Has anyone seen a supply curve except for Lonesnark and me?
Just because Saudi Arabia can produce oil at $2 a barrel doesn't mean the market price of Saudi Oil is $2.
We have to look at the marginal producer.
At $40-$50 a barrel (depending on who you talk to), the Canadian tar sands are the marginal producer. They will not produce anything at less than that price but they will produce if oil breaches that point level.
At $90 a barrel, oil shale could be the marginal producer.
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Oil Shale : Green River Kerogen
Re: Shale
by FreddyH » Tue 29 Jan 2008, 19:43:58
$this->bbcode_second_pass_quote('Tyler_JC', 'A')t $40-$50 a barrel (depending on who you talk to), the Canadian tar sands are the marginal producer. They will not produce anything at less than that price but they will produce if oil breaches that point level.
At $90 a barrel, oil shale could be the marginal producer.
At $90 a barrel, oil shale could be the marginal producer.
Your logic is correct but the numbers are wrong. Saudi's lift costs are presently $5. The weighted global avg is $19. And large scale kerogen production is $15% less than the tar sands, so about $38 (but has a range from $25 to $70 dependent on the yeild). American producers chose to ignore kerogen due to sounder alternatives to the available capital. A kerogen-friendly federal gov't has paved the way for a concerted American effort on this front. Many of the technologies with sands are interchangeable.
One must remember that tar sands development was already huge when oil was $29 exactly five years ago. The CapX numbers were staggering and the nervous fled due to the weak margin.
With a new President giving the SOTUA in less than 365 days & a ton of new capacity to hit the market in 2008/2009, we will see most of the $37/barrel fear premium in oil prices evaporate. January's Contract Oil price of $88/barrel will want to drop two bucks/month thru 2008 & a buck/month thru 2009.
But it may be thwarted by a series of small OPEC production quota reductions during that period. OPEC likes high prices, but they don't want to bring on a global Recession. They will find a balance that affords a 3% Real GDP growth.
OPEC has become a partner in Global Monetary Policy. Regional economies can be manipulated by energy costs as easily as by conventional interest rate intervention.
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Re: Shale
by Tyler_JC » Tue 29 Jan 2008, 20:45:11
$this->bbcode_second_pass_quote('FreddyH', '')$this->bbcode_second_pass_quote('Tyler_JC', 'A')t $40-$50 a barrel (depending on who you talk to), the Canadian tar sands are the marginal producer. They will not produce anything at less than that price but they will produce if oil breaches that point level.
At $90 a barrel, oil shale could be the marginal producer.
At $90 a barrel, oil shale could be the marginal producer.
Your logic is correct but the numbers are wrong. Saudi's lift costs are presently $5. The weighted global avg is $19. And large scale kerogen production is $15% less than the tar sands, so about $38 (but has a range from $25 to $70 dependent on the yeild). American producers chose to ignore kerogen due to sounder alternatives to the available capital. A kerogen-friendly federal gov't has paved the way for a concerted American effort on this front. Many of the technologies with sands are interchangeable.
One must remember that tar sands development was already huge when oil was $29 exactly five years ago. The CapX numbers were staggering and the nervous fled due to the weak margin.
With a new President giving the SOTUA in less than 365 days & a ton of new capacity to hit the market in 2008/2009, we will see most of the $37/barrel fear premium in oil prices evaporate. January's Contract Oil price of $88/barrel will want to drop two bucks/month thru 2008 & a buck/month thru 2009.
But it may be thwarted by a series of small OPEC production quota reductions during that period. OPEC likes high prices, but they don't want to bring on a global Recession. They will find a balance that affords a 3% Real GDP growth.
OPEC has become a partner in Global Monetary Policy. Regional economies can be manipulated by energy costs as easily as by conventional interest rate intervention.
Thanks!
The actual numbers aren't as important as the idea of marginal producer.
What people also must remember is the opportunity cost of investment in oil shale.
If it costs $100 million to make $5 million a year in oil shale profits, no one is going to bother because the return on capital is too low.
On the other hand, if it costs $200 million to make $20 million a year in oil shale profits, it could be an entirely different ballgame.
Energy is not the only expenditure so an increase in the value of energy (400% in this case) does not lead to a 400% increase in the amount of investment necessary to make oil shale profitable.
It is this same logic that allows everybody else in the world to compete with Saudi Arabia when prices are high.
"www.peakoil.com is the Myspace of the Apocalypse."
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Re: Shale
by TonyPrep » Tue 29 Jan 2008, 20:55:28
$this->bbcode_second_pass_quote('Tyler_JC', 'J')ust because Saudi Arabia can produce oil at $2 a barrel doesn't mean the market price of Saudi Oil is $2.
I didn't say it was. I was pointing out that your argument was based purely on market prices and that can change. The analysis I'd be most interest in is EROEI, although some here seem to think such considerations are of no use.-
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