Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on March 15, 2015
The US is producing oil that has nowhere to go
Former Fed Chair Alan Greenspan appeared on Bloomberg TV Friday to talk about the oil market.
Specifically, he zeroed in on the problem going on in the US market: basically, production hasn’t dropped like people expected it to, and it’s largely illegal to export American crude, so all of the excess oil is building up in storage.
Because of those things, Greenspan thinks that the price of WTI crude, the US benchmark for oil prices, is going to keep going lower.
Here’s what Greenspan said:
If you look at the data, as you just pointed out, our major domestic facility is in Cushing, Oklahoma, which is delivery point for West Texas Intermediate crude contracts. We are at the point now where, at the current rate of fill, we’re going to run out of room in Cushing by next month.
And then the question is — where does the crude go? Because everyone’s forecast as to what was going to happen when prices collapsed was a sharp curtailment in shale oil production. That has not happened. The weekly figures, which are produced by the Energy Inter-Nation (sic) Agency through March the 6, show a continued rise in domestic crude production and it has got no place to go, because we can’t legally export the way we would for most products. We can do a little exporting and Canada, but essentially, we’re bottling up a huge amount of crude oil in the United States.
So that the West Texas Intermediate price is running $10 a barrel on the Brent crude, which is the global price. And that basically means that we are creating great abnormalities in the system. And unless and until we find a way to get out of this dilemma, prices will continue to ease because there’s no place for that oil to go except for into the markets. And spot crudes are especially vulnerable because of so-called contango is a very high level, and that implies that there’s a very, very significant set of pressures on the spot price.
So, the US either needs to produce less or figure out a way to export oil.
20 Comments on "The US is producing oil that has nowhere to go"
penury on Sun, 15th Mar 2015 4:29 pm
I have a predicament. Who do I believe Rock,am who I have read for years and found to be knowledgeable and trustworthy or Alan Greenspan who is famous for being the incomprehensible head of the Fed? Reality or fantasy, which do I choose?
Bandits on Sun, 15th Mar 2015 5:08 pm
Export $100 a barrel oil and import $50 a barrel oil. That sounds like a completely feasible and worthwhile plan to me.
Northwest Resident on Sun, 15th Mar 2015 5:23 pm
Let’s pretend for a moment that Obama issues an executive order that enables unrestricted export of “crude” produced in the USA.
OK. Problem solved. Now, what countries around the world are just chomping at the bit to get that fracked “crude”. What countries around the world have refineries that are capable of refining that fracked “crude” into something that can actually be used? And, assuming that there are a few or more of those refineries in the world someplace, how much are they going to have to pay for America’s fracked “crude”, including transportation, and how much of a profit are they going to make by refining that “crude”?
My guess is that NOBODY wants that “crude” that is going into storage, because they can’t refine it, there isn’t enough usable energy in it, they can’t make a profit with it — or all the above.
The whole shale revolution was a manufactured economic play meant to keep the wheels of BAU turning for a little while longer. The average barrel of fracked crude doesn’t contain enough energy to drive its own production, and it doesn’t have enough energy to make it a sought-after export commodity. So why all the desperate pleas to let oil companies export the stuff? Good question — but there’s probably a lot more to it than the stated reasons.
TemplarMyst on Sun, 15th Mar 2015 8:30 pm
Rock and NWR,
I asked this once a bit back, and wasn’t quite sure I grokked it then, so figured I’d ask again.
Who actually does buy the fracked stuff? How does it get refined and by whom?
It seems it ain’t worth a whole lot, but it also seems somebody is buying the stuff.
Daniel A Asian on Sun, 15th Mar 2015 8:44 pm
I just have a question why can the US government to ask Saudi Arabia Government to build a refinery complex in America and the money that earned from that oil production the Saudi Arabia Government will get 15% commission.
Bandits on Sun, 15th Mar 2015 8:54 pm
They got away with the spot price for years, bundling crap into the quality basket. Everyone benefitted it seems.
Demand is a fickle thing though………very hard to force demand. It now appears the market has slipped from the grasp of the sellers. It’s a buyers market and the buyers ain’t having none of that overpriced cheap shit.
Kevin Cobley on Sun, 15th Mar 2015 9:26 pm
The US imports 8mbpd, it’s quite clear that all that has to be done is to reduce imports, Greenspan’s obviously nuts trying to spin the “US is self sufficient lie”.
Plantagenet on Sun, 15th Mar 2015 10:45 pm
As events of the last few months have shown, the US does’t have to export oil to create a global oil glut. All the US has to do is produce enough shale oil to displace millions of barrels of oil that used to be imported into the US but now are no longer needed.
Makati1 on Sun, 15th Mar 2015 11:18 pm
But, Plantegenet, the UFSA cannot produce enough NET oil ENERGY to overcome it’s need for real petroleum energy from outside.
You can use LARD (pig fat) energy at ~2,500,000 kj of energy per pound
or …
You can use CORN at ~10,000 kj per pound…
To do work.
Both are portable, and consumable but you would need over 1,000 pounds of corn to equal 1 pound of lard for the same amount of work done. 1,000 bbls of frak liquid to get the NET energy of 1 bbl of light sweet crude.
Or is this a bad analogy? Sometimes putting an idea into words it not easy…
http://wholefoodcatalog.info/nutrient/energy%28kj%29/foods/
Poordogabone on Sun, 15th Mar 2015 11:35 pm
“The US imports 8mbpd, it’s quite clear that all that has to be done is to reduce imports”- Kevin Cobley
From what I understand, Refineries in the US are not set up to refine all of that tight light oil that we extract. We still need to import heavier crude to serve those refineries.
gdubya on Mon, 16th Mar 2015 12:15 am
Genuine question – the fracking boom is a decade old. The production volume is significant. There is a limited overseas market that cannot be legally used.
So why has nobody retooled a refinery? Yeah, yeah, it’s expensive. But you get access to an ‘unlimited’ market for stuff nobody else wants.
My gut feeling is that the long term outlook is that the supply is constrained – it is not worth redoing a refinery for feedstock that has a limited life (which contradicts the public ‘shale boom’ mantra).
Northwest Resident on Mon, 16th Mar 2015 1:37 am
“…millions of barrels of oil that used to be imported into the US but now are no longer needed.”
Looking at EIA per-month imports for 2014, I see a small decreasing trend in imports toward the end of the year as Plant’s precious “oil” glut began to really take off.
Since the oil industry itself is a major consumer of imported oil (they certainly can’t use fracked oil to power their operations), and since the oil industry in America started idling rigs and lots of them toward the end of the year, that alone could explain the small decrease in imports. Worsening economy, less demand, could easily explain the rest.
The assertion that America is “displacing” imported oil with shale “oil glut” oil does not appear to be correct. Considering the source, it is almost certainly not correct.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTNTUS2&f=M
zoidberg on Mon, 16th Mar 2015 9:08 am
the eroi on fracked oil isn’t negative. And the oil produced has a very high energy content that’s why it’s caused some explosions being transported on rail. I dont think its a impossible problem to retool refineries to refine it.
No the problem isn’t the oil it’s the demand and bitterly contested market share. Dumping American oil worldwide will make some American allies squeal. That’s the problem.
Northwest Resident on Mon, 16th Mar 2015 9:30 am
zoidberg said: “the eroi on fracked oil isn’t negative”
Then why is the shale/fracking industry so deeply in debt? Why can’t they turn a profit? Why has that industry been exposed by multiple sources as a total scam? Why did (and do) industry insiders including engineers and financial experts working in the shale/fracking industry express in emails and other internal communications their serious doubts and outright disbeliefs in the financial/energy viability of the projects they were working on (NY Times internal emails and documents published)? I think you need to get a little more information on this subject, zoidberg. BTW, just because something contains enough energy to blow up doesn’t make it a good source of transportation fuel. And you’re right, retooling refineries to refine that fracked oil isn’t impossible — just cost prohibitive and not worth the effort.
zoidberg on Mon, 16th Mar 2015 9:51 am
The heavier stuff is the poor quality oil. In the beginning of the oil industry its was the light stuff at the top that came poring out and ignited the amazing 20th century.
Having said the eroi while not negative isn’t high enough to support 20th century excess because of the additional inputs.
And some projects are probably unfeasible too, but it doesn’t seem to be high enough to dent growth evidently.
No the financial shenanigans are a result of the fraud being committed on the foundation of oil production. The same sort of fraud that other financial bubbles share, ie selling the same thing multiple times. how they do it is ddifferent every time but the end result is the same.
But maybe a few uneconomic projects were done based on the tidal wave of money thrown at it, but the basic premise was sound even if the debt peddlers pushed it to an extreme.
And will continue to be so after this crash. fracked oil will continue to be produced for decades.the fraud was largely in the financial manipulation realm. The base oil produced for the derivative formations will continue to exist as a part of our energy structure.
viewcrafters on Mon, 16th Mar 2015 12:07 pm
I wonder how much they can fit into Carlsbad Caverns.
viewcrafters
viewcrafters on Mon, 16th Mar 2015 12:12 pm
Only in science fiction movies.
synapsid on Mon, 16th Mar 2015 9:29 pm
Poordogabone,
Yep.
Kenz300 on Tue, 17th Mar 2015 11:32 am
High cost oil production still has to compete with low cost oil……
BobInget on Tue, 17th Mar 2015 11:59 am
We imported six to seven million barrels last year, we will continue to import six to seven million next.
Sure, it’s counter intuitive, why keep importing oil (at below cost of production)
when supposedly we have this giant glut?
Some here say shale oil, AKA ‘tight’ oil is too heavy, others claim ”it’s too light”.
http://fuelfix.com/blog/2014/10/02/refiners-we-can-take-all-your-oil/
I’ll just say, it’s too impermanent.
LT contracts, commitments, that need to be honored. Turn off any supplier and he looks for new customers for his crude.
China or India, for instance, with Billions
people under age are more then willing to sign up at current prices.
Then, there is pesky geography.
Some oil imported is more suitable for
distant refineries and consumers.
Lots, I’m not sure how much exactly, is reexported as refined products.
It varies week to week:
http://www.eia.gov/petroleum/supply/weekly/
Don’t be confused. The low prices we are experiencing, cannot, under any circumstances, go on much longer.
If you are still harboring that stale notion of
over-capacity, put it to rest. If the world were experiencing a 1.4 million barrel surplus, ingloriously called “glut” our difficulties would have been over in December 2014.
Libya is again producing 450,000 barrels p/d.
Libya needs as much domestically just to
kill each other. Did I mention six oil wars?
Fact: The US imports no oil from Nigeria.
Light oil from Nigeria was priced away by shale produced in USA. (translation, counting transportation, shale is cheaper)
Here’s the real killer O.J. has been looking for: Venezuela. Venezuela was having economic problems @ $100 oil. At $50 China stepped up to the plate and bought up SIXTY billion dollars advance oil deliveries.
The most denied FACT since Climate Change, will cripple US imports as shale quickly ‘goes away’. Tight oil would have lasted longer at $100 with non stop drilling. Musical chair removal (plummeting rig counts) will leave US almost entirely dependent on
Saudi Arabia and Canada.
Investors won’t return after Q 1 returns are counted. Gas OTOH will, because of oil shortages, go higher.