smh.com.au/federal-politics/political-news/bp-dumps-plans-to-drill-for-oil-in-the-great-australian-bight-20161011-grzjzv.html

Matt Mushalik , 10/10/2016 at 4:10 pm
I did this post on Rystad's oil reserves:

19/8/2016
Oil reserves and resources as function of oil price
http://crudeoilpeak.info/oil-reserves-and-resources-as-function-of-oil-price

On US inventories:

8/10/2016
U.S. Storage Filling Up with Unaccounted-For Oil
http://crudeoilpeak.info/u-s-storage-filling-up-with-unaccounted-for-oil

Dennis Coyne , 10/11/2016 at 12:31 pm
Thanks Matt.

Great job. Both pieces are excellent in my opinion (which has been the case for everything I have read which you have written).

Dean , 10/12/2016 at 3:16 am
Hi Matt, thanks for the interesting posts. I sent a comment to Art Berman to both his websites (artberman.com and forbes.com) about the post dealing with the unaccounted oil storage and I report it below (the comment is not yet visible there):

"Hi Art,

I agree with most of your article, but I would like to point out your attention to a possible explanation which can account for part of the unaccounted oil storage.

In the last 4 years, I have developed a methodology to re-construct the "real" Texas oil and gas production data using the data published by the Texas RRC: as it is well known, these data are only preliminary and it may take up to 2 years to have the final estimates. My method has proved to be reliable over time, providing estimates of Texas oil production very close to the final data and much earlier than the latter are published. Moreover, these estimates proved to be closer to the real data than the official EIA data for Texas: for example, on the 31/08/2016, with more than a 1-year delay, the EIA revised its Texas data for 2014 and 2015 and aligned it to my corrected Texas RRC data.

See below for more details about my methodology,

https://sites.google.com/site/deanfantazzini/nowcasting-texas-rrc-oil-and-gas-data-ongoing-project

and here for the latest update and additional comments on my methodology:

http://peakoilbarrel.com/texas-oil-and-natural-gas-update-sept-2016/

Having said that, if we compare my corrected Texas RRC data with the EIA data, it is visible that the EIA has started to increasingly underestimate Texas crudeoil production data since July 2015, and the cumulative sum of this discrepancy is approximately 46 million barrels.

Of course, this does not explain all unaccounted oil storage, and I agree with you that the real inventories are probably much lower than what is reported. However, one (minor) reason is the underestimated EIA production data for Texas. Thanks"

SRSrocco , 10/10/2016 at 4:21 pm
I would imagine the reserve numbers by Rystad Energy are likely to be more FICTION than REALITY. I spent a few hours talking to Bedford Hill of the Hills Group on their "Thermodynamic Oil Collapse" model, and the more I find out about it, the more I am convinced the reserve numbers shown in the table above are completely out of touch with reality.

The reason the Hills Group decided to design the software model to forecast the Thermodynamic oil Limit was due to one of the members losing money when a shale oil company overstated reserves by a wide margin. Thus, these engineers were tired of the crapola put out by either the EIA or the companies themselves.

It took several years and about 10,000 hours to create this ETP Oil price model as well as the Thermodynamic Oil Limit model. After they hit "ENTER", it took several hours before the results came out. From what Bedford told me, the results were so shocking, that they decided to sit on them for a few years before publishing.

From what I understand, a small team of oil engineers helped design the program. I asked Bedford how many of the engineers DID NOT AGREE with the results. He replied by saying, "Not one disagreed."

Furthermore, The Hills Group sent their report to dozens of professors in leading colleges (mostly professors teaching Thermodynamics), and none of them disagreed with the results, even though some had questions on the data or inputs used.

There is this notion that SUPPLY & DEMAND will continue to be the leading driver in controlling the price of oil in the future. However, the rapidly falling EROI is destroying the remaining net energy, thus leaving very little supply. Thus, Thermodynamics has been and will be the leading economic driver of human economies, not supply and demand.

This new story of a huge oil discovery in Alaska is just more WHITE NOISE in a sea of worthless chatter. I wrote about this in my newest article, Delusional Mainstream Media Distorts The Disaster & Reality As We Head Over The Cliff: https://srsroccoreport.com/delusional-mainstream-media-news-distorts-the-disaster-reality-as-we-head-over-the-cliff/

I gather I will see replies suggesting that I am completely insane on this issue. That's fine. Nothing wrong with a little debate.

steve

Rune Likvern , 10/10/2016 at 5:33 pm
Steve,

Would you care to elaborate more on the claim below and illustrate it by some numbers and real world examples?

"However, the rapidly falling EROI is destroying the remaining net energy, thus leaving very little supply."

SRSrocco , 10/10/2016 at 9:03 pm
Rune,

According to the Hills Group Thermodynamic Oil Limit model, they took the total amount of energy in a barrel of oil and subtracted the waste heat. They then programmed into the software all the inputs from the oil industry. Bedford stated that according to the second law of Thermodynamics the amount of energy consumed in the production of oil continues to increase. Their model predicted the oil price collapse and forecasts that within a decade (+/- 4%) there will be no more net energy from a barrel of oil by the oil industry.

There is this notion that SUPPLY & DEMAND or CREDIT & DEBT have distorted this thermodynamic oil limit. While these factors have changed the oil production graph, the Hills Group model suggests this has not changed the date. What has changed is that we have pulled future oil production forward which will make the Seneca Cliff much steeper.

With Chevron, ConocoPhillips and ExxonMobil losing $18 billion in the first six months of 2016 after CAPEX and Dividends were paid reveals just how bad the situation has become in the Major Oil Companies.

Furthermore, the U.S. Energy Sector interest on the debt consumed 86% of their operating income in the first quarter of 2016. The situation is much worse than the market has realized.

Anyhow, I will be interviewing Bedford Hill and Louis Arnoux in a few weeks on their ETP Oil Price Model and Thermodynamic Oil Collapse.

steve

Rune Likvern , 10/10/2016 at 9:50 pm
"According to the Hills Group Thermodynamic Oil Limit model, they took the total amount of energy in a barrel of oil and subtracted the waste heat. They then programmed into the software all the inputs from the oil industry."

And the explanation in English is? Burning oil will ultimately lead to some thermodynamic losses. Hint oil is about 30-33% the worlds total energy consumption.

"Their model predicted the oil price collapse and forecasts that within a decade (+/- 4%) there will be no more net energy from a barrel of oil by the oil industry."

Was the oil price collapse due to thermodynamic reasons? If that is so [no net energy from a barrel of oil within a decade (2026)], then there should already be several real world examples to support this with.

What portion of present global oil production (C+C) is consumed by the oil industry? Surely the Hills Group must have the estimates for that as they have projected the development for the next decade.

"With Chevron, ConocoPhillips and ExxonMobil losing $18 billion in the first six months of 2016 after CAPEX and Dividends were paid reveals just how bad the situation has become in the Major Oil Companies. "

Are you confusing losses/profits with cash flows? Using figures for only Q1 16 does not justify a trend and certainly not justify a conclusion or projection.

SRSrocco , 10/10/2016 at 10:18 pm
Rune,

Yes, I was referring to the companies Free Cash Flow minus Dividends. While one quarter does not justify a trend, the Hills Group forecasts the price of oil to fall to $12 by 2020. This is due to what a net barrel would be worth to the Global Industrialized World.

Rune, they have calculated the waste energy of a barrel of oil to be one-third. So, what remains is net energy. However, the energy cost to produce this energy has continued to increase since the world started producing oil.

The waste energy of a barrel of oil is missed by most economists or analysts when forecasting price.

Rune, you are more than welcome to check out the Hills Group work at the site here: http://thehillsgroup.org/

steve

Caelan MacIntyre , 10/11/2016 at 3:12 am
I am getting 40.7% for oil (in 2012?) and electricity is a secondary energy source, so I am wondering if the 40.7% includes some oil for that.
Even so, how does that reflect the utility of oil, compared with the rest on that list? How well can the projection of political/military power and control be run on them?

In any case, money/price, as a symbol, is a detachment from reality, along with too many human detachments from reality to list, so whatever the price of oil is, once thermodynamic reality and reality in general really start to kick in, the price of it, among a litany of other human detachments, won't matter anymore. I guess that's when things will be considered increasingly in the process of collapse or decline.

Steve, I am unsure about gold or silver by the way, since they are still mere symbols for reality (that rely on some sort of 'trust' of some system that may be dubious). Maybe they are more 'pegged' to it, but still symbols nonetheless, and so woefully-limited in their peg, their 'visceral tangibility'.

Also, as gold and silver are hoardable, would those who have and hoard more of it, such as governpimps and the elite, etc., be able to control it more, such as at the expense of those who have less of it?

I say, 'gift economy'. A real economy.

Rune Likvern , 10/11/2016 at 8:24 am
Electricity is NOT an energy source – it is an energy carrier like hydrogen.
BP SR 2016 has oil at about 33% of global energy consumption in 2015 which does not include biofuels and biomass.
Doug Leighton , 10/11/2016 at 9:14 am
Electricity is considered a SECONDARY ENERGY SOURCE derived from whatever (nuclear power, wind, etc.). Of course, strictly speaking, electricity is just an accumulation OR motion of electrons. Therefore, a battery or a capacitor (accumulation of electrons) is a potential energy carrier.
Rune Likvern , 10/11/2016 at 11:32 am
I should have specified primary energy sources. Lumping together primary and secondary sources confuses the issue. Where in nature is there free electricity (apart from lightening)? Follow the flow and all energy is solar. :-)
Rune Likvern , 10/11/2016 at 8:18 am
To some degree costs acts as a proxy for EROI. The general trend is for costlier oil.
Low priced oil => Higher (composite) EROI (Unprofitable oil is shut down)
High priced oil => Lower (composite) EROI

This article by Ron is about stocks and flows.

Thermodynamics is about flows.
If net energy from oil move towards zero during the next decade, this implies that the oil companies would morph into giant heat engines and become bankrupt long before this (net energy becomes zero) happens.
Are there now any signs of this happening?

If EROI declines at the rate referred and estimated by the Hills Group, net oil (energy) would enter a steep decline and prices would move significantly and steadily up to reflect this.

It could be useful to present estimates at what EROI (based on flow) a well or field becomes shut in and later P&A ed.

Caelan MacIntyre , 10/12/2016 at 3:51 am
Hi Rune,

'Cost', to me at least, is real and is different from 'price', which is symbolic, and 'Energy Returned on Energy Invested' is different than 'Energy Return On Investment', but I suppose it is treated the same to some.

Right now, from what has been read and understood at least, the 'money/finance/banking/BAU-cum-government-as-usual' clusterfuck of 'establishments' are looking very strange/bizarre/weird/crazy/etc. to the clusterfuck of many 'analysts/experts/pundits/etc.'. This seems indicative of an overlying symbolic/sociopolitical/socioeconomic (denialistic/extend-and-pretend) 'formative' response to an underlying thermodynamic issue/problem and maybe other problems as well, some as feedbacks/perturbations in/from the system.

Syria, Ukraine, ISIL, Brexit, national bankruptcies/debt crises, guaranteed income, refugees, etc….?

Along with the ostensibly-increasing and increasingly perverted financial smoke-and-mirrors, I wonder, in part, what the statistics are on company bankruptcies, takeovers and cannibalizations these days, as well as investments in so-called alternative energies.

Where's this stuff going?

Steve apparently says 'gold and silver', yes?, but I don't buy it (pun intended too) from a fundamental-problem-solving standpoint and neither should he.
Gold and silver seem just part of the same or similar scams, but just operate a little differently.

Steve, if you're reading this, I noticed, under one of your articles on Zero Hedge, you arguing with some of the 'commentgentsia'…

Well, of coure, they know 'nothing', I know 'nothing', you know 'nothing' and Rune knows 'nothing'. Of course we know things, but we are all 'insignificant' cogs in this machined clusterfuck with limited autonomy and spending too much of our industrially-derived/putrified food energy and internet energy arguing about known unknowns and unknown knowns and what we and 'the others' know, don't know, think they know and want everyone to know, even if it's not true– whatever that means.

Alas, 'Leviathan', as Oldfarmermac has put it, will do what it has to to survive, come hell or high water or the puny little humans that it squishes along the way– maybe in its death throes. Why, there appear to be purveyors of Leviathan, or aspects thereof, right here on this very blog.
I just wish that I was not on the same ship, as I really dislike being dragged along for the ride.

This comment was brought to you this week by the word, clusterfuck .

Rune Likvern , 10/12/2016 at 7:45 am
Caelan wrote;

"Where's this stuff going?"
That is something I observe a growing number of people wants to inform them about.
As we come to learn something we discover it is just a small piece of the BIG puzzle. We all have blind spots and are delusional.

Sometime ago I watched some (BBC) documentaries about Keynes, Hayek and Marx and a very interesting interview with Bank of England's former director Sir Mervyn King (this appears to be a man of integrity and good moral compass).

There is one common message from all these;
"It is not possible to accurately predict human behavior."
Therein lies a very important bit of information.

Caelan MacIntyre , 10/13/2016 at 2:03 pm
I hear you, Rune.
(That BBC piece might be on You Tube.)
Alas, it is of course impossible to predict anything with 100% certainty. If we could, then there would no consciousness, maybe no universe. And what fun would that be? 'u^
Rune Likvern , 10/13/2016 at 5:41 pm
Yes, the BBC 3 part series (from 2012) "Masters of Money" is available on YouTube
First episode below
https://www.youtube.com/watch?v=nZNRfzkiies

As Nate Hagens put it in one of his speeches:
"Embrace Uncertainties!" :-)

Caelan MacIntyre , 10/14/2016 at 1:32 am
Thanks for the link. While it is uncertain, I might have already seen it, as it rings a bell, but will check it out, just to be sure. 'u^
George Kaplan , 10/11/2016 at 4:39 am
" … within a decade (+/- 4%) there will be no more net energy from a barrel of oil by the oil industry."

EROI is falling for new sources of oil but I don't know that it would count as "rapid" yet and it doesn't change much for already developed fields as they age – in fact if energy for the development stage is taken out then the EROI increases during operations.

If no more wells were drilled starting today then world oil production would fall at around 5%. So in a decade there would be 60% of current supply. The EROI on that wouldn't have changed much from today – there'd be proportionally a bit more water and gas to handle, but equally it could all go to the most efficient refineries. Therefore for the overall net energy to be zero would imply all new stuff bought on line is hugely negative. No such project would be even considered at conceptual stage and it would stand out a mile. The closest anything gets to that is Tar Sands where there is arbitrage from energy in natural gas converted to energy in synthetic oil, but while energy in gas is cheap this still makes sense (or made sense rather – as soon as the economics became bad, partly as a result of the net energy issues, the projects were stopped). So if new projects are so bad don't do them – the world might be in a mess at that point but the remaining oil would be a much sort after entity.

Also the shale reserve that initiated the study wasn't overstated because it's net energy was incorrectly estimated, it was because someone in the E&P company lied, or rather let's say 'dissimulated'.

SRSrocco , 10/11/2016 at 10:46 am
George Kaplin,

The reason much of the damage of the rapidly falling EROI is not made its way into global oil industry and the world financial-economic system is due to the massive amount of debt.

The Hills Group model calculates that the second law of Thermodynamics says that the amount of energy to produce oil has continued to increase since we started producing the liquid over 150 years ago.

They have developed this model showing the average increase in energy cost in terms of a barrel of oil. They remove the waste heat which is approximately one-third of the barrel. They model shows that within a decade, the Thermodynamic limit for oil will be reached, thus no net energy will be available.

Again, the massive amount of debt has distorted the global oil production curve, not the ultimate date of the thermodynamic collapse. So, we experience a much higher on violent SENECA CLIFF due to the massive amount of debt that has brought forward production.

You can check out their work here: http://thehillsgroup.org/

[Oct 28, 2016] the engineer in me cannot be blinded by the physics of logistics underlying the quintessential challenge posed by oil: how to replace the 560 exajoules of energy that is required every year to keep the world turning

Oct 28, 2016 | peakoilbarrel.com

Longtimber ,

10/11/2016 at 9:07 am
Some are waking up to the Magnitude of the Challenge:
"At the same time, the engineer in me cannot be blinded by the physics of logistics underlying the quintessential challenge posed by oil: how to replace the 560 exajoules of energy that is required every year to keep the world turning.

That's 5.6 followed by 20 zeroes, whose magnitude was explored in my previous post hocus pocus. 80% of the world's energy requirements are supplied by hydrocarbon combustion."

http://oilpro.com/post/27823/to-147-and-beyond?utm_source=DailyNewsletter&utm_medium=email&utm_campaign=newsletter&utm_term=2016-10-10&utm_content=Article_4_txt

[Oct 28, 2016] IMFDirect - futures markets point to slight gains in oil prices to 60 dollars per barrel

Oct 28, 2016 | economistsview.typepad.com

pgl :

IMFDirect - "futures markets point to slight gains in oil prices. But a glance at shifts in futures-price curves in the past few months suggests that the prospects for higher prices have been worsening (see Chart 3)."

Ten years ago, oil prices were $60 a barrel. These charts are pointing at $60 a barrel. Which would translate into $2.50 per gallon for gasoline. Of course that assumes the current level of gasoline taxes.

A carbon tax is sounding more and more like a good idea. Greg Mankiw insist this should be "revenue neutral". Some of his would spend some of the extra revenue on public investments in green technology and infrastructure investment. Reply Friday, October 28, 2016 at 01:44 AM likbez -> pgl... , -1

IMF is always predicting lower oil prices :-). That the nature of the beast.

I am not a specialist, but I do see the picture differently.

Outside the Middle East, there is not much oil left in the world that can be extracted profitably for $60 a barrel. IMHO spikes to $100 are now quite possible. Sustained oil price over $100 per barrel means recession and reversal of neoliberal globalization with its crazy and often useless transport flows from one continent to another (salmon caught in Europe processed in China, apples flown to NJ, etc).

The current period of low prices masks rapid depletion of major oil reserves in non OPEC countries and decimation of shale oil industry in the USA.

Capital investment is now slashed to the bone. And that might have an outsize effect on oil production in non-OPEC countries in 2018 - 2020 (such predictions always skip the next year in a hope that people will forget about them, if they do not materialize :-)

That means that while the crisis of supply is not immediate it is looming on the horizon. And might well be within less then a decade to reach.

Obama administration policy in this area was classic "after me, the deluge". Low oil prices partially reversed the replacement process for private transportation and made SUVs the most popular class of personal cars in the USA. In other words they reversed the trend to more economical cars in the USA. So the USA might enter the crisis in worse shape then it would be, if the energy saving policies were the focus of the current administration. Obama focused on wars of neoliberal expansion.

The USA pretty shrewdly used Saudis and Iran as two Trojan horses able to keep prices low since late 2014. Saudi Arabia is now issuing bonds left and right as they can't balance the budget at prices below $100 or so. Iran in general behaves pretty crazy in this respect as if it has unlimited reserves and does not need to save them for future generations. They are fighting for return of their pre-sanctions market share in $40-$50 environment, as if this is the life and death question for them. But if they managed to survive sanctions for so long, why the rush ?

In any case my point is simple: if something can't run forever it will eventually stop. That include both Saudis and Iran. They have large reserves, but they are not unlimited and the most profitable fields with high quality oil already substantially depleted. Low quality high sulfur oil still is more plentiful.

The problem is that high oil prices mean trouble for Western economies. That's why Western MSM reacted so paranoid on OPEC+Russia decision to freeze production starting Nov. 1.

Also it is not clear how the US oil stocks were/are kept on such a high level (depressing oil prices): manipulation of stats by EIA, hidden sale from the strategic reserve, unaccounted by state oil production (black market oil ;-)

Art Bergman has an interesting article on the subject

http://www.artberman.com/u-s-storage-filling-up-with-unaccounted-for-oil/

[Aug 16, 2016] Norway oil production in July reached its highest level exceeding previous high by 10 percent

Notable quotes:
"... The Norwegian Petroleum Directorate reported that Norway's oil production in July reached its highest level in 5 years because many fields were "producing above prognosis ..."
"... Oil output of 1.728 million b/d was 10% above July 2015 and about 18% above this past June, which had 1.449 million b/d. [June production was low due to maintenance ..."
peakoilbarrel.com
AlexS , 08/16/2016 at 8:06 pm
"The Norwegian Petroleum Directorate reported that Norway's oil production in July reached its highest level in 5 years because many fields were "producing above prognosis."

Oil output of 1.728 million b/d was 10% above July 2015 and about 18% above this past June, which had 1.449 million b/d. [June production was low due to maintenance – AlexS].

The July liquids total averaged 2.136 million b/d after combining the oil number with 375,000 b/d of natural gas liquids and 33,000 b/d of condensate."

http://www.ogj.com/articles/2016/08/npd-july-oil-production-highest-level-in-5-years.html

Norway liquid hydrocarbons production (mb/d)

source: Norwegian Petroleum Directorate

http://www.npd.no/en/news/Production-figures/

likbez, 08/16/2016 at 8:27 pm
The more they produce the more money they lose.

[Aug 12, 2016] My personal view is that it is in the hands of Wall Street and US oil producers, where oil prices are heading.

Notable quotes:
"... As worldwide net exports capacity barely changed over the last ten years, the fall of net imports from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even higher Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports. Should US producers really increase production (and reduce US net imports further) over the coming years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil independence over the next ten years, it will take ten years until the oil price can go up again as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d. This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next ten years. ..."
"... It would make much more sense for US producers to cut production another 2 mill b/d, which will bring up the oil price with the help of higher Chinese and Indian net imports over the next two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce net imports at a slower rate than Chinese and Indian growth. This could be done at much higher oil prices and much less pain for shareholders and investors. ..."
"... With hindsight this is what US oil producers should have done over the last five years. It was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect low cost oil producers to cut net export capacity. As long this capacity is there, it will be used. It is however another question how much oil net exporter can increase their capacity. This is in my view another unlikely scenario. ..."
"... That shows nothing, of course. The price of oil in Argentina is now over $67/barrel. ..."
"... Oil price won't be low for long – deep see oil will see no investments if prices keep low for longer, 3rd world states with low production costs but high deficit will go into political unrest – and won't invest in infill drilling, gas injection to keep up performance, but in weapons and bribing important people. ..."
"... No one except the US shale producers can keep producing red ink permanently – so if there will be cheap oil, it will be much less than now. It's like filling a car in the socialistic countries in the 80s – you will pay only cheap money, but will have to wait to get some gas. ..."
peakoilbarrel.com
Heinrich Leopold , 08/10/2016 at 9:29 am
The future of oil prices

As oil moved down during the last few days, the question arises about where oil prices are heading for the next few years. Wall Street and friends have advertised for the x-th time that oil prices will be at 70 by year end , by the summer, by fall …
…some people are not so sure about higher oil prices in the future.

http://www.investing.com/analysis/oil-has-not-bottomed-bottom-200146938

My personal view is that it is in the hands of Wall Street and US oil producers, where oil prices are heading. Below chart shows that US oil producers triggered themselves the fall in oil prices by rapidly reducing US net imports since 2008. From 1991 wordlwide increasing net imports – up a staggering 15 mill b/d – drove the oil price to record highs when net imports went over available net exports of 40 mill b/d.

As worldwide net exports capacity barely changed over the last ten years, the fall of net imports from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even higher Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports. Should US producers really increase production (and reduce US net imports further) over the coming years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil independence over the next ten years, it will take ten years until the oil price can go up again as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d. This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next ten years.

It would make much more sense for US producers to cut production another 2 mill b/d, which will bring up the oil price with the help of higher Chinese and Indian net imports over the next two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce net imports at a slower rate than Chinese and Indian growth. This could be done at much higher oil prices and much less pain for shareholders and investors.

With hindsight this is what US oil producers should have done over the last five years. It was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect low cost oil producers to cut net export capacity. As long this capacity is there, it will be used. It is however another question how much oil net exporter can increase their capacity. This is in my view another unlikely scenario.

Watcher , 08/10/2016 at 9:48 am
That shows nothing, of course. The price of oil in Argentina is now over $67/barrel.

http://oilprice.com/Energy/Crude-Oil/Would-Regulated-Oil-Prices-Argentine-Style-Help-US-Shale.html

Eulenspiegel , 08/10/2016 at 10:51 am
Oil price won't be low for long – deep see oil will see no investments if prices keep low for longer, 3rd world states with low production costs but high deficit will go into political unrest – and won't invest in infill drilling, gas injection to keep up performance, but in weapons and bribing important people.

North sea oil will die, it's already in decline and if a few producers stop the common infrastructure will be too expensive for the rest to maintain.

No one except the US shale producers can keep producing red ink permanently – so if there will be cheap oil, it will be much less than now. It's like filling a car in the socialistic countries in the 80s – you will pay only cheap money, but will have to wait to get some gas.

[Aug 12, 2016] Its like filling a car in the socialistic countries in the 80s – you will pay only cheap money, but will have to wait to get some gas.

Notable quotes:
"... As worldwide net exports capacity barely changed over the last ten years, the fall of net imports from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even higher Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports. Should US producers really increase production (and reduce US net imports further) over the coming years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil independence over the next ten years, it will take ten years until the oil price can go up again as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d. This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next ten years. ..."
"... It would make much more sense for US producers to cut production another 2 mill b/d, which will bring up the oil price with the help of higher Chinese and Indian net imports over the next two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce net imports at a slower rate than Chinese and Indian growth. This could be done at much higher oil prices and much less pain for shareholders and investors. ..."
"... With hindsight this is what US oil producers should have done over the last five years. It was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect low cost oil producers to cut net export capacity. As long this capacity is there, it will be used. It is however another question how much oil net exporter can increase their capacity. This is in my view another unlikely scenario. ..."
"... That shows nothing, of course. The price of oil in Argentina is now over $67/barrel. ..."
peakoilbarrel.com
Heinrich Leopold , 08/10/2016 at 9:29 am
The future of oil prices

As oil moved down during the last few days, the question arises about where oil prices are heading for the next few years. Wall Street and friends have advertised for the x-th time that oil prices will be at 70 by year end , by the summer, by fall …
…some people are not so sure about higher oil prices in the future.

http://www.investing.com/analysis/oil-has-not-bottomed-bottom-200146938

My personal view is that it is in the hands of Wall Street and US oil producers, where oil prices are heading. Below chart shows that US oil producers triggered themselves the fall in oil prices by rapidly reducing US net imports since 2008. From 1991 wordlwide increasing net imports – up a staggering 15 mill b/d – drove the oil price to record highs when net imports went over available net exports of 40 mill b/d.

As worldwide net exports capacity barely changed over the last ten years, the fall of net imports from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even higher Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports. Should US producers really increase production (and reduce US net imports further) over the coming years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil independence over the next ten years, it will take ten years until the oil price can go up again as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d. This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next ten years.

It would make much more sense for US producers to cut production another 2 mill b/d, which will bring up the oil price with the help of higher Chinese and Indian net imports over the next two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce net imports at a slower rate than Chinese and Indian growth. This could be done at much higher oil prices and much less pain for shareholders and investors.

With hindsight this is what US oil producers should have done over the last five years. It was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect low cost oil producers to cut net export capacity. As long this capacity is there, it will be used. It is however another question how much oil net exporter can increase their capacity. This is in my view another unlikely scenario.

Watcher , 08/10/2016 at 9:48 am
That shows nothing, of course. The price of oil in Argentina is now over $67/barrel.

http://oilprice.com/Energy/Crude-Oil/Would-Regulated-Oil-Prices-Argentine-Style-Help-US-Shale.html

Eulenspiegel , 08/10/2016 at 10:51 am
Oil price won't be low for long – deep see oil will see no investments if prices keep low for longer, 3rd world states with low production costs but high deficit will go into political unrest – and won't invest in infill drilling, gas injection to keep up performance, but in weapons and bribing important people.

North sea oil will die, it's already in decline and if a few producers stop the common infrastructure will be too expensive for the rest to maintain.

No one except the US shale producers can keep producing red ink permanently – so if there will be cheap oil, it will be much less than now.

It's like filling a car in the socialistic countries in the 80s – you will pay only cheap money, but will have to wait to get some gas.

[Aug 07, 2016] Oil production decline will continue into 2017

Notable quotes:
"... Output was 79,784 kb/d in April 2016, I believe the decline rate will decrease by Oct and output will be around 78.5 +/- 0.5 Mb/d in Nov 2016, decline will continue into 2017 and the rate of decline may reach zero some time in 2017. ..."
peakoilbarrel.com
World C+C using EIA data, but substituting the Russian Ministry of Energy Data for Russia shown in the chart below. The monthly peak was 81, 047 kb/d in Nov 2015. The centered 12 month running average is also shown with a peak at 80,642 kb/d in Sept 2015. The annual decline rate since the Nov 2015 peak has been 4.2% per year or about 3.4 Mb/d over a 12 month period if the rate does not change before Nov 2016. That would imply 77.6 Mb/d by Nov 2016.

Output was 79,784 kb/d in April 2016, I believe the decline rate will decrease by Oct and output will be around 78.5 +/- 0.5 Mb/d in Nov 2016, decline will continue into 2017 and the rate of decline may reach zero some time in 2017.

http://www.eia.gov/totalenergy/data/monthly/index.cfm

http://minenergo.gov.ru/en/activity/statistic

[Jul 19, 2016] Conventional producers no longer can significantly ramp up production when they like

Notable quotes:
"... There seems to be a general assumption that the larger conventional producers can choose to significantly ramp up production when they like, but I doubt that is true. Saudi have just bought on line the Shaybah extension which was a pretty big job to extend production facilities for 'just' 250,000 bpd. ..."
"... Usually in mature fields the wells become limiting. For example as water cut increases not only does the water displace the oil but also, as it is significantly heavier than the oil/gas mix in the wellbore, the overall flow rate declines rapidly. ..."
peakoilbarrel.com
George Kaplan , 07/14/2016 at 8:27 am
There seems to be a general assumption that the larger conventional producers can choose to significantly ramp up production when they like, but I doubt that is true. Saudi have just bought on line the Shaybah extension which was a pretty big job to extend production facilities for 'just' 250,000 bpd.

Production from a given field may be limited by different parts of the facilities at different times. Typically the limit will be the lowest nameplate capacity between each of: the reservoir / wells; oil processing; produced water handling; associated gas compression; total liquids flow; water (or gas) injection capacity. Overall power availability may also be limiting at some combination of oil/water/gas flow below each one of their individual limits.

Usually in mature fields the wells become limiting. For example as water cut increases not only does the water displace the oil but also, as it is significantly heavier than the oil/gas mix in the wellbore, the overall flow rate declines rapidly. However this need not always be the case. In Saudi I think they design and manage their facilities to keep the production at the oil flow design capacity, which is nominally set to give 2% depletion of the original estimated ultimate reserves per year. To maintain this they maintain excess capacity in the other key facilities. In particular they need to control the water cut by using intelligent wells, expandable liners, and recompletions, or when needed drill new wells higher in the formation. If they lose control of the water cut, which must happen one day (ideally for them it would be the day they flow the last barrel of oil and shut in but that is not going to happen) then the likely limit will be water injection capacity. Water has to be pumped in to maintain pressure to exactly balance the volume pumped out. For the produced water in the oil that is about one for one, for a stock tank barrel of oil it is higher because the oil shrinks as it cools, but mainly because of the gas that is lost. This is ratio is called the formation volume factor and typically is 1.1 to 1.8. Say for a field the water cut is 50% and the FVF is 1.5, this means 2.5 bbls of injection water are needed to give one bbl of oil. I don't know the Saudi figures but something like that for them means 25 mmbwpd injection (that represents a huge amount of large pipes and pumps, and power – the water isn't like domestic supply, it has to be at high pressure). It's not normally economic to build in much spare capacity for the piping systems (but who knows with Saudi). Once water can't be controlled in horizontal wells the cut increases quickly, if it can't be handled within the facilities and enough pressure maintenance from injected water supplied then the oil production has to fall (i.e. wells choked back) accordingly.

If at a capacity limit (or limits) increasing production may need new wells, but more than that completely new topsides facilities, anything more than a few tweaks would need at least 2 to 3 years engineering, procurement and construction effort.

Doug Leighton , 07/14/2016 at 9:35 am
Informative comment. Thanks George
Fernando Leanme , 07/14/2016 at 10:52 am
Very good overview. I worked with a field set up to handle extra water, but they forgot the water heat capacity requires more heaters. So as water cut climbed we had to use lots of chemicals to get clean oil, until we could install more heaters and heat exchangers. These bottlenecks can be really subtle, so I took to asking for full surface system simulation runs at 90 % field water cut to see where the troubles were bound to pop up.
Javier , 07/14/2016 at 3:01 pm
I think Survivalist and Petro have nailed a very good analysis of the situation. When prices crashed most National Oil Companies and many independent producers tried (and are trying) to produce more to maintain income. The real tragedy comes when prices remain low and production falls like in Venezuela. Lack of investments guarantees that this will happen eventually to most producers, and then once production falls enough we will get very destructive price spikes.
Petro , 07/14/2016 at 3:36 pm
Bingo!

…while indeed initiated by geology, this time "PEAK" shall be by the way – and in the form of low prices…

As I said before:
….more than $65-$75/brl/oil kills economy….less than $60brl/oil kills Shallow and his colleagues…. take your pick….

We have reached our limits…
Let's keep the party going for a little while longer and enjoy it responsibly.

Be well,

Petro

shallow sand , 07/14/2016 at 4:20 pm
$60 doesn't kill us. I have been hoping for a $55-$65 price band, but we are way below that.

We got $44 average for all of 2015, $32 average for first six months of 2016. We are around $5 off WTI.

That's why break even at $50 is crap. We haven't been there for 20 months on a sustained basis.

As AlexS notes elsewhere, I'm starting to think $50 breakeven refers to per BOE, which means $70+ WTI.

shallow sand , 07/14/2016 at 5:12 pm

Petro. I understand.

My point is our savior, US LTO, needs a higher price than our 111 year old stripper field.

Which means to me there is a real problem on the horizon.

Hickory , 07/14/2016 at 9:29 pm
Petro, we see eye to eye on much these issues, but I do think that the world economy will be able to pay much more for oil than 60$ without crashing. Probably more than $100.
The stuff is too useful, and money will be diverted from other uses to keep buying it.
We'll see, one way or another….

Javier , 07/15/2016 at 6:25 am

Hickory,

You cannot simply look at the oil price between 2010 and 2014 and deduce that those prices are sustainable for the World economy. You need to understand the situation under which those prices were made possible at the time. The period 2009-2014 was a time when Chinese debt was growing at unsustainable levels to fuel an oil demand that compensated the demand contraction from an overindebted Europe that could not accept those high oil prices and went into recession and debt crisis. The period 2009-2014 was also a time when central banks engaged in exceptional ZIRP and quantitative easing policies with most countries significantly increasing their public debt.

But there is only one China and all significant economies have now a high level of indebtment so a very rapid growth of debt has become a lot less likely. At the same time ZIRP and quantitative easing policies are a one way avenue of increasing risk, decreasing effect, and extremely difficult return.

The oil price crash has probably delayed the next economic crisis. However the world economy is in no position to assume the oil prices required to guarantee the level of investment required to increase oil production above 2015 levels.

Oil depletion, debt, and low economic growth, will all work to make 2015 the year of Peak Oil. If we enter a period of high oil price volatility due to mismatches between production and demand that will be very destructive both to the economy and to oil production.

Dennis Coyne , 07/15/2016 at 10:07 am
Hi Javier,

Possibly $100/b is a problem, but there is a lot of room between $50/b and $100/b. When oil supply decreases, oil price will increase. How much oil prices can increase without damaging the World economy is far from clear.

One can arbitrarily claim $75/b is the magic number that will make the economy crash, nobody knows. There might be a sweet spot between $75/b and $95/b where oil supply can either be maintained or possibly increase slightly and not cause World output to decline. World debt to GDP has been relatively stable since 2010 based on BIS data.

Hickory , 07/15/2016 at 11:30 pm
Javier- you (and Petro etc) may be right, and the civil difficulties of Venez and poverty of Moldova may be coming to places far and wide.
I'm thinking that most commerce will still churn on, even if oil is 100$. Maybe just wishful thinking.
Dennis Coyne , 07/15/2016 at 6:38 am
Hi Hickory,

I agree. There is very little evidence that oil over $75/b kills the economy, what it has done recently is result in too much oil production relative to demand.

What has changed is that there is no one willing to cut back on output. From 1930-1970, Texas was the World's swing producer and from 1985-2014 Saudi Arabia fulfilled that role. Now we will see volatility in oil prices unless some new cartel is formed, maybe OPPC (Organization of Petroleum Producing Countries).
US, Norway, UK, Russia, Brazil, and Canada could join the OPEC nations and have a production agreement to control oil prices.

This would never happen, but maybe each nation should regulate output as the RRC once did for Texas, it would help with oil price volatility. Reply

[Jul 19, 2016] E P spending is much lower this year than was expected even after the big cuts initially announced. US independents and Canada in particular are hurting

Notable quotes:
"... Survey of international spending reveals a 19% decline compared with an initial estimate of 14% in January. The Middle East remains an area of stability while the largest negative revisions come from large IOCs, Latin America, and the Asia Pacific region, excluding China. Latin America is still the weakest region, where spending is expected to decline 30%. ..."
"... IOCs and independents are projected to have spending declines of 24% this year, while other independents are expected to spend 45% less. This compares with prior decline estimates of 10% and 17%, respectively." ..."
peakoilbarrel.com

George Kaplan , 07/13/2016 at 1:48 am

E&P spending is much lower this year than was expected even after the big cuts initially announced. US independents and Canada in particular are hurting. Middle East is the only place holding up.

http://www.ogj.com/articles/2016/07/cowen-global-n-american-e-p-spending-fall-revised-downward.html

"In its midyear E&P spending update, Cowen & Co. now estimates global expenditures to fall 24% compared with a 16% decline in its January survey. The downward revisions were primarily driven by larger spending cuts from North America-focused E&Ps and major international oil companies.
In this update, Cowen & Co. expects US spending to decline 45%, reflecting oil prices of $40/bbl and natural gas prices of $2.50/MMbtu. This was down from a 22% estimate at the time of January's survey, which was based on $48.5/bbl oil and $2.50/MMbtu gas. Canada spending is expected to fall 33% compared with an earlier estimate of an 18% falloff.

Survey of international spending reveals a 19% decline compared with an initial estimate of 14% in January. The Middle East remains an area of stability while the largest negative revisions come from large IOCs, Latin America, and the Asia Pacific region, excluding China. Latin America is still the weakest region, where spending is expected to decline 30%.

IOCs and independents are projected to have spending declines of 24% this year, while other independents are expected to spend 45% less. This compares with prior decline estimates of 10% and 17%, respectively."

[Jul 19, 2016] Monday night the NDA announced they had blown up the 300,000 bpd export line in Nigeria

Notable quotes:
"... It took a while, but Exxon has decreed force majeure on Qua Iboe. That's the export terminal they have repeatedly said was not attacked first of this week. 300,000 bpd that will not be exported, for a while ..."
peakoilbarrel.com

dclonghorn , 07/13/2016 at 1:46 pm

Maybe my imagination has become to active, but I believe the story of the NDA attacking Mobile's Qua Iboe terminal should be getting more interest. Monday night the NDA announced they had blown up the 300,000 bpd export line. Exxon was quick to deny that an attack had taken place. Someone is lying and it is not clear who.
http://footprint2africa.com/nigeria-militants-exxonmobil-tug-words/

Although it seems almost inconcievable that Exxon would lie about this, there are a couple of things that make you consider the possibility. One is that in May there were reports of a militant strike on the facility, which was denied by Exxon. Shortly after that Exxon reported that a malfunctioning rig had caused damage to the facility, and it was shut down for a short while.

Another is that after the latest attack claimed, Shell reportedly shut in the trans-Niger pipeline, and there have been reports of oil companies evacuating 700 staff.

http://www.vanguardngr.com/2016/07/shell-shuts-trans-niger-pipeline-avengers-strikes/

http://www.news24.com.ng/National/News/militant-attacks-oil-companies-to-evacuate-over-700-staff-from-bayelsa-20160712

It remains unclear what the status is of the Qua Iboe terminal, and other facilities in Nigeria. But it is clear that they have some big problems.

dclonghorn , 07/15/2016 at 12:23 pm
It took a while, but Exxon has decreed force majeure on Qua Iboe. That's the export terminal they have repeatedly said was not attacked first of this week. 300,000 bpd that will not be exported, for a while

http://www.dallasnews.com/business/headlines/20160715-irving-based-exxon-mobil-halts-shipments-from-nigeria-oil-rises-in-response.ece

[Jul 19, 2016] Oil is becoming much harder to find

Notable quotes:
"... Steve Kopits at Princeton energy advisors has shown that between 1998-2005 $1.5 Trillion was spent on oil CapEX to increase oil output by 8.4 Mbpd and that from 2005-2013, $4.0 Trillion was spent on CapEx to increase output by just 2.4 Mbpd. ..."
peakoilbarrel.com

VK , 07/13/2016 at 4:12 pm

The price of oil seems pretty darn important. Art Berman had an interview with Chris Martenson on peak prosperity that projects with some 20 Billion barrels of oil have been deferred due to the current low price. That's a pretty large amount of oil that's not coming online when required as a result of price.

Not to mention that oil is becoming much harder to find, Steve Kopits at Princeton energy advisors has shown that between 1998-2005 $1.5 Trillion was spent on oil CapEX to increase oil output by 8.4 Mbpd and that from 2005-2013, $4.0 Trillion was spent on CapEx to increase output by just 2.4 Mbpd.

Society is energy constrained and it's showing up in the economy with crazy effects like NIRP, where $13 Trillion worth of global bonds now yield negative returns from Zero just a few years ago, think about that, paying someone to borrow your money!! Also an economy where young people aren't getting decent jobs to pay for incredibly overpriced house prices as evidenced by affordability ratios, where populism and extremism is on the rise globally as well as large swathes of society are left out of prosperity. Energy is the ability to do work, without increasing energy supplies society has to fundamentally change.

[Jul 19, 2016] Has depletion finally gained the upper hand?

Notable quotes:
"... There are still a lot of projects due this year and next and even into 2018, but not quite enough to make up for the declines. ..."
"... Probably 2.5 to 3.5 mmbpd fall over the three years barring big, unexpected outages. In 2019, 2020 and 2021 there will be dramatic and accelerating falls unless a lot of expensive, and currently delayed, oil developments are fast tracked soon, or a lot of very cheap oil is found somewhere, or in fill drilling ramps up quickly on the big reservoirs. ..."
"... It's time lag. Simply said, when prices where at 100$+, everyone had lot's of money to invest and drilled like mad to get even more oil, explored, developed new fields. These operations have normally completion times of a few years, so they come alltogether online now. A typically pork circle. Price does matter – now new projects are delayed or canceled, ready to go into the next round. ..."
"... How can anyone possibly deny the effect the price of oil has on the production of oil? The very high price of oil brought on the shale revolution. Oil prices above $80 a barrel caused shale oil production to boom. However shale oil production is just uneconomical at prices below $60 a barrel, or somewhere in that neighborhood. ..."
"... Almost every barrel being produced cost a different amount to produce. There is a thing called "the margin". That is what it cost to produce the most expensive barrel of oil being produced. As the price of oil drops, barrels being produced "at the margin" starts to drop off. More expensive oil stops being produced, less expensive oil continues to be produced. Of course there is a delay between the price dropping below the margin and that marginal barrel dropping from production. ..."
peakoilbarrel.com

Florian Schoepp ,

07/12/2016 at 1:09 pm
Has depletion finally gained the upper hand? My back of the envelope calculation:
Conventional: 78 million barrels at 4% = 3.1 million barrels.
All other: 19 million barrels at 10% = 1.9 million barrels.
Total: 5 million barrels per year
2015 was a year where a lot of projects came online that were developed in previous years. There is less of that this year. So 2 million for this year seem reasonable. Next year will be interesting.
If demand keeps growing, there should be a substantial shortfall, draining storage. The only way to close the fast growing gap is a miraculous recovery of Libya and others that are currently hampered by political unrest.
George Kaplan , 07/12/2016 at 1:28 pm
There are still a lot of projects due this year and next and even into 2018, but not quite enough to make up for the declines.

Probably 2.5 to 3.5 mmbpd fall over the three years barring big, unexpected outages. In 2019, 2020 and 2021 there will be dramatic and accelerating falls unless a lot of expensive, and currently delayed, oil developments are fast tracked soon, or a lot of very cheap oil is found somewhere, or in fill drilling ramps up quickly on the big reservoirs.

We'll get to see the truth behind LTO sustainability and flexibility; that and depending on how demand goes, plus the real storage numbers will determine prices and therefore future supply developments. Overall though I agree, I think we will suddenly find ourselves short at some point in the next 5 years, and without many options.

Watcher , 07/12/2016 at 4:50 pm
Why would you want to drain storage when you can kill competing consumption with weapons.
Dave P , 07/12/2016 at 11:14 pm
Because the people you are trying to kill will then attempt to kill you?
clueless , 07/13/2016 at 3:51 pm
Watcher – I think that Ron "almost" has you pegged. Basically he notes that no one can be that Fu–ing stupid. But, he may be wrong. What in the hell are you talking about when you say "you can kill competing consumption with weapons?" Why would anyone in the supply chain want to kill "CONSUMPTION?"
Fernando Leanme , 07/13/2016 at 11:48 am
It's erroneous to decline "all other" at a fixed rate like you propose.
Watcher , 07/12/2016 at 4:54 pm
Output of KSA vs July 2014 at $100+ /b up about 600K bpd. Less than 1/2 price and up 600K bpd.

What's the latest Russia vs July 2014, Ron? Similar? Probably.

Imagine that. Price didn't matter.

Till , 07/12/2016 at 5:33 pm
It's time lag. Simply said, when prices where at 100$+, everyone had lot's of money to invest and drilled like mad to get even more oil, explored, developed new fields.

These operations have normally completion times of a few years, so they come alltogether online now. A typically pork circle. Price does matter – now new projects are delayed or canceled, ready to go into the next round.

Dennis Coyne , 07/12/2016 at 6:15 pm
Hi Till,

You won't convince Watcher that price matters, but most of us agree that price matters.

Ron Patterson , 07/12/2016 at 6:34 pm
How can anyone possibly deny the effect the price of oil has on the production of oil? The very high price of oil brought on the shale revolution. Oil prices above $80 a barrel caused shale oil production to boom. However shale oil production is just uneconomical at prices below $60 a barrel, or somewhere in that neighborhood.

Dammit, it is as plain as the nose on your face. Price determines production. Does Watcher really deny that simple fact? No, Dennis, you are simply mistaken. Watcher is not so dumb as to deny that simple fact…. Is he???

Oldfarmermac , 07/12/2016 at 8:48 pm
Watcher has BEEN denying it, as steadily as if somebody were paying him by the word, for as far back as I can remember.

Some people, quite a few actually, believe God looks after their lives for them on an every day basis, and no amount of evidence, good or bad, is enough to shake this conviction.

Watcher apparently believes in some UNIDENTIFIED POWER that keeps oil coming regardless of the price, or perhaps more accurately, keeps it coming even while controlling the price and forcing it down by half or three quarters.

Of course there might be another explanation. Maybe he just enjoys rubbing everybody nose in the apparent failure of the market system in the case of oil.

The explanation is simple enough, in principle. The oil industry is the biggest and slowest moving of all industries, when it comes to NECESSARILY operating on a five to ten year time scale in terms of making production decisions.

Being an orchardist, I am personally quite comfortable with such planning time scales, because my kind of work is planned on a very similar time scale. If I miscalculate , meaning guess, really, what the price of apples will be ten years down the road, and plant too many new trees, I am not just going to take a chainsaw or bulldozer to my orchard because the price collapses. I wait it out, and hopefully OTHER orchardists go broke first. Old trees will be dying, there is depletion in apples, lol.

The production decision making process is triply compounded in difficulty by what we usually forget , because in a forum such as this one, the discussion is centered around BUSINESSMEN out to make a living, folks such as Mike, Shallow Sand, Texas Tea, etc. They make rational decisions, as best they can.

What we forget is that the oil industry is an industry dominated by governments, and governments are notoriously clumsy in managing their business affairs when circumstances demand action.

Politicians, be they Saudi kings or socialist Venezuelans, or right wing dictators or more middle of the road types, are NOT going to do anything to upset their citizens, or piss them off, if it can be avoided. Laying off a few tens of thousands of people is just not DONE until there is NO OTHER choice.

Nobody would notice if we laid off half the people who work in the post office here in the USA. Every body I know , excepting my cousin who is a carrier, and the post master, thinks we could get along JUST FINE delivering the mail three days a week instead of six.

Politicians at the top of the heap are mostly interested in one thing, that thing being to stay in power, and to do that, they play an incredibly complicated, fluid game maintaining the network of supporters who ENABLE them to STAY in power.

Expecting them to act like BUSINESSMEN running a business is naive. As a rule, they will never do anything proactive in order to solve a problem that might just go away by itself. When they DO do something , it is to be expected that the doing will be undertaken much later than it ought to be, and that it will be inadequate to deal with the problem until the problem becomes an existential emergency.

ONCE all the chips are on the table, and it's literally do or die, or be sent home, out of office and out of power, governments can do some pretty spectacular things, such as mobilize to fight a flat out war.

Things aren't that bad yet, in the countries dependent on oil revenues,excepting Venezuela. Maduro is actively constructing a police state in hopes of staying in power.

The industry has excess capacity. It took years to build that capacity, and the economy couldn't absorb the amount of oil coming to market at a hundred bucks, so the price collapsed. The economy IS absorbing the oil coming to market, about the same amount , at about forty bucks.

It will take a WHILE for the excess capacity to dry up.Maybe another year or two, maybe less, maybe longer. If the economy turns sour, it will take longer.If the electric car revolution really comes to pass, on the GRAND SCALE, and very quickly, demand destruction will mean there is so much excess capacity that the price will stay low for a long time.

There is nothing involved in understanding the oil price question that requires more than a basic understanding of supply and demand, plus an additional understanding of the relevant time scales and the nature of GOVERNMENTS as opposed to BUSINESSMEN making decisions.

If businessmen were running the post office, we would have half as many postal employees, lol. Maybe even less.

Watcher , 07/12/2016 at 8:53 pm
OTOH, I notice 2 yrs later KSA is producing 600K bpd more oil at less than half the price.

And what is Russia producing now at less than half the price? (asking again since Ron tracks them)

Oh, and more fun, y'all recall the big drilling investment from the majors got cut in Jan 2014?

Frugal , 07/12/2016 at 9:08 pm
It`s called delayed effect.
Oldfarmermac , 07/13/2016 at 6:28 am
Farmers have generally done the same thing, collectively, when the price of whichever crop they produced crashed.

As an individual guy growing corn, or wheat, or rice, or apples, I cannot produce enough, or cut back far enough, to influence the market price. What I CAN do, is go flat out to produce every possible last bushel, going for the all important marginal dollar that might enable me to survive short term. This is what the SMALLER oil producers are doing, by and large.

While producing flat out individually, and collectively, we make the price crash even lower, and stay in the pits longer, but then this is what drowning men who cannot swim do in the water- try to survive by pushing themselves up by pushing another man under.

The game changes when one (or more) supplier is big enough and rich enough to have pricing power and staying power running at a loss. In that case, the big boy can "sweat" the little fellow , in the words of John D Rockefeller, running him out of business, deliberately.
Now this didn't take long at all while Rockefeller was running a small local company out back in the early days of big oil, but it can take a hell of a long time when the little guy is a sovereign government, or a giant corporation. I should say that SA and Russia are engaged in BOTH ways, producing flat out to maximize revenues, plus hoping to run some competitors out of the market, at least temporarily.

Folks who aren't TOO simple minded to think a little also realize there is such a thing as war and politics, and that war can be fought in markets as well as with guns. The USA basically broke the old USSR by making it impossible for that now dead empire to compete with us on building guns, never mind butter, plus encouraging the Saudis to flood the market and deprive the Soviets of oil revenue. Hard core D types will never admit that this is true however, because it is grounds for being kicked out of the party to admit that a Republican has ever succeeded at doing anything at all except creating more and bigger problems.

There is an element of WAR being played out in the oil markets now, and for the last year or two, and it will continue to be important for a while.

Anybody who thinks anybody in DC, excepting oil state congress critters and oil lobbyists, gives a flying fuck about the oil industries problems has a near zero understanding of economic politics. Cheap gasoline is an elixer that is damned good for the OVERALL economy, and as good as a zanax for soothing the nerves of consumers. To expect the Obama administration to do anything to raise the price of oil, when raising it would cost D 's elections, is tantamount to insanity. Who can remember this quote? "It's the economy, stupid"?

Hells bells, the R party rakes the D 's over the coals for LOWERING the price of oil by insisting on higher fuel economy standards, lol.

And one last little bit of ranting, and I will lay off for an hour or two , at least, so help me Jesus. This is history we are talking about, not a goddamned thirty minute tv show.

Things that matter take time in real life.

R DesRoches , 07/13/2016 at 8:10 am
Looking at what Ron has said that the threshold for LTO production is $60, what I find important is that just a few years ago that threshold was in the $80 to $100 range.

Even at today's prices, $45 to $50 range, we have seen the oil directed rig count, increase over the past few weeks.

This indicates that some of the better plays have a lower threshold.

As we go out in time I would not be surprised that the $60 threshold will move down again.

texas tea , 07/13/2016 at 1:27 pm
R DesRoches,
absence of some new technology, I expect we are at the lows of what LTO break-even cost will be for the best LTO plays. As oil prices pick up and balance sheets get better the drilling companies, Fracking co will begin to have some better pricing power and I expect they will use it. So for a time expect break even to stay low but begin to rise "somewhat" as prices move up. I still think $75 WTI is what the best companies in the best plays really need to MAKE MONEY not just break-even in a normal business environment. (lets says 1200 rigs running lower 48 ) I know I would be drilling in the areas I am active at that price, $50 not so much and only with a gun to my head :-)
clueless , 07/13/2016 at 3:45 pm
RDR – I am never sure of what anybody said about breakeven, unless it is accompanied by a complete financial statement.

If an oil company has undrilled land in an LTO area, that (1) needs production to "hold" the lease, and/or (2) has bank debt related to its lease acquisition, then: Their breakeven point and perspective is totally different (lower) than if you or I tried to determine our breakeven point if we went someplace, bought acreage and drilled a well.

Ron Patterson , 07/13/2016 at 10:43 am
OTOH, I notice 2 yrs later KSA is producing 600K bpd more oil at less than half the price.

And what is Russia producing now at less than half the price?

Watcher, you cannot measure every barrel produced with the same yard stick.

It cost KSA about $20 a barrel to produce oil, more in some places less in others. Therefore they want to produce every barrel possible in order to meet their budget.

It cost Russia pretty much the same to produce oil from their old fields. But it cost them much more to find new oil and produce it. The price of oil is hitting Russia very hard but will hit them much harder unless the price rises soon.

The low price of oil is killing Venezuela. Their production is dropping. It will drop much further unless the price starts to rise soon.

Almost every barrel being produced cost a different amount to produce. There is a thing called "the margin". That is what it cost to produce the most expensive barrel of oil being produced. As the price of oil drops, barrels being produced "at the margin" starts to drop off. More expensive oil stops being produced, less expensive oil continues to be produced. Of course there is a delay between the price dropping below the margin and that marginal barrel dropping from production.

Watcher, it is just fucking insane to claim that price has no effect on production. You have to know better than that. Why on earth do you think the number of oil rigs working in North Dakota dropped fro 215 rigs four years ago today, to 30 today? It was because the price of oil dropped and for no other reason. And that decline in the number of rigs is currently having a dramatic effect on oil production in North Dakota.

Dennis Coyne , 07/13/2016 at 1:09 pm
Hi Watcher,

Prices dropped in June 2014, maybe you mean Jan 2015?

Dennis Coyne , 07/13/2016 at 12:49 pm
Hi Ron,

It may be that I am misinterpreting Watcher. I have been mistaken in the past and history tends to repeat. :-)

Ron Patterson , 07/13/2016 at 3:09 pm
Dennis, I was just being sarcastic. I know that Watcher really does believe that the price of oil makes no difference. Imagine that! He also believes that money is just a piece of paper.
R DesRoches , 07/14/2016 at 8:35 am
If you go to any of the big LTO independent oil companies web sites and look at their investor presentations you will find two trends.

First the day to drill wells have come down in the last couple of years, in many cases by over 30%.

Second with bigger fracs and changes in the mix, IPs and EURs have gone up, in many cases above 25%.

What this means is that the break even price of oil has been coming down.

We are starting to see rigs coming back to the patch at oil prices below $50. IMO as the oil prices moves up towards the $60 level the rate of increase in rig counts will also increase.

Dennis Coyne , 07/14/2016 at 9:19 am
IPs have gone up due to more proppant and more frack stages, this increases well cost.

I doubt the breakevens have fallen below $75/b for full cycle costs.

R DesRoches , 07/14/2016 at 10:54 am
Yes they have added more stages with closer spacing, but total well cost to drill and complete have gone down.

According to EOG, 2/3 rds of the lower cost is from sustainable efficiency improvements and the rest is from lower service costs.

According to EOG spud to td has gone down by 43% to 59% (Bakken), and LOE has gone down 30% from $17.02 to $11.86.

At the same time 120 day production rates in 2014 has gone from 10.7 Bbl per foot to 20.9 Bbl in Q1 2016.

Bottom line more oil at lower cost has reduced break even oil price?

Dennis Coyne , 07/14/2016 at 2:31 pm
Hi R DesRoches,

Well costs went down and then back up as more esoteric well designs have become common. Note that supd costs may have gone down and LOE might also have gone down, but you are leaving out completion costs which is about 2/3 of the capital cost of the well, the decrease in spud cost has been more than offset by increases in completion costs (this includes the fracking). On balance total well cost has probably not decreased much and for the newer designs with more stages (up to 40 or so in the Bakken) and higher amounts of proppant, total well cost has probably increased.

The "lower well cost" presented in the investor presentations is for an older "standard well design". The newer well designs that have increased the output per well cost an extra 1 or 2 million per well (in the ND Bakken/Three Forks).

shallow sand , 07/14/2016 at 11:10 am
What does frac water cost per barrel, or at least a range? How many barrels of water are needed to drill and complete a hz well? How much does trucking the water cost.

I know all this can vary, so just some ranges will do.

Dennis Coyne , 07/14/2016 at 2:56 pm
Hi R DesRoches.

I took a look at oil rigs operating in the Permian, Bakken and Eagle Ford.

For those 3 plays we have:

Total oil rigs- 213
Horizontal-191
Vertical- 22

Bakken – 28T, 27H
EF- 27T, 26H
Permian-158T, 138H, 74% of oil rigs in the big 3 LTO plays.

Of the 28 oil rigs added since May 27, 2016, 22 were added to the Permian and all were horizontal rigs. The Bakken added 5 horizontal rigs and 1 vertical and the EF 1 vertical rig.

Based on this, Eagle Ford is probably the high cost play, then Bakken, with the Permian perceived as best at the moment of the LTO plays.

Data from Bakker Hughes pivot table.

http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

Petro , 07/12/2016 at 11:49 pm
"…Imagine that. Price didn't matter…"

Watcher,

just like you were wrong when you wrote: "…countries with CBs cannot default…", you are incorrect with this one, as well.
(I clarified that for you here: http://peakoilbarrel.com/petroleum-supply-monthly-texas-cc-estimate-permian-and-eagle-ford/#comment-575038 )

-Not only price does matter, but It is PRECISELY due to the low prices that everybody is producing in a " …the last big party…" mode, … last oomph, if you will!
All in!
All they can!

….and has little to do with the "delayed effect"…. if there is such a thing.

Be well

Petro

[Jul 18, 2016] Automatic Braking Systems To Become Standard On Most U.S. Vehicles The Two-Way

NPR
Some 20 carmakers have committed to making automatic emergency braking systems a standard feature on virtually all new cars sold in the U.S. by 2022, according to a new plan from the National Highway Traffic Safety Administration and the Insurance Institute for Highway Safety.

Automatic brakes are designed to stop a vehicle before it collides with a car or another object. Experts say that making them standard could prevent as much as 20 percent of accidents.

NPR's Sonari Glinton reports for our Newscast unit:

"Many cars on the road now have automated brakes. And when you're new to them, it's pretty scary when the car stops on its own. But experts say automatic brakes could make the fender bender a thing of the past.

...

"It's part of a push to fight the growing problem of driver distraction and a step closer to driverless cars. Now carmakers have to figure out by 2022 how they'll integrate the systems."

NHTSA released a list of the car companies that have committed to the system:

"Audi, BMW, FCA US LLC, Ford, General Motors, Honda, Hyundai, Jaguar Land Rover, Kia, Maserati, Mazda, Mercedes-Benz, Mitsubishi Motors, Nissan, Porsche, Subaru, Tesla Motors Inc., Toyota, Volkswagen and Volvo."

"In 2012, one-third of all police-reported crashes involved a rear-end collision with another vehicle as the first harmful event in the crash," according to the government's information page on Automatic Emergency Braking systems. It adds that AEB systems can either avoid or reduce the severity of some of those rear-end crashes.

In a statement about the plan, NHTSA says the "unprecedented commitment" from the automakers will bring the safety technology to "more consumers more quickly than would be possible through the regulatory process."

[Jul 17, 2016] Ron Patterson

peakoilbarrel.com
, 07/15/2016 at 7:52 pm
Looking at Art Berman's chart below. World oil production since 2005, less US and Canada, has been pretty much flat. This is despite the fact that prices have risen dramatically in that period of time. So lets look at the other huge gainers since 2005.

Russia: See the EIA's take above. Even if they are wrong, Russia's huge gains are gone forever.

Angola, Brazil, China and Colombia: China and Colombia have definitely peaked. Angola peaked in 2010 and has declined slightly and been flat since then. Only Brazil has any hope of increasing production, and tat not by very much.

Iraq: I believe Iraq has peaked. Some may disagree but there is no doubt that their best days are behind them. They have far more downside potential than upside potential.

There is little doubt that all those countries will decline in the next few years regardless of what the price of oil is. After all, if oil above $100 a barrel in the past did not sent them producing massive amounts of oil, there is no reason to believe it will do so in the future.

That leaves the USA and Canada. To those massive high prices in the past few years, only the USA and Canada responded. So… will higher prices bring on enough US and Canadian production, to make up for the decline in the rest of the world… plus increase production enough to push production above the 2015 peak?

Not a snowball's chance in hell will that happen.

 photo CC Production by Cuntry_zpsmmrubi3z.jpg

Caelan MacIntyre , 07/15/2016 at 9:29 pm
Sobering, as Euan writes. Alarming I'd say.
In a possible future's retrospect, it may turn out to have come as a surprise how fast things unraveled sociogeopolitically so close after the peak.

Fossil fuel, within a certain EROEI range is, of course, power. It powers pseudoeconomies, governpimps, and their militaries. And now China and Russia, for two examples, are not nearly as 'backwoods' as they may have been, historically. They have become, 'Westernized'…

LTG , 07/15/2016 at 10:12 pm
Hi Ron,
What are your reasons for calling the Iraq peak?
Thanks
Ron Patterson , 07/16/2016 at 7:15 am
After a year of trying to increase their production they have been unable to do so. Now things are likely to get worse. Iraq depends almost entirely on outside contractors. Also there has been a steady stream of skeptical news coming out of Iraq.

Iraq struggles to match January's record oil production

Iraq is Opec's second-largest producer after Saudi Arabia and has ambitious plans to increase production capacity to between 5.5m b/d and 6m b/d by 2020.

This target, which has been revised downward in recent months, has been viewed with scepticism as a budget crisis is limiting the federal government's ability to pay companies that are producing oil in Iraq. These include from BP, Royal Dutch Shell and Russia's Lukoil.

Although they are developing some of the lowest cost easy-to-access deposits of oil in the world, the fields need more investment to maintain production at current levels and increase future capacity. At the same time, the government in Baghdad is requesting companies reduce spending.

"We're taking more risk to keep production the same, while not getting paid. We can't continue to produce for 2-3 years like this, it's not possible," said one executive at an oil company operating in Iraq. "Maybe they can achieve 6m b/d by 2030."

 photo Iraq_zpsmk9hg42n.png

These numbers are through June. As you can see they still have not matched January's numbers. And their contractors are not getting paid. Now what would you think would be the likely effect on Iraqi oil production?

LTG , 07/16/2016 at 11:23 am
Hi Ron,

My guess is that Iraq oil production will struggle to maintain current levels over the next couple of years and then drop rapidly as their ongoing religious civil war makes the situation too dangerous for continued foreign investment.

Another guess is that the global economy will be in recession by 2020, reducing demand, lowering world oil prices, and pushing many national economies into bankruptcy. The impact for countries highly dependent on oil revenue to maintain social services and stability will be devastating and we'll see the breakdown of societies and the rise of dictatorship.

All wags of course. But it seems to me, generally, that geopolitics and social/economic problems will begin to overtake any geologic and technological limitations in world oil production. Venezuela is a current example, and now Iraq, starting with their "budget crisis" and workers "not getting paid", as your article describes. In other words, above ground factors are determining production and not the lack of oil in place.

Thanks for your reply, always appreciate your clear-headed thinking.

Javier , 07/16/2016 at 5:05 am
Ron,

Matt Musalik has been making similar graphs for a long time showing the same:
http://crudeoilpeak.info/latest-graphs

Probably Art is basing his incremental graph in Matt's ones.
Also very noteworthy is Matt's graph on "Conventional Oil Plateau" from his May 2015 update on that link.

[Jul 17, 2016] China, the worlds fourth-largest oil producer, pumped 5.6% less crude year-on-year in April

Notable quotes:
"... China, the world's fourth-largest oil producer, pumped 5.6% less crude year-on-year in April ..."
"... The Asian nation reduced oil output in May by 7.3% from a year ago ..."
"... In June alone, China pumped 8.9 percent less crude than a year earlier ..."
"... 8,9% in June and the decline just continue to increase!! Lets see what happens in the future, but right now it certainly looks like its collapsing. ..."
"... Some Chinese production is very expensive and they will get their oil from the least costly source. I know this because I've worked there with their senior resource people and had the discussion. Of course, China is facing serious oil depletion as well. ..."
"... In fact, China's production increased 62 kb/d in June vs. May to 4.03 mb/d. But y-o-y decline accelerated to 8.5% in June 2016 (not 8.9% as says Reuters article quoted by oilprice.com). June 2015 was the peak month for China's oil production (4.41 mb/d). ..."
"... China has seen in the past significant drops in monthly oil production, most likely related with maintenance. But this time is different. I agree with Ron that China has peaked. ..."
"... Ok good to know. But 8,5% is still huge. Looking at the graph I see that the number will continue to increase untill end of year unless production levels out or start to increase. ..."
peakoilbarrel.com
FreddyW, 07/16/2016 at 9:42 am
Here is an update on Chinese oil production if you have not seen it already:

8,9% in June and the decline just continue to increase!! Lets see what happens in the future, but right now it certainly looks like its collapsing.

Doug Leighton, 07/16/2016 at 9:51 am

Some Chinese production is very expensive and they will get their oil from the least costly source. I know this because I've worked there with their senior resource people and had the discussion. Of course, China is facing serious oil depletion as well.
AlexS, 07/16/2016 at 10:17 am
In fact, China's production increased 62 kb/d in June vs. May to 4.03 mb/d. But y-o-y decline accelerated to 8.5% in June 2016 (not 8.9% as says Reuters article quoted by oilprice.com). June 2015 was the peak month for China's oil production (4.41 mb/d).

I am using original data from the National Bureau of Statistics and conversion factor of 7.3 barrels/ton

China oil production (kb/d) and year-on-year change

AlexS, 07/16/2016 at 10:35 am
China has seen in the past significant drops in monthly oil production, most likely related with maintenance.
But this time is different. I agree with Ron that China has peaked.

Dave P, 07/16/2016 at 6:01 pm
What's makes this time different for China? I'm curious to hear what you base your thoughts on (as you seem to have a good understanding of what's going on).
FreddyW, 07/16/2016 at 12:26 pm
Ok good to know. But 8,5% is still huge. Looking at the graph I see that the number will continue to increase untill end of year unless production levels out or start to increase.

[Jul 17, 2016] Cassandra's Legacy Some reflections on the Twilight of the Oil Age - part I

cassandralegacy.blogspot.in

If we had a whole century ahead of us to transition, it would be comparatively easy. Unfortunately, we no longer have that leisure since the second key challenge is the remaining timeframe for whole system replacement. What most people miss is that the rapid end of the Oil Age began in 2012 and will be over within some 10 years. To the best of my knowledge, the most advanced material in this matter is the thermodynamic analysis of the oil industry taken as a whole system (OI) produced by The Hill's Group (THG) over the last two years or so ( http://www.thehillsgroup.org ).

THG are seasoned US oil industry engineers led by B.W. Hill. I find its analysis elegant and rock hard. For example, one of its outputs concerns oil prices. Over a 56 year time period, its correlation factor with historical data is 0.995. In consequence, they began to warn in 2013 about the oil price crash that began late 2014 (see: http://www.thehillsgroup.org/depletion2_022.htm ). In what follows I rely on THG's report and my own work.
Three figures summarise the situation we are in rather well, in my view.
Figure SEQ Figure \* ARABIC 1 – End Game

For purely thermodynamic reasons net energy delivered to the globalised industrial world (GIW) per barrel by the oil industry (OI) is rapidly trending to zero. By net energy we mean here what the OI delivers to the GIW, essentially in the form of transport fuels, after the energy used by the OI for exploration, production, transport, refining and end products delivery have been deducted. However, things break down well before reaching "ground zero" ; i.e. within 10 years the OI as we know it will have disintegrated. Actually, a number of analysts from entities like Deloitte or Chatham House, reading financial tealeaves, are progressively reaching the same kind of conclusions. [1]

The Oil Age is finishing now, not in a slow, smooth, long slide down from "Peak Oil" , but in a rapid fizzling out of net energy. This is now combining with things like climate change and the global debt issues to generate what I call a "Perfect Storm" big enough to bring the GIW to its knees.

In an Alice world


At present, under the prevailing paradigm, there is no known way to exit from the Perfect Storm within the emerging time constraint (available time has shrunk by one order of magnitude, from 100 to 10 years). This is where I think that Doomstead Diner's readers are guessing right. Many readers are no doubt familiar with the so-called "Red Queen" effect illustrated in REF _Ref329530846 \h Figure 2 08D0C9EA79F9BACE118C8200AA004BA90B02000000080000000E0000005F005200650066003300320039003500330030003800340036000000 – to have to run fast to stay put, and even faster to be able to move forward. The OI is fully caught in it.
  1. Dominik Lenné July 13, 2016 at 12:51 PM

    I find in this article too many crass claims and too few simple facts, and even those questionable.
    Take graph 1. It suggests, that in 2015, i.e. a year ago, the EROI of oil were 1.17. In fact it was always more than 5, in most cases even more then 10, afaik, even for the "new sources", i.e. tar sands &c.
    Concerning the energetic cost of the transition: In a first approximation, energy investment in renewables and saving has paid for itself within a year. This means, that if we transform 10 % of our energy infrastructure to renewables and saving per year, we have to use 10 % of our available power for it. This is certainly a lot. But it is certainly doable, if we want. The latter, of course, is the nub of the matter.
    I have the feeling i have to wade through a rhetoric jungle to search for valuable information. May be a matter of taste, i admit.

    1. Dr Louis Arnoux July 14, 2016 at 1:02 AM

      It is important to not confuse EROi or EROEI at the well head and for the whole system up to the end-users. The Hill's Group people have shown that the EROIE as defined by them passed below the critical viability level of 10:1 around 2010 and that along current dynamics by circa 2030 it will be about 6.89:1, by which time no net energy per barrel will reach end-users (assuming there is still an oil industry at this point, which a number of us consider most unlikely, at least not the oil industry as we presently know it). Net energy here means what is available to end-users typically to go from A to B, the energy lost as waste heat (2nd principle) and the energy used by the oil industry having been fully deducted - as such it cannot be directly linked in reverse to evaluate an EROI.
      Re the necessary energy investments to build-up a renewable capacity, Parts 2 and 3 will elaborate on the matter. Let's just say for now that we are talking here of whole system replacement, globally, and not just considering the energy embodied in the implementation of this or that bit of renewable technology - the pictures look very different at the micro and macro levels.

[Jul 16, 2016] China's Oil Output Tanks , Hits 4 Year Low

Notable quotes:
"... In June alone, China pumped 8.9 percent less crude than a year earlier, with state-owned giants such as PetroChina and CNOOC shuttering unprofitable fields ..."
"... Crude oil imports in January-June jumped 14 percent, China's national Bureau of Statistics said ..."
Jul 15, 2016 | OilPrice.com

China's crude oil output over the first half of the year stood at 101.59 million metric tons, down 4.6 percent and the lowest six-month figure since 2012, Bloomberg reports. The decline reflects China's stated shift from an industry-focused economic model to a more service-oriented one. It is also related to a drive by the government to cut the country's environmental footprint, struggling with a reputation of China as one of the most polluted places on earth. Low oil prices were also a factor in the production trend.

In June alone, China pumped 8.9 percent less crude than a year earlier, with state-owned giants such as PetroChina and CNOOC shuttering unprofitable fields and turning to low-cost imports instead.

Crude oil imports in January-June jumped 14 percent, China's national Bureau of Statistics said, with June recording the weakest growth.

[Jul 05, 2016] New estimate for reserves and resources from Rystad

Notable quotes:
"... The developed proved and probable is 655 Gb, which would equate to about 4.5% natural decay rate. ..."
peakoilbarrel.com

George Kaplan , 07/04/2016 at 1:25 pm

New estimate for reserves and resources from Rystad:

http://www.worldoil.com/news/2016/7/4/us-now-holds-more-oil-reserves-than-saudi-arabia-rystad

The developed proved and probable is 655 Gb, which would equate to about 4.5% natural decay rate.

There is supposed to be about 900 Gb undiscovered, which at last years rates would take about 300 years to find (and my guess is that if there is that much hydrocarbon it has a significant amount of gas).

And there are 500 Gb discovered and undeveloped, I don't follow that much but there is a country break down to check out, but the IOCs stopped development with prices at $110 per barrel so it's probably going to cost more than $8 trillion to put that much on line.

[Jul 05, 2016] Arthur Berman Why The Price Of Oil Must Rise Peak Prosperity

Notable quotes:
"... So he's covered. I'm about to publish something here maybe today and the sub title of this section is called "It's not a lie if we tell you it's a lie." That's the name of the game. As long as the investor presentation or the news release says somewhere that we're using language here that we would never ever use in an SEC filing because they'd put us in jail. And so you guys need to know that. In other words, "we're lying," then it's technically not a lie. It's not fraud because we told you it was a lie. ..."
"... Well we started this conversation with your important observation that we're only talking about a million or million and a half barrels a day of oversupply. So we could go from over supply to deficit pretty quickly ..."
"... So just the capital cuts in US companies have effectively deferred $20 billion-or maybe the world, I'm sorry-$20 billion barrels of development of known proven reserves. ..."
"... Well there's a big lag. There's a huge time lag between when the price responds and people actually get around to drilling and they actually start bringing the oil onto the market and it becomes available as supply, because they've been asleep at the wheel for how many months or years. You don't just turn a valve and all of a sudden everything is okay again. ..."
"... There's this tremendous gap between "okay we know there's a reserve," but what's it take to turn it into supply? Well it takes time and it takes money and it doesn't happen overnight. ..."
"... EIA says average price in 2016 will be $53 a barrel. They're not always right and in fact they're often wrong but they're not stupid either. They're doing the best they can. They have got some good people there. ..."
"... Well just turn the clock back to 2012-2013 when oil prices were sky high, were $100 a barrel or more, and what we saw was consistent negative cash flow from virtually all of the major players. So what that says is they weren't making money when oil prices were high, so is it a big shock that they're hemorrhaging when oil prices are lower? So oil prices go back up-the bottom line Chris is the only way that they were able to stay looking fairly good back then to somebody, not me, was that people were giving them money. They had infinite access to capital at almost no cost, and so they were spending it. But their income statements and balance sheets look like crap and the investment community I guess was willing to look past that or didn't want to look at it or whatever. ..."
www.peakprosperity.com

Chris Martenson: ... And still when I look at the operators in those plays they're claiming that they're going to get twice that, sometimes even more than twice that out of each well. When I've calculated the economics in that play myself-I got a little spreadsheet, I did my level best. And then I found that you had calculated what's going on in that play as well. So let's cut right to that. In the Bakken, how many wells that get drilled out here right now would be economic in today's prices?

Arthur Berman: Almost none at today's prices. The latest from the North Dakota Department of Mineral Resources says that wellhead prices are in the 20's so… I published a report not very long ago that said that 1% of the Bakken was breaking even at $30 oil prices. So now we're below that and I don't remember exactly what percentage of wells but it was something like maybe 5 or 6%. But so right now let's face it Chris, let's just get it right out there in the open: Everybody is losing their ass at current oil prices. I don't care what they say. I'm in this business, okay? I just drilled two discoveries in the last month or two at the bottom of the cycle and we can make a weak profit off of what we found-first of all they're conventional reservoirs so they didn't cost us $6-$10 million to drill. And we don't have to drill them horizontally. We don't have to frack them. And we have got no overhead and we have got no debt; so that puts us in kind of a really different situation for most public companies.

The truth is that everybody-the best positions in the best plays in the United States, the core of the core, if you will-nobody can break even at less than about $45 a barrel and that's just reality. That's not sticking them with their land costs that they sunk and wrote off long ago; that's just basic operating expenses and severance taxes and stuff that I publish in all of my reports and nobody ever argues with me about that. They may disagree with a lot of my conclusions or etc. but they never say "Oh no, your economic assumptions were way off base." No they're not off base.

So take that to the bank and let's just get that whole silly conversation off the table. Everybody is losing their ass at $20 or $30 oil, everybody. And that includes Saudi Arabia, Kuwait and everybody in the world is. But certainly US producers, very best of the best, they got to have $45 or $50, and that's a small subset of their wells in a play. And realistically $60-$65 is bare bones for the average well positioned company, all of their better wells or current wells in play. That's just the way it works. And if you hear something else, ask a lot of questions, like: "Tell me what costs you're excluding," because that's the only way to get there is just be excluding costs.

Chris Martenson: ... When I look at it that way, just sort of high level, I'm looking at 10 billion barrels, what are the reserves? Total reserves? Across all the plays that these operators are in? It can't be a whole heck of a lot more than that, can it?

Arthur Berman: Proven reserves in the United States as of EIA's latest report a couple weeks ago are 40 billion barrels of oil. Now there is a Proven Undeveloped which is another category that is also proven, which you can add another 40 or 50% but the number you're talking about there is a huge proportion of the total United States' proven reserves, any way you cut it. And so yeah, be scared. That's the message. .

... ... ...

Arthur Berman: There is no difference between what EIA is saying and the companies are saying, okay? So there's two realities here. There is the reality of truth, like go to jail truth-that's what the companies actually report in their quarterly and annual filings to the Securities and Exchange Commission. That's where EIA gets its data. That's where EIA's proven reserves come from; so there's that reality and that truth, and I think it's reasonably close to the truth. And then there's what companies tell investors, who believe almost anything and don't understand-again like Yergin's lifting cost. They don't understand, nor should they be required to understand that he's not actually talking about total cost. He's talking about a subset of costs. So your question: The proven reserves of the Bakken, according to the latest EIA, which comes from companies, is 6 billion barrels. The Eagle Ford is a little more than 5, and the Permian is about 700 million. You add up all the rest of them, the Niobrara and the whatever, the Mississippi Lime and you name it, and the total is about 13.5 billion barrels. That's the truth. And there's probably an almost – there's a slightly smaller but large proven undeveloped reserve category as well.

Chris Martenson: Art I was just reading an investor presentation where one company claimed to have access to almost that same number just in the Spraberry play.

Arthur Berman: Well yeah, Pioneer Natural Resources, that truthfully is not a bad company, if you just look at their financials. But their CEO, Scott Sheffield, has been making just absolutely preposterous claims for several years now about this Spraberry resource that they have out in the Permian Basin. The Spraberry was discovered in 1946 for God's sake. In the industry, we talk about and have talked about the Spraberry as being the largest non-commercial field in the world. And we've talked about that for 50 years because nobody can figure out how to make money off of that deal. So Sheffield says that they've got 10 billion barrels in the Spraberry. But listen to his words; what is he really saying? He's got himself protected. He says that they've got 10 billion net recoverable, resource potential. That's not a reserve.

Okay so what is a resource? Well a resource-and I'm going to the Society of Petroleum Engineers here. The definition is a known and yet-to-be-discovered accumulation. It's vapor. We kind of know it's there but we haven't found it yet. And so that's a resource, and now he's talking about a resource potential. So it's not even a resource; it's a potential resource. So what he's saying is that it's some vague number that we kind of think may be out there. And of course a resource has nothing whatever to do with price. It's absolutely not – it doesn't have anything – it's any price. It just says it's technically recoverable. So it means nothing, zero, zip. It means nothing.

So he's covered. I'm about to publish something here maybe today and the sub title of this section is called "It's not a lie if we tell you it's a lie." That's the name of the game. As long as the investor presentation or the news release says somewhere that we're using language here that we would never ever use in an SEC filing because they'd put us in jail. And so you guys need to know that. In other words, "we're lying," then it's technically not a lie. It's not fraud because we told you it was a lie.

... ... ...

Chris Martenson: Well yes with over 200 trillion dollars of debt outstanding of course you have to service that debt and high oil prices just don't help that. The model I've been working with for a long time is there's a price of oil at which the world economy chokes and there's a floor at which the energy company's don't want to pursue oil anymore and that ceiling and that floor have been coming closer and closer together. So here we are, we're clearly at a price below which oil and natural gas-in America here, I'm staring at natural gas at $1.83 is the quote I've got on my screen right now, yikes. That's way below the all-in costs for most companies that I've been looking at.

But let's dial this back a bit. Globally we've see this astonishing pull back in CAPEX spending by the oil majors, by the mids, the minors, national oil companies, all of them-over a trillion dollars, by a bunch of estimates. Talk to us about what's the impact on future oil supplies with this just absolute destruction of CAPEX spending globally?

Arthur Berman: Somewhere between profound and extreme [laughter]. We've got to be constantly discovering several million barrels of oil per day to make up for our consumption. It's easy to get confused and to say well geez, we've got such an oversupply right now, we don't have to worry about that. Well we started this conversation with your important observation that we're only talking about a million or million and a half barrels a day of oversupply. So we could go from over supply to deficit pretty quickly because we're not investing in finding that additional couple of million barrels a day that we need to be discovering. So we're deferring major, major investments and we're not just deferring exploration, we're deferring development of proven reserves. So just the capital cuts in US companies have effectively deferred $20 billion-or maybe the world, I'm sorry-$20 billion barrels of development of known proven reserves.

And so if we get to a point- and we will, we almost certainly will-where suddenly everybody wakes up and says "Oh my God we don't have enough oil." We're now half a million barrels a day low, and what happens? The price shoots up, okay? That's the way commodity markets work. And everybody says "Whoopee, let's get back to drilling big time." Well there's a big lag. There's a huge time lag between when the price responds and people actually get around to drilling and they actually start bringing the oil onto the market and it becomes available as supply, because they've been asleep at the wheel for how many months or years. You don't just turn a valve and all of a sudden everything is okay again.

We saw this during the Libyan Civil War. Saudi Arabia said "Don't worry guys, we've got all this spare capacity. We'll just turn it on and produce it and the world won't see a shortage." It never happened because they had to actually drill wells. Their spare capacity means they have got to drill wells to produce it and that takes time. They have got to drill it, they have to test it, they have to build pipelines, and by the time they actually got any of that work done, the Libyan conflict was over. We've now seen low production because the Civil War continues, but that's another story.

There's this tremendous gap between "okay we know there's a reserve," but what's it take to turn it into supply? Well it takes time and it takes money and it doesn't happen overnight.

Chris Martenson: Well no and as you mentioned it hasn't just been the exploration but the more pedestrian stuff like infill drilling-that's pretty much come to a complete halt in the North Sea as far as I can tell. And it looks like Mexico is not doing a lot with their investment down in their plays at this point in time, and Brazil doesn't even begin to know how to get started with their whole Petrobras scandal and drilling through those really, really expensive deep water finds they've got. Just don't make any sense at this price. So when I look across really where the oil supply growth is coming from, Art, I'm pretty much-like it's really down to the Middle East and this hope that the United States could rapidly ramp up its shale "miracle" if prices spike back up.

But I'm with you. I think that as much as people are focused on the oversupply right now-and in two or three years I'll be really surprised, unless the world economy crashes and demand goes down, with that caveat attached-I think the world will be equally surprised by the shortages that are coming, because you can't just… Here's what I see: I look at this chart and I talk about this in talks and I say "Hey look from 2005 to 2012 the world spent about three trillion dollars on upstream oil and gas exploration and production and basically got the same amount of crude and condensate out of ground for its trouble," right? We doubled our investment on a yearly basis from $300 to $600 billion and basically held production flat. I can only imagine what happens to production once you take a trillion in spend off of the top of that.

Obviously it looks like to me we're going to be facing a multi-million barrel a day shortfall, as long as things don't fall apart on the world economy stage.

Arthur Berman: And I think even if things do fall apart on the world economy stage. I haven't done this, because the records aren't there, but you go back to a period like the Great Depression in the world and it's not as if people stopped buying and selling goods or transporting themselves or materials. It was a big – it was a depression, and there were a lot of people out of work, but the world moves along and consumption of oil and natural gas isn't going to go to zero. I think the forecast that we've just recently seen from the International Energy Agency just last week, they're saying "okay so demand is probably going to be down from 1.8 million barrels a day of growth to 1.2 million barrels a day of growth," and that's awful. But wait a minute, 1.2 million barrels a day of growth is – you're still growing at a fairly high rate. So you have got to be replenishing your supply or else you reach this zero point where you're in deep trouble.

So I'm with you Chris. Even in my darkest view of where the economy could go, I find myself on a very different page than most of the forecasters who think that we're in for a decade or decades of low oil prices. I think we're going to be struggling under the yolk of much higher oil prices, probably beginning next year. I'm not a price forecaster but it's hard for me to see-I am a supply/demand kind of guy and I would be very surprised if by this time next year we're not seeing oil prices moving toward something like $60 a barrel. And you look at the forecast- EIA says average price in 2016 will be $53 a barrel. They're not always right and in fact they're often wrong but they're not stupid either. They're doing the best they can. They have got some good people there. So I think this notion that we're somehow stuck in $30 or $40 oil forever and ever, it just doesn't square with the reality.

Chris Martenson: Well it would mean that we're anticipating that oil is going to stay below its marginal cost of production for a very long time. It's very difficult for any commodity to stay there for long but oil in particular because of its stock versus flows. Yes there's 3 billion barrels above ground right now but hey, that's only so many days of consumption if you decided to stop producing. So yes, I'm with you. I think that obviously oil has to go up in price at some point and that's even exclusive of any geopolitical accidents that might happen in the Middle East; just simple supply/demand and all of that.

If oil does go back up, last question, you study the companies that are involved in this very carefully and I think a lot of investors, especially the banks who have put the lines of credit out there, are really double fingers crossed hoping that the price of oil moves back up and all these problems that these companies are facing economically will sort of be in the rear view mirror. Would you share that view or do you think that even if oil rebounds there's a number of companies here that have gotten themselves in over their heads with respect to debt versus assets?

Arthur Berman: Well just turn the clock back to 2012-2013 when oil prices were sky high, were $100 a barrel or more, and what we saw was consistent negative cash flow from virtually all of the major players. So what that says is they weren't making money when oil prices were high, so is it a big shock that they're hemorrhaging when oil prices are lower? So oil prices go back up-the bottom line Chris is the only way that they were able to stay looking fairly good back then to somebody, not me, was that people were giving them money. They had infinite access to capital at almost no cost, and so they were spending it. But their income statements and balance sheets look like crap and the investment community I guess was willing to look past that or didn't want to look at it or whatever.

So rearview mirror? No, these are companies that are highly leveraged and unless and until that changes-maybe that's one of the positive outcomes of this. Maybe we see a turnover of players. There are better companies whose balance sheets look better and they're the ones who can afford to say "Okay, we're going to slow down production right now because we don't have the same debt service that the guy next door does." So my hope is that like all crises this is going to flush out a lot of the bad players, or at least some of them. But will higher oil prices solve the problem and save the day for the people that hold the debt? No. It won't hurt, but if they couldn't make a profit at higher prices, going back to higher prices doesn't fix the problem.

Chris Martenson: So for many of these investors and players, in many cases, the best that they can hope for if oil prices rise is a higher recovery of cents on the dollar, but they're probably not going to get back to whole on this?

Arthur Berman: No. Unless somebody is willing to forgive debt. If we get that bad, then there's the solution of last recourse, right?


[Jul 04, 2016] The world is seeing ever-stronger competition for resources, and some players try to disregard all the rules

Notable quotes:
"... "The world is seeing ever-stronger competition for resources, and some players try to disregard all the rules, Russian President Vladimir Putin has said , adding that potential for conflict is growing worldwide. " ..."
"... If there was any doubt what Putin was thinking, I don't think there should be any more. ..."
"... "…If production falls under consumption (as opposed to demand) then the result is not a shrug and the price goes up. The result is someone doesn't get the oil they ordered…" ..."
peakoilbarrel.com

SatansBestFriend, 07/02/2016 at 8:35 pm

https://www.rt.com/news/348986-putin-resource-rivalry-rules/

Off topic, but definitely relevant.

If Ron's 2015 prediction is correct ( I think it is, and I never get this kind of stuff wrong … lol)
These are the types of articles we should be seeing.

"The world is seeing ever-stronger competition for resources, and some players try to disregard all the rules, Russian President Vladimir Putin has said , adding that potential for conflict is growing worldwide. "

If there was any doubt what Putin was thinking, I don't think there should be any more.

Even AlekS can't disagree with this.

Watcher , 07/03/2016 at 10:56 am
The new release of BPs data on oil statistics is getting too little focus.

Consumption globally was UP last year. 1.9%. 1.9ish million bpd.

Lotsa talk about global reductions in production . . . sometimes. Other times we hear about new records from someone.

But pay heed here. THERE IS NO DELAY IN THIS. If production falls under consumption (as opposed to demand) then the result is not a shrug and the price goes up. The result is someone doesn't get the oil they ordered.

Cushing has about 100 million barrels of capacity. If there were 1 million bpd shortfall on US imports, you got basically 3 months before . . . someone . . . some truck driver at a gas station . . . doesn't get the diesel he ordered. The SPR would be another few months, but tapping it for such an emergency would pretty much announce to the world . . . there ain't enough.

Petro , 07/03/2016 at 11:22 pm
"…If production falls under consumption (as opposed to demand) then the result is not a shrug and the price goes up. The result is someone doesn't get the oil they ordered…" ~Watcher

Bingo!

WWlll…here we come….

Be well,

Petro

[Jul 02, 2016] Peak Oil in Asia and oil import trends (part 2)

Notable quotes:
"... In a business as usual demand case (linear trends), Asia needs an additional 11 mb/d of oil imports (crude and products) by 2031. That oil would have to come from following sources ..."
crudeoilpeak.info

In a business as usual demand case (linear trends), Asia needs an additional 11 mb/d of oil imports (crude and products) by 2031. That oil would have to come from following sources

8.4 mb/d or 76% would have to come from taking away market share of other importing countries. That's what the Asian Century will be all about.

[Jul 01, 2016] The STEO has Colombia production holding at around 1 mmbpd for the next two years, but in fact they are declining at about 12 persen year over year

Notable quotes:
"... The STEO has Colombia production holding at around 1 mmbpd for the next two years, but in fact they are declining at about 12% y-o-y ..."
"... Their internal consumption is rising fast as well and at this decline rate they could need to import within three or four years (Figures in chart from Reuters and Energy Ministry, one value for March 2015 looked a bit off so I interpolated). ..."
"... Note also for Norway May figures are down 87,000 bpd and a bigger drop expected for June, mainly for maintenance but overall they are now expected to be in decline again following a small secondary peak until Johan Sverdrup starts up in 2020. ..."
peakoilbarrel.com

George Kaplan , 07/01/2016 at 2:44 am

The STEO has Colombia production holding at around 1 mmbpd for the next two years, but in fact they are declining at about 12% y-o-y (903 kbpd for May). Some might be due to sabotage, but they have a low R/P ratio (2.2 Gb of reserves so only about 6 years) and rig counts have dropped by 90% over the year.

I think they were using some EOR methods to boost production as well. Therefore a rapid decline might not be unexpected. They might have some offshore oil, but only two exploration wells so far, and both dry, and some shale potential (either way any production is at least 5 years away).

Their internal consumption is rising fast as well and at this decline rate they could need to import within three or four years (Figures in chart from Reuters and Energy Ministry, one value for March 2015 looked a bit off so I interpolated).

Note also for Norway May figures are down 87,000 bpd and a bigger drop expected for June, mainly for maintenance but overall they are now expected to be in decline again following a small secondary peak until Johan Sverdrup starts up in 2020.

http://www.npd.no/en/news/Production-figures/2016/May-2016/

[Jul 01, 2016] The Monthly Energy Review has US production dropping 212,000 bpd in April and 148,000 bpd in May.

Notable quotes:
"... The US was down 2.4% in April and 7.9% since April of 2015. ..."
peakoilbarrel.com
Ron Patterson, 06/30/2016 at 2:11 pm
The EIA's Petroleum Supply Monthly is out with US and individual states production data through April, 2016.

 photo US CC_zps7c8gom58.jpg

The Petroleum Supply Monthly now agrees almost exactly with the Monthly Energy Review. The Petroleum Supply Monthly has US production dropping 222,000 barrels per day in April. The Monthly Energy Review has US production dropping 212,000 bpd in April and 148,000 bpd in May.

 photo Texas_zpsjrnb0t3n.jpg

Texas production fell 47,000 barrels per day in April. Texas production is down 414,000 barrels per day since peaking in March 2015.

shallow sand , 06/30/2016 at 4:58 pm
Ron, are you able to post a graph comparing this peak to the 1970s and 1980s peaks?

I looked at the one on EIA website from 1920 to date, really shows how the shale boom rose much more steeply, and looks poised to likewise fall much more steeply than in early 1970s or mid 1980s.

AlexS , 06/30/2016 at 5:13 pm
US C+C production in 1920-2016 (mb/d)

AlexS , 06/30/2016 at 5:56 pm
US C+C production in 1920-2016 by source (mb/d)

shallow sand , 06/30/2016 at 10:16 pm
Thanks Alex.
Dave P , 07/01/2016 at 1:32 am
I wonder what the purple graph will end up looking like when all is said and done?
AlexS , 06/30/2016 at 5:19 pm
EIA's most recent weekly and monthly U.S. oil production estimates

STEO – Short-Term Energy Review, 06/12/2016
MER – Monthly Energy Review, 06/27/2016
PSM – Petroleum Supply Monthly, 06/30/2016

Ron Patterson , 06/30/2016 at 5:31 pm
Looks like there was some disagreement between the weekly and everyone else earlier, but now they are all in agreement, or very nearly so.
AlexS , 06/30/2016 at 5:37 pm
Yes, there was a big discrepancy between weekly and monthly numbers in 2015, but since January 2016 they show a similar trend
Ron Patterson , 06/30/2016 at 5:50 pm
This EIA site, Monthly Crude Oil and Natural Gas Production , gives us the percentage change for the last month and the last 12 months for the US and all states and other producing areas. The US was down 2.4% in April and 7.9% since April of 2015. Texas was down 1.4% in April and down 10% since April 2015. North Dakota was down 6% in April and down 10.6% since April 2015. It looks like April was just a catch up month for North Dakota.

[Jul 01, 2016] Ron Patterson

Notable quotes:
"... China produced 7.4 percent less domestic crude oil in May compared to a year ago, settling at 16.76 million tonnes. This was due to plans by state-owned oil companies to slash output that is weighed down by languishing oil prices, official data showed. ..."
"... All the Chinese decline is not due to the price drop. China had peaked and would be in decline even if the price had stayed high. The price drop just made it a bit worse. ..."
peakoilbarrel.com
, 06/30/2016 at 9:28 am
Low Oil Prices See China's Oil Output Shrink 7.4%

China produced 7.4 percent less domestic crude oil in May compared to a year ago, settling at 16.76 million tonnes. This was due to plans by state-owned oil companies to slash output that is weighed down by languishing oil prices, official data showed.

 photo China_zpshhxlv7nj.jpg

Javier , 06/30/2016 at 10:12 am
Ron,

Time for a special post on rate of decay from peak oil? I am not liking what I am seeing because it matches quite well my [bad] outlook. Perhaps there is hope that prices will increase to a level that will reduce the rate of fall. It is going to be very difficult to recover production.

Ron Patterson , 06/30/2016 at 11:26 am
All the Chinese decline is not due to the price drop. China had peaked and would be in decline even if the price had stayed high. The price drop just made it a bit worse.

[Jul 01, 2016] For 2016, the decline is expected to continue increasing with a 700 kbbl/d increase in the yearly decline from the mature oil fields.

Notable quotes:
"... Higher declines were observed for several of the major non-OPEC countries such as Russia, United States, Canada and Norway in 2014 and 2015. For 2016, the decline is expected to continue increasing and in terms of barrels, this represents a 700 kbbl/d increase in the yearly decline from the mature oil fields. ..."
"... The 2016 report will be more interesting but it might not be issued and/or available for free for some time. For oil they give 168 Gb reserves and 12 Gb production – without any discovery, extension or purchase that would give 7.5% natural decline. ..."
peakoilbarrel.com

Ron Patterson , 06/29/2016 at 11:27 am

INCREASED FIELD DECLINE ON MATURE FIELDS IS BECOMING VISIBLE

June 02, 2016

Rystad Energy's latest analysis shows that, for the first time since the 1980s, we will have two consecutive years of decreased global E&P investments. A lot of the investment cuts have been related to new projects and shale drilling, but we have also observed lower activity on mature producing fields. This decreased activity is starting to show on the production side, with the decline rates starting to increase. Higher declines were observed for several of the major non-OPEC countries such as Russia, United States, Canada and Norway in 2014 and 2015. For 2016, the decline is expected to continue increasing and in terms of barrels, this represents a 700 kbbl/d increase in the yearly decline from the mature oil fields.

 photo Decline Rate Rystad_zpskbnz4eqh.jpg

George Kaplan , 06/29/2016 at 1:28 pm
This is quite interesting from 2014, showing a summary of oil and gas production for the top IOCs and independent E&Ps.

http://www.amcham.ro/UserFiles/articleFiles/EYG%20No%20%20DW0454%20Global%20oil%20and%20gas%20reserves%20study_12151230.pdf

The 2016 report will be more interesting but it might not be issued and/or available for free for some time. For oil they give 168 Gb reserves and 12 Gb production – without any discovery, extension or purchase that would give 7.5% natural decline. I think that might be what's coming in 2018 at current discovery and development levels (only covering 35% of production though, NOCs should still be holding up better overall).

[Jun 29, 2016] The fact that imports are rising even faster than production is declining is a sure sign that production is actually falling

Notable quotes:
"... Imports are definitely rising. The three month NET imports of crude oil and petroleum products bottomed out last November at 4,661,000 barrels per day and last week stood at 5,890,000 bpd for an increase of 1,229,000 bpd. ..."
"... The fact that imports are rising even faster than production is declining is a sure sign that production is actually falling and not just an anomaly of the EIA's measuring algorithm. This decline is real people. ..."
peakoilbarrel.com

Ron Patterson , 06/29/2016 at 10:24 am

Imports are definitely rising. The three month NET imports of crude oil and petroleum products bottomed out last November at 4,661,000 barrels per day and last week stood at 5,890,000 bpd for an increase of 1,229,000 bpd.

The fact that imports are rising even faster than production is declining is a sure sign that production is actually falling and not just an anomaly of the EIA's measuring algorithm. This decline is real people.

 photo US Net Imports_zpsmsawgbgi.jpg

Reply

[Jun 29, 2016] A decline of 406,000 barrels per day of total liquids in one month is not a decline but a collapse.

Notable quotes:
"... Looking at the drop in iranian export of 20% you would have to assume that the story is similar….which makes their approach/policy even more idiotic ..."
"... Ron, the Monthly energy review also gave an estimate for May natural gas plant liquids of 3,256,000 bpd. A decline of 258,000 bpd (7.3%) from April's estimate of 3,514,000 bpd. So, thats a decline of 406,000 bpd crude and ngpl. ..."
"... It is starting to look worrisome. US has lost almost 1 mbpd from peak and almost 0.5 mbpd in the last 5 months. It is looking as if US loses might constitute the bulk of the world oil production loses in 2016. ..."
peakoilbarrel.com
daniel , 06/27/2016 at 11:54 am
Looking at the drop in iranian export of 20% you would have to assume that the story is similar….which makes their approach/policy even more idiotic

http://www.bloomberg.com/gadfly/articles/2016-06-26/iran-s-oil-boom-fizzles-out

Ron Patterson , 06/27/2016 at 10:58 am
The EIA's Monthly Energy Review is out with US production numbers for May 2016. US production down 148,000 barrels per day. US Lower 48 down 161,000 bpd, Alaska up 13,000 bpd.

 photo US CC_zpsw579iad0.jpg

dclonghorn , 06/27/2016 at 6:40 pm
Ron, the Monthly energy review also gave an estimate for May natural gas plant liquids of 3,256,000 bpd. A decline of 258,000 bpd (7.3%) from April's estimate of 3,514,000 bpd. So, thats a decline of 406,000 bpd crude and ngpl.

Even if it is an estimate, thats a huge decline.

Ron Patterson , 06/27/2016 at 7:01 pm
A decline of 406,000 barrels per day of total liquids in one month…??? That's not a decline, that's a collapse.
Javier , 06/27/2016 at 1:55 pm
Holy cow, Ron.

It is starting to look worrisome. US has lost almost 1 mbpd from peak and almost 0.5 mbpd in the last 5 months. It is looking as if US loses might constitute the bulk of the world oil production loses in 2016.

Also, Art Berman has a new article explaining why oil rig count matters:
http://www.forbes.com/sites/arthurberman/2016/06/27/rig-count-matters-separating-the-signal-from-the-noise-in-oil-market-opinion/#568464c94527

[Jun 28, 2016] This new drop in oil price has to do with extreme financial instability and not with supply and demand

Notable quotes:
"... This new drop in oil price has to do with extreme financial instability and not with supply and demand. Everybody is pumping with full force regardless of price for various reasons. Price does not matter at this point. When Total went to buy Iranian oil it brought with them Airbus people to pay for the oil. ..."
"... you have to keep dancing even if you don't like the music. Look at the drop in US production in the last 1 year and that is still with 400-600 rigs running in the last year with all extra printed money (aka "new investors") being available to them. It's very bleak. ..."
"... At some point there can be shortages. That would be a game changer. Before that this is just kicking the can down the road. ..."
"... In a short term shortages will be avoided by removing credit to certain countries and certain segments of population in synchronized effort by major Central Banks so it will appear that there are no shortages. ..."
"... There is no shortage of oil in Greece but there is a shortage of credit. But if Greece wants independent policy they get threatened with a shutting down of their banking system. ..."
"... The Brexit marks the end of the ideological domination of this neoliberal economy. How long the disintegration process will last it is very hard to predict but it could be very short like in the case of Soviet system. ..."
peakoilbarrel.com
Eulenspiegel , 06/27/2016 at 9:48 am
Oil prices are deep in the red again.

Is there already a reaction in the oil countries, this should demotivate companies to pick up drilling again, or creditors to hand out new billions to be buried in the rocks?

Watcher , 06/27/2016 at 5:19 pm
It's all because of profound changes in supply and demand the past 48 hrs.
Ves , 06/27/2016 at 6:43 pm
Eulenspiegel,

This new drop in oil price has to do with extreme financial instability and not with supply and demand. Everybody is pumping with full force regardless of price for various reasons. Price does not matter at this point. When Total went to buy Iranian oil it brought with them Airbus people to pay for the oil.

NA producers are taking paper for oil because there is no other option and with negative interest rates approaching it is a losing option even if the oil goes somehow to unimaginable price at this point of $70-80. But if you stop drilling the game is over. So you have to keep dancing even if you don't like the music. Look at the drop in US production in the last 1 year and that is still with 400-600 rigs running in the last year with all extra printed money (aka "new investors") being available to them. It's very bleak.

likbez , 06/27/2016 at 8:41 pm

Ves,

At some point there can be shortages. That would be a game changer. Before that this is just kicking the can down the road.

Ves, 06/27/2016 at 10:14 pm

likbez,

In a short term shortages will be avoided by removing credit to certain countries and certain segments of population in synchronized effort by major Central Banks so it will appear that there are no shortages. That is why you see all the effort in creating big currency blocks that could control emission of the currency. One of the reasons is to control oil consumption by the center through credit emission. Then you depend on the center for credit emission.

There is no shortage of oil in Greece but there is a shortage of credit. But if Greece wants independent policy they get threatened with a shutting down of their banking system.

So they are allocated certain amount of credit and that is their available oil foot print. But it is the same in so called "rich" G7 countries where large segments of population live below poverty line and that is because they don't have access to credit. That's why it was so easy to pull Brexit stunt because elite already had very fertile ground to work with. Majority felt less well off then 20 years ago. That is the main reason; all other reasons like EU bureaucracy, refugees are just nonsense. Bureaucracy, refugees of course exist but these are just borrowed reasons that they have been told to adopt on TV to frame the debate.

likbez, 06/28/2016 at 7:37 pm

Ves,

Allocation of credit works while there are growing economies. In this case this is a regular neoliberal redistribution of wealth by other name. So countries with "exorbitant privilege" can just print money while everyone else are the second class citizens who were robbed at daylight. Debt slaves by other name.

But after conversion of most countries into debt slaves, in order for the system to work you need positive GDP growth. Otherwise there is nothing to rob. Even if the GDP "growth" is fake and is just an accounting trick based of underestimating of inflation or including in the total vices like prostitution and gambling, the system can work. Get negative GDP for a substantial period of time (secular negative growth) and all bets are off. Capitalism was not designed for such an environment, and neoliberalism, which is just a modern flavor of corporatism, can't work either.

In shrinking economies allocation of the credit is like pushing on the string. You just can't pay credit lines back in shrinking economies. That means financial collapse. Now what ? Barter?

Ves, 06/28/2016 at 10:31 pm

" That means financial collapse.Now what ? Barter?"

Well, it looks to me we are watching collapse "LIVE". Look, the magnitude of Brexit is hardly even understood or no-one seems comprehend the consequences. This is on the scale of fall of Berlin wall in 1989 and shortly after the dissolution of the USSR in 1991.

The Brexit marks the end of the ideological domination of this neoliberal economy. How long the disintegration process will last it is very hard to predict but it could be very short like in the case of Soviet system.

Brexit is more response and break with Wall Street then EU in order to save what can be saved and that is mainly finance of the City of London for probable Yuan trade in near future. So this pretty much tells you where this is all going in terms of global trade.

In terms of debt that is straightforward "Debt that cannot be paid will not be paid".

In terms of trade it will be much smaller world for trade then in the past and with new sets of rules.

I don't think it will be barter but it will start with clean slate and with a new currency in the indebted countries.

[Jun 20, 2016] Year over year declines are leading the actual production data and indicate that the drop in production will march on much further even if drilling resumes

Notable quotes:
"... It is also interesting to see how year over year % declines are leading the actual production data and indicate that the drop will march on much further. Even if drilling resumes, natgas production will not rise before year end due to the drilling time lag. ..."
peakoilbarrel.com

Heinrch Leopold , 06/20/2016 at 10:07 am

Texas RRC data for April 2016 are out. As others will probably elaborate more on the data, I cannot resist to show the interesting situation of Texan natgas production (see below chart), which is in a stage of freefall and in complete contradiction to above scenarios for US natgas production.

It is also interesting to see how year over year % declines are leading the actual production data and indicate that the drop will march on much further. Even if drilling resumes, natgas production will not rise before year end due to the drilling time lag.

In the meantime, natgas prices continue to soar, smashing through USD 2.70. A heat wave in the SouthWest helps as power burn will reach very likely 5.5 bcf/d over the next few days. Natgas consumption soars despite – and in my view because of – high solar capacity in California. The high solar capacity does not reduce natgas demand yet drives it to record highs.

[Jun 19, 2016] Catch 22 in oil production: only a fraction of current oil reserves will ever be recovered and the true amount will never matrialize

Notable quotes:
"... Some commentators have asserted that the 2008 financial crises was due to high fuel costs, and not necessarily due to the cascading collapse of Wall Street financial legerdemain (although this undoubtedly helped fan the flames). ..."
"... Social Security is a big part of the "unfunded liabilities". That's a transfer. It's not available to the working person who gets it deducted from their paycheck, but it's available to the retiree who gets it. And, the retiree is more likely to spend it. ..."
peakoilbarrel.com
Mike Sutherland , 06/17/2016 at 12:40 am
Hi Dennis

Thank you for your excellent reply, and as Cracker says the extensive work you've done provide a constructive counter to the less optimistic among us, of which I am one.

I am with Cracker in that I think your charts are chronically optimistically lopsided, but held my opinion on this for a long time until now.

The resources amounting to URR 8-9.2GB of oil as you surmise may indeed be there, however I remain highly skeptical of this reported volume for a variety of reasons.

At the end of the day, whether the URR of 8-9.2GB is there or not, I am of the opinion that only a fraction of it will ever be recovered and the true amount never realized. The reason is that the condition of the world economy won't support anything higher than $50 based on what I've seen this year. To wit;

1. Student and consumer debt is at an all-time high, compounded with the problem that most highly paid jobs are disappearing for the middle class . The June 2016 jobs report was pretty lackluster, with a +38,000 nonfarm payroll jobs increase reported. It is to be noted that the civilian long term unemployed has changed little at about 7.4 million.

2. Most driving is of itself for non-productive activities, and includes travel to jobs that are generally non-productive. If fuel gets more expensive, I expect that much of this non-essential travel will drop off. Some commentators have asserted that the 2008 financial crises was due to high fuel costs, and not necessarily due to the cascading collapse of Wall Street financial legerdemain (although this undoubtedly helped fan the flames).

3. The FED has pumped over $4 trillion of cash into the US economy, but the net benefit is estimated to be less than $1 trillion to GDP. It is unknown how the FED is going to unload this pure dreck on its books, and I suspect that it will not comport with higher oil prices in the cogs and wheels of the economy;

4. US debt is at a fantastic level of $19.3 trillion, with another $67 trillion of unfunded liabilities on the books. It's hard to see how this debt will be reduced to manageable levels with higher oil prices.

5. An Internet 2.0, or some other economically transformative technology, doesn't appear to be on the horizon. Currently, all we know how to do is burn fuel, heat a working fluid, and use it to drive a piston or turbine. The alternatives, such as solar and wind, will only come on as oil heads into it's retirement party.

6. Related to point #1; if the current trend to transfer jobs over to automation continues, it's hard to see how there will be people driving to their (former) employment, and for that matter afford things that are (of course) produced by petroleum;

7. For what it's worth, I think that the 2008 crises hasn't gone away despite massive money printing efforts. They're trying to keep demand artificially supported with easy money and the incurring of unrepayable debt, which is terrifyingly criminal as it is simply passed unto the very young and the unborn. How can we expect them to pay our debts and then go out and buy fuel, when their jobs have been outsourced and/or automated? The whole thing has gone far over the top and is way beyond the point of no return. As mentioned previously, I see no significant industrial (i.e inventive) development or for that matter, improvements in demographics that will turn this around.

So at the end of all this, I think that baring hyperinflation the prospects for oil over $50-$55 for the next couple of years is looking fairly dim. Hence, that claimed 8-9.2 GB UR is not going to be realized in real production.

Dennis Coyne , 06/17/2016 at 7:38 am
Hi Mike,

There are many that are very pessimistic about the economy. Unfunded liabilities are not the same as debt, so I don't count those.

The retirement age can be raised and eventually the US will follow the rest of the advanced economies and reform the health care system to control costs.

(First we need to exhaust all other possibilities, before doing the right thing.)

Note that my scenario has oil prices rising very gradually. Also oil prices were over $100/b for 3 years with the World economy continuing to grow.

All that money printing has had very little positive or negative effect, mostly the velocity of money has slowed because most of that money is just sitting in bank accounts. Inflation is not high, if it were the Fed would simply reduce the money supply.

A debt of $19 trillion for an economy with an income of $18.2 trillion is not really a problem. A debt free consumer with a good credit rating and a 20% down payment in savings can typically borrow up to 3 times their income for a mortgage. The US government debt is at 104% based on fred data.

According to BIS for the US total non-financial sector debt is about 250% of GDP.

For all counties that report to the Bank for International Settlements (BIS) the total non-financial sector debt to GDP was 235% in the fourth quarter of 2015 (most recent data point) at market weighted exchange rates. (220% using PPP weighted exchange rates.) See

https://www.bis.org/statistics/totcredit.htm

Hickory , 06/17/2016 at 9:40 am
Dennis- you say that

"Unfunded liabilities are not the same as debt, so I don't count those."

I'd like to point out that both of these things act as a dead weight on a chain that must be carried by those who are working and generating income, as we go forward in time.

And income, or savings derived from it, must then be used to service the debt and pay for the liabilities/entitlements.

This is money that then cannot go towards buying fuel, or funding innovation and transition- things like EV, solar, etc.

A dead weight is a dead weight.

And going into a crisis you have a better chance of surviving it if you are lean and mean, not if you have this ugly balance sheet. It doesn't help that most of the worlds countries are in poor shape in this regard as well.

I have to agree with Mike Sutherlands view that these factors could very well decrease the URR significantly.

On the other hand, the other 7 Billion people of the world will keep increasing their demand and, along with depletion, this will leave less cheap oil for the USA to import. This will tend to raise the price here.

These are conflicting forces, and I think we will end up with a scenario with both lower URR of these domestic sources, and yet also higher prices. Good for solar/wind I suppose- if we can afford it.

Very tough on the average family and local businesses.

Nick G , 06/17/2016 at 10:33 am
Hickory,

Social Security is a big part of the "unfunded liabilities". That's a transfer. It's not available to the working person who gets it deducted from their paycheck, but it's available to the retiree who gets it. And, the retiree is more likely to spend it.

So, SS doesn't slow down the economy, it helps it.

Hickory , 06/17/2016 at 1:26 pm
Nick,

Transferring money from a working family to a retired one doesn't help the economy, it helps the elderly person, and hurts the working family (in the here and now).
Its overall pretty neutral, but it surely takes resources that could go towards energy infrastructure and development and shifts it towards the pharma industry, for example.
I'm not trying to make a value judgement here, just pointing out that in the scope of our prior discussion, this is fairly neutral and doesn't change the conclusions.

Nick G , 06/17/2016 at 3:20 pm
Currently, all we know how to do is burn fuel, heat a working fluid, and use it to drive a piston or turbine. The alternatives, such as solar and wind, will only come on as oil heads into it's retirement party.

Well, no, we know a lot more than that. We have superior alternatives for most of the uses for oil, and adequate ones for the rest.

The single biggest use is personal transportation, and EVs will work fine for that. We don't need turbines for that, electric motors will do just fine.

And…we don't need wind or solar to get rid off oil. Not at the moment. All we need is electricity, and we have plenty of that, right now.

Cracker , 06/16/2016 at 11:50 am
Mike S and Dennis,

Hilarious! Coynecopian really fits.

My humble apologies, Dennis, just too funny, and appropriate. I do appreciate your charts, but I wish you would occasionally plug is some other values to provide a contrast to your ever-optimistic assumptions. My reaction to your chart was the same as Ron's.

Make your chart reflect lower and fluctuating oil prices, instead of coynecopian, steady-state high prices and it might make more sense. Add a factor for debt restraining new wells at higher oil prices (see SS's comment about $75 without debt below). Your assumptions just seem too optimistic to be realistic. Maybe I just underestimate BAU's ability to fund stupidity and you don't:-)

It will be interesting to see what really happens.

Thanks to all for your comments. Always educational.

Jim

[Jun 18, 2016] North Dakota down over 70K bpd in April

Notable quotes:
"... The production drop is 100% DEPLETION of existing wells. This is a critical distinction because if wells were shut, they could be turned back on. If wells deplete, generally, new ones must be drilled to replacement them, ..."
"... The reality is that the only way this production comes back (or stops decreasing) is the application of massive amounts of new capital, the redeployment of tens of thousands of service workers laid off during the crash, and billions of dollars of equipment. This is even more true internationally. As large mature projects deplete, of which there are thousands in decline, new large projects must be developed to replace them. ..."
"... The typical approach would be to shut in low rate high water cut producers, and any other wells that have been experiencing high costs. When prices rise and wells have been shut in for months they will have built up some pressure. And some of them will come in at 100 % water due to self injection. It can be a real crap shoot. ..."
Peak Oil Barrel
Brad B , 06/15/2016 at 12:23 pm
Just a note to correct a popular misconception; production DID NOT drop in Bakken due to SHUT IN wells. The production drop is 100% DEPLETION of existing wells. This is a critical distinction because if wells were shut, they could be turned back on. If wells deplete, generally, new ones must be drilled to replacement them, implying radically different time, service intensity and capital requirements. The popular press is ate up with the concept that when prices rise, all this production will magically reappear, once again swamping the market with excess supplies.

The reality is that the only way this production comes back (or stops decreasing) is the application of massive amounts of new capital, the redeployment of tens of thousands of service workers laid off during the crash, and billions of dollars of equipment. This is even more true internationally. As large mature projects deplete, of which there are thousands in decline, new large projects must be developed to replace them.

Ves , 06/15/2016 at 12:54 pm
"The production drop is 100% DEPLETION of existing wells. This is a critical distinction because if wells were shut, they could be turned back on."

Brad,
Yes. So essentially oil price does not matter at this point at the end of the game for these marginal and high depletion plays. Price could go even higher but drop in production will just continue.

Fernando Leanme , 06/16/2016 at 7:38 am
I think it's a mix. I've been in these circumstances before. The typical approach would be to shut in low rate high water cut producers, and any other wells that have been experiencing high costs. When prices rise and wells have been shut in for months they will have built up some pressure. And some of them will come in at 100 % water due to self injection. It can be a real crap shoot.

[Jun 15, 2016] Seasonal pattern of oil consumption -- going from Q2 to Q3 increases demand by about one and a half million barrels a day

Notable quotes:
"... Yes it is the normal cycle pattern, but going into Q3, we have been seeing draws over the last few weeks, and world S/D has been close to being balanced. ..."
"... It is normal for Q2 to have storage builds, and this year the builds were on the low side. ..."
"... The market is not expecting to see higher demand than supply, and the next step in prices may be soon than expected. ..."
peakoilbarrel.com

R DesRoches , 06/13/2016 at 11:41 am

I know that this presentation is about production, but on the other side of production, that is demand, according to the IEA demand tables, going from Q2 to Q3 increases demand by about 1.5 million barrels a day.

There is also a additional small increase going from Q3 to Q4.

With supply decreasing and demand increasing looks like oil prices may be headed higher over the next six months.

The Alberta fires along with Nigeras problems came at the right time yo tighten things up a bit.

AlexS , 06/13/2016 at 12:08 pm
"according to the IEA demand tables, going from Q2 to Q3 increases demand by about 1.5 million barrels a day"

This is a normal seasonal pattern. Demand in Q3-4 is always higher than in Q1-2

R DesRoches , 06/13/2016 at 12:36 pm
Yes it is the normal cycle pattern, but going into Q3, we have been seeing draws over the last few weeks, and world S/D has been close to being balanced.

It is normal for Q2 to have storage builds, and this year the builds were on the low side.

The market is not expecting to see higher demand than supply, and the next step in prices may be soon than expected.

[Jun 15, 2016] Global oil demand remand very strong

Notable quotes:
"... Global demand is indeed strong. All key forecasting agencies are still projecting annual demand growth of 1.2mb/d, but it may surprise on the upside (~1.4mb/d). But supply/demand rebalancing is mainly due to declining non-OPEC output and supply outages. ..."
peakoilbarrel.com
AlexS , 06/13/2016 at 12:46 pm
Global demand is indeed strong. All key forecasting agencies are still projecting annual demand growth of 1.2mb/d, but it may surprise on the upside (~1.4mb/d).
But supply/demand rebalancing is mainly due to declining non-OPEC output and supply outages.

Quarterly global oil demand (mb/d)
source: IEA Oil Market Report, May 2016

Reply

[Jun 15, 2016] Production of oil increasing while exports stayed flat due to groqwing demand in oil importing coutries, which like the USA and Canada which are also oil producting countries

It appears that world oil exports has increased very little, if any, since 2005.
Notable quotes:
"... I can only guess that oil production in importing nations, which are generally capitalist countries, is more sensitive to oil price changes than exporters (whose systems of govt allows for maintaining production regardless of price). ..."
"... The largest increase in production, by far, came from the US which is an importing nation. And huge declines came from Norway, the UK and Mexico, all exporting nations. That is largely why we see production increasing while exports stayed flat. ..."
"... Exporting nations, the UK and Indonesia, became net importers during that period. There may have been others, I haven't looked that closely. ..."
"... I find Mexico to be an interesting case. I read somewhere that 30% of federal tax revenue is received from taxation of Pemex. Mexico exports are down 21% in 2015 compared to 2014. I'm not sure what is going to happen to Mexico when it becomes a net oil importer. ..."
peakoilbarrel.com
Ron,

This mostly means that importers have simply increased production right?

Gains in U.S. and Canadian production reduced imports, and allowed countries like China and India to import more even though net export availability remained flat.

I can only guess that oil production in importing nations, which are generally capitalist countries, is more sensitive to oil price changes than exporters (whose systems of govt allows for maintaining production regardless of price).

The next 12 months may see increasing prices even if net exports do not decline simply due to increased export demand from countries like the U.S. that flip from a multi-year decline in import demand.

Ron Patterson , 06/14/2016 at 5:11 pm
Yes, exactly. The largest increase in production, by far, came from the US which is an importing nation. And huge declines came from Norway, the UK and Mexico, all exporting nations. That is largely why we see production increasing while exports stayed flat.

Exporting nations, the UK and Indonesia, became net importers during that period. There may have been others, I haven't looked that closely.

Survivalist , 06/14/2016 at 5:35 pm
Hi Ron, according to the Energy Export Data Browser UK is an importer.

I find Mexico to be an interesting case. I read somewhere that 30% of federal tax revenue is received from taxation of Pemex. Mexico exports are down 21% in 2015 compared to 2014. I'm not sure what is going to happen to Mexico when it becomes a net oil importer. Whenever it is it won't be good. Perhaps Mexico will join their neighbors to the south (El Salvador, Guatemala and Honduras) in being failed states.

[Jun 15, 2016] Oil Industry to Cut $1 Trillion in Spending After Price Fall

Notable quotes:
"... Worldwide investment in the development of oil and gas resources from 2015 to 2020 will be 22 percent, or $740 billion, lower than anticipated before prices plunged in 2014, with the deepest cuts in the U.S., Wood Mackenzie said in a statement Wednesday. A further $300 billion will be eliminated from exploration spending. Global production this year will be 3 percent lower than previously forecast, the consultant said. ..."
Bloomberg

The oil and gas industry will cut $1 trillion from planned spending on exploration and development because of the slump in prices, leading to slower growth in production, according to consultant Wood Mackenzie Ltd.

Worldwide investment in the development of oil and gas resources from 2015 to 2020 will be 22 percent, or $740 billion, lower than anticipated before prices plunged in 2014, with the deepest cuts in the U.S., Wood Mackenzie said in a statement Wednesday. A further $300 billion will be eliminated from exploration spending. Global production this year will be 3 percent lower than previously forecast, the consultant said.

[Jun 15, 2016] China oil production decline is accelerating.

Notable quotes:
"... According to data from National Bureau of Statistics released today, oil output in May was down 7.3% from a year ago to 16.87 million metric tons (3.97 m/d, using 7.3 ton/barrel conversion factor). Daily output declined 1.6% from April and 10% from June 2015 peak of 4.41 mb/d. ..."
peakoilbarrel.com

AlexS , 06/13/2016 at 12:05 pm

China oil production decline is accelerating.

According to data from National Bureau of Statistics released today, oil output in May was down 7.3% from a year ago to 16.87 million metric tons (3.97 m/d, using 7.3 ton/barrel conversion factor). Daily output declined 1.6% from April and 10% from June 2015 peak of 4.41 mb/d.

I think the decline is a result of both ageing onshore oil fields and reduced infill drilling due to lower upstream investments.

China oil production (kb/d) and year-on-year change (%)
source: National Bureau of Statistics

[Jun 11, 2016] Oil market is back in balance

peakoilbarrel.com
AlexS , 06/09/2016 at 5:39 am
John Kemp's new article in Reuters:

Oil market is back in balance
http://www.reuters.com/article/us-oil-global-kemp-idUSKCN0YU04Z

[Jun 08, 2016] Current cuts in capex will be felt 2-3 years from now.

peakoilbarrel.com
Eulenspiegel, 06/08/2016 at 3:07 am
The best thing here is:
Capex is slashed worldwide, hidden capex from 3rd world states I think even more since they are simply broke with the current oil prices.

And the production continues to increase – why this Capex frenzy the last years, if you can increase production simply on no money spending, rust and decline being no problem anymore.

Something smells fishy.

AlexS, 06/08/2016 at 3:35 am
Production is increasing in some countries or remains stable in others because of " this Capex frenzy the last years".

Current cuts in capex will be felt 2-3 years from now.

[Jun 08, 2016] Peak Oil Review - June 6 2016

Notable quotes:
"... The major factor pushing prices higher last week was the unplanned production outages in Alberta, Nigeria, and Venezuela. Although the fires are now well past the Alberta tar sands, it will be several weeks before the 1 million b/d of production that had to be shut down during the firestorms can return fully to production. In the meantime, the Alberta outage and the one in Nigeria have likely removed much or all of the production surplus that has overhung the markets and for now, there may be a rough balance of supply and demand. ..."
"... In recent years, these companies have seen a string of massive cost overruns such as in the Caspian and Bering Seas, and disasters such is Deepwater Horizon in the Gulf of Mexico. Last year the oil industry discovered only 12 billion barrels of new reserves, about a third of annual global consumption. ..."
"... Nearly all of the major oil companies reduced capital spending to less than half of what it as been in recent years. With decreasing oil production, supply is likely to start falling short of demand later this year, if it has not already, due to the various outages. ..."
www.resilience.org

1. Oil and the Global Economy

Oil prices hovered just below the $50 level last week with Brent closing just above $50 on Thursday before settling at $49.46 on Friday. As has been the case lately, there were numerous factors pressuring oil prices one way or another. The week opened with much enthusiasm that OPEC would agree to a production freeze, but this went away when the OPEC meeting failed to take any action. The major factor pushing prices higher last week was the unplanned production outages in Alberta, Nigeria, and Venezuela. Although the fires are now well past the Alberta tar sands, it will be several weeks before the 1 million b/d of production that had to be shut down during the firestorms can return fully to production. In the meantime, the Alberta outage and the one in Nigeria have likely removed much or all of the production surplus that has overhung the markets and for now, there may be a rough balance of supply and demand.

While production in Alberta is returning to normal, the political/economic situations in Nigeria and Venezuela continue to get worse with the likelihood that both countries will soon see a significant drop in oil production – possibly enough to offset surplus production elsewhere. There is no end in sight to the problems in either of these countries, and their situations seemed destined to get worse before they get better.

The US crude inventory saw a small drawdown last week, which is not surprising considering the outages in Alberta over the past month. The EIA continues to estimate that US production is still dropping. However, the US oil rig count climbed by nine units last week as drillers responded to oil prices approaching $50 a barrel coupled with a buyers' market for oil production services and oilfield workers. The meager increase in US employment last week has some worried about the outlook for US economic growth in the near future. At a minimum, the widely expected interest rate increase by the Federal Reserve is likely to go on hold for a while.

The problems of the oil industry continue, however, with US bank earnings down 2 percent in the first quarter largely due to delinquent loans to the oil industry where bankruptcies continue to be announced. Observers are starting to talk about the inevitable decline of the large international oil companies. These companies are finding it increasingly difficult to find new reserves to exploit and those that are available are mostly in deepwater projects where the costs of extraction are well above the current selling price of oil. In recent years, these companies have seen a string of massive cost overruns such as in the Caspian and Bering Seas, and disasters such is Deepwater Horizon in the Gulf of Mexico. Last year the oil industry discovered only 12 billion barrels of new reserves, about a third of annual global consumption.

Nearly all of the major oil companies reduced capital spending to less than half of what it as been in recent years. With decreasing oil production, supply is likely to start falling short of demand later this year, if it has not already, due to the various outages. Global crude reserves are still at record levels, so daily shortages of even a million b/d or two are unlikely to send prices into three figures right away.

By 2020, give or take a bit, prices are likely to start climbing into new territory as shortages become larger, and rationing-by-price again comes into effect.

[Jun 07, 2016] Short-Term Energy Outlook June 2016

IEA is probably OK for use as historical data source, but any use of their forecasts is a sign of gross negligence, based on their track record. Their 'waterfall" style forecasts are just propaganda.
My feeling is that 80 dollars bbl are needs to increase production. Before that it will might be continue to decline. Saudis are a spent bullet. So chances of them coming into play again to suppress oil price are close to zero.
If so, the key question we need to answer is when oil will hit this magic price point.
U.S. Energy Information Administration (EIA)

U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015. Production is forecast to average 8.6 million b/d in 2016 and 8.2 million b/d in 2017, both unchanged from last month's STEO. EIA estimates that crude oil production for May 2016 averaged 8.7 million b/d, which is more than 0.2 million b/d below the April 2016 level, and approximately 1 million b/d below the 9.7 million b/d level reached in April 2015.

[Jun 06, 2016] To me Saudis recent posturing is about setting up excuses for post peak declines, without having to admit they dont have as much oil as theyve stated.

peakoilbarrel.com

George Kaplan , 06/04/2016 at 7:36 am
Here is an interesting post by Jean Laherrere on GoM and overall US production, apologies if it has been posted before.

http://aspofrance.org/files/JL_2016USoilultimate.pdf

Dennis – you asked at some previous post about discovered, undeveloped reserves. Overall I'd go with Jean Laherrere, he knows more about these things than most and definitely understands the politics behind some government forecasts, looks at things globally and probably still has access to some of the more confidential figures. My less informed view is as follows.

So far about 1350 billion barrels C&C have been produced. Current production is about 28 billion per year excluding extra heavy oil. Recently Rystad indicated mature filed decline rates at 5% per year, if that held through the complete depletion (unlikely but all I have to go on) that would mean another 540 billion, at 3% average decline it would be 900 billion. For 2200 billion total that could mean (say) another 100 billion to find, 50 billion which is developed but offline (in Libya, neutral zone, Abqaiq maybe, Syria etc.) and 150 billion discovered but undeveloped. If there is that amount (or more for higher URR or higher overall decline rates, maybe up to 900 billion by your figures) it must be in OPEC Middle East countries or Russia. A lot of the older undeveloped, mostly heavy oil, reserves elsewhere have been developed recently (e.g. in the North Sea) in response to high oil prices. Similarly deep sea in GoM and offshore Africa and Brazil (see the paper above – there isn't much left in the GoM and discoveries have dropped to near zero per year). The larger reserves that I know about are complicated and expensive to develop (e.g. Brazil pre salt, Kazakhstan high sulphur) or have some political issues (offshore Nigeria). I don't think these would total more than 50 billion though.

If the Middle East OPEC countries have significant known undeveloped reserves they don't act like it – i.e. why develop tight gas fields, or explore deep sea pre-salt, or double or more the number of exploration and in fill wells, or get IOCs to come in and redeveloped existing fields.

Somewhere I read that Saudi assume 75% recovery and develop their fields to deplete 2% of the field per year during plateau phase. That sounds about right for a URR of 250 billion (i.e. assuming they report total recoverable resources, not what is left) but would mean pretty much everything they have is on production with nothing much known but undeveloped. 75% may be high but I think probably achievable for huge onshore fields (not so much for heavy oil offshore like Safinayah; Abqaiq, which may be exhausted by now; or the neutral zone, which sounds like it needs steam flood to recover much more). To me Saudi's recent posturing is about setting up excuses for post peak declines, without having to admit they don't have as much oil as they've stated. Also Kuwait's initiative as described in terms of new exploration and debottlenecking existing facilities, not developing known fields.

IHS, Rystad and Wood Mackenzie probably know more, but their past performance at predicting anything makes you wonder (Rystad seems better than the others though).

For extra heavy oil I think the recovery factors are probably overstated and based on the early, and easiest to exploit developments. However this probably doesn't make much difference as the limiting factor is the surface production facilities, and will be for the next few decades. CAPP predict Canadian oil sands rising to about 3 to 4 mmbpd by 2030, but even this presupposes another two pipelines approved and built and a sustained, high oil price (i.e. above $100, and probably more if natural gas prices start to rise at the same time).

In Venezuela exploiting the extra heavy oil would be difficult even for a stable society. It needs a large amount of oil wells in areas without that great infrastructure (I think around 5 to 10,000 per mmbpd), additional pipelines (I guess piggybacked so the Naphtha diluent can be recycled), and a bunch of new upgraders – one for every new 200 to 300,000 bpd. The existing upgraders aren't in great shape, a lot of the skilled workforce from these actually left for USA when the industry was nationalised. There is a significant shrinkage (I think 15 to 30%) in the upgraders as they take out carbon to make the oil lighter (compared to hydrocrackers used in places in Canada which add hydrogen from natural gas). They produce highly toxic waste streams of coke, sulphur and heavy metals, which need to be safely stored for ever after (I wonder how that's going there at the moment). The three phases of the Carabobo development, which was supposed to get to 1.2 mmbpd by 2018 don't seem to be going anywhere – oil is still being trucked I think, the new upgraders are on permanent hold, the well services companies are pulling out, and the government can't afford to buy the diluent naphtha. That is a recipe for prolonged decline, not growth to 8 mmbpd, which was once proposed.

Ecuador has ultra heavy oil, discovered and undeveloped, of about 6 billion – but no-one has figured out how to develop it commercially. The upgrader required has really been proved technically. They were working with Ivanhoe on something that looked to me a bit like a CTL system, but Ivanhoe went bust so I don't think this is going anywhere. Overall anything more than about 5 or 6 mmbpd from extra heavy sources would be stretch over the next 20 to 30 years.

[Jun 06, 2016] The US prediction is for a gentle decline of about 15 percent overall to 2021, but if a lot of the smaller producers get shut down in the near term it might be a bit steeper.

peakoilbarrel.com

George Kaplan ,

06/04/2016 at 7:18 am
The recent UK production benefited mostly from Golden Eagle ramp up through 2015. Buzzard is by far the largest single producer at about 180,000 bpd. It is due for an extended turn around this year. It also more than doubled it's water cut over the last six months, so could be coming off plateau quickly (ramp up was through 2007). It will be a contest between it's decline against new production from Clair Ridge and Glen Lyon and 3 or 4 smaller projects over the next 2 years (about 300,000 bpd combined plateaus).

The government prediction is for a gentle decline of about 15% overall to 2021, but if a lot of the smaller producers get shut down in the near term it might be a bit steeper.

[Jun 03, 2016] Oil prices crush lures US drivers back into gas guzzlers

peakoilbarrel.com
AlexS , 06/02/2016 at 6:40 pm
Interesting trends in transportation fuel demand:

OPEC's Cheap Oil Strategy Lures Drivers Back Into Gas Guzzlers

http://www.bloomberg.com/news/articles/2016-05-30/opec-s-cheap-oil-strategy-lures-drivers-back-into-gas-guzzlers

• Decade-long improvement in fuel efficiency in U.S. seen ending
• Light trucks, vans, SUVs account for 60% of U.S. vehicle sales

Last year, SUVs outsold any other type of passenger vehicle in Europe for the first time, according to auto industry consultants JATO Dynamics. The trend has continued in 2016, with demand for SUVs … accounting for a quarter of sales in the biggest European countries.
Europe is a mirror of what's happening across the world. From China to the U.S., drivers are buying bigger vehicles, while sales of fuel-efficient hybrids struggle.

[In the U.S.] the average car sold in April achieved a fuel economy of 25.2 miles per gallon, down from a peak of 25.8 set in August 2014, just before oil prices crashed, according to data from the Transportation Research Institute at the University of Michigan. At current trends, this year will mark the first drop in average U.S. fuel economy since at least 2007, the data show.

"Fuel-economy improvement is really flatlining," said Sam Ori, executive director of theEnergy Policy Institute at the University of Chicago. "The gains completely stopped right at the same time that oil prices started to decline."
Today in the U.S., light trucks, vans and SUVs account for 60 percent of total vehicle sales - a level only reached briefly in 2005, when Brent crude, the global oil benchmark, averaged $55 a barrel. It's now around $50. The International Energy Agency said in May that less-efficient vehicles, including four-wheel drives, "remain very much in vogue, a consequence of persistently lower retail pump prices."

In 2008, when oil prices averaged $100 a barrel, the share of gas guzzlers in U.S. total vehicles sales dropped at one point to just 43 percent.

With larger vehicles hitting the roads and Americans driving longer distances as the economy recovers, U.S. gasoline consumption is set to rise to a record in 2016, according to the Energy Information Administration. U.S. gasoline demand will average 9.3 million barrels a day this year, surpassing the peak set in 2007, the EIA said in its most recent monthly report.

The EIA forecast U.S. drivers will enjoy the cheapest gasoline this driving season in 12 years.

In China, the world's second-biggest oil consumer, drivers are also opting for larger vehicles as never before. While cheaper gasoline and diesel helps, analysts said it's higher incomes - and a desire to impress relatives and friends - that's driving the purchases. According to official data, vehicles such as light trucks and SUVs accounted for almost 35 percent of total Chinese passenger sales in April, up from 10 percent in 2010 and less than 5 percent a decade ago.

U.S. average sales-weighted fuel-economy rating

AlexS , 06/02/2016 at 6:44 pm
chart 2

GoneFishing , 06/02/2016 at 7:03 pm
You are right AlexS, Americans need to be more frugal and forward thinking.

My town wants to allow a gas station to be put in near the highway, there is a gas station a short drive away. Not only will the gas station be mere feet from a Category 1 trout stream, it will be almost at the level of the stream. The three large tanks will be actually buried in the aquifer for the town and have to be held down from floating. Everything runs off wells here, so contamination will effect much of the town and wreck the aquifer.

To top it all off, the land is now a ride-sharing lot, something that reduces fuel use and pollution as well as reduces the wear and tear on cars (slowing down the need for vehicle replacement and all the energy/pollution that involves).

There are gas stations just a few miles in either direction along the highway.

Sound dumb to you?

Lightsout , 06/02/2016 at 10:26 pm
I think the market share argument was always a smoke screen and this was always the Saudi's real intent.

[Jun 02, 2016] Iranian Oil Is Disguising A Significant Decline In Global Production

Notable quotes:
"... But… the decline has only just begun. The price collapse caused the plateau in world oil production that begun about March 2015. However, the decline did not actually begin until January 2016. The dramatic rise in production from Iran has kept the decline from becoming obvious to everyone. However when the May production numbers come in, I think it will then become obvious to everyone. ..."
OilPrice.com

In conclusion, In spite of the recent increase in Russian production, as well as the slight increase from the North Sea, and in spite of the dramatic production increase from Iran due to the lifting of sanctions, world crude oil production is in decline. And while it is true that most of this decline is due to the price crash, it remains to be seen just how much production will recover when the price returns to… to… wherever it returns to before it stops.

But… the decline has only just begun. The price collapse caused the plateau in world oil production that begun about March 2015. However, the decline did not actually begin until January 2016. The dramatic rise in production from Iran has kept the decline from becoming obvious to everyone. However when the May production numbers come in, I think it will then become obvious to everyone.

[Jun 02, 2016] Offshore decline rate can reach 30 percent per yar and that mean that the sudden halt to offshore development will result in big offshore production declines

Notable quotes:
"... It is hard to pinpoint these decline rates exactly since each field is unique unto itself. What the industry generally believes is that offshore production declines at twice the rateof conventional onshore. ..."
"... That would put the offshore decline rate somewhere between 15-20% per year. These higher decline rates mean that the sudden halt to offshore development will result in BIG offshore production declines. ..."
"... Off a 22 million barrel per day production base-15-20%= 3.3-4.4 million barrels a day-gone. That is substantially more than the spare capacity of OPEC right now. That means that in just one year, the world oil supply could be put into deep undersupply (pardon the pun) as offshore exploration and development stagnate. ..."
peakoilbarrel.com

andy hamilton , 06/01/2016 at 10:32 pm

A cracking read – offshore contraction:

http://www.oilvoice.com/n/This-Wipes-Out-Any-Spare-Capacity-OPEC-Has/33091bb719f9.aspx

"Offshore production has lower decline rates than shale does, but considerably higher decline rates than onshore vertical developments.

It is hard to pinpoint these decline rates exactly since each field is unique unto itself. What the industry generally believes is that offshore production declines at twice the rateof conventional onshore.

That would put the offshore decline rate somewhere between 15-20% per year. These higher decline rates mean that the sudden halt to offshore development will result in BIG offshore production declines.

Off a 22 million barrel per day production base-15-20%= 3.3-4.4 million barrels a day-gone. That is substantially more than the spare capacity of OPEC right now. That means that in just one year, the world oil supply could be put into deep undersupply (pardon the pun) as offshore exploration and development stagnate.

[Jun 01, 2016] The Offshore Oil Business Is Crippled And It May Never Recover

Notable quotes:
"... Offshore production has lower decline rates than shale does, but considerably higher decline rates than onshore vertical developments. ..."
"... That would put the offshore decline rate somewhere between 15-20 percent per year. These higher decline rates mean that the sudden halt to offshore development will result in BIG offshore production declines. ..."
"... That is substantially more than the spare capacity of OPEC right now. ..."
oilprice.com

OilPrice.com

... ... ...

Offshore Oil Production By The Numbers

Offshore production accounts for 30 percent of total global oil production. The percentage of global production has remained the same since the early 2000s but the absolute amount of production has grown.

(Click to enlarge)

Today nearly 22 million barrels of oil per day is produced offshore; the figure in the chart above includes all liquids.

Offshore production has lower decline rates than shale does, but considerably higher decline rates than onshore vertical developments.

It is hard to pinpoint these decline rates exactly since each field is unique. What the industry generally believes is that offshore production declines at twice the rate of conventional onshore.

Related: Nigeria's Oil Production In Free Fall After More Attacks

That would put the offshore decline rate somewhere between 15-20 percent per year. These higher decline rates mean that the sudden halt to offshore development will result in BIG offshore production declines.

Off a 22 million barrel per day production base, 15-20 percent would equal 3.3 to 4.4 million barrels a day-gone. That is substantially more than the spare capacity of OPEC right now. That means that in just one year, the world oil supply could be put into deep undersupply (pardon the pun) as offshore exploration and development stagnate.

... ... ...

[May 30, 2016] The vast majority of large, conventional undiscovered oil and gas fields are offshore and are uneconomical to develop with oil prices below 80 dollars per barrel

peakoilbarrel.com
Ron Patterson , 05/26/2016 at 9:51 pm
Peak Oil 2.0: Is It Time to Panic?

On Friday, May 13, IHS Energy released an alarming new study. It found that the volumes of oil and gas discovered outside of the U.S. last year were the lowest since 1952.

Oil alone set a record low, with only 2.8 billion barrels of oil equivalent found during 2015.

 photo Oil and Gas Discoveries_zps07lvdq31.jpg

The vast majority of large, conventional undiscovered oil and gas fields are offshore. Unfortunately, these fields are uneconomical to develop with oil prices below $80 per barrel.

That's why a few years ago, when prices first dipped under $60, many oil companies refocused their efforts. They bet big on U.S. shale.

Now, many are regretting that decision. Most shale basins – other than the Permian – are losers at current WTI prices. (Though there are some winners, as I showed you here .) Reply

[May 29, 2016] Sinking rig counts worldwide doesnt correspond to these fantastic planned oil production increases

Notable quotes:
"... Financialization is the lubricant that makes it possible to think of everything as an asset that could immediately be liquidated at near full value, including hypothetical growth options. When everything is fully financialized and real world frictions are removed, it will always make more sense to buy and sell the assets and their affiliated options that to actually invest and improve anything. ..."
peakoilbarrel.com
Eulenspiegel , 05/19/2016 at 4:21 am
Sinking rig counts worldwide doesn't correspond to these fantastic planned production increases – if it was that easy to crank up production, why has everyone hasn't done it before?

And opening the chokes, damaging the oilfied only works short term before new infills / CO2 or other expensive stuff is neccessary.

likbez , 05/19/2016 at 10:07 am
Sinking rig counts worldwide doesn't correspond to these fantastic planned production increases – if it was that easy to crank up production, why has everyone hasn't done it before?

A relevant quote:

Financialization is the lubricant that makes it possible to think of everything as an asset that could immediately be liquidated at near full value, including hypothetical growth options. When everything is fully financialized and real world frictions are removed, it will always make more sense to buy and sell the assets and their affiliated options that to actually invest and improve anything.

This is one of the most straightforward ways to visualize how increased financialization can harm the economy. Although simply calling bankers parasites is arguably even more straightforward.

see also http://softpanorama.org/Skeptics/Political_skeptic/Neoliberalism/index.shtml

Oldfarmermac , 05/19/2016 at 11:35 am
We may still have a choice of a prez candidate who is neither the property nor the owner of big business interests.

[May 24, 2016] At The Edge Of Time This is Peak Oil

Notable quotes:
"... Some days ago I had the opportunity to watch a picture titled "The Big Short", an opus on the 2008 financial crisis. It portraits remarkably well how the marriage of ignorance with the lack of scruples can concoct the most toxic of outcomes. The so called "shale oil boom" is not much of a different story, only perhaps at a different scale. ..."
"... This contraction cycle will resound for years to come. Existing fields decline at a rate somewhere between 4% to 5% per year, meaning that the industry needs to bring online additional 3 Mb/d to 4 Mb/d every year just to keep extraction levelled. The investment deferrals under way and the time lag required to bring new fields online guarantee this replacement will be missed several years going forwards. ..."
"... Rystad Energy, a Norwegian petroleum and gas business intelligence consultancy, projects new extraction projects to miss the yearly decline of existing fields for at least the next five years . This consultancy expects an overall extraction decline of 300 kb/d this year, 1.2 Mb/d in 2017 and 2018 and deeper declines in 2019 and 2020. ..."
"... There are also reasons to believe the IEA is underestimating consumption , but this estimate produces a conservative (nearly best case) scenario: growth of 1.25 %/a. ..."
"... the extra stocks built by the OECD can alone keep consumers happy until the end of 2017; to go beyond that China has to follow the same strategy. However, if the trends identified here prevail, by the beginning of 2018 consumption will be exceeding extraction by almost 3 Mb/d, exhausting the remaining stocks of 0.5 Gb in a matter of months. ..."
"... The successive supply destruction - demand destruction cycles are the key dynamics of peak oil at an yearly scale. These cycles push left and transform each curve in succession, eventually producing a stall of traded volumes and finally a decline. The petroleum market has endured a supply destruction cycle for almost two years now, that while clearly closing, is yet far from the 100+ $/b price required to provide a reversing signal to the industry. With various petroleum exporting nations on the brink - in great measure due to the financial machinations concocted in the US - this supply destruction cycle might have been just too long. ..."
"... Present supply destruction cycle is coming to an end. ..."
blogspot.co.uk

Titling the last press review of 2015 I asked if that had been the year petroleum peaked. The question mark was not just a precaution, the uncertainty was really there. Five months later the reported world petroleum extraction rate is pretty much still were it was then. This is not a surprise, but the impact of two years of depressed prices is over due.

Nevertheless, during these five months of lethargy the information I gathered brings me considerably closer to remove the question mark from the sentence and acknowledge that a long term decline is settling in. Understanding the present petroleum market as a feature of the supply destruction - demand destruction cycle makes this case clear.

Looking Backwards

Worldwide petroleum extraction hit some sort of ceiling back in 2004, once it crossed above 70 Mb/d. The volume coming to the market kept increasing, but at a shy pace. From 2004 to 2012 the extraction rate grew only 3%, from 72 Md/b to 74 Mb/d.

At the same time, the Brent index endured a remarkable rise from 2004 to 2008. Some called this the "end of cheap oil", alluding to the increasing need for lower return-on-investment resources: ultra-deep water, heavy petroleums, Arctic, etc. Nevertheless, the price collapsed to a third from 2008 to 2009. Back then I explained how the concept of an ever rising petroleum price was at odds with "peak oil" . For the world extraction to enter a declining trend, periods of supply destruction must take place to keep those higher entropy resources at bay.

Today the market lives the second supply destruction cycle since the 2004 shift. In reality these cycles are lasting far longer than I anticipated, showing a considerable time lag in the adjustment of the supply curve. There is however something especial to this supply destruction cycle, that could possibly be sealing the end of growth to what petroleum is concerned.

The Miracle

Some days ago I had the opportunity to watch a picture titled "The Big Short", an opus on the 2008 financial crisis. It portraits remarkably well how the marriage of ignorance with the lack of scruples can concoct the most toxic of outcomes. The so called "shale oil boom" is not much of a different story, only perhaps at a different scale.

From 2011 to 2013 the extraction of petroleum from source rocks and other low permeability reservoirs in the US grew almost 2 Mb/d. These were remarkable days for the industry, with plenty of jobs created and a major revival to the American hands-on approach to business. However, such a rapid growth on a relatively small resource left many wondering if something else was at play.

By the beginning of 2014 it was becoming evident that the "shale oil boom" had been largely fuelled by the finance industry, that was feeding relentless amounts of what is sometimes called "dumb money" to be burned on America's source rocks. The scheme was simple: petroleum companies inflated their reserve assessments 10 times or more and imprudent investors kept buying bonds irrespective of losses. They thought they were investing on conventional 30 years petroleum bearing wells, when in fact were getting 3 years lifetime wells.

By late 2014 "shale oil" extraction in the US had increased 3.5 Mb/d since 2011, but at that point the price of petroleum in international markets was already coming off a cliff. 200 G$ rested on the American junk bond market, left to be trounced by a deep supply destruction cycle.

A bond default and bankruptcy wave formed throughout 2015, and is still surging today. One third of the companies involved in the "shale boom" should go belly up this year alone . However, these financial owes have not yet translated into a visible decline in extraction rates. This means that even bankrupt, petroleum companies are still bringing new source rock wells online, only deepening further the present supply destruction cycle.

When the WTI index (the regional equivalent to Brent) sank under 40 $/b late last year, Arthur Berman produced a most elucidating set of maps spatially portraying well profitability. At those prices only a small fraction of the wells extracting petroleum in the Permian formation were profitable.

And this is the remarkable achievement engendered by the marriage of America's petroleum and finance industries. Petroleum extraction became effectively insulated from prices; bankrupt or not, the wells on the Permian, Bakken and Eagle Ford formations will keep pumping - because the dumb money keeps burning. For the rest of the world, this is like inserting a sliver of 4 Mb/d at 0 $ at the far left of the supply curve, pushing all other resources rightwards. For an international industry already in contraction, this is like adding gasoline to the fire.

Supply Destruction

The present supply destruction cycle dates back to the beginning of 2014 - it actually unfolded before the price collapse. While prices still held above 100 $/b, international petroleum companies started facing issues regarding shareholder revenues. The supply curve is simply becoming too steep, when resources such as "Arctic oil" or "pre-salt" enter the portfolios of petroleum companies. The scale down of exploration activities started that year, as so the slashing of staff. In 2014 circa 100 000 jobs were laid off by the industry .

The price rout brought about by the shale miracle only accelerated this contraction. In 2015 the number of jobs laid off is estimated to have hit 250 000 . 2016 could end up close to that.

In panic mode, petroleum companies have been postponing or outright cancelling projects. Recent estimates point to a total of 400 G$ in deferred investments . A new wave of mergers in the industry is now expected.

Throughout 2015 only 2.8 Gb were identified in new reserves , the lowest score since the end of the II World War. This figure is less than one tenth of yearly consumption.

This contraction cycle will resound for years to come. Existing fields decline at a rate somewhere between 4% to 5% per year, meaning that the industry needs to bring online additional 3 Mb/d to 4 Mb/d every year just to keep extraction levelled. The investment deferrals under way and the time lag required to bring new fields online guarantee this replacement will be missed several years going forwards.

Rystad Energy, a Norwegian petroleum and gas business intelligence consultancy, projects new extraction projects to miss the yearly decline of existing fields for at least the next five years . This consultancy expects an overall extraction decline of 300 kb/d this year, 1.2 Mb/d in 2017 and 2018 and deeper declines in 2019 and 2020.

Looking Forwards

In a previous post I analysed the gap between petroleum extraction and consumption reported by the IEA. Using data fragments published by the press I then produced an estimate for China's stock flows that greatly explains what have been heretofore unaccounted barrels. In essence, the OECD and China could have amassed together a total of extra 900 Mb in stocks since the beginning of 2014.

Using this estimate for worldwide stocks I was then able to compute world petroleum consumption for the past two years. There are also reasons to believe the IEA is underestimating consumption , but this estimate produces a conservative (nearly best case) scenario: growth of 1.25 %/a.

Matching the outlook produced by Rystad with this consumption trend one can start the always risky exercise of predicting the future. In this case I projected forwards the consumption pattern of 2015 - with a double slump in later Winter and Spring, and the Summer up-tick - increasing at the steady pace identified before. As for extraction, I simple spread Rystad's outlook into a monthly dataset. The end result can be observed in the graph below.

The extraordinary stocks built by the OECD and China since 2014 are projected to hit 1 Gb right about now, but also to soon stop growing. None of this counts with the fires in Alberta, or the social-economic owes endured presently by Nigeria or Venezuela. Still, in this conservative scenario consumption is just about to exceed extraction.

In the scenario above I also made the exercise of estimating how long can these extraordinary stocks last if they are immediately released on the market to stave off an immediate price reaction. That being the case, the extra stocks built by the OECD can alone keep consumers happy until the end of 2017; to go beyond that China has to follow the same strategy. However, if the trends identified here prevail, by the beginning of 2018 consumption will be exceeding extraction by almost 3 Mb/d, exhausting the remaining stocks of 0.5 Gb in a matter of months.

How likely is this scenario? Is the OECD willing to bring its stocks promptly on the market to keep prices where they are now? Or will it wait for prices to rise to provide breathing air to the petroleum industry? And for how long can countries like Iraq, Nigeria or Venezuela withstand prices under 100 $/b?

As the events of recent months show, it might be far more likely for some disruptive happening to shake things up, than for these pretty trends to endure. In any case, this supply destruction cycle is coming to an end sooner rather than later. The market will eventually have to fix the widening gap projected in the graph above.

Consequences

These two years of supply destructive prices have pushed various important petroleum nations and regions to the brink. If there is some unexpected event shaking up the petroleum market, it will likely be in one of these places.

Conclusion

Depending on how the OECD (and perhaps China) decide to manage their extra petroleum stocks, the shift to a new demand destruction cycle closing the gap portrayed in the graph above will be complete by early 2018 the latest. If something goes seriously wrong with one of the key petroleum exporting nations, this shift could happen overnight.

What will such new cycle bring? Recent experience provides some clues: it took eight years for world extraction to rise from 72 Mb/d to 74 Mb/d; the so called "shale boom" required four years at prices above 110 $/b. These long time lags mean that Rystad's declining outlook is by this time almost certain.

The coming demand destruction cycle is therefore likely to be a long one too. And at some point it can invert the extraction trend upwards. In such a scenario, can extraction return to the 80 Mb/d rate of 2015? That is the big question, which I will abstain from answering definitively. Looking at it from the other side of the equation, for such a scenario to ever materialize, demand must withstand again a good number of years at high prices without undershooting.

The successive supply destruction - demand destruction cycles are the key dynamics of peak oil at an yearly scale. These cycles push left and transform each curve in succession, eventually producing a stall of traded volumes and finally a decline. The petroleum market has endured a supply destruction cycle for almost two years now, that while clearly closing, is yet far from the 100+ $/b price required to provide a reversing signal to the industry. With various petroleum exporting nations on the brink - in great measure due to the financial machinations concocted in the US - this supply destruction cycle might have been just too long.

The Take Away

[May 20, 2016] The current oil price collapse was due to over-production, which was a result of a four times increase of capex over the previous 10 years and was a cyclical event,

Notable quotes:
"... I will tell you how "sane" companies react to down turns like we are going through. They batten down the hatches, cut costs to bare minimum. When prices recover, they do not immediately go great guns. They first get caught up on the maintenance that was delayed due to the downturn. Then, once that is done, they slowly begin to spend money on new wells. ..."
"... Early on, most companies were hoping for a quick recovery. 2015 persistent low prices, followed by the hammer of $20 oil in Q1 has really taken a toll, IMO. This is why we are now seeing many BK. Q1 knocked them out. ..."
"... What I think should worry many people is that those of us considered "marginal" are weathering this storm better than many of the large companies. We are operating stuff that the majors/large independent companies got rid of decades ago, that was deemed to be too costly for them to continue to operate. ..."
"... Now, those majors/large independents are finding there is almost nothing left of "cheap" to develop oil. Deep water, no. Shale, no. Tar sands, no. ..."
"... The shale companies are spending over $5 million per well to obtain 150-400K BO over a period of 20+ years. Folks, they have sold off assets all over the world to go after this stuff. That should be a big concern. ..."
"... In December 2008 oil price was $40. Shale started expansion around that time with the free money from the banks. Today in mid 2016 price of oil is $48 and it is evident that Shale is gradually closing the shop with just additional life-support from the banks to scrape the bottom of the barrel in the remaining sweet spots. ..."
peakoilbarrel.com
AlexS , 05/20/2016 at 5:30 am

"In fact the price has collapsed hasn't it, in spite of steadily worsening EROI and now virtual cessation of exploration and development. Gail's explanation fits the evidence we have in front of us today. Simple EROI or depletion models don't so well. "

The 2014-16 price collapse was due to over-production, which was a result of a 4-fold increase in upstream capex over the previous 10 years. It's a cyclical event, like in 1982-86, 1998, 2001-02 and 2008-09. The global supply and demand are gradually rebalancing. Prices are already recovering (+80% since Fenruary lows) and will rise much further in the next several years due to the current sharp decrease in exploration and development spending.

shallow sand , 05/20/2016 at 8:25 am
AlexS.

I agree with you.

One point I would like to make is that, unlike in response to prior cyclical downturns, OPEC, thus far at least, has not cut production. I question if anyone has spare capacity, outside of that caused by war/political strife.

It took massive amounts of leverage for the US and Canada to ramp up production, along with a relatively stable oil price band of $85-$105.

It remains to be seen if that type of leverage will occur again in the immediate future.

I note, despite the price improvement, the rig count we all follow, North Dakota, is down to 24, with one still listed as stacking.

I will tell you how "sane" companies react to down turns like we are going through. They batten down the hatches, cut costs to bare minimum. When prices recover, they do not immediately go great guns. They first get caught up on the maintenance that was delayed due to the downturn. Then, once that is done, they slowly begin to spend money on new wells.

Early on, most companies were hoping for a quick recovery. 2015 persistent low prices, followed by the hammer of $20 oil in Q1 has really taken a toll, IMO. This is why we are now seeing many BK. Q1 knocked them out.

If OPEC's goal is to finish off US companies, they will figure out a way to keep a lid on prices this summer, and then drive prices back down into the $20s again. However, I am not sure if this can be accomplished, or if OPEC members can even handle that. Further, it is clear to me that Russia can ride out low prices better than most, but not $20s. The Q1 price collapse caused Russia to act.

We are still here, and cautiously optimistic, but it is a very, very cautious optimism.

What I think should worry many people is that those of us considered "marginal" are weathering this storm better than many of the large companies. We are operating stuff that the majors/large independent companies got rid of decades ago, that was deemed to be too costly for them to continue to operate.

Now, those majors/large independents are finding there is almost nothing left of "cheap" to develop oil. Deep water, no. Shale, no. Tar sands, no.

The shale companies are spending over $5 million per well to obtain 150-400K BO over a period of 20+ years. Folks, they have sold off assets all over the world to go after this stuff. That should be a big concern.

This point has been made here repeatedly. Despite this severe price downturn and the alleged glut, I think it is still true. There may be a lot of oil out there left to produce, but it will cost a lot per BO to get it out of the ground.

Dennis Coyne , 05/20/2016 at 9:58 am
Hi Shallow sand,

Agree with all you say.

A question:

You say:

…but it will cost a lot per BO to get it out of the ground.

Can you define "a lot" ?

I think $75/b (2015$) will allow a fair amount of oil to be produced profitably, but agree it will take 6 to 12 months before there will be much of a production increase (say 1 Mb/d Worldwide) in response to oil prices at $75/b. I imagine the slow response will result in a price spike to $100/b as supply starts to run short (probably in 2018).

Ves , 05/20/2016 at 10:52 am
Alex, SS,

In December 2008 oil price was $40. Shale started expansion around that time with the free money from the banks. Today in mid 2016 price of oil is $48 and it is evident that Shale is gradually closing the shop with just additional life-support from the banks to scrape the bottom of the barrel in the remaining sweet spots.

So the price in Shale case did not play ANY role. So where is that "cycle" that you see it? There is no cycle. Shale was drilled regardless of price to kick the can just for few years to mask over-leveraged economy.

Dennis Coyne , 05/20/2016 at 11:03 am
Hi Ves,

Prices did not remain between $40 and $48 per barrel.

The cycle is the large swings in the oil price from $40/b to $120/b to $30/b and now headed back up.

If you believe the change in the oil price does not make a difference, I would disagree.

Dennis Coyne , 05/20/2016 at 11:36 am
Also from Dec 2008 to March 2008 only 27 wells per month were added in the Bakken/Three Forks. Other LTO plays didn't really get going until 2010.

By August 2009 Brent was up to $72/b, from March 2009 to July 2009 the average wells added per month in the Bakken was 40 wells/month.

Also it was the high prices earlier in 2008 that got things started, oil prices were over $80/b from Oct 2007 to Sept 2008, the dip in oil prices was relatively brief, the oil price was under $60/b for only 7 months from Nov 2008 to May 2009. The oil industry takes some time to react to oil price changes. Chart with annual average Brent oil price in nominal dollars below. The price has been above $70/b for all but 2 years from 2007 to 2015 (2009 and 2015).

Ves , 05/20/2016 at 11:55 am
Hi Dennis,

There is no free market CYCLE if OPEC cuts 4.2mbd in January 2009 and then it does not cut single barrel in November 2014. Of course there is always a "cycle" in long term.

"Prices did not remain between $40 and $48 per barrel"

That just shows you that price points are irrelevant. In 2008 when price was $40 did Shale had crystal ball to know that price will go $100 in the next 6-7 years?
400 rigs that are drilling right now in US do they know where the price will be next year? Reply

[May 20, 2016] Has anything really changed beyond dodgy economics and a slowing economy to prevent oil peak occuring in 2015

Notable quotes:
"... I also question as to whether or not this extreme debt-fueled LTO production will ever be able to ramp up again as we have recently seen? It looks as if gullible investors are lining up with every increase in price, but the real onslaught of bankruptcies are just beginning, imho. ..."
"... This is a pretty big bust, and as mentioned by a few insiders in the last post, (Doug Leighton and a few others), will the experienced and knowledgeable 'hands' be available to ramp up production in such big numbers, ever again? Will there be financing? Will they be forced to produce by Govt decree/intervention? How about by a 2 for 1 tax incentive like Canada has done in the past? ..."
"... Not to doom and gloom a new reality, mostly because I am optimistic by nature, nevertheless, an acknowledged Plateau or decline will shake society to its very core as we move forward. I think it will be like those cheap B level movies about the looming asteroid casting a shadow on Earth, with hordes of people frantically looking for any means to escape the ramifications. ..."
peakoilbarrel.com

Paulo , 05/19/2016 at 3:47 pm

regarding statement: "but the USGS may be mistaken in assuming that US reserve growth is a good analog for the rest of the world."

Is oil distribution different than every other resource as it applies to the US? I don't think so. That is a very big assumption and does not take into account misrepresented reserves by more secretive countries, as well as political unrest and other disruptions that may occur going forward. Furthermore, as the Majors seem to be dropping in profitability will they be able to continuing producing at today's rates, or will they wind down and/or diversify with respect to their shareholders, their first responsibility? I also question as to whether or not this extreme debt-fueled LTO production will ever be able to ramp up again as we have recently seen? It looks as if gullible investors are lining up with every increase in price, but the real onslaught of bankruptcies are just beginning, imho.

This is a pretty big bust, and as mentioned by a few insiders in the last post, (Doug Leighton and a few others), will the experienced and knowledgeable 'hands' be available to ramp up production in such big numbers, ever again? Will there be financing? Will they be forced to produce by Govt decree/intervention? How about by a 2 for 1 tax incentive like Canada has done in the past?

Every one of these graphed scenarios but one show the 'Peak' 15-20 years out. Ron P, who I respect very highly, has said in the past he believes that 2015-16 will/might/just may be the peak, which we will know only in hindsight. Has anything really changed beyond dodgy economics and a slowing economy? I suppose if the economy continues slowing the peak might ultimately be delayed, but then if this is the case BAU is finished, anyway.

Not to doom and gloom a new reality, mostly because I am optimistic by nature, nevertheless, an acknowledged Plateau or decline will shake society to its very core as we move forward. I think it will be like those cheap B level movies about the looming asteroid casting a shadow on Earth, with hordes of people frantically looking for any means to escape the ramifications.

I sent an oil post to my best friend last week. Actually, it was the article I shared with this forum in the last post about Ft Mac. His response was, "wasn't Jeff Rubin the guy who once predicted Peak Oil"? I wrote back with several other articles attached and said, "This is Peak right now, it is beginning….the effects are simply not acknowledged, etc etc etc". The conundrum, as I see it, is that every time this industry goes bust, for whatever reason(s), the entrenched say, "See, there's no Peak, what a bunch of bullshit. If there was a Peak the prices would be climbing"!

Dennis, I would really appreciate reading a strong prediction from you, and others from this forum. I appreciate that you kind of did this with the caveat, (very polite I might add) that said, "a more realistic decline scenario might be"… (or words to that effect), but it's driving me nuts. I kind of see why TOD shut down, now. Their reasons were that there were simply not enough solid articles about PO to keep a good discussion flowing. I reluctantly switched to PO.com for daily background reading and the quality of discussion and ideas have been reduced on that site to playground levels of name calling with lots of swearing and personal attacks tossed in. The contibutors on this forum are the only game in town these days. I thank you all in advance for sharing you opinions and knowledge.

What's really going on?

regards

Fernando Leanme , 05/20/2016 at 2:23 am
Denis does good work, but its very difficult to pin down numbers when nobody releases detailed data. The ones who have the better data bases are IHS and the oil companies which purchase it from IHS. But nobody is about to release something that's probably worth several hundred million $.

For example, what is the usgs estimate for reserv increases at El Furrial in Venezuela? That reservoir has been badly mismanaged over the last 10 years. The mismanagement reduces booked reserves, and also makes impossible the introduction of a large tertiary process project such as CO2 injection.

The same applies to dozens of fields. Several Venezuelan heavy oil fields with more than 10 billion barrels of oil in place are headed towards less than half of the pdvsa booked reserves. And given the current practices and political regime, the reservoirs will be left gutted, which makes impossible introducing meaningful changes in the future. The Maduro regime has turned into a full blown dictatorship as of this week, it will change for the worse, so it looks like the ongoing reserve destruction will continue for at least a decade.

[May 20, 2016] Hard Landing Coming Soon? Chinese Officials Set Off Red Alert on Debt, Urge Serious Measure to Contain It

Notable quotes:
"... Financial crises are always ultimately credit crises. Even when the proximate cause seems to be a stock market crash, the amount of damage done depends on how much leveraged speculation took place and how that affects critical lending and payment systems. Even though Japan's payment system was never at risk in the implosion of its colossal credit bubble, its banks and economy have been in a zombie state for a full quarter century. Japan's massive bubble took place through a mere 11 massive "city banks" and another three "long term credit banks". By contrast, China has a large shadow banking system. Just like our officialdom in 2007 and 2008, it's very unlikely that they have a good grasp of the extent and the interconnectedness of the risks. They may find out very soon. ..."
"... Remember the shoddy construction in schools – earthquake collapse. Then there is the bubble in unoccupied "ghost cities" that go on forever. ..."
"... Why did Xi burst the bubble. I had suspected the smog and pollution have done more damage in death and disability than admitted. I wonder if the population is even in decline not just the labor force. ..."
"... If China is suddenly officially ready to countenance a huge rise in unemployment, one presumes they have some plan to socialize the pain, to take care of the population. ..."
"... If this is true, what's in store may be something like IIRC Lambert proposed in comments the other day: nationalize the financial institution, file the Chinese equivalent of RICO charges, impound the wealth and tie the former elite up in jail/litigation for the next decade. ..."
"... "impound the wealth" –including all the wealth offshore? including the wealth Chinese oligarchs have invested in foreign real estate? Are Chinese oligarchs any more likely to go against their own class than Western oligarchs? ..."
"... I missed that Telegraph article – it really is quite alarming. I have to say though that anecdotally, my Chinese friends are no more pessimistic than usual, so I don't think that ordinary Chinese are feeling worried yet – property prices are still going up, which is reassuring to most middle class there, and there is no evidence I've heard of any panic in the various 'informal' or shadow investing markets (lots of Chinese run what amount to unofficial banks, borrowing and investing on behalf of friends). ..."
"... AEP suggests that Xi may not be the firm hand on the tiller that everyone assumes – his overt confidence may well be a front for some very confused ideas. I think there is increasing evidence that this may be the case. For all the sound and fury, there is little real evidence of reform from within. But I think the safe bet is that the CCP has enough of a firm hand that they can prevent an outright crash – much more likely is the sort of crippling slow motion collapse that we saw in Japan a quarter of a century ago. But the longer they insist on shovelling fuel on to the fire, the less likely that happens. As Pettis constantly points out, economists consistently underestimate the speed and severity of crashes. ..."
"... Given the huge amount of foreign investment in china and how much it is likely leveraged, the global financial system will collapse again triggering the collapse of many states. proposals of bailouts would be likely met with violent resistance, even revolution. far right politicians would seize power and, where they haven't been politically neutered, maybe some leftists would, too. were it to happen before november, we could welcome into office president trump in january. ..."
May 19, 2016 | nakedcapitalism.com

by Yves Smith

Ambrose Evans-Pritchard has a must-read article on what may be the beginning of the end of the China-as-economic-wunderkind story. The reason for the hesitancy is that the lengthy article that appeared in early May on the front page of the house organ of the Politboro may either be an official declaration or an effort by a powerful minority to press for a meaningful, sustained effort to stop the growth in debt levels. Particularly since the global financial crisis, China has relied heavily on increases in private-sector debt to keep growth levels up. Mind you, borrowing to invest is not necessarily a bad idea if it goes into projects that are sufficiently productive. But as readers know well, China has had investment at an unprecedented proportion of GDP for years, and most of it has gone into assets created for speculation (housing that sits vacant and is seen by investors as an alternative to the stock market) or unproductive increases in industrial capacity. Consider this extract from a March article in the South China Morning Post:

At the peak of its cement production in 2014, China turned out more cement in just two years than the United States had produced in the previous century.

As the first chart shows, the trend finally topped out last year but it still indicates almost 30 times as much cement production in China as in the US, a much larger economy. Is this huge volume of cement really needed? Is this sustainable?

There is certainly an argument for more cement production in China than in the US, which has largely built its cities and its transport infrastructure. China is still in the process of doing so. Its cement requirements are thus proportionately much greater.

True, but 30 times as great with as much cement production in two years as the US recorded in 100 years? That's pushing things.

And while economic growth in China is faster than in the US, much of it represents just this pouring of cement. Fixed capital formation accounts for 45 per cent of gross domestic product, about twice the average of the rest of Asia, and higher multiples yet than the rest of the world.
This sort of excess crashes if demand turns sour. And it could take a lot more with it than just cement and steel plants

The story is told in many more sectors than just cement. The second chart shows you that China's steel production is topping out but is still running at five times the rate of all 28 countries in the European Union combined and almost 10 times steel production in the US.

This steel is still being used but there are reasons to doubt the continued demand. Car production last year of 12 million units, for instance, was three times the equivalent of domestic production in the US.

Yes, I know Americans are importing ever more cars as they begin to share the rest of the world's doubts about their own Chevrolets and Chryslers and, yes, car ownership ratios are still much higher in the US than in China, but three times as much car production in China as in the US still has a feeling of unreality. China is not rich enough yet to afford so large a car market.

AEP recaps the well-known-if-you've been-watching signs that China is in the advanced stages of a monster debt binge. The problem with bubbles, as anyone who has lived through them knows so well, is they typically run much further than clinical observers imagine possible. So the nay-sayers look like gloomy Gusses while the momentum traders party until the whole thing goes kaboom. AEP's danger signals, from his Telegraph account :

China's debt is approaching $30 trillion. The fresh credit alone created since 2007 is greater than the outstanding liabilities of the US, Japanese, German, and Indian commercial banking systems combined…

To put matters in context, leverage rose by roughly 50 percentage points of GDP in Japan before the Nikkei bubble burst in 1990, or in Korea before the East Asia crisis in 1998, or in the US before the subprime debacle. This gauge is an almost mechanical indicator of a future credit crisis.

As we all know, China is in a class of its own. Debt has risen by 120 to 140 percentage points. The scale of excess industrial capacity – and China's power and life and death over commodity markets – mean that any serious policy pivot by the Communist Party would set off an international earthquake.

Yet that is what at least an important group of the officialdom is prepared to do. The logic for a crackdown now is that delaying a day of reckoning will only make the inevitable contraction worse:

China watchers are still struggling to identify the author of an electrifying article in the People's Daily that declares war on debt and the "fantasy" of perpetual stimulus…

The 11,000 character text – citing an "authoritative person" – was given star-billing on the front page. It described leverage as the "original sin" from which all other risks emanate, with debt "growing like a tree in the air".

It warned of a "systemic financial crisis" and demanded a halt to the "old methods" of reflexive stimulus every time growth falters. "It is neither possible nor necessary to force economic growing by levering up," it said.

It called for root-and-branch reform of the SOE's – the redoubts of vested interests and the patronage machines of party bosses – with an assault on "zombie companies". Local governments were ordered to abandon their illusions and accept the inevitable slide in tax revenues, and the equally inevitable rise in unemployment.

If China does not bite the bullet now, the costs will be "much higher" in the future. "China's economic performance will not be U-shaped and definitely not V-shaped. It will be L-shaped," said the text. We have been warned.

The article also describes how China put its foot on the accelerator in recent quarters, so if this article represents a policy change, it would be a real gear shift:

The latest stop-go credit cycle began in mid-2015 and has since accelerated to an epic blow-off, with the M1 money supply now growing at 22.9pc, by the fastest pace since the post-Lehman blitz.

Wei Yao from Societe Generale estimates that total loans rose by $1.15 trillion in the first quarter, equivalent to 46pc of quarterly GDP. "This looks like an old-styled credit-backed investment-driven recovery, which bears an uncanny resemblance to the beginning of the 'four trillion stimulus' package in 2009. The consequence of that stimulus was inflation, asset bubbles and excess capacity," she said.

House sales rose 60pc in April, despite curbs to cool the bubble. New starts were up 26pc. Prices jumped 63pc in Shenzhen, 34pc in Shanghai, 20pc in Beijing, and 18pc in Hefei. Panic buying is spreading to the smaller Tier 3 and 4 cities with the greatest glut.

There is still some fiscal spending in the pipeline, so the robust times will continue at least through the summer. But liquidity is already starting to dry up despite all the money creation as investors are getting more and more evidence that the government will not rescue wealth management products (which are often invested in real estate projects sponsored by local government entities) or the bond issues of state owned enterprises (SOEs). Again from AEP's report :

Moody's warned this month that China's state-owned entities (SOEs) have alone racked up debts of 115pc of GDP, and a fifth may require restructuring. The defaults are already spreading up the ladder from local SOE's to the bigger state behemoths, once thought – wrongly – to have a sovereign guarantee…

The rot in the country's $7.7 trillion bond markets is metastasizing. Bo Zhuang from Trusted Sources said more than 100 firms cancelled or delayed bond issues in April due to widening credit spreads…

Ten companies have defaulted this year, with the shipbuilder Evergreen, Nanjing Yurun Foods, and the solar group Yingli Green Energy all in trouble this month. But what has really spooked markets is the suspension of nine bonds issued by the AA+ rated China Railways Materials, the first of the big central SOE's to signal default. "This has greatly weakened investors' long-standing expectation of implicit government support," he said.

Bo Zhuang said investors have poured money into bonds in the latest frenzy. The stock of corporate bonds has jumped by 78pc to $2.3 trillion over the last year. It is the epicentre of leverage through short-term 'repo' transactions, and it is now coming unstuck.

Financial crises are always ultimately credit crises. Even when the proximate cause seems to be a stock market crash, the amount of damage done depends on how much leveraged speculation took place and how that affects critical lending and payment systems. Even though Japan's payment system was never at risk in the implosion of its colossal credit bubble, its banks and economy have been in a zombie state for a full quarter century. Japan's massive bubble took place through a mere 11 massive "city banks" and another three "long term credit banks". By contrast, China has a large shadow banking system. Just like our officialdom in 2007 and 2008, it's very unlikely that they have a good grasp of the extent and the interconnectedness of the risks. They may find out very soon.

I urge you to read Ambrose Evans-Pritchard's important article in full . Even with my extensive excerpts, there's a lot more unsettling information to ponder. PlutoniumKun , May 19, 2016 at 9:55 am

There is no evidence that cement is being stockpiled to my knowledge – its all being poured. The problem is that the construction projects just don't have a productive return any more.

However, there is a serious point to be made about concrete in China – it is generally low quality. This is ok for regular engineering, but for specialist needs, such as High Speed Rail, it seriously reduces the life span of the structure. I can't find a link to it now, but a few years ago an engineering journal was estimating that Chinas High Speed Rail network would have to reduce its speed limits by several mpg per year as the structures were degrading very rapidly. It estimated that in 20 years the HSR network would be no faster than a conventional railway network.

Minnie Mouse , May 19, 2016 at 10:43 am

Remember the shoddy construction in schools – earthquake collapse. Then there is the bubble in unoccupied "ghost cities" that go on forever.

David , May 19, 2016 at 9:35 am

Our imports from China fell big last month and the department stores that sell the junk are gone down even faster so if we lost half or 200 billion of their junk I an not sure it would be missed or replaced. I do think that this China implosion is important. I have some questions. China has a pork shortage and owns Smithfield but is not importing. Why?

Why did Xi burst the bubble. I had suspected the smog and pollution have done more damage in death and disability than admitted. I wonder if the population is even in decline not just the labor force.

Please keep covering whatever it is that is going on in China.

jsn , May 19, 2016 at 9:40 am

If China is suddenly officially ready to countenance a huge rise in unemployment, one presumes they have some plan to socialize the pain, to take care of the population.

If this is true, what's in store may be something like IIRC Lambert proposed in comments the other day: nationalize the financial institution, file the Chinese equivalent of RICO charges, impound the wealth and tie the former elite up in jail/litigation for the next decade.

I'm a hopeless optimist…

TheCatSaid , May 19, 2016 at 9:54 am

"impound the wealth" –including all the wealth offshore? including the wealth Chinese oligarchs have invested in foreign real estate? Are Chinese oligarchs any more likely to go against their own class than Western oligarchs?

PlutoniumKun , May 19, 2016 at 10:08 am

I missed that Telegraph article – it really is quite alarming. I have to say though that anecdotally, my Chinese friends are no more pessimistic than usual, so I don't think that ordinary Chinese are feeling worried yet – property prices are still going up, which is reassuring to most middle class there, and there is no evidence I've heard of any panic in the various 'informal' or shadow investing markets (lots of Chinese run what amount to unofficial banks, borrowing and investing on behalf of friends).

As one Chinese friend put it to me 'everyone in my town owes more money than they have to everyone else'. I've always suspected its the informal/shadow system that would show stress before the formal system. The only thing I do know is that a friend of mine who runs a business helping Chinese people move to Europe using 'investment' visas has found more and more people of very modest means attempting to do it – its not just the rich who are buying properties.

The usually reliable Michael Pettis also seems his usual gently bullish, but steady self, I'd expect him to write something if there was something nasty growing.

AEP suggests that Xi may not be the firm hand on the tiller that everyone assumes – his overt confidence may well be a front for some very confused ideas. I think there is increasing evidence that this may be the case. For all the sound and fury, there is little real evidence of reform from within. But I think the safe bet is that the CCP has enough of a firm hand that they can prevent an outright crash – much more likely is the sort of crippling slow motion collapse that we saw in Japan a quarter of a century ago. But the longer they insist on shovelling fuel on to the fire, the less likely that happens. As Pettis constantly points out, economists consistently underestimate the speed and severity of crashes.

vidimi , May 19, 2016 at 10:28 am

let's try to imagine the global impact of a Chinese implosion.

as china is the main source of global export demand, if they hit a brick wall it would devastate all but the most diversified or isolated economies. from Australia to Zaire, the impact would be devastating to employment.

Given the huge amount of foreign investment in china and how much it is likely leveraged, the global financial system will collapse again triggering the collapse of many states. proposals of bailouts would be likely met with violent resistance, even revolution. far right politicians would seize power and, where they haven't been politically neutered, maybe some leftists would, too. were it to happen before november, we could welcome into office president trump in january.

domestically, Chinese job losses would be enormous causing mass discontent and protests. indeed, the only thing to do with legions of disgruntled, unemployed, unmarried men would be to draft them into the army. but so much fodder requires cannons, and so, the likelihood of war would be very high.

it's interesting to think about.

[May 20, 2016] As we moved closer to il deficit, suddenly, an extra outage will cause meaningful rallies instead of being mostly written off

I remember looking back on the IEA's 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious.
Notable quotes:
"... Eventually market sentiment focused on the recency bias of a 2 year glut is going to shift into the realization that disruptions, depletion, and growing demand have thrown the global balance into a dearth where inventories are being drawn to meet demand – such as the news about Saudi's relying on inventory to meet demand, the "missing" 800,000,000 barrels of OECD inventory from Q1 2016, or next weeks inevitable U.S. inventory draw. ..."
"... Suddenly, an extra outage (like… say… if anything happens to Venezuela) will cause meaningful rallies instead of being mostly written off. ..."
"... The best, live, interactive charts I am most fond of are here: https://www.dailyfx.com/crude-oil ..."
"... I expect one last fight around $50, a few day consolidation move lower. Then market realities will push WTI past $50, and shorts will have to cover pushing it even higher. ..."
"... Next thing you know were range bound in the mid-$50s at the end of June as everyone questions if shale production will magically skyrocket overnight. Maybe the rig count will go up by 3 or 4, and it'll spark a sell-off back to or below $50 because of the psychological recency bias of a "repeat of 2015". ..."
"... I remember looking back on the IEA's 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious. ..."
"... Most people are simply incapable of seeing a bigger picture, and they'll simply never understand the relationship between depletion, economic and population growth, and the long-term fact that this equals higher prices (and probably also, in the long run, higher poverty and unemployment). ..."
"... It is for that exact same reason that so many people we know will simply never get it. Physics doesn't have agency, it cannot be avoided, cajoled, or "blamed". It simply is, and that is so unsettling to our psyche that most people have a strong, unconscious drive to negate and ignore that conclusion even if they will acknowledge it is a sound and true explanation of how economics, growth, employment, wealth, energy (physics and thermodynamics), and depletion are woven of the same fabric. ..."
"... Brian – I think you are closer to reality than EIA or USGS, it will be interesting to see how it plays out against your scenario. ..."
"... There doesn't necessarily have to be more social breakdown in Venezuela to have an impact – Haliburton and Schlumberger are pulling out and will have immediate effect as the extra heavy oil production needs continuous attention to the wells. I'm surprised Angola and Algeria haven't seen disruptions yet either. ..."
peakoilbarrel.com

Brian Rose , 05/19/2016 at 11:04 pm

Big news from Canada today:

http://www.reuters.com/article/us-canada-wildfire-idUSKCN0YA0Z1

"The joint-venture Syncrude project told customers to expect no further crude shipments for May, trading sources said on Thursday, extending a force majeure on crude production from earlier in the month."

Eventually market sentiment focused on the recency bias of a 2 year glut is going to shift into the realization that disruptions, depletion, and growing demand have thrown the global balance into a dearth where inventories are being drawn to meet demand – such as the news about Saudi's relying on inventory to meet demand, the "missing" 800,000,000 barrels of OECD inventory from Q1 2016, or next weeks inevitable U.S. inventory draw.

Suddenly, an extra outage (like… say… if anything happens to Venezuela) will cause meaningful rallies instead of being mostly written off.

In fact, judging by the price action on oil over the last 24 hours, I'd say that sentiment is very close to a shift. From 11 AM forward crude oil marched higher relentlessly, even in opposition to dollar strength. Most every single commodity was down, as we're most every stock market… except oil.

The best, live, interactive charts I am most fond of are here: https://www.dailyfx.com/crude-oil

I expect one last fight around $50, a few day consolidation move lower. Then market realities will push WTI past $50, and shorts will have to cover pushing it even higher.

Next thing you know were range bound in the mid-$50s at the end of June as everyone questions if shale production will magically skyrocket overnight. Maybe the rig count will go up by 3 or 4, and it'll spark a sell-off back to or below $50 because of the psychological recency bias of a "repeat of 2015".

That is, until rational minds, or the market itself pushes prices back up as it becomes obvious that a slowdown in U.S. production declines will mean little in the face of mounting production declines around the globe, and "surprisingly" strong demand – because apparently predicting that lower prices will cause stronger than average demand growth is beyond the economic capability of the EIA or IEA, and markets tend to take their word as gospel.

I remember looking back on the IEA's 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious.

Every step of the way analysts and talking heads will be confused that prices aren't dropping back to $30 just like they were for 5 straight years from 2003 to 2008. They'll predict Saudi's will raise production to 12 mbpd any day now, or that shale will magically take off overnight.

They'll never even realize that they don't understand the history of Saudi production, or the logistical and financial complexities of shale production rising as fast as it did before. Instead they'll blame the banks, or speculators, or Big Oil for artificially making oil prices rise (without questioning why they let them fall for 2 years in the first place)

But then again if gas is cheap, which average people are fond of, their brain says "I like this, so it must be right". If gas is expensive their brain says "I don't like this, it must be wrong, what evil force made this happen?!?"

Most people are simply incapable of seeing a bigger picture, and they'll simply never understand the relationship between depletion, economic and population growth, and the long-term fact that this equals higher prices (and probably also, in the long run, higher poverty and unemployment).

Their lives will have ups and down, growth and recession, but they'll know and feel it is generally getting harder. They'll never be aware that this is the "fault" of nothing but physics and thermodynamics, even if told directly and shown all the rather clear evidence (I know every one of you has experienced this as I have). Instead, they'll blame those dang immigrants, or the Chinese, or the Congress, or regulations.

They'll blame anything that fits their paradigm enough to allow cohesiveness so their fragile lives can at least MAKE SENSE. You can't blame physics, and, frankly, I think that is a large psychological barrier for people comprehending what is happening. We need to have some agent to blame for things, and physics has no agency. Blaming something for a problem is settling because it gives us something to focus on to solve the problem, or, at the very least, avoid it. The evolutionarily beneficial need to assign agents as the cause of events is what pre-disposes us to believing that events we cannot easily assign agency to are, nonetheless, the will of… a greater, invisible, omnipresent agent.

It is for that exact same reason that so many people we know will simply never get it. Physics doesn't have agency, it cannot be avoided, cajoled, or "blamed". It simply is, and that is so unsettling to our psyche that most people have a strong, unconscious drive to negate and ignore that conclusion even if they will acknowledge it is a sound and true explanation of how economics, growth, employment, wealth, energy (physics and thermodynamics), and depletion are woven of the same fabric.

George Kaplan , 05/20/2016 at 1:36 am
Brian – I think you are closer to reality than EIA or USGS, it will be interesting to see how it plays out against your scenario.

A couple of other impacts are summer maintenance season in North Sea (Buzzard and, I think, Ekofisk have major turnarounds), Alaska and Canada (maybe Russia as well) and increased