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New High of Liquid Fuel Production?

General discussions of the systemic, societal and civilisational effects of depletion.
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Re: New High of Liquid Fuel Production?

Unread postby meemoe_uk » Wed 27 Jun 2012, 06:15:01

No, cos there was no crisis in 2008 for the oil industry, that was only domestic money supply, and it was short lived, and it was over hyped. In the middle of the 'crisis' in the UK, you could still buy a weeks worth of food from Lidl or Tesco supermarket with just one hours wage. It wasn't the 21st century great depression that doomers hoped it'd be. The oil industry has been continuously swimming in cash as well as oil for 10 years.

Well its that time of the month again.

Total number of PO.com so called oil peaker enthusiasts that check the IEA website for updates in oil production without cornys prompting them = 0
Total number after cornys prompt them = the odd one or two

Call yourself peakers? How does not having the slightest interest in new oil reports fit into your self proclaimed image?
It's like JD said, peakers have no direct interest in peak oil. They're only in it for the hype and doom.

http://omrpublic.iea.org/omrarchive/13jun12full.pdf
page 58

In May 2012, the world set a new world record average daily oil production of 91.10Mbpd, this beats the previous record set in April 2012 of 90.93Mbpd.

Thanks and likely see you all next month for the same thing ( and the next month, and the next ...etc)
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Re: New High of Liquid Fuel Production?

Unread postby ralfy » Wed 27 Jun 2012, 10:38:51

Again, try the fourth chart in the same link and not just the first. That way, one looks at more years and not just the last few.

Also, go back to the BP chart showing oil demand exceeding conventional oil production since 2006. The "new high" is based on non-conventional sources which have lower energy returns. Claims that counter peak oil should show increasing production from conventional sources meeting demand.

Finally, take the same production level and divide by the global population, which is what BP also did, as it is more logical to see increasing production together with increasing population.
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Re: New High of Liquid Fuel Production?

Unread postby meemoe_uk » Wed 27 Jun 2012, 13:34:20

I looked at the 4th chart ( again ) and, again, it didn't magically alter the fact that the world had set a new record high in oil production in May 2012.
What are you spose to do? look at the 4th chart again and again and again, over and over until you become delirious and mistake the 4th chart as the refutation of any assertion ever made?

I've looked at the BP chart. Yesterdays convention always peaks yesterday. This has been true for thousands of years. Has the world ended a thousand times because of all these peaks?
No.
We can therefore conclude conventions don't matter. As long as the oil supply continues, we'll be ok.
There's no law of physics that says you need to extract the oil using 1920s ,1960s, or 2000bc conventional technology in order for oil to be oil. Oil is oil, it doesn't care if you stick it in a barrel using an 8000 year old mesopotamian pot or with a fracked pressurized horizontal fishbone drilled well with polymer injection plugs.
Otherwise according to your rational, peak oil happened at least 150 years ago when the old convention of using a bucket and spade on surface seep oil was being replaced with the new fangled dig thru rock with a pick axe oil. How long have you been in the OMFG we all doomed!!! peakoil was in 1860!!! gang Ralfy?
The "new high" is based on non-conventional sources which have lower energy returns.
Not true. Higher technology is more efficient. Also 'conventional' oil sources are plentiful. Pretty much the whole 2001 middle east oil bonanza is conventional sources extracted with the modern 'unconventional' technology, which gives BP an excuse to count it as 'unconventional' production. This way, an exploitable oil source today identical to a source from the 1950s ( exploitable with 1950s tech ) will be labeled 'unconventional'. Absurd, and it doesn't fool me, but peakers eat it up.

>Finally, take the same production level and divide by the global population
Ah yes. Peaker's last hope in the quest for doom and gloom.
Just tell us when the doom's going to start cos I can't see it in the graph.
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Re: New High of Liquid Fuel Production?

Unread postby kublikhan » Wed 27 Jun 2012, 15:19:31

$this->bbcode_second_pass_quote('meemoe_uk', 'H')as the world ended a thousand times because of all these peaks? No.
If you have not noticed yet, those guys thinking(hoping?) Mad Max was just around the corner are gone. You are preaching to the choir here.

$this->bbcode_second_pass_quote('meemoe_uk', 'O')il is oil, it doesn't care if you stick it in a barrel using an 8000 year old mesopotamian pot or with a fracked pressurized horizontal fishbone drilled well with polymer injection plugs.
You are correct here as well, the end consumer does not care were his oil comes from, as long as it powers his car.

$this->bbcode_second_pass_quote('meemoe_uk', 'W')e can therefore conclude conventions don't matter. As long as the oil supply continues, we'll be ok. Otherwise according to your rational, peak oil happened at least 150 years ago when the old convention of using a bucket and spade on surface seep oil was being replaced with the new fangled dig thru rock with a pick axe oil
It's here where you are getting lost. If we can get cheap oil out using new fangled technology, great. But if we have to spend shit loads of money/energy on getting that oil out, that DOES matter.

$this->bbcode_second_pass_quote('', 'I')f history is any guide, another oil-induced recession may be just around the corner, at least for the United States and some of the other developed economies. Every time that the cost of oil relative to global economic output has hit current levels -- and that's even after sharp falls in spot prices this month -- it has heralded a slump. And while economists and analysts say a serious slowdown can still be avoided, many add that unless oil and energy prices fall much further and -- most important -- stay down, the world economy could be in serious trouble.
Recession risk unless oil prices fall further

It's called demand destruction. When getting that oil out of the ground out or out of the sand becomes too expensive, it causes demand to drop. Some of that lost oil can be replaced with efficiency gains and/or alternatives. However much of it is met through lower levels of economic activity. No we are not talking about mad max here. We are talking about a slowing economy, recession, depression, etc. Yes I know, that is boring. Much more fun to poke fun at the Mad Maxers right? The guy down the street losing his job and having his house foreclosed on is just not as exciting.
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Re: New High of Liquid Fuel Production?

Unread postby Pops » Wed 27 Jun 2012, 15:27:10

Personally I like the fifth chart :lol:


Image


It shows what is actually going on. Even with the amazing Sizziling Bakken, tar washing in Canada and happy frackers providing a veritable cornucopia of "new" oil, C+C is still flat after 5 years, or is that 6?

Anyone surprised?

NGPL continue the steady increase they've been on for years. Of course they only provide 70% of the energy of crude but hey, who's counting energy? All we care about is barrels! That's the scorecard in this game, right?

Ah, there it is, Other. Mostly food diverted to fuel, the real "New" oil. It is only 60% as energetic as crude but again, who cares? All we want to do is poke fun at doomers. Right?

As Staniford says:
$this->bbcode_second_pass_quote('', 'Y')ou can see that during the C&C plateau period since 2005, about 1mpd in additional total supply has come from a long standing trend in the increase in natural gas liquids (NGPL), while another 1mpd has come from "Other Liquids" and appears to be specifically a response to the plateauing of conventional oil. This is mainly biofuels. Note that the increases in "Other Liquids" appear to have leveled off in 2011. The world has very limited capacity to produce more biofuel without causing severe increases in food prices.
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Re: New High of Liquid Fuel Production?

Unread postby meemoe_uk » Wed 27 Jun 2012, 18:30:56

>But if we have to spend shit loads of money/energy on getting that oil out, that DOES matter.
Sure. But what make you think the human race is spending a significant amount on oil production?

World GDP = $78 trillion
World oil industry annual investment = $0.5 trillion = 0.6% of world GDP.

Similar amounts for other energy sources. So we are spending about 3-4% of our resources on energy. Food and shelter probably a bit more, but even if we round it up to 20% on necessities, thats 80% on 'luxurys' i.e. waste. I think the waste value is higher.
I see so many people with so many useless jobs burning up so much energy. People involved in energy extraction are rare. This is what you consider 'shit loads of money/energy'?

The other measure, which I've pointed out to you before but you've chosen to ignore- the price of oil vs the energy in oil suggests the 'real' value of oil is about $16000pb, while we get it for $100, about 0.6% of its 'real' value.

I spose if you want to believe its costing us close to the energy value of $16000 to extract each barrel, and we're then selling it for $100, its easy to then argue the economy is going to pop. I prefer to believe companies are looking at oil that costs no more than $30pb to extract.

Oil is so cheap to extract it defies common sense measurement. Without a common sense measurement, laymen are left with a vacuum, which peakers and hypers like to fill with the idea that the human race is barely able to scrap up the few remaining drops of EROEI>2 oil and are having to destroy society to do it. It's a myth.
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Re: New High of Liquid Fuel Production?

Unread postby kublikhan » Wed 27 Jun 2012, 20:01:01

$this->bbcode_second_pass_quote('meemoe_uk', 'B')ut what make you think the human race is spending a significant amount on oil production?

World GDP = $78 trillion
World oil industry annual investment = $0.5 trillion = 0.6% of world GDP.
You calculation is incorrect. The correct formula for Oil Expense Indicator is: (oil price * world oil consumption) / world GDP). So roughly:
($93 * 90,000,000 barrels/day * 365) / 72,485,000,000,000 = 4.2%
$this->bbcode_second_pass_quote('', 'H')istorically, 4% of world GDP appeared to be a dangerous threshold. Whenever the world oil spending rose above 4% of world GDP for a sustained period of time, global economy had suffered from major instabilities.

From 1974 to 1985, the world oil spending stayed above 4% of world GDP for about a decade. During the decade, the global economy suffered three deep recessions: 1974-75, 1980, and 1982 (when world economic growth rate falls below 2%, it is commonly considered to be a deep global economic recession).

World oil spending entered into this dangerous territory again in 2006 and 2007 and hit 5% of world GDP in 2008. In 2009, global economy contracted in absolute term for the first time after the Second World War. Based on preliminary estimate, world oil spending again rose above 5% of world GDP in 2011.

If one assumes that the world economy will grow at 3.5% a year from 2012 to 2020 and world daily oil consumption will grow by one million barrels a year. Given the observed world oil supply curve, suppose the oil price rises by 10 dollars a year. Then, by the end of the decade, world oil price will rise to 200 dollars a barrel and world oil spending will rise to 7.7% of world GDP.

Given the historical evidence, it is almost certain that the global economy will not be able to survive such a dramatic increase in oil spending burden without suffering from some major recessions.

Thus, unless the world oil supply curve becomes flattened in the coming years, the world oil supply does not seem to be able to sustain a global economy expanding at a rate of 3.5% a year or above.

Conclusion
This paper finds that oil price rises have had significant negative impact on world economic growth rates. These findings suggest that if the world oil production does peak and start to decline in the near future, it may impose a serious and possibly an insurmountable speed limit on the pace of global economic expansion.
Has the Global Economy Become Less Vulnerable to Oil Price Shocks?

$this->bbcode_second_pass_quote('meemoe_uk', 't')hats 80% on 'luxurys' i.e. waste. I think the waste value is higher. I see so many people with so many useless jobs burning up so much energy. People involved in energy extraction are rare. This is what you consider 'shit loads of money/energy'?
Are you suggesting you would be ok with 80% of those people employed in "useless jobs" suddenly becoming unemployed? That seems pretty cold hearted to me. Not to mention a recipe for economic disaster. Do you really want to see a society with 80% unemployment? An economy where the only people employed are those working in a primary and secondary sectors like energy, agriculture, mining, etc and the other 80% are unemployed? Zimbabwe has an economy like that. It is not pretty.

$this->bbcode_second_pass_quote('meemoe_uk', 'T')he other measure, which I've pointed out to you before but you've chosen to ignore- the price of oil vs the energy in oil suggests the 'real' value of oil is about $16000pb, while we get it for $100, about 0.6% of its 'real' value.
I have not ignored this point, I addressed it in our last debate. 99% of our economic activity would become uneconomical if oil were to rise to $16,000 a barrel. Oil is the blood of our economy, if you raise its cost over 100 fold, it's like asking someone to live on only 1/100th of their blood supply. That might be enough blood to keep some finger wagging going, but that's about it. At $16,000 per barrel, the cost of oil alone would exceed the ENTIRE world GDP by a factor of 10! Surely you see this is a ridiculous assertion?!?!

$this->bbcode_second_pass_quote('meemoe_uk', 'I') prefer to believe companies are looking at oil that costs no more than $30pb to extract.That price might be close for some of the ancient, giant Saudi fields. But the price of oil is set at the margin. The most expensive barrel of oil sets the price. So you have to look at that expensive article drilling, deep water drilling, steam cleaning tar sands, etc. If prices fall below these guys' profitable point, production will start to get shut in, reducing supply.

$this->bbcode_second_pass_quote('', 'T')he new floor for oil prices is being set increasingly by the production cost of these unconventional liquids. A few decades ago, we could produce conventional oil profitably in the U.S. for under $15 a barrel. But those days are long gone for the U.S., and for most of the world (except a few old fields in places like Saudi Arabia). As every major oil company has admitted in the past few years, the age of easy and cheap oil has ended.

As the cheap oil from old mature fields is depleted, and we replace it with expensive new oil from unconventional sources, it forces the overall price of oil up. This is because oil prices are set at the margin, as are the prices of most commodities. The most expensive new barrel essentially sets the price for the lot.

Research by veteran petroleum economist Chris Skrebowski, along with analysts Steven Kopits and Robert Hirsch, details the new costs: $40 - $80 a barrel for a new barrel of production capacity in some OPEC countries; $70 - $90 a barrel for the Canadian tar sands and heavy oil from Venezuela’s Orinoco belt; and $70 - $80 a barrel for deepwater oil. Various sources suggest that a price of at least $80 is needed to sustain U.S. tight oil production.

Those are just the production costs, however. In order to pacify its population during the Arab Spring and pay for significant new infrastructure projects, Saudi Arabia has made enormous financial commitments in the past several years. The kingdom really needs $90 - $100 a barrel now to balance its budget. Other major exporters like Venezuela and Russia have similar budget-driven incentives to keep prices high.

Globally, Skrebowki estimates that it costs $80 - $110 to bring a new barrel of production capacity online. Research from IEA and others shows that the more marginal liquids like Arctic oil, gas-to-liquids, coal-to-liquids, and biofuels are toward the top end of that range.

As production costs push ever closer to the retail price ceiling, profit margins fall. Consider Canada as an example. Oil production there will likely turn a mere 5 to 8 percent annual return on equity for the next several years, according to analysis by ARC Financial. Under $60 a barrel, they note, “the industry is broadly unprofitable” and would not be able to attract reinvestment.

“Unless and until adaptive responses are large and fast enough to constrain the upward trend of oil prices, the primary adaptive response will be periodic economic crashes of a magnitude that depresses oil consumption and oil prices,” Skrebowski concludes. “These have the effect of shifting consumption from incumbent consumers — the advanced economies — to the new consumers in the developing economies.”

So by all means, we should celebrate the ability of high oil prices and truly miraculous technology to bring us oil from under two miles of water and another five miles of rock in the Gulf of Mexico; from previously inaccessible deposits in the Arctic; and from low-grade resources like tar sands and tight oil shales. That technology will mean that we won’t literally run out of oil in the coming decades as depletion takes its toll. But we should not imagine that it will bring us energy independence or bring back the good ol’ days of $2 gasoline. What it will bring, eventually, is oil for Asia as the U.S. and Europe are forced to park their cars for good. The cost of new oil supply
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Re: New High of Liquid Fuel Production?

Unread postby copious.abundance » Thu 28 Jun 2012, 02:11:48

$this->bbcode_second_pass_quote('Pops', 'P')ersonally I like the fifth chart :lol:

Image

It shows what is actually going on. Even with the amazing Sizziling Bakken, tar washing in Canada and happy frackers providing a veritable cornucopia of "new" oil, C+C is still flat after 5 years, or is that 6?

Ermmm .... if you'd been paying attention to this thread, which is the actual thread on C&C (this one is supposed to be for all-liquids), you would know that that chart you just ridiculed is out of date, and only goes through the end of last year, and that - *trumpet fanfare* - we have indeed reached new highs of C&C, and while it's early to tell, it looks like we might indeed be breaking out of that "bumpy plateau."

Image
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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Re: New High of Liquid Fuel Production?

Unread postby meemoe_uk » Thu 28 Jun 2012, 05:21:18

$this->bbcode_second_pass_quote('', 'Y')ou calculation is incorrect. The correct formula for Oil Expense Indicator is: (oil price * world oil consumption) / world GDP). So roughly:
($93 * 90,000,000 barrels/day * 365) / 72,485,000,000,000 = 4.2%

You've calculated the gross sales income of the oil industry. That's not the same as the expenses. If it were, the heads of the oil industry would be as poor as street cleaners as there would be no profit margin.

$this->bbcode_second_pass_quote('', 'A')re you suggesting you would be ok with 80% of those people employed in "useless jobs" suddenly becoming unemployed?

No. But it wouldn't be hard to find a better job than kicking a ball round some grass for £1million.

$this->bbcode_second_pass_quote('', '9')9% of our economic activity would become uneconomical if oil were to rise to $16,000 a barrel.

What? So you wouldn't be able to kick a ball for £1m a year anymore? How terrible.
At high oil prices, jobs would gravitate away from waste and towards energy sources.

$this->bbcode_second_pass_quote('', 'A')t $16,000 per barrel, the cost of oil alone would exceed the ENTIRE world GDP by a factor of 10! Surely you see this is a ridiculous assertion?!?!

Not really. Money is fiat. The amount in circulation can rise and fall to match the needs of the economy. Conversely, the cost of the economy can rise and fall to match the amount of money.

$this->bbcode_second_pass_quote('', 'T')he most expensive barrel of oil sets the price.
Not really. The cheapest price is the most competitive. If your well can only produce expensive oil you aren't going to hack it in a cheap oil market.

Here's the graph you posted 3 months ago. One which I agree with.
Image
Saudi oil looks around $7 to extract, not $30. 'Cheap' fields around $22.
At the mo, TPTB have set the market value of $100pb. This is to promote investment in the oil industry. It's not a true marker of the extraction cost per barrel. ( i.e. it's not costing say $80 to extract oil so the industry can get $20 profit pb ).
So we have all these alternative methods of oil extraction being considered as profitable at $100 market price.
The truth is though, the big players are all in the middle east oil bonanza setting up cheap oil extraction from conventional sources. When they've finished setting up in a few years, they won't need anymore extra support from inflated market prices. It's possible the market price will be dropped on purpose to cull the competition from all the new oil companys that have prospered in the high oil prices, and the market for alternative oil sources will either be bought out and subsidized or die off.

Of course, the media won't tell it like it is, it will report it as ' demand destruction '.

As usual we've had an interesting diversion away from a new record of oil production.
Perhaps we should call this thread the ' talk about anything except oil production record thread! '.

>we have indeed reached new highs of C&C, and while it's early to tell, it looks like we might indeed be breaking out of that "bumpy plateau."
No doubt. The bumpy plateau ( 2004-2010 ) was never anything but a current industry capacity maximum. If you've only got one shovel you can only get one shovel load out at a time, even if your source is infinite. Funny how such infant school logic goes over the head of peakers as they joyously rush at the 'geological limit!' conclusion.
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Re: New High of Liquid Fuel Production?

Unread postby kublikhan » Thu 28 Jun 2012, 17:04:22

$this->bbcode_second_pass_quote('meemoe_uk', 'Y')ou've calculated the gross sales income of the oil industry. That's not the same as the expenses. If it were, the heads of the oil industry would be as poor as street cleaners as there would be no profit margin.
I did not make up that formula, I took it from the definition of oil expense indicator. That is the cost oil consumers have to pay to get the oil.

$this->bbcode_second_pass_quote('meemoe_uk', 'i')t wouldn't be hard to find a better job than kicking a ball round some grass for £1million. So you wouldn't be able to kick a ball for £1m a year anymore? How terrible. At high oil prices, jobs would gravitate away from waste and towards energy sources.
Ironic. For your example of jobs that waste oil, you picked the profession that probably has one of the lowest oil uses in the world. Sorry to break it to you, but even in Roman times they had coliseums with people kicking a ball around to entertain the masses. If you had hopes high oil prices would kill this job, I would not get my hopes up if I were you.

$this->bbcode_second_pass_quote('meemoe_uk', 'N')ot really. Money is fiat. The amount in circulation can rise and fall to match the needs of the economy. Conversely, the cost of the economy can rise and fall to match the amount of money.
Sure printing money could radically alter the dollar cost of a barrel of oil. But I am saying in today's dollars, it will never get that high. Spitting out a nonsense $16,000 a barrel figure without qualify what dollars you are talking about really is not saying much. A loaf of bread could go to $16,000 with rampant money printing. But at today's dollar value, it is impossible for oil to go to $16,000 a barrel. That would result in an oil bill that is an order of magnitude larger than the entire GDP of the world.

$this->bbcode_second_pass_quote('meemoe_uk', '')$this->bbcode_second_pass_quote('kublikhan', 'T')he most expensive barrel of oil sets the price.
Not really. The cheapest price is the most competitive. If your well can only produce expensive oil you aren't going to hack it in a cheap oil market.I don't think you understand how commodity pricing works. It's true enough that if the price of oil falls below the marginal cost, the high cost producer cannot compete and has to stop production if prices stay below the marginal cost for an extended period. But what you seem to be missing is the guy producing oil for cheap is not going to sell his oil for his cost if the guy next to him is selling it for 10x as much. He sets his oil at the marginal cost of the highest selling oil, even if his oil is much cheaper to produce.

$this->bbcode_second_pass_quote('', 'T')he marginal cost of oil production, defined as the cost of pumping the last and most expensive barrel required to satisfy demand, is fundamentally linked to long-term oil prices. If the oil price falls below the marginal cost, there is no incentive to produce that last barrel of oil, so demand will remain unsatisfied until consumers are willing to pay more.

The close relationship between the two was demonstrated from 2001 to 2010, when the average annual price of international oil benchmark Brent crude rose 228%, while analysts at Bernstein Research estimate the marginal production cost of the world's 50 largest listed oil companies increased 229%.

In 2011, the marginal cost of oil production was $92.26 a barrel for the 50 largest listed oil and gas companies and will reach $100 a barrel next year if it continues to follow the long-term trend, said Bernstein in a research note.

Costs are rising because much of the extra oil added to world supply has come from more technically challenging areas such as deep water or the Arctic, Bernstein said. This has led to "a combination of higher material costs and reduced productivity per well," it said. Oil Price Likely to Stay Buoyed by Marginal Costs

$this->bbcode_second_pass_quote('meemoe_uk', 'A')t the mo, TPTB have set the market value of $100pb. This is to promote investment in the oil industry. It's not a true marker of the extraction cost per barrel. ( i.e. it's not costing say $80 to extract oil so the industry can get $20 profit pb ).
So we have all these alternative methods of oil extraction being considered as profitable at $100 market price.Oil prices at set on marginal costs. IE, oil prices are set by how much it costs to produce one new barrel of oil. If the market refuses to pay this cost, supply destruction occurs and that barrel of production oil is shut in. It's basic economics. You don't have to conjure up scenarios of cackling oil execs controlling the price of oil. If oil is priced at a cost below a producer's marginal cost, production is shut down for that producer.

$this->bbcode_second_pass_quote('meemoe_uk', 'T')he truth is though, the big players are all in the middle east oil bonanza setting up cheap oil extraction from conventional sources. When they've finished setting up in a few years, they won't need anymore extra support from inflated market prices. It's possible the market price will be dropped on purpose to cull the competition from all the new oil companys that have prospered in the high oil prices, and the market for alternative oil sources will either be bought out and subsidized or die off.

Of course, the media won't tell it like it is, it will report it as ' demand destruction '.No. Big oil is turning away from cheap fields in the middle east and africa and turning instead to expensive fields in the OECD. At first this seems counter-intuitive. Why would you develop and expensive field if a cheap field is available? The truth is there are other costs associated with these "cheap" fields. Political risks like nationalization. Security risks like civil wars and pipelines getting blow up. Etc. Oil execs concluded it was more profitable to develop expensive oil than to deal with these risks. I tabulated all of the new oil coming online between 2003 and 2018(oil megaprojects database). More oil is coming online from non-OPEC sources than from OPEC sources.

$this->bbcode_second_pass_quote('', 'B')ig Oil is redrawing the energy map. For decades, its main stomping grounds were in the developing world—exotic locales like the Persian Gulf and the desert sands of North Africa, the Niger Delta and the Caspian Sea. But in recent years, that geographical focus has undergone a radical change. Western energy giants are increasingly hunting for supplies in rich, developed countries—a shift that could have profound implications for the industry, global politics and consumers.

Working in the rich world—with its more predictable taxes and investor-friendly policies—removes some of the risks about the big oil companies that worry investors, making them less vulnerable to the resource nationalism of petrostates like Russia and Venezuela. "A company like Exxon Mobil can eliminate the technological risk" of developing unconventionals, says Amy Myers Jaffe, senior energy adviser at Rice University's Baker Institute. "But it can't eliminate the risk of a Vladimir Putin or a Hugo Chavez."

This new way of looking at risk is at the heart of the transformation. International oil companies traditionally face a choice: They can either invest in oil that is easy to produce but located in politically volatile countries. Or they can seek opportunities in stable countries where the oil is hard to extract, requiring complex and expensive production techniques.

Over the past few decades, they have built vast plants to produce liquefied natural gas, or LNG. They have drilled for oil in ever-deeper waters, ever farther offshore. They have worked out how to squeeze oil from the tar sands of Alberta. And they have deployed technologies like hydraulic fracturing, or fracking, and horizontal drilling to produce gas from shale rock. Wood Mackenzie, an oil consultancy in Edinburgh, says that more than half of the international oil companies' long-term capital investments are now going into these four "resource themes"—a huge shift, considering how marginal the companies once considered them.

There are also drawbacks to the new focus on nontraditional kinds of hydrocarbons. Environmentalists strongly oppose shale-gas extraction due to fears that fracking may contaminate water supplies, the oil-sands industry because it is energy-intensive and dirty, and deep-water drilling because of the risk of oil spills like last year's Gulf of Mexico disaster.

There are financial considerations, too. While conventional assets are relatively easy to develop and historically have offered good returns, projects in some more technically difficult sectors—like deep-water and LNG—typically take longer to bring on-stream, and are higher cost, meaning returns are lower.

"The risks in OECD are technical, but they're easier to manage than political risk," says Simon Henry, Shell's chief financial officer. "In the OECD, you have more control of your operations."

The consultancy has identified a "significant westward shift" in oil-industry investment, away from traditional areas like North Africa and the Middle East "towards the Brazilian offshore, deepwater oil in the Gulf of Mexico and West Africa and unconventional oil and gas in North America." "The majors went to Venezuela and lost their property. They went to Russia and had to whisk their CEO off to a safe house. They went to the Caspian and realized they couldn't get the oil out. I for one would much rather invest in a company that had 70% of its spending in the OECD." Big Oil Heads Back Home

$this->bbcode_second_pass_quote('meemoe_uk', 'A')s usual we've had an interesting diversion away from a new record of oil production. Perhaps we should call this thread the ' talk about anything except oil production record thread! '.Sorry for going off topic, but I could not resist correcting a few points you made. A few of your statements were incorrect and I prefer our posts here originate from accurate information, even if we disagree on how best to interpret that information.
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Re: New High of Liquid Fuel Production?

Unread postby meemoe_uk » Thu 28 Jun 2012, 18:56:30

$this->bbcode_second_pass_quote('kublikhan', '')$this->bbcode_second_pass_quote('meemoe_uk', 'Y')ou've calculated the gross sales income of the oil industry. That's not the same as the expenses. If it were, the heads of the oil industry would be as poor as street cleaners as there would be no profit margin.
I did not make up that formula, I took it from the definition of oil expense indicator. That is the cost oil consumers have to pay to get the oil.

I know.
You seem a problem distinguishing between cost to the consumer and cost of extraction.
1st you refer to cost of extraction...
>But if we have to spend shit loads of money/energy on getting that oil out,
But when i address this you switch to cost to the consumer
That is the cost oil consumers have to pay to get the oil.

Don't confuse yourself.


$this->bbcode_second_pass_quote('', '')$this->bbcode_second_pass_quote('meemoe_uk', 'i')t wouldn't be hard to find a better job than kicking a ball round some grass for £1million. So you wouldn't be able to kick a ball for £1m a year anymore? How terrible. At high oil prices, jobs would gravitate away from waste and towards energy sources.
Ironic. For your example of jobs that waste oil, you picked the profession that probably has one of the lowest oil uses in the world. Sorry to break it to you, but even in Roman times they had coliseums with people throwing a ball around to entertain the masses. If you had hopes high oil prices would kill this job, I would not get my hopes up if I were you.

Sorry to break it to you, but you are flipping back and forth between cost to the consumer and cost of extraction to suit you being right every time.
This is what happens when I follow you up on your flip to 'cost to the consumer' ( for football its roughly £1m per player ).
Yep you've flipped back to cost of getting oil out the ground per football match \ player.
2ndly, if you do want to flip back to cost of oil extraction to suit yourself, you've just failed again. The example of sport as a waste of oil has plenty of examples; moter racing being a pretty obvious one.

Seems you aren't trying to understand anything. Just a game of flipping subject and ignoring obvious examples.

$this->bbcode_second_pass_quote('kublikan', '')$this->bbcode_second_pass_quote('meemoe_uk', 'N')ot really. Money is fiat. The amount in circulation can rise and fall to match the needs of the economy. Conversely, the cost of the economy can rise and fall to match the amount of money.Sure printing money could radically alter the dollar cost of a barrel of oil. But I am saying in today's dollars, it will never get that high. Spitting out a nonsense $16,000 a barrel figure without qualify what dollars you are talking about really is not saying much. A loaf of bread could go to $16,000 with rampant money printing. But at today's dollar value, it is impossible for oil to go to $16,000 a barrel. That would result in an oil bill that is an order of magnitude larger than the entire GDP of the world.
I agree. The world will effectively never run out of cheap energy, therefore any energy source will never attain its potential highest price.
2005AD dollars if that helps you so much. What did you think, 1812AD dollars?
And no it wouldn't result in such a large oil bill, even if money kept the same value. People would buy less of it, it would be treated very carefully.

$this->bbcode_second_pass_quote('', '')$this->bbcode_second_pass_quote('meemoe_uk', '')$this->bbcode_second_pass_quote('kublikhan', 'T')he most expensive barrel of oil sets the price.Not really. The cheapest price is the most competitive. If your well can only produce expensive oil you aren't going to hack it in a cheap oil market.I don't think you understand how commodity pricing works. It's true enough that if the price of oil falls below the marginal cost, the high cost producer cannot compete and has to stop production if prices stay below the marginal cost for an extended period. But what you seem to be missing is the guy producing oil for cheap is not going to sell his oil for his cost if the guy next to him is selling it for 10x as much. He sets his oil at the marginal cost of the highest selling oil, even if his oil is much cheaper to produce.
...during a bull market and he therefore makes more profit than the expensively extracted oil well owner. During a bear market the price of commodities go to their lower values, and the expensive oil well owner can't compete, while the cheap guy can lower his prices and still make profit. Over time the cheap oil guy wins.
You don't seem to grasp this so I don't think you understand how commodity pricing works.

$this->bbcode_second_pass_quote('', '.')..Costs are rising because much of the extra oil added to world supply has come from more technically challenging areas such as deep water or the Arctic, Bernstein said. This has led to "a combination of higher material costs and reduced productivity per well," it said.
Dont' get too hung up on margerine costs, you don't need them to see whats going on. In this case Bernstein is blowing smoke in your face. While its true to says there's cash going into technically challenging extraction, its more correct to say the cause of costs rising is because the Anglo Americans and allies are funding oil developement and setting market prices to do the same.

$this->bbcode_second_pass_quote('kublikan', '
')$this->bbcode_second_pass_quote('meemoe_uk', 'A')t the mo, TPTB have set the market value of $100pb. This is to promote investment in the oil industry. It's not a true marker of the extraction cost per barrel. ( i.e. it's not costing say $80 to extract oil so the industry can get $20 profit pb ).
So we have all these alternative methods of oil extraction being considered as profitable at $100 market price.Oil prices at set on marginal costs. IE, oil prices are set by how much it costs to produce one new barrel of oil. If the market refuses to pay this cost, supply destruction occurs and that barrel of production oil is shut in. It's basic economics. You don't have to conjure up scenarios of cackling oil execs controlling the price of oil. If oil is priced at a cost below a producer's marginal cost, production is shut down for that producer.
If you don't consider the strategy and role of oil execs then your model will have less ability to predict the future. You can always cook up excuses when stuff happens, like due to some marginal cost or some other economic jargon going awol.


$this->bbcode_second_pass_quote('Kublikan', '')$this->bbcode_second_pass_quote('meemoe_uk', 'T')he truth is though, the big players are all in the middle east oil bonanza setting up cheap oil extraction from conventional sources. When they've finished setting up in a few years, they won't need anymore extra support from inflated market prices. It's possible the market price will be dropped on purpose to cull the competition from all the new oil companys that have prospered in the high oil prices, and the market for alternative oil sources will either be bought out and subsidized or die off.

Of course, the media won't tell it like it is, it will report it as ' demand destruction '.No. Big oil is turning away from cheap fields in the middle east and africa and turning instead to expensive fields in the OECD. At first this seems counter-intuitive. Why would you develop and expensive field if a cheap field is available? The truth is there are other costs associated with these "cheap" fields. Political risks like nationalization. Security risks like civil wars and pipelines getting blow up. Etc. Oil execs concluded it was more profitable to develop expensive oil than to deal with these risks. I tabulated all of the new oil oil coming online between 2003 and 2018(oil megaprojects database). More oil is coming online from non-OPEC sources than from OPEC sources.
Actually thats reminds me of an interesting variation on to my current favoured outlook.
The Anglo americans have been smashing up middle east countries, and I thought it was so the anglo american oil companies could then move in and steal the oil, like in Iraq. The alternative is they smash up these countries, and instead of moving in and taking the oil, they just ensure these countries are not able to grow strong enough to develope their own oil sources. Meanwhile the Anglo americans develope more expensive oil back home. This way when the expensively developed domestic oil hits the market, it doesn't have to compete with cheap oil from foreign oil companies outside the control of the anglo american kartel.
So good point.

$this->bbcode_second_pass_quote('kublikan', '')$this->bbcode_second_pass_quote('meemoe_uk', 'A')s usual we've had an interesting diversion away from a new record of oil production. Perhaps we should call this thread the ' talk about anything except oil production record thread! '.Sorry for going off topic, but I could not resist correcting a few points you made. A few of your statements were incorrect and I prefer our posts here originate from accurate information, even if we disagree on how best to interpret that information.
Well thanks for bringing something interesting to the discussion, even if the rest of it wasn't insightful. If you've got any more info to support the idea that oil majors are staying away from many Middle east countries and instead focusing on domestic expensive oil, and keeping these ME countries bombed and broken, pass me the links, i will read them.
Then you can be in that very exclusive club that every peaker, doomer and AGWer on the site want to be in - the - ' I made meemoe rethink his view on world oil geo economics ' club !
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Re: New High of Liquid Fuel Production?

Unread postby seenmostofit » Thu 28 Jun 2012, 20:56:27

$this->bbcode_second_pass_quote('pstarr', 'K')ublikan is talking about the Oil Expense Indicator, a measure of the economic stress imposed by our shortages of our chief energy source, a essential major commodity.


What shortages? Most of the news recently is "awash in oil!" in its various permutations. Is there a shortage somewhere and no one told us about it!! :o
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Re: New High of Liquid Fuel Production?

Unread postby kublikhan » Thu 28 Jun 2012, 21:55:47

$this->bbcode_second_pass_quote('meemoe_uk', 'S')orry to break it to you, but you are flipping back and forth between cost to the consumer and cost of extraction to suit you being right every time. 2ndly, if you do want to flip back to cost of oil extraction to suit yourself, you've just failed again. The example of sport as a waste of oil has plenty of examples; moter racing being a pretty obvious one. Seems you aren't trying to understand anything. Just a game of flipping subject and ignoring obvious examples.

The world will effectively never run out of cheap energy, therefore any energy source will never attain its potential highest price.
2005AD dollars if that helps you so much. What did you think, 1812AD dollars?
And no it wouldn't result in such a large oil bill, even if money kept the same value. People would buy less of it, it would be treated very carefully.
Just FYI, I don't care about some infantile notion like 'being right every time'. I am not in this to win some stupid debate on an internet forum with a stranger. Believe it our not, I am trying to be honest here. And if I am understanding you correctly, your proposed scenario is roughly:
1. oil @ $16,000 a barrel in today's dollars
2. Economy roughly at the same level, ~$72 trillion world GDP
3. oil consumption falls to keep the oil expense to the economy at roughly today's level, ~4.2% of world GDP

Using those assumptions, the world would have to reduce it's oil consumption by 99.5% without reducing economic output. However the major proposal you made for achieving this is cutting out wasteful oil uses like NASCAR. NASCAR uses about 20 barrels of oil per day. Your goal is to save 89,500,000 barrels a day. Banning NASCAR would not make a dent in your target. You are basically arguing for an oil free economy. Oil touches nearly every single item in our economy. You can't eliminate 99.5% of oil from the economy and expect things to be basically the same, just with "wasteful" things like NASCAR removed and oil more carefully conserved. That is a fantasy. To make your scenario work, you would basically have to rebuild the entire world's economy to not use oil. That's a tall order, and it's not what we have seen happening so far. As the oil markets tighten, we appear instead to be entering a zero sum game where high prices choke off oil demand in the OECD and cause recessions. While economic growth in the non OECD countries causes oil demand to continue to increase.

$this->bbcode_second_pass_quote('', 'O')il demand from OECD countries (the haves) has declined for the fifth time in the last six years. It’s on track to decline again this year. On the other hand, demand from non-OECD countries (the have-nots) is up a whopping 15% in just the last three years. That rate of growth is expected to continue.

Economic growth requires energy. Transportation is a big part of economic growth, allowing goods produced to be moved around, and services required to be provided. Most of the world’s goods in countries that are old world (us) or rapidly growing emerging market countries, move by trucks, ships, trains and planes. They all use vast amounts of oil. So it stands to reason that an emerging market country – that’s experiencing rapid economic growth – is rapidly increasing its use of oil. What a surprise; that’s precisely what’s happening.

Many economists figure oil is the culprit creating the global imbalances behind much of the world’s financial woes. If you understand the key role oil plays in any country’s economy, it’s hard to argue the point. Bank of America Merrill Lynch sounded a dire alarm in its 2012 energy outlook, stating the current growth path of crude simply isn’t sustainable:
“Whether a recession in Southern Europe frees up some oil for China and India to grow on, or whether high energy prices rip through energy sensitive emerging markets such as Turkey, we believe the current path for oil is unsustainable and something has to give.”

The bottom line is this: Right now, oil dictates countries’ fortunes. Without it, or if it becomes prohibitively expensive, economic growth grinds to a halt.
The Impact of Global Oil Consumption: OECD vs. Non-OECD

$this->bbcode_second_pass_quote('meemoe_uk', 'M')eanwhile the Anglo americans develope more expensive oil back home.
So we are in agreement on this point at least? New oil being developed really is expensive? It's not just Bernstein blowing smoke? It is real costs, like technically challenging extraction?

$this->bbcode_second_pass_quote('meemoe_uk', 'D')uring a bear market the price of commodities go to their lower values, and the expensive oil well owner can't compete, while the cheap guy can lower his prices and still make profit. Over time the cheap oil guy wins.
And the more expensive guys shut in production when they are no longer making a profit, resulting in less oil available to the market. Supply falls. With falling supply but high demand, prices rise. And the cycle starts all over. Bottom line: if you want new oil production that is going to increase our oil production and/or fill in for declining production from older conventional and cheaper fields, you have to have an oil price where these expensive producers can still eek out a profit. Otherwise when oil prices fall to the level only the cheap producers can make a profit, all of that new oil gets removed from the market. You can't expect oil to fall to $30 a barrel and at the same time expect oil production to increase from technically challenging extraction whos cost are far above $30 a barrel.
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Re: New High of Liquid Fuel Production?

Unread postby seenmostofit » Fri 29 Jun 2012, 02:17:42

$this->bbcode_second_pass_quote('pstarr', 'O')f course there is a shortage, and that is why oil has quadrupled in price from $20 to $80 in a few short years.


You said shortage, which would certainly drive up prices if it were happening, and much higher than $80 I imagine. And while prices have decreased...say 25% or so just this year....I haven't seen anyone yet, including the MSM (and we know how excited they all get if they can show shortages rather than just tape $5/gal gas signs in California changing) mention shortages?

Do you travel a lot, and notice these shortages in places where the MSM might not notice? Did a convenience store run out of gas in your neighborhood? I mention these two things because in my past 22,000 miles of driving to both coasts, and from the Canadian border to southern Arizona, I haven't yet seen a single "out of gas!!" sign like...well...back when there were actual shortages?

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Re: New High of Liquid Fuel Production?

Unread postby SeaGypsy » Fri 29 Jun 2012, 05:35:51

Der, ask the guy down the road who lost his job if he's short of gas. What a silly argument.

(BTW as an observer on this thread, my 10 cents goes to Memoe, or at least 9 of them/ the first time in my years here).
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Re: New High of Liquid Fuel Production?

Unread postby meemoe_uk » Fri 29 Jun 2012, 06:19:22

$this->bbcode_second_pass_quote('kublikan', ' ')Believe it our not, I am trying to be honest here. And if I am understanding you correctly, your proposed scenario is roughly:
1. oil @ $16,000 a barrel in today's dollars
2. Economy roughly at the same level, ~$72 trillion world GDP
3. oil consumption falls to keep the oil expense to the economy at roughly today's level, ~4.2% of world GDP

It's a estimate of a hypothetical value. Some discussions at the oil drum have put this value as high as $200,000pb, because oil simply allows things that are impossible with plain man hours. In a world of rare oil, he who controled the oil barrels would rule, and would pay any price to maintain his rule ( bit like today actually ).

>Using those assumptions, the world would have to reduce it's oil consumption by 99.5% without reducing economic output.
No. If we're keeping the amount of money the same in this scenario, the cost of money will rise with respect to oil. So that 1barrel costs say $5000 ( = $16000 in 2005AD dollars ). So while not all oil sources will be economical due to high consumer cost, they'll still be a lot more oil extracted than 0.5% of current production.

>However the major proposal you made for achieving this is cutting out wasteful oil uses like NASCAR. NASCAR uses about 20 barrels of oil per day. Your goal is to save 89,500,000 barrels a day. Banning NASCAR would not make a dent in your target.
Why are you unable to see any further than my last example? Its just an example. Do I really have to list any and every way people waste oil in todays modern society? Or are you saying that we only waste the odd barrel at nascar and football, and the other 90mbpd are perfectly spent?
Are you not even able to expand on my examples up to the more general but still narrow example of world sports industry of $0.7 trillion?

$this->bbcode_second_pass_quote('', ' ')You are basically arguing for an oil free economy.

No. Also, bear in mind the hypothetic value of oil theory does not originate with me. Its something I picked up from the PO community. Matt Simmons used to expound it as the correct value of oil and it was seriously discussed in OD threads for years.
Only if every other energy source is removed and a real shortage of oil happens will its hypothetical maximum value be reached. That won't happen. Hence the word 'hypothetical' and all your obselete ramblings at me about it not being likely.
The hypothetical value of oil is counter argument to all the hype and fear about running out of oil and oil is sooooo expensive it'll destroy the economy, which pervades this forum, when at $100 in 2012AD dollars, oil is selling for only 0.6% of its true value.

$this->bbcode_second_pass_quote('', '&')lt; lonng ramble >The bottom line is this: Right now, oil dictates countries’ fortunes. Without it, or if it becomes prohibitively expensive, economic growth grinds to a halt.

Thanks for that long ramble. I'm not interested in the detail. I already knew the conclusion.

$this->bbcode_second_pass_quote('', '')$this->bbcode_second_pass_quote('meemoe_uk', 'M')eanwhile the Anglo americans develope more expensive oil back home.
So we are in agreement on this point at least? New oil being developed really is expensive? It's not just Bernstein blowing smoke? It is real costs, like technically challenging extraction?
Yes.

$this->bbcode_second_pass_quote('Kublikan', '')$this->bbcode_second_pass_quote('meemoe_uk', 'D')uring a bear market the price of commodities go to their lower values, and the expensive oil well owner can't compete, while the cheap guy can lower his prices and still make profit. Over time the cheap oil guy wins.And the more expensive guys shut in production when they are no longer making a profit, resulting in less oil available to the market. Supply falls. With falling supply but high demand, prices rise. And the cycle starts all over. Bottom line: if you want new oil production that is going to increase our oil production and/or fill in for declining production from older conventional and cheaper fields, you have to have an oil price where these expensive producers can still eek out a profit. Otherwise when oil prices fall to the level only the cheap producers can make a profit, all of that new oil gets removed from the market. You can't expect oil to fall to $30 a barrel and at the same time expect oil production to increase from technically challenging extraction whos cost are far above $30 a barrel.
I know. I made the same point yesterday in the 'coming production surge' thread. Happy yet that I understand commodity pricing? Any other details you want to go over?
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Re: New High of Liquid Fuel Production?

Unread postby dsula » Fri 29 Jun 2012, 12:50:21

$this->bbcode_second_pass_quote('seenmostofit', ' ')in my past 22,000 miles of driving to both coasts, and from the Canadian border to southern Arizona

You drive too much, man, too much. It's not good for the planet.
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Re: New High of Liquid Fuel Production?

Unread postby kublikhan » Fri 29 Jun 2012, 15:46:26

$this->bbcode_second_pass_quote('meemoe_uk', 'A')ny other details you want to go over?
Nope :) I'm just happy we actually agree on a few points. After some of our previous debates I had my doubts we would agree on anything :) Good talk meemoe.
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