by Subjectivist » Fri 23 Jan 2015, 18:00:41
$this->bbcode_second_pass_quote('Pops', 'E')xactly right, I have argued the same, sjn.
And with you too Strummer.
I don't get where this bit that somehow net energy has fallen off a cliff and now oil isn't worth buying came from anyway?
The idea that the selling price for a higher cost to produce oil would be lower than the selling price of a cheaper to produce oil shows a spectacular lack of understanding of oil markets - or any other market for that matter.
What is happening right now is perfectly normal, oversupply after years of high prices and billions of investment and political turmoil - on top of a real attempt at conservation (however shortlived) has produce a slight oversupply.
The markets predictably acted unpredictable, far outside the bounds the fundamentals would suggest and the price has tanked.
This part I fully agree with, my contention however is that once the LTO is turned from a roiling boil down to a slow simmer it will not be just a case of flipping the heat, in this case price, back up to the old level and getting a rapid increase back to December 2014 production levels. So far some people have been lightly singed by the price drop, but the longer this lasts the more investors who are going to get burned. Investors who get burned lose money and are less eager to invest when prices go back up.
$this->bbcode_second_pass_quote('Pops', 'T')he increased cost will be afforded by consumers by increasing the utility they receive for a declining amount of more costly oil.
Use less to pay more
On this part I think you need to lay out a time scale. It takes a long time to build newer more efficient machines to get more utility out of that same oil energy content that you are paying so much more far. Even worse America/Canada are used to being rich so we have a whole slew of safety laws that make it hard to take advantage of increased efficiency. Just for a couple examples if you pile the wife and three grandkids on your moped with you the police would arrest you for reckless endangerment. In the developing world they don't give a rip unless you run into someone or something while doing it. By the same token you can't use a moped to power a rickshaw type taxi without all sorts of safety inspections and features added to your home built vehical. In Taiwan/Thailand/India/Nigeria you would be left alone to make Money so the government can get more taxes off of you.
II Chronicles 7:14 if my people, who are called by my name, will humble themselves and pray and seek my face and turn from their wicked ways, then I will hear from heaven, and I will forgive their sin and will heal their land.
by Pops » Fri 23 Jan 2015, 18:36:14
$this->bbcode_second_pass_quote('Subjectivist', 'T')his part I fully agree with, my contention however is that once the LTO is turned from a roiling boil down to a slow simmer it will not be just a case of flipping the heat, in this case price, back up to the old level and getting a rapid increase back to December 2014 production levels. So far some people have been lightly singed by the price drop, but the longer this lasts the more investors who are going to get burned. Investors who get burned lose money and are less eager to invest when prices go back up.
Hmmm, I don't know.
I agree that the less proven areas (or areas proven to be less, LOL) will have a hard time. Same with the less well regarded companies I'g think. But if the price stays down for a while, lots of those assets and companies I'd expect to be "acquired."
The well proven areas and well regarded companies probably will just stand the rigs back up and get on with it.
Still I am like you, the blush will be off the rose and folks will probably be much more careful.
$this->bbcode_second_pass_quote('Subjectivist', '')$this->bbcode_second_pass_quote('Pops', 'T')he increased cost will be afforded by consumers by increasing the utility they receive for a declining amount of more costly oil.
Use less to pay more
On this part I think you need to lay out a time scale.
Ohhh, that's tough, basically just as tough as pointing to the day production peaks and all the news stories besides, LOL
Especially because I said way back that the price would fall for a while because the economy would be so beat up by oscillating price - just like now.
I took a total WAG and said increasing volatility but declining trend so that the average price would be $80 in 2020 - look close at Jan 2015 (2nd vert line) is and I did good, LOL
It won't be a discrete point, different people can make different adjustments. It is hard to buy a Smart car when you can't keep the old Monte Carlo shod. But the stimulus of cheap gas right now will get the GDP motor running more than the handouts to banks did before.
If you take the EIA guess of a peak soon and a plateau 'till some past '20 I'd expect there to be quite a bit of change going by then - because the economy will heat up. If LTO tanks and doesn't come back quickly or ever then the price will get folks off the dime sooner. If price stays low longer, people will just backslide.
How's that for prevarication?
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
by Pops » Fri 23 Jan 2015, 18:41:12
$this->bbcode_second_pass_quote('sjn', 'P')hase change.
Conjecture
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
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by sjn » Fri 23 Jan 2015, 19:01:43
$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('sjn', 'P')hase change.
Conjecture
Perhaps. How do you explain the behaviour of your oil price wedge? Why is there a declining demand ceiling? Increased volatility, no doubt, but why? What does it all mean?
The demand ceiling or maximum affordable price is determined by what factors? I posit that it represents the energy purchasing power available [effective economic utility from the usage of the oil - ie. you can only pay from what you've earned or borrowed] from the declining surplus available to the rest of the economy, and as such isn't a constant but declining value, although as you suggest in principle some improvement in utility may be possible to offset the decline, but there are thermodynamic limits, and where does utility start and waste end, whose jobs are "useful"?
by Pops » Fri 23 Jan 2015, 21:04:05
$this->bbcode_second_pass_quote('sjn', '')$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('sjn', 'P')hase change.
Conjecture
Perhaps. How do you explain the behaviour of your oil price wedge? Why is there a declining demand ceiling? Increased volatility, no doubt, but why? What does it all mean?
The demand ceiling or maximum affordable price is determined by what factors? I posit that it represents the energy purchasing power available [effective economic utility from the usage of the oil - ie. you can only pay from what you've earned or borrowed] from the declining surplus available to the rest of the economy, and as such isn't a constant but declining value, although as you suggest in principle some improvement in utility may be possible to offset the decline, but there are thermodynamic limits, and where does utility start and waste end, whose jobs are "useful"?
All good questions. I really have specific answers to none, merely a progression of general events that I've puzzled over way too many hours and seem logical. I would be foolish to pretend to know specific dates or amounts and anyone reading such specifics would be foolish to believe them anyway. LOL
It goes like this
The economy shrinks as oil stays right at the edge of affordability
Producing additional marginal barrels becomes unprofitable
----- You Are Here ------
Natural decline of the cheaper to produce oil necessarily shrinks production
The price continues to press at the bounds of affordability eliminating marginal consumers
The economy shrinks more in a progression of booms and busts
Consumers adjust or are adjusted, they carpool and switch fuels, and move closer and buy less
All that of course is waste to them but gravy to someone else so the economy shrinks
More volatility, smaller economy and lower oil prices on average
At some point the the majority of "waste" is eliminated, don't know when,
Not as soon as 10 years for sure. 20 maybe? Not much more than 25 or 30 I'd think.
The uses left are pretty important though, maybe not an existential necessity in the rich world, but pretty important.
I think the price can stay here for some period because there is still a lot of cheap oil as long as we don't ask for much
Half today's flow? Maybe a third?
Maybe this lasts as long as the last of the big giant reservoirs and offshore? who knows.
What is the production rate at that point? heck if I know
Whatever extraction methods profitable at that point run their course.
I think that this might be the lower price plateau and last production plateau,
Of course whatever the cheapest fossil energy available at that price can only last so long and will run low
But, utility has continued to increase (the average price stays right at the edge of affordability always)
Consumption now has turned into real necessity, conservation here is an existential threat
This is when the price can permanently start to rise
Not to increase production, mind you, the economy and the price affordable is too small for increases in production
The price can rise simply to maintain production levels, moving on the the next harder to extract fuel
Where the flow rate drops again.
This is the use less to pay more part
I think from that point forward the price can rise to whatever because the utility is very high and required by some for outright survival. At no time does oil become unimportant, in fact it becomes increasingly valued as it's true usefulnes is revealed.
Eventually it is unavailable at any price a regular prole can afford.
--
It is just a thought experiment. It doesn't involve eri at any point because it seems to me we will never get to a point that eri impacts production, I've never read of it happening anyway. Oil is not an energy making business it is a profit making business and the profit will be long gone way before the net energy.
No one can predict the contortions of governments or producers or consumers so no one can predict the numbers, dates, rates, what have you. It would be silly to try, and a person would be silly to believe anyone who says they know.
Probably the smartest thing I ever heard was Laherrere saying that estimating URR at finer than full trillion barrel precision is giving yourself way too much credit. Mentioning decades in any guess is probably the same.
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
