Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on June 11, 2014
Cheap Oil is Gone Forever
Sixty years ago, a man stood in front of a crowd that had gathered at a small hotel in San Antonio.
Minutes before approaching the podium, however, he was quietly ushered off the stage to take an urgent phone call. On the other end of the line was a PR rep for one of the largest oil companies in the world, begging him not to give his speech.
Luckily, Dr. Marion King Hubbert wasn’t persuaded. He went on to deliver what was arguably the most important oil prediction since Edwin Drake first drilled a hole into the Pennsylvanian soil in search of salt brine.
Essentially, Dr. Hubbert believed there would be a point in time when oil production in the U.S. would peak and begin to decline.
Even though his work became the basis for the peak oil theory, far too many people haven’t realized that this isn’t a theory — it’s a fact.
Look, every oil field in history follows a similar life cycle. Nobody should be questioning whether or not production will eventually peak, just the timing.
I know what some of you might be thinking… “But we’re in the middle of an oil boom! How can you say we’re running out of oil?”
I can’t tell you how many times I’ve heard that line in the past. Unfortunately, the concern has never been over how much oil is left underground. Trust me, dear reader, there will be oil in the ground long after we’re dust in the wind.
In reality, peak oil is about the rate at which we can produce that oil.
And before you dismiss peak oil as hogwash altogether, just consider exactly how much slack we have to pick up from decades of declining production…
The Cost of Our Oil Boom
Don’t get me wrong; I’m certainly not ready give up on the tight oil plays that contributed 3.22 million barrels per day to U.S. output at the end of 2013. If you haven’t yet realized how important this oil is to our future supply, this picture is worth a thousand words:
But let’s take a second to look at why a resurgence in U.S. oil production is even more valuable than you can possibly imagine.
You see, there’s another sobering fact we’re all going to have to come to terms with very soon: cheap oil is gone forever.
We definitely can’t lump new production in with the high quality crude of the past, either. Below, you’ll see that the world’s crude oil supply is of poorer quality.
Click Image to Enlarge
Much of tomorrow’s oil isn’t of the light, sweet variety craved by refiners.
That’s a stark contrast to the new oil supply coming on-line in the United States. Between 2011 and 2013, approximately 96% of the growth in oil production inside the U.S. — roughly 1.8 million barrels per day — has been a light, sweet grade with an API gravity of 40 degrees or higher and a sulfur content of 0.3% or less.
Perhaps even more disconcerting, however, is that the tomorrow’s oil will come at a hefty price. Sadly, the days of drilling a vertical well into the ground and coming up with a gusher are long past.
Last week, I noted that the International Energy Agency recently concluded that the world needs to invest $40 trillion between now and 2035 to meet its projected growth in energy demand. An additional $8 trillion will have to be spent on energy efficiency.
Yet there’s an even more ominous statistic buried in the IEA’s report: the lion’s share of that $40 trillion will be needed to offset declining production from existing oil and gas fields.
That’s a considerable obstacle no matter how you look at it.
It’s also placing a huge value on one specific group of oil drillers…
Bet on the Best
One of the major issues with developing tight oil plays like the Bakken play in North Dakota is the steep price tag that comes with these wells. Today, it’s not so much how much oil you have, but whether you can economically extract that crude.
So where do you look first?
Well, the Energy Information Administration already tipped us off to the technology that’s taking the shale revolution by storm:
You see, there’s a fundamental transition taking place in the way companies are developing our massive tight oil plays. And the technique pictured above is quickly becoming the single most important drilling strategy, delivering incredible value for individual investors like us.
I’ve said it before, and I’ll say it again… the next stage in our tight oil and gas boom won’t come from discovery — it’ll come by way of technology.
Until next time,
Keith Kohl
24 Comments on "Cheap Oil is Gone Forever"
Pops on Wed, 11th Jun 2014 7:18 am
The interesting thing about that chart is how production from all regions levels off and stays flat into the foreseeable future.
Sounds like the equation used includes the [insert miracle here] “Energy Fairy Quotient.”
rockman on Wed, 11th Jun 2014 8:18 am
Pops – True Pops. But let’s first start off that the chart has no credibility. First, as I’ve pointed out before, not once have I seen anyone predicting any sort of future unconventional oil production (positive or negative spin) show a map with all those drill sites spotted on it. If there isn’t a geologic basis for drilling a well there’s no circle on the map for that potential well. And no circle on the map: it don’t get drilled. And, more important, even if there’s a geologic basis for drilling a well it won’t happen and that production won’t be added unless the economics work. And the economics only work at a specific price level.
So if one wants to give any credibility to that chart they first have to believe the geology has been accurately mapped and that one can accurately predict the future economic value of those undrilled prospects. And that means one has to accurately predict oil prices thru 2040.
All those who think anyone can accurately predict oil price between 2030 and 2040 raise your hands. I thought so. LOL.
bob on Wed, 11th Jun 2014 9:16 am
Rockman, I like your thoughts on this subject….just because we have these little laptops we all think we are “experts” in energy production but the more I look at it the more I see that it is very multidimensional and very very variable…And while I truly believe in peak oil, I now know that no one has a crystal ball to see into the future….
bobinget on Wed, 11th Jun 2014 10:12 am
http://www.bbc.com/news/world-middle-east-27800319
Learning fast from European war tactics* Sunni Rebels are aiming to take control of Baghdad before anyone notices.
*US called it ‘Shock and Awe’
*Germans: Blitzkrieg…
J-Gav on Wed, 11th Jun 2014 11:28 am
“Cheap” is a relative term. If the economy tanks and takes down what’s left of most people’s buying power with it, it doesn’t matter if oil costs half what it does today – a lot more folks won’t be able to afford it.
Pops on Wed, 11th Jun 2014 1:03 pm
Of course no one has ever had a crystal ball and none of the little circles on the map of actual wells drilled was there before they were there, yet every day for one hundred years people have made decisions base on the assumption that they will be there.
Throwing up your hands and saying “who knows” and crashing forward without thought is like tying on a blindfold and taking a run along the rim of the Grand Canyon, each step is just like the last, until it isn’t.
bob on Wed, 11th Jun 2014 1:58 pm
Well Pops…there is not a lot the younger crowd can do and without knowing all possible outcomes you are just fooling yourself and others..you want to move to a farm and grow your own food go ahead but a semi collapse a government will take control and with a complete collapse millions will ravage your gardens….not to mention the nuclear destruction that will take place….
Northwest Resident on Wed, 11th Jun 2014 2:01 pm
bob — The only way millions would ravage my garden is if they have gasoline to drive to where I live, which, they probably will not have in the scenario you’re talking about.
Davey on Wed, 11th Jun 2014 3:15 pm
Bob, do you buy insurance? Why not purchase some collapse insurance so to speak. Take 2% of you gross income and invest in items that can help see you through a crisis. Invest in a little personal education and planning. It is nothing more than risk management. Folks like you with your attitude tend to have no plan and are not interested in a plan hence the criticism and or cognative dissonance.
Pops on Wed, 11th Jun 2014 3:49 pm
Bob, you have a bad case of a bifurcated straman there, is growing a garden or not a choice you get up every morning and face?
More to the point, do you make all your plans and decisions based on the probability that millions of starving US refugees will be pillaging the countryside after they pillage the cities and suburbs and towns? Do you expect a takeover of a totalitarian government – not to mention nuclear destruction? Crimminey, I thought I was pessimistic, you must have a full bunker, amigo.
And if not, why not for pete’s sake? I’d be terrified if I were you.
I said nothing about a garden, let alone a farm. In fact, in 13-something thousand post on this site I’ve never suggested that’s what folks should do, and have in fact pointed out many times that running off to the hills would be a very poor choice for the vast majority of people.
Surprisingly people make decisions all the time about the future, about where to live, what to buy, how much to be in debt or save, what kind of transportation they use or own, how efficient their “lives” are, etc, etc. It unrealistic to think that the world will freeze in this very condition forever – in fact to think things won’t change over time is pretty shortsighted.
Open your mind, things change constantly, prepare for anything – including nothing.
bob on Wed, 11th Jun 2014 5:41 pm
I’m sorry Pops but collapse is inevitable…we have exceeded carrying capacity by a lot….Gail has outlined it all out in her blog “our finite world”….Without cheap easy energy we are in a whole heap of trouble and that is an understatement….systems will start to break down very soon..in fact they are already….would love to be wrong but if you run the numbers you will see….
bob on Wed, 11th Jun 2014 6:37 pm
Davey in a collapse scenario how do you think they are going to keep all of the nuclear reactors from overheating and melting down……And Northwest are you really sustainable can you grow “all” your own food? There is no cognitive dissonance on my part…maybe you don’t understand what cognitive dissonance is… look it up….if there is a collapse in society everything will break down…..but hey don’t let me stop you….Like I said a slow collapse and the will strip you fields a fast collapse will be a nuclear holocaust….
Davy, Hermann, MO on Wed, 11th Jun 2014 7:02 pm
Bob, just not sure how you are so sure of yourself. People like you are usually off the mark because you are so sure of yourself. I may act like I am sure of what I am saying but I know the topics we are discussing are highly speculative and involve much theory. Real life is nonlinear and beyond the linear language we attempt to understand and describe it with. We “doomers” here generally are saying some risk management predatory investment, education, and work is a good insurance. The range of possibilities are great especially as you move out from your local in regards to contraction and or collapse. The complexity of what we are talking about here is too great to make predictions like you are making. Chill out a bit and accept those of us who have been at this for years. I went through a spell similar to what you are going through back in 2006. You are overreacting and being non-accommodating to those here who are offering advice. We want to be your friend not your adversary.
tstreet on Wed, 11th Jun 2014 7:15 pm
Test
Northwest Resident on Wed, 11th Jun 2014 8:58 pm
bob said: “…can you grow “all” your own food?”
Not yet, but I’m well on the way. This is my first year doing the grow your own food thing. From just going all out and putting in a concentrated effort, I got a lot of stuff planted — wheat, barley, hay for the meat rabbits, lots of corn, several types of beans, onions and tons of potatoes — and the usual mix of spices. I’ve made a lot of mistakes. I planted some of the crops too late, I didn’t prep the soil good enough in a number of the planters, I accidentally planted potatoes and wheat together in two of my prime location raised planters, I overwatered and under-fertilized, I failed to deal with the Western Scrub Brush Jay (about a dozen of them) that if I had read on Google about them I would have learned they are voracious destroyers of crops — and I learned that they like to dig up new seedlings of corn as they pop through the soil.
Despite all that, I have what look like a lot of excellent results in progress. But some of the wheat, all of the barley and all of the hay were just not planted in the right conditions and aren’t doing very well. I screwed up on the garlic too.
The laying hens are getting big and should start popping eggs out in another month or two, probably more than what we know to do with. Building rabbit cages and populating them is my next task. Once I learn how to grow grains and hay properly I should be able to feed my critters without having to depend on store-bought food.
Hey, I could go on and on. Am I self-sufficient yet. No. But on the way…
Makati1 on Wed, 11th Jun 2014 9:08 pm
bob, most seem to forget those 100+ pools full of death in the US that have to be kept cool for years, decades even. The energy necessary to do that may not, no, will not, be available when the SHTF. Those pumps wear out and fail. The controls fail. The humans in charge fail. But radiation knows no failure. It just goes on and on for thousands of years.
We have built our own death machine that cannot be stopped except by hundreds of men and the huge amounts of energy to manage the radiation for the foreseeable future. Add in the 300+ in other countries, all not able to be kept cool and safe, and what do you have? The end of most life on this planet over the next 100 years or so.
Then there are the thousands of nuclear weapons and nuclear munitions around the world. Now you need many thousands of people to control and prevent their use. No, we as a species are not likely to survive this century. By war or by lack of energy, we appear doomed. If you disagree, tell me how we will avoid this end? I’m interested.
clueless on Wed, 11th Jun 2014 10:24 pm
No Rebuttal for Makati1. LOL
Northwest Resident on Wed, 11th Jun 2014 11:25 pm
Makati1 — What are the chances that when TSHTF, they’ll just say screw it and dump all that nuclear waste in the Marianas Trench regardless of the consequences to the deep sea ecosystem?
I am sure that governments around the world with nuclear facilities and waste storage are making detailed plans to prevent nuclear disaster in any kind of situation. Some will succeed, some won’t, no doubt. One thing we do know about humans and that is, they desperately want to survive and live to old age. The people in charge of those nuclear facilities aren’t stupid. Let’s hope their efforts to prevent what you predict are successful.
rockman on Wed, 11th Jun 2014 11:53 pm
J-Gav – ““Cheap” is a relative term.” Actually it’s even more misleading then that IMHO. “Cheap” for who? Granted I started my career in 1975 after many of the big oil trends in the US reached a fairly mature stage of development. When oil was selling for less the $15/bbl in 1986 was it “cheap”? It certainly wasn’t cheap to the hundreds of millions on the planet that could afford oil at that price. Which is exactly why prices were so low: the condition of the global economy was so diminished that $15/bbl was too expensive for a large portion of the consuming market.
And today oil is routinely selling for $100/bbl. Is that cheap or expensive? One measure of how expensive any commodity is market demand/consumption IMHO. And where are we today in that regard: record levels of consumption. But can everyone afford $100 oil? Obviously not. OTOH when it was selling for $15 much of the world couldn’t afford it then either. How many old farts like me are here remember thinking gasoline was cheap in 1986? I certainly didn’t think it was considering my income had fallen by a huge percentage as I supplemented my meager oil patch income by delivering produce to restaurants. But today is gasoline cheap? Heck yeah…to me. I could pay twice the current rate not give it a second thought.
In fact I would have a second thought: it would be great because oil prices would be much higher and thus my income potential would be greater. LOL.
Davy, Hermann, MO on Thu, 12th Jun 2014 6:36 am
Good point Rock! I do feel the pinch when I fill my 1000gal diesel tank up on the farm but my car tank, no. I could pay double. I remember the early 90’s the best when gas hovered around $1. I had had my Hubbert education in mid 80’s with my geology electives in college so the thoughts were in my head about PO. Climate change was in my head from my ecology electives. In the early 90’s I just thought to myself maybe my kids will worry about this but I will be dead before it is a problem. Now we are here and it is ugly. Cheap and expensive are relative to individuals but in a macro sense we are at expensive. My feelings are considering the stress the global financial system is under a significant price rise is out of the question without the corresponding demand destruction from economic contraction. We know gas prices are a tax on discretionary spending. In today’s collapsing real economy outside of the 1%er’s world of Wall Street the real economy is in deflation of real assets on main street (houses) and inflation of food and other vitals for main street. With high unemployment and declining real wealth and income a further pressure on the vital energy front for main street will be a death rattle.
Pops on Thu, 12th Jun 2014 7:58 am
So Bob if I understand you correctly you think the world is going to pot but you are just gonna sit there because it is hopeless.
Good luck with that.
Davey on Thu, 12th Jun 2014 8:01 am
Pops, my thoughts exactly. I may be a doomer but not a defeatist. Bob is a defeatist and worse criticizes preppers like we are stupid.
BC on Fri, 13th Jun 2014 10:37 am
bob I agree with you collapse is coming but I don’t think it will be a mad max or postman collapse scenario some programs will be given priority soylent green collapse in my opinion is the way were heading prepping,hoarding items of value,getting out of debt,self-sufficiency is the way to go while theirs still time.it is coming down to survival of the fittest,the one percenters are aware of this
Davey on Fri, 13th Jun 2014 10:47 am
BC, the potential for mad max areas will be those areas the authorities choose to abandon in their triage strategy of having and holding high value areas. The remainder will be open country.