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Page added on January 9, 2016
Peak Oil Over The Horizon Or An Era Of Indefinite Prolonged Surplus?
First I like to thank Killian Kirk for helping me come up with the title to today’s blog.
For last 60 years we have heard the rising drumbeat of ‘Peak Oil’, the belief that there was finite reserve of petroleum that was rapidly diminishing. You may remember reading often throughout the 80’s and 90’s that the World only had enough reserves to last itself until 2040 or 2065, based on its current usage. Then the sudden and unexpected growth of the Chinese economy a decade ago spurred the belief that reserves would diminish faster than expected. And as this rise in demand was occurring, the political unrest in such countries as Iraq, Libya and Venezuela led to a fall in production supply and a rise in prices. This all combined to lead people to confuse the world’s daily supply with its reserves. Which further lead to an irrational price bubble, beginning in 2004 at $48 a barrel topping out at over $140.00 in July of 2008. Click here for a historical price chart.
Oddly enough at that time the breakeven point for fracking was $70 to $80, per barrel of oil. Thus as oil rose above $100 a shale boom was well underway. Which brings me to the ‘economies of scale’, basically the more you do something the cheaper it becomes per unit. Remember that, because ‘economies of scale’ will come up later. Anyways back to the point. So as it was proved that shale oil could be produced at increasing amounts and lowering costs, the world’s proved reserves began to increase rapidly. It is now estimated that the U.S. proved reserves of oil alone could last the U.S. well over two hundred years. And every year more oil bearing shale formations are being discovered in America, as well as throughout the world. Currently the cost of shale production is estimated at anywhere from $35 to $50 a barrel. Now that is oil, let us not forget natural gas. Which is why instead of talking of oil and natural gas, we need to be speaking of hydrocarbons.
Oil and natural gas are different but then they are the same. Excuse the following explanation, I am not a chemist. And we will now be talking the chemistry of hydrocarbons. What we call ‘tar’ (as in La Brea Tar Pits) is a long molecular chain of carbon and hydrogen atoms, hydrocarbons. This chain over time and under pressure shortens. Diesel fuel could be defined as 14 carbon and 30 hydrogen, kerosene as 12 carbon and 26 hydrogen, propane as 3 carbon and 8 hydrogen, and methane (natural gas) as 1 carbon and 4 hydrogen. So the theory once again is that over time oil refines itself into natural gas. What is most interesting is that this process can be reversed. The term is called synthetic. An example would be synthetic motor oil. A product that costs somewhat more than refined motor oil. Once again remember economies of scale, the more synthetic oil is produced the cheaper it will become. Which would apply to any product made from methane. And as it happens fracking has led to increasing the proved reserves of natural gas in the U.S. alone by 10 times since 2005. And now countries without shale or conventional formations are looking at methane hydrates. A theoretically new source of methane, located in enormous untapped reserves at the bottom of the sea floor.
So with all this increased production of hydrocarbons from shale and conventional wells, and new theoretical sources, the world has slowly begun to turn away from coal and shutter its’ mines. Oddly enough coal too is a hydrocarbon, basically natural gas and ultra-light oils trapped in carbon structures. Currently there has been research into coal fracturing, costs have been high with low results, but now remember ‘economies of scale’…
As soon as the market realizes all of this, there will no longer be the fear of long term shortages of oil. Yes, there will be short term spikes caused by weather, war or governmental incompetence. But these spikes will be shallow and short term with an overall downward price trajectory. It took 60 years to drum the falsehood of peak oil into the world’s experts, it will take a few years to make them realize otherwise.
17 Comments on "Peak Oil Over The Horizon Or An Era Of Indefinite Prolonged Surplus?"
ghung on Sat, 9th Jan 2016 8:51 am
“Currently the cost of shale production is estimated at anywhere from $35 to $50 a barrel.”
By whom? Author mysteriously gives no source for this.
onlooker on Sat, 9th Jan 2016 9:15 am
What hogwash. The author is implying that economic theory somehow will make available all this “extra” oil. No amount of economy of scale can wean cheap oil from the unconventional sources. The allusion to methane seems to be a bad joke. Yes destabilize the methane hydrates locked away and cause a methane clathrate gun to go off. thanks but no thanks. Oh I forgot to mention try and continue modern consumer/industrial civilization and we will finish wrecking all the life support systems of this planet. But of course this is about giving the impression that nothing can stop modern civilization. What hubris!
makati1 on Sat, 9th Jan 2016 9:27 am
” …the world has slowly begun to turn away from coal and shutter its’ mines.”
Turn away from coal? Where? China and India are both building many new coal fired power plants.
“Global coal demand to reach 9 billion tonnes per year by 2019”
http://www.iea.org/newsroomandevents/pressreleases/2014/december/global-coal-demand-to-reach-9-billion-tonnes-per-year-by-2019.html
Total world coal consumption in 2014 was about 4 billion tons. So, if the IEA is correct, that means coal use will increase not decrease in the near future. Interesting.
Maybe the author needs a new search engine, or he is just pimping oily investments?
Also, coal is plant life not fish and plankton residue like oil.
Maybe he should watch: “The History of Earth” 1 1/2 hours. National Geo.
https://www.youtube.com/watch?v=RQm6N60bneo
It is the best science based account of our earth’s history to date. (And no, it took a lot more than six days.)
rockman on Sat, 9th Jan 2016 10:20 am
Looker – Good points. But let me hut the “economy of scale” bullsh*t directly. he has it completely ass backwards. Prior to the boom one could lease Eagle Ford Shale for $125/acre…after the boom: up to $10,000/acre. Drill rigs: pre-boom…$10,000/day. During the boom: $24,000/day. Directional drilling: Pre-boom… $8,000/day. During boom: $22,000/day. A pre-boom 120,000 pound frac…$150,000. During boom…$500,000. And that’s for a single stage. Initially 3 or 4 stages were done. At the height of the boom: 36 stages were not uncommon.
It has always been this way in the oil patch: the greater the activity the greater the demand for services. And that has always correlated to very high inflated costs for those services.
Now that the bloom is of the boom the rigs cost have fallen about 50%.. and still falling.
onlooker on Sat, 9th Jan 2016 10:35 am
Yeah, thanks always for the detailed info from the oil patch Rock. That should dispel any sense that their will be any free lunch either with new technology or economies of scale or anything else. Oh and Rock I am sure you have already but please once more dispel this myth of abiotic oil being a savior to civilization.
twocats on Sat, 9th Jan 2016 10:36 am
Blind them with utter bull. My 9 yr old nephews could write a more coherent article.
penury on Sat, 9th Jan 2016 11:43 am
I fear that once again the humans will be blindsided when the end comes. The hubris of “Divine Creation” will not allow most to accept that like the rest of the animals our time here is limited.
Nony on Sat, 9th Jan 2016 12:03 pm
35-50 is not reasonable. They need something like 60 to keep production constant, even with lower cost services.
Gas to liquids is not economical except at very high oil prices and cheap gas prices (e.g. stranded gas). Gas may be down there, but we need $80+ oil to consider investing in GTL capacity.
The 200 years number for oil sounds a little crazy too. Not sure what the basis is for that. (I will actually buy the 100 years for gas, at current volumes.)
Anonymous on Sat, 9th Jan 2016 3:46 pm
He seems to be saying, between the lines, that we are now approaching peak oil, but no problem, we are just going to redefine oil as any hydrocarbon and, presto, no peak – just like I’ve been saying all along.
shortonoil on Sat, 9th Jan 2016 7:00 pm
The author speaks like reserves are a fixed number, they are not. Reserves are the result of production costs, and price. They can also be the result of an energy state calculation. As price goes down, and production costs go up, reserves go down, a lot, and fast. The price has been going down a lot lately, and so have reserves. The production rate has nothing to do with reserves. The production rate is determined by how hard one can suck on a straw, and the petroleum industry has gotten very good at it. That is the result of all their technology; it was created to reduce the world’s reserves to zero as fast as possible.
It looks like they almost have the job done?
twocats on Sat, 9th Jan 2016 7:01 pm
well summarized anonymous – yes, from a propaganda perspective there may never be an actual “day of reckoning”. I’ve seen in the wake of the first major step down (2007 – present), that people are a lot less hopeful and upbeat in general about “the future” or “things”, but when asked “why” most people refer to things more like climate chaos or middle east, the massive effects of peak oil that have already impacted us are not really registering with people. Let’s see what happens at the next step-down…
twocats on Sat, 9th Jan 2016 7:04 pm
The author speaks like reserves are a fixed number, they are not. [shortonoil]
absolutely short. he’s like, “there wasn’t enough oil, and then prices went higher, now there’s a shit ton, but now oil prices are lower, sooo, there’s still a shit ton.” It’s really sad. And he calls himself OilPro. It’s pathetic.
Boat on Sat, 9th Jan 2016 10:42 pm
short,
Look at the growth of production and and consumption over the last few decades. It grows 1-2 billion bpd consistently. Reserves have also grown. Peak oil is down the road. Only doomer blind narrative can’t see it. Prices will rise when consumption grows to balance. Even projections for this year went from 1.8 to 1.2 in consumption. That is growth were talking about, not contraction. While fracking and others take a hit the middle east, russia etc. will supply the new oil only because they can produce it cheaper. Don’t take a PHD to see the simple picture.
Apneaman on Sat, 9th Jan 2016 10:54 pm
Boat, your heros lost another 110 billion since we last spoke two days ago.
World’s Richest Lose $194 Billion In First Trading Week of 2016
http://www.bloomberg.com/news/articles/2016-01-08/world-s-richest-lose-194-billion-in-first-trading-week-of-2016
Don’t take a PHD to see where this is going.
GregT on Sat, 9th Jan 2016 11:53 pm
I heard on the radio today, that the global markets combined have lost over 1.2 trillion dollars since January the 1st.
Of course Boat will tell everyone that this is a good thing. Dollar cost averaging and all. Time to triple down folks.
GregT on Sat, 9th Jan 2016 11:59 pm
“Look at the growth of production and and consumption over the last few decades. It grows 1-2 billion bpd consistently.”
You still haven’t quite wrapped your head around exponential growth yet Boat.
Wrap your head around this:
https://www.youtube.com/watch?v=eOykY2SMbZ0
Get back to us when you finally figure it out. Otherwise, you’ll continue to make yourself look really dumb.
shortonoil on Sun, 10th Jan 2016 7:34 am
“Prices will rise when consumption grows to balance.”
Prices have fallen by 68%, and still there is no balance! How exactly is this balance going to come about? That 68% decline in price produced an increase in demand of 3%. It would take at least another 3% increase in demand (2.8 mb/d) to bring the market back into balance. On its present trajectory that would put the price of oil at $10.56/ barrel. $10.56 would not even cover lifting cost.
As we have been saying the Etp Model informs us that the economy can never again consume all the oil that is produced. Petroleum no longer supplies the energy needed to drive enough economy to consume all the it. It now takes $1044 in economic activity to consume one barrel, and that is going up. There is simply not enough $1044 uncommitted units in the economy to buy all of it. Petroleum only consists of 38% of the world’s energy supply, and it now takes over half of the world’s GDP to consume what is produced.
There seems to be a number of people who believe that the depletion event now taking place can be circumvented through clever human actions. Things like bringing more technology to oil production, printing more fiat currency, or driving interest rates below zero. They are pushing on a string; the Laws of Physics don’t negotiate!
http://www.thehillsgroup.org/