Peak Oil? A Chaotic Transition is in Process

31 Comments on "Peak Oil? A Chaotic Transition is in Process"

Jerry McManus on Wed, 22nd Feb 2017 11:50 am 



Wow, another one takes the cake for being utterly devoid of anything resembling a clue.

The economy is doing fine? People aren’t driving because they want to be “sustainable”?!?

Give me a fucking break! Try telling that to the millions of folks who are no longer “participating” in the labor force and are therefore not counted as unemployed.

People aren’t driving because the cannot afford to drive, not at any price. End of story.

The author needs to pull their head out of their prius, wake up, and smell the tent cities.

penury on Wed, 22nd Feb 2017 12:20 pm 



Another attempt to gloss over the facts and create a feel good article. Don’t you feel better now?

twocats on Wed, 22nd Feb 2017 12:26 pm 



“So gasoline consumption is down 8% year-on-year – to the surprise of the oil companies – normally the sign of a down economy – but by all measures the economy is doing fine.”

Demand up to October 2016 was at or near record highs. 2 or 3 months of data can’t possibly be attributed to such a mass movement as he’s describing. 8% down y-o-y?! well, its february and people are still depressed about trump and california is flooded. let’s give it a few more months before declaring an end to industrial civilization.

jjhman on Wed, 22nd Feb 2017 1:10 pm 



Looking at the EIA data back to ’92 I’d say that consumption took a big hit in 2008 and has a hard time recovering since then but is only about 8% down from the 2007 peak.

Whether the difference is due to alternative vehicles, economic suffering or sun spots: who knows?

I do see that the car companies are pumping out trucks and SUVs like there’s no tomorrow.

Apparently you can take the data and wrap it around any favored world view.

rockman on Wed, 22nd Feb 2017 2:44 pm 



Interesting that the author thinks the depletion of oil reserves and the difficulty in finding replacements is just now producing a “chaotic transition”. I guess he hasn’t been observing the dynamic for the last 40 years. More then enough periodic chaos in the Rockman’s world to drive the oil patch to numerous bouts of despare. LOL.

“…which are barely profitable at current prices…” Poorly worded IMHO. Wells being drilled today are generally profitable or they wouldn’t be drilled. Obviously not as many being drilled today as was happening 3+ years ago. But also understand many US shale wells drilled during the boom didn’t generate as good a ROR as some being drilled today.

Production from existing wells are generally producing nice positive cash flows because lifting costs are low compared to the price of oil. Which doesn’t mean all those wells produced a profit on the INITIAL investment. But even if a well never returns 100% of the investment doesn’t mean the current production isn’t generating an attractive net cash flow.

And refineries not making a profit? They always make a profit in the long run. They don’t pay a price for oil that causes them to lose money…which was a major factor in the oil price crash. Though not a hard rule but historically refineries made better profit margins during periods of low oil prices then during price spikes.

Folks can be confusing with terminology sometimes. For instance there really are no “oil companies” as some use the term. There are exploration companies, production companies, refining companies, fossil fuel transportation companies and product retail marketing companies. Some major integrated companies play in a combination of such arenas while others hold a single position. Thanks to the oil price crash and the huge/unsustainable debt load some production companies are doing great today by buying proved producing oil reserves from crippled exploration companies. Just as some refineries are doing great by buying at big discount rates from producing companies desperate for cash flow.

Which brings us full circle was again to the POD. There are always going to be winners and losers that periodically swap positions to some degree.

shortonoil on Wed, 22nd Feb 2017 3:38 pm 



Even though we expect a crisis to evolve in the industry as a result of finished product inventories in 2017 it is not for the same reasons that are listed by the author of this article. You can see in the EIA graph below that gasoline inventories have been on an upward trajectory since October 2014 when they started off from about their 200 mb low point. That, in itself however, is insufficient evidence to establish a trend. There is just not sufficient enough data at this point from the inventory figures alone to build a confidence interval with a high enough probably to make a reliable call.

That could easily change over the next few months, but for now the results are not conclusive by viewing the situation from just the inventory figures.

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WGTSTUS1&f=W

http://www.thehillsgroup.org/

Plantagenet on Wed, 22nd Feb 2017 5:18 pm 



If peak oil means a glut in oil and cheap gasoline prices then peak oil is turning out to be not as bad as many predicted–in fact so far its pretty good.

Cheers!

Northwest Resident on Wed, 22nd Feb 2017 5:25 pm 



On a global basis, I don’t think there is any doubt but that the oil industry is in total chaos. And chaos in the energy producing industry generates economic chaos, and economic chaos generates chaos in the social/political sphere. We see it everywhere. There are many places in the world where oil/energy related chaos is intense — think Venezuela, Syria, Nigeria, etc. And other places where the chaos is more low key, for now, but building toward an eventual climax. We can nitpick this author’s opinions and assertions, sure, but he’s still making a very good point. We ARE in a chaotic transition — transitioning from the age of oil to a world where the oil/energy just won’t be there to provide the billions of energy slaves that we’ve been depending on to get things done. What that rapidly approaching world will be like is nothing like what we have been accustomed to.

rockman on Wed, 22nd Feb 2017 9:15 pm 



NR – Not necessarily disagreeing with your tone. But: “…transitioning from the age of oil to a world where the oil/energy just won’t be there to provide the billions of energy slaves…”. That condition has existed since the beginning of the oil age: billions have never had the energy needed just as there are billions in the same place today. The big eventual chaotic change with be for those new to that deficiency.

“What that rapidly approaching world will be like is nothing like what we have been accustomed to.” In the long term only time will tell. But the current “chaos” is just a milder version of that seen in the transition we saw from the late 70’s to mid 80’s. Today we are just experiencing is just another cycle.

What will be different in future cycles? As I said we can speculate all we want but we’ll just have to wait to see how it plays out.

rockman on Wed, 22nd Feb 2017 9:32 pm 



P – “…peak oil is turning out to be not as bad as many predicted – in fact so far its pretty good.” Exactly the point I keep pushing: the POD has great moments and horrible moments. And at the same time depending where you are in the food chain. LOL.

In a sense we can call climate change the “CCD”…Climate Change Dynamic. For instance this afternoon I took my wife and dogs for a very pleasant walk in the woods: 80°F, bright blue sky without a cloud and the greatest blessing on the Texas coast…low humidity. Normally it should be 30° or 40° colder and nasty damp. So if this is climate change…have at it. LOL.

Of course just as in the case of high oil prices and a price collapse there are winners and losers. And they’ll also swap roles from time to time. The great weather I’ve had on the Texas coast all winter doesn’t disprove climate change any more the current record oil production doesn’t disprove the PO path we’re on.

Plantagenet on Thu, 23rd Feb 2017 12:01 am 



Yup. Its like that scene in THE MAGNIFICENT SEVEN where they’re talking about fall ing off a cliff and they say:

“So far so good.”

Cheers!

Northwest Resident on Thu, 23rd Feb 2017 1:37 am 



rockman — So, just another run-of-the-mill oil downturn cycle we’re seeing here, no big deal? Implying, of course, that there are plenty of reserves in the pipeline that once developed will restore the oil/energy industry back to magnificent profitability, with plenty left over to power the global economies and get industry and consumers humming again? I think not. It is true that all we have at this point is speculation, but speculation based on logical projections supported by solid data tend to make a lot of people anticipate a dramatically different world in the near term future. Thinking “end of growth” now, and the consequences that a shrinking global economy brings. We WILL have to wait and see, but probably not for long, and my strong impression is that this is the tail end of the age of oil, and what comes next will have a lot more to do with the lack of oil/energy than with the regular boom/bust cycles the oil industry has endured throughout its life.

peakyeast on Thu, 23rd Feb 2017 4:23 am 



The hope is that the oil industri will continue to experience its usually boom-bust cycles with only a little more bust than boom each time.

The fear is that we reach some non-linear effect to the downside. I.e. political turmoil or some kind of war.

I think it is too generous to call this a transition. It looks more like phasing out (oil) at this point in time. To me a transition means that something is replacing something else. I dont see that happening. The current installation speed/size of renewable power is only a tiny addition to the energy mix worldwide.

On the positive side renewables has outpaced nuclear energy in a fraction of the time. Nuclear power looks like a dead fish at this point in time.

With large changes to human behavior by implementing policies that pushes consumption to “fit” to the intermittend nature of renewable power we could ease the transition a lot.

I find that a healthy change from the “brute force” nature of our work/production habits developed during the extravagant era of plenty fossil fuels.

Cloggie on Thu, 23rd Feb 2017 4:48 am 



The transition is really happening and it will come in leaps and bounds and will last decades to complete, just like it took decades for the British to set up a coal and Americans to set up an oil economy.

https://cleantechnica.com/2017/02/22/renewables-grew-34-coal-9-india-2016/
Renewables Grew 34%, Coal 9% In India In 2016

Midnight Oil on Thu, 23rd Feb 2017 6:27 am 



Start to panic when the DOW reaches 50,000 and the National debt reaches 50 trillion and Barron Trump runs for President.
These article posts just kill me.

Davy on Thu, 23rd Feb 2017 6:48 am 



“Nuclear power looks like a dead fish at this point in time.” Peak, we better keep what we have running as long as we can because we already shit our nest and the spent fuel must be maintained. I wish Antius would elaborate on the spent fuel problem. This is my biggest worry in a civilizational decline and that is the 400 plus fuel ponds and growing across the globe that will go critical without much care.

peakyeast on Thu, 23rd Feb 2017 7:19 am 



@Davy: I agree with you.

I also agree with cloggie that renewables are growing.

I dont agree with the “leaps and bounds” when considering the transistion worldwide. But I suppose that is an opinion that depends on how optimistic one is.

I do agree that the transition will take decades if not longer.

The question is if we have the resources, the will to kill for renewable energy, and the time to do it.

“Renewables Grew 34%, Coal 9% In India In 2016”. Coal grows 9% from an already huge base – Coal consumption in india is positive huge. Renewables grow 34% from a tiny base.

Global mix:
http://www.euanmearns.com/wp-content/uploads/2016/06/bp2016primarypercent.png

rockman on Thu, 23rd Feb 2017 7:46 am 



NR – “So, just another run-of-the-mill oil downturn cycle we’re seeing here, no big deal?” I guess you’ve missed the point. Read me again: I didn’t say the current bust wasn’t a big deal: just that the early 80’s boom/bust was a much bigger deal then the current bust. Just like the bust in the late 90’s was a big deal when during Dec 1998 WTI fell to $11.35 per bbl. Maybe you weren’t watching the oil market back then.

The busts over the last 4 decades had the same basis: the POD. The only difference this time is that oil prices and drilling activity didn’t take quit as big a hit this boom/bust cycle as in the 80’s. And there will be another boom/bust sometime in the future…and again with the same cause: the POD. Will it be less or more dramatic as any in the past? No way to predict exactly. But increasing global demand with depletion will likely increase the volatility.

We have not entered a “new world”. It’s the same world the politicians/consumers continue deal with ineffectively IMHO.

rockman on Thu, 23rd Feb 2017 7:54 am 



peaky – “The fear is that we reach some non-linear effect to the downside. I.e. political turmoil or some kind of war.” You mean unlike the quiet stability we’ve experienced for the last 40 years? LOL. Perhaps unlike the vast majority here the Rockman has lived intimately with the POD since the 70’s and provides a very different perspective.

That’s the problem with all newbies…they’re new to the game. They should just listen to their elders. LOL.

rockman on Thu, 23rd Feb 2017 8:09 am 



peak – “Coal grows 9% from an already huge base – Coal consumption in india is positive huge. Renewables grow 34% from a tiny base.” Great point: the alt energy groupies (as is the Rockman) desperately brag about about %’s. Such as posting the % increase in EV’s while INTENTIONALLY ignoring other stats…like 98.5% of the 84 million vehicles sold last year were ICE’s. And those were added to the 1.2 BILLION existing ICE base.

indigo on Thu, 23rd Feb 2017 8:38 am 



Are there not two EROEI’s ?

A financial ($) EROEI,…. and
A thermodynamic (BTU) EROEI

Could it be possible that by creating the illusion of a financial viability within some oil companies, , we have masked the true threat.

How so.?
By printing imaginary QE cash, and pumping it into banks, it was possible to give the illusion that banks were financially stable, when we know that the very opposite is the reality.
So If QE cash is finding its way into investment in the oil industry, it is giving the illusion that certain [plays], of oil extraction are ($), profitable, when they are not.
An oil worker, whether on the rig, or in the CEO boardroom, only cares that the money is going into his salary account on a regular monthly basis. That their oil company, [as with the banks], might be being held up as financially sound with ‘pretend money’, is frankly of no concern to them.

Let me push this to its obvious conclusion. If we were to level with oil workers, and tell them that their particular field was operating at a (BTU) EROEI of say 3:1,… in other-words a pointless exercise as far as a 21st century society was concerned,… would they stop work.? The answer is NO.

The oil workers would simply say keep that ‘pretend QE cash’, going into my account every month, and I’ll happily burn through 1 barrel of oil, even if we only extract half a barrel in return. He’d say,..’I care about my salary account, not whether the job I’m doing has any material value to society’.

So effectively, by deluding ourselves [using $ EROEI], of a financial viability, by pumping ‘pretend money’ into oil extraction, we are masking the fact that the thermodynamic viability [BTU EROEI], is very likely already precariously below, what todays society needs to keep its civilization going.?

If so,..We’re not facing a collapse, so much as a Great Unraveling,.. one unfilled pot-hole, and one job loss at a time, because oil workers are being paid handsomely, with pretend cash, to extract at useless rates of,… 5:1,… 4:1,…. 3:1,…. 2:1 oil.?

peakyeast on Thu, 23rd Feb 2017 8:43 am 



@rock: Yes – Like the tranquility of the 1970s until today such as the peak of US oil and the Arabian oil crisis ;-).

It is, of course, relatively speaking. Here I am thinking about discontinuities that removes nations and large portions of the oil sector – so that there is an “empty” space left where numerous companies were operating before and none that can or dares to step in afterwards.

Davy on Thu, 23rd Feb 2017 8:59 am 



“Are there not two EROEI’s ?”
Great point and one that techno optimist and economist dismiss with the financial being a constant or energy being a constant. The reality is there is no difference in the end because humans live on an energy gradient in a finite world. Yet, within the decision making process humans must include both as well as cost benefits from scaling and timing. We must also start questioning the time value. We are gutting our civilization for short termism. We no longer have a simple economy with basic price discovery. We now have an adapted relative economy that deals with financial repression and extend and pretend of social malinvestment.

Northwest Resident on Thu, 23rd Feb 2017 12:29 pm 



rockman — RE your comment: “The only difference this time is that oil prices and drilling activity didn’t take quit as big a hit this boom/bust cycle as in the 80’s.”

One reason why, obviously, is that in the 80’s the central banks of the world were not flooding trillion$ in newly printed liquidity into “the market” to prop up asset prices, commodities/oil included. Huge difference. Without excessive debt to compensate for the mega-bust now occurring, the shale miracle would never have happened, the global economy would be a smoldering pile of trash and we would already be living in that “whatever comes after” world, if we were living at all. Excessive debt — pulling every drop of future consumption into the present — combined with all manner of financial fraud and trickery has done a superb job of holding off the inevitable, but that game is just about played out. There may be a mini “boom” or two for the oil industry at some point in the future, but if so it will be an insignificant blip on the downhill trajectory the oil industry as a whole is riding into eventual oblivion.

rockman on Thu, 23rd Feb 2017 4:59 pm 



NR – Yes indeed, just as Indigo points out the debt load is a factor that’s difficult to factor in. LOL. But not a new one: back in the late 70’s there also was a huge borrowing boom. Still looking for documentation. But think about it: the industry was running 4,500+ rigs at the peak back then. And this was after we were selling oil for $25/bbl or less for the previous 10 years so we didn’t have much of a war chest. A good guess IMHO: most of those rigs were paid for with borrowed money. Anecdotally the Rockman worked for a pubcos during that period and when a $100 bond come due they couldn’t even pay $1…really.

I did find a link with a plot of ExxonMobil debt to equity ratio.

http://seekingalpha.com/article/3310325-exxon-mobil-corporation-the-only-stock-in-the-american-energy-sector-worth-considering

Scan down the link. Only goes back to 2006. Interesting that the increase at the end of 2008 was much greater then seen since then. In fact since 2015 it has decreased almost 50% from 0.46 to 0.25.

I’ll be digging for historical data. But having lived thru the late 70’s bust/boom I won’t be surprised if we sunk ourselves into a deeper debt hole (inflation adjusted, of course) then what we did in this recent boom.

Remember: borrowed capex to run 4,500 rigs 37 years ago compared to what we borrowed to run 1,800 a few years ago. You might think we would learn from our past mistakes…wrong! LOL.

Nony on Thu, 23rd Feb 2017 5:13 pm 



Reserves to production is at ~50 years:

http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/oil/oil-reserves.html

That is 2P reserves (50% likelihood), not 1P or SEC reserves (90% likelihood). And current annual production, not growing. Still any way you cut it, we are not in some sort of Simmons Savinar peak oil zombie danger.

You can look at price I guess and it is a bit higher than average of last several decades. Even there, probably 10 bucks of that is based on cartel action. And we are a far cry from the 100 prices of last few years or even the crazies like Simmons and Savinar predicting 200+.

Nony on Thu, 23rd Feb 2017 5:14 pm 



Oh and the difference between the last boom and the one in late 70s early 80s was that the earlier one was even crazier. And produced a lot less oil.

rockman on Thu, 23rd Feb 2017 5:20 pm 



NR – More interesting orbits about oil patch debt. From March 2015

http://www.bis.org/publ/qtrpdf/r_qt1503f.htm

Overall, the stock of debt of energy firms has risen even faster than that of other sectors. Debt issued by oil and other energy firms accounts for about 15% of both investment grade and high-yield major US debt indices, up from less than 10% just five years earlier.

A substantial part of the increased borrowing has been by state-owned major integrated oil firms from emerging market economies (EMEs). From 2006 to 2014, the stock of total borrowing (syndicated loans and debt securities) of Russian companies grew at an annual rate of 13%, that of Brazilian companies 25% and that of Chinese companies 31%. Borrowings of companies from other EMEs increased by 17% per annum. The increase in the leverage of EME companies contrasts with the stable leverage of comparable-sized large firms in the United States (Graph 2, right-hand panel). These EME companies have substantial existing production and therefore revenue. In many cases, their borrowing has coincided with large dividend payments to their sovereign owners. Hence, their behaviour appears similar to that of large, cash-rich firms in other sectors that have used very easy borrowing conditions in international markets to increase equity returns.

US oil companies have also borrowed heavily. They account for around 40% of both syndicated loans and debt securities outstanding. Much of this debt has been issued by smaller companies, in particular those engaged in shale oil exploration and production. Indeed, while the ratio of total debt to assets has been broadly unchanged for large US oil firms, it has on average almost doubled for other US producers – including smaller shale oil companies. These firms borrowed heavily to finance the expansion of production capacity, often against the backdrop of negative operating cash flow. Indeed, shale investment accounts for a large share of the increase in oil-related investment. Annual capital expenditure by oil and gas companies has more than doubled in real terms since 2000, to almost $900 billion in 2013 (IEA (2014)).

Northwest Resident on Thu, 23rd Feb 2017 6:21 pm 



rockman — Good info. We’re doomed!

rockman on Thu, 23rd Feb 2017 6:53 pm 



NR – “We’re doomed!”. Yes indeed…exactly like it looked in the late 70’s. As I implied: same sh*t…different day. I know you’ve read it before but maybe thought I was kidding: we were openly talking in the 70’s in the oil patch about the inevitable impact of PO. Remember we were the ones actually trying to find what oil was left.

Apneaman on Thu, 23rd Feb 2017 7:06 pm 



rockman, you forgot PR companies. They are an integral part of the cancer industry.

Just wait until July or August and there is a 30° or 40° high temperature anomaly. You might still be laughing, but only to keep from crying. I’ll be laughing too. Not at Texas, but at the other denier states who will be fucked because for purely ideological reasons, did every thing they could to block solar and wind. Texas, the denier and cancer capital of the US, will be the last to suffer the rolling blackouts and heatwave deaths because of their pragmatism and foresight with the wind build out. I guess the others never saw y’all had your fingers crossed behind your backs when you was doing all that deceiving and denying.

Here’s what you get with no A/C and/or a blackout.

European heatwave caused 35,000 deaths

“Silent killer

August 2003 was the hottest August on record in the northern hemisphere. But projections by the Intergovernmental Panel on Climate Change predict more erratic weather, the EPI notes. By the end of this century, the average world temperature is projected to climb by 1.4 to 5.8°C.

“Though heat waves rarely are given adequate attention, they claim more lives each year than floods, tornadoes, and hurricanes combined,” warns the EPI. “Heat waves are a silent killer, mostly affecting the elderly, the very young, or the chronically ill.”

The searing August heat claimed about 7000 lives in Germany, nearly 4200 lives in both Spain and Italy. Over 2000 people died in the UK, with the country recording is first ever temperature over 100° Fahrenheit on 10th August.”

https://www.newscientist.com/article/dn4259-european-heatwave-caused-35000-deaths/

Over 15,000 likely dead in Russian heat wave; Asian monsoon floods kill hundreds more

“Thus, the Russian population affected by extreme heat is at least double the population of Moscow, and the death toll in Russia from the 2010 heat wave is probably at least 15,000, and may be much higher. The only comparable heat wave in European history occurred in 2003, and killed an estimated 40,000 – 50,000 people, mostly in France and Italy. While the temperatures in that heat wave were not as extreme as the Russian heat wave, the nighttime low temperatures in the 2003 heat wave were considerably higher. This tends to add to heat stress and causes a higher death toll. I expect that by the time the Great Russian Heat Wave of 2010 is over, it may rival the 2003 European heat wave as the deadliest heat wave in world history.”

https://www.wunderground.com/blog/JeffMasters/over-15000-likely-dead-in-russian-heat-wave-asian-monsoon-floods-kil