[Typhoon]

I just want to clear something up so that the mistake isn't repeated. "Depletion" does NOT refer to a decline in production. It refers to the percent of reserves produced. This is a pet peeve of mine. A field is depleted from the very first day that oil is extracted. Perhaps the confusion was caused by Chris Skrebowski's misuse of the term.

[ashurbanipal]

Right, but couldn't it be said that depletion is what eventually leads to production decline, correct (sort of in the same way birth eventually leads to death)?

[rogerhb]

It's more the fact that a fields output by volume follows a bell curve that manifests itself as a decline in production.

[ashurbanipal]

I think that's what he's saying it doesn't refer to.

[mgibbons19]

Depletion is just taking oil out.

that leads to a decline in production.

Edit to add: eventually, at about the halfway point.

Unless politics or economics get in the way. Or wars. Or...

[mididoctors]

$this->bbcode_second_pass_quote('mgibbons19', 'D')epletion is just taking oil out.

that leads to a decline in production.

[mgibbons19]

exactly.

[bobbyald]

I think it's a problem with the way in which certain terms are used.

Typhoon is of course correct but we must accept people use it in different ways (rightly or wrongly).

It's like when people say we're not running out of oil. We know that by this they mean that there is plenty left because we only start to run out when stocks get low. Even though, strictly speaking, we start to run out from the very first drop.

[bobcousins]

Yeah, I've noticed people getting confused about this. If people are using terms wrongly, they should be corrected. Otherwise meanings become increasingly fuzzy until no-one knows what the hell anyone is saying. It is not a matter of personal preference.

Some people don't seem to realise that the Hubbert curve is itself a rate of change. Depletion is the decrease of a reserve. The Hubbert curve is the rate of depletion. Decline refers to a decrease in the rate of depletion. The difference in meaning is significant.

I hope I got that right otherwise I will look real stupid. Hey, I understand it even if I can't explain it.

[mididoctors]

$this->bbcode_second_pass_quote('bobcousins', 'Y')eah, I've noticed people getting confused about this. If people are using terms wrongly, they should be corrected. Otherwise meanings become increasingly fuzzy until no-one knows what the hell anyone is saying. It is not a matter of personal preference.

Some people don't seem to realise that the Hubbert curve is itself a rate of change. Depletion is the decrease of a reserve. The Hubbert curve is the rate of depletion. Decline refers to a decrease in the rate of depletion. The difference in meaning is significant.

I hope I got that right otherwise I will look real stupid. Hey, I understand it even if I can't explain it.

[Antimatter]

I like to use the term offtake rate to avoid confusion.

[Tanada]

$this->bbcode_second_pass_quote('mididoctors', '')$this->bbcode_second_pass_quote('bobcousins', 'Y')eah, I've noticed people getting confused about this. If people are using terms wrongly, they should be corrected. Otherwise meanings become increasingly fuzzy until no-one knows what the hell anyone is saying. It is not a matter of personal preference.

Some people don't seem to realise that the Hubbert curve is itself a rate of change. Depletion is the decrease of a reserve. The Hubbert curve is the rate of depletion. Decline refers to a decrease in the rate of depletion. The difference in meaning is significant.

I hope I got that right otherwise I will look real stupid. Hey, I understand it even if I can't explain it.

[bobcousins]

$this->bbcode_second_pass_quote('Tanada', 'I') think the real problem is people using the term Depletion and Depleted interchangibly, which they are not. Depletion is a rate, depleted is an ammount based on time and rate of depletion. Once a field is 50% depleted its rate of decline becomes evident, but its depletion rate is usually steady or peaking before peak, then steady and declining after peak.

I know I get sloppy using the terms myself, and I love accurate terminology, but so many sources use the terms interchangibly that it is an easy habit to fall into.

[Taskforce_Unity]

Thanks for pointing this out to me, I didn't understand this before due to Skrebowski's misuse

I renamed skrebowski's terms to type I decline, Type II decline etc..

[jackal42]

Half Empty or Half Full?

[Tanada]

</q>$this->bbcode_second_pass_quote('jackal42', 'H')alf Empty or Half Full?

[grabby]

Conservation does work, kind of like dieting.

Necessary, but it is hard to do.

[netfind]

Depletion modeling of any natural resource is an incredibly complex undertaking. For every informed expert who has forgotten more than you will ever learn about it saying one thing about this rock structure or that consideration, you can find another such expert who says just the opposite. I feel that you can decipher the real depletion situation by some careful connecting of the math dots amongst the experts. But what if I told you there was an alternative way of depletion modeling where you do not have to examine a single rock or monitor the production of a single well? And this modeling has assigned a team of thousands of busy researchers to weigh all the critical facts you can think of plus a whole bunch you haven't even thought of! I speak of course of the free market. Efficient market theory says that the market weighs way more information than any one person can dig up. And every wrong, baseless conclusion from all this info is just as likely to be wrong bullish as it is to be wrong bearish - after all it's baseless, so it's like flipping a coin. So all the error is largely cancelled out. The markets aren't 100% efficient, but you are really butting heads with a monster if you think you can out work the market on anything.

So what kind of depletion modeling does the historical oil market paint? Well, if you just look at a chart of the oil price since 1869, it looks like it was drawn by a day-trader having a seisure. But you can come up with an enlightening chart if you perform a modification. You have to modify a couple of charts such as can be found at www.wtrg.com, namely the rig count chart, which has a good short term oil price chart, and the 1869-2004 chart, which is inflation adjusted in constant 2004 dollars. If you look at the short term chart, you see 3 artificial pricing episodes. First, there was the supply driven '79-'87 Iran crisis and war with Iraq. This produced a massive price climb and collapse that should be ignored in the big picture of depletion supply/demand. So draw a straight line from the '78 price to the '87 price. Then there was the Kuwait invasion of '90. So draw a line fron the '89 price to the '92 price. Then there was the great oil price collapse of '97-'99 when the world was "awash in oil" as the articles said. The oil patch was in a depression from the glut of oil. But as Simmons documents in "Twilight" p82, there never was a glut of oil, just a glut of bad information resulting in yet another artificial pricing episode. So draw a line from the '96 price to the '00 price. So now what you have, if you ignore the artificial highs and lows, is a relatively smooth set of data points you can actually fit a smooth curve through adding on the '05 data. But you can get an even bigger inflation adjusted picture by doing this same modification on the other chart. If you regard the initial high oil pricing in the 1870s as another episode of artificial pricing before mass production begins, you now have a long term chart adjusted to reflect real supply/demand and inflation. And it shows that oil was a remarkably stable commodity for over 100 years, trading in a channel between $12 and $20. But then you approach the 1970s. When you connect the straight line from the '78 price to the '87 price, you take out the supply shock of Iran/Iraq, but you are left with a breaking of the century long resistance level at $20, a mild foreshock of the demand driven runup we are experiencing now. The '70-'79 oil market was, according to Simmons, controlled by demand he describes as a "runaway train". The brief '73 embargo was just a lit match that inflamed a supply/demand situation that was developing anyway. Oil actually quintupled during this time going from $1.80 to $10 with all the excess capacity of Saudi Arabia straining at its then considerable limits to hold oil to a 5 bagger. The runup would have been much worse without all this excess capacity, which is gone now.
Incidentally, you can dash in another line of importance at 3/6/03. This is the date of a Dow Jones Newswire that Simmons notes as passing unnoticed that read "Saudi Arabia has told Western government and oil officials the kingdom's crude oil output has reached it's limit at around 9.2 million barrels per day and won't rise further even with a war looming in Iraq." This marks a transition from a modulation era where there was a throttle that could deal with demand surges to the no-throttle era we are entering now where just opening valves on existing wells won't put out demand fires. Only added wells and infrastructure can will have to do this from now on. Interestingly, this marker lines up perfectly with the begining of the strong ascent up and away from the stable, century long oil trading channel.

Laying all this market discounted information over the last 100 plus years out before you, one would have to scratch his chin and say, "There was definitely something monumental that happened with the supply/demand of this resource and it appears to be centered around the year 2000 give or take a few years." You'd have to conclude this even if you had never heard of Hubbert or seen a bell curve in your life!