PeakOil is You
When do we fall off the undulating plateau? Pt 2
Re: When do we fall off the undulating plateau? Pt 2
by Tanada » Tue 07 Nov 2017, 10:49:20
$this->bbcode_second_pass_quote('Revi', 'I') keep hearing that 2020 is when the wheels really fall off. The US surplus is about gone, and we are going into 2018 with an oil price almost at $60. (Hard to tell if that's just due to Saudi instability or caused by scarcity) When will be world economy crack and oil prices fall again? Hard to tell. It's like we are falling down a set of steps. So far the steps have been small, but soon they get steeper and steeper...
It could be that soon, so much depends on how Fracking works out over the next few years. They were drilling just sweet spots in 2009-2010 as proof of concept then everywhere they thought they could get some oil in 2011-2015 including all the known and discovered sweet spots. From second half 2015 through first half 2017 at least they were again focused on drilling sweet spots because most other spots didn't pay back well enough at the prices in that period. Soon prices will be high enough IMO to start a boomish period drilling the consecutively less sweet but already known spots that will pay off well at $60/bbl and wildcat some more where they think it is worthwhile. However even if we make it back to the $80+/bbl range we held from 2010-2014 I am not sure how much massive drilling will be able to find financing for going after the speculative drilling in unproven locations and just plain wildcatting that was taking place in 2012-2014 when things were booming like crazy and they were making holes in a lot of locations that did not pay back costs, let alone create a large profit.
Just because easy money financed an extreme drilling period in the recent past does not mean easy money will repeat the same mistakes. It was pointed out very frequently here that a lot of those wells drilled were hemorrhaging cash flow and bankers were turning a blind eye and loaning more money to the companies that were in the red and getting further in the red with nearly every well they were drilling. It doesn't mater how efficient and effective your technique is if the strata in your lease do not have recoverable oil and gas that will sell for enough to pay your expenses including servicing your loans and provide a profit for the company owners as well.
Right now the storage glut is rapidly abating in the USA and presumably elsewhere and this is helping drive prices upward. The natural result is oil companies will have greater profits and many of them will use those greater profits to drill more wells in expectation of increasing cash flow to the owners/stockholders. However the companies still in business now are mostly the ones that didn't grossly over extend themselves in the last boom, or companies that stayed out of fracking and then gobbled up the assets of the bankrupt companies in the glut period for pennies on the dollar. Just because the big fish bought the assets of the bankrupt does not necessarily mean they will be wanting to play shale drilling roulette this time around either. All it means is the wells drilled and completed by the bankrupt will remain in production for the remainder of their useful lives.
World demand has grown 3 MM/bbl/d over the last three years since KSA declared they would defend market share in November 2014. At the time of the KSA declaration world oil producers were providing 1 MM/bbl/d more than they could sell at $80/bbl and this 'glut' remained the situation until 4th quarter 2016 as demand rose enough to approach supply. That set off an increase in drilling and kept the buffer in place through the last 12 months, but with the exception of a short period in mid summer 2017 prices have remained not far off the $50/bbl band.
Fracking can still grow some in the USA as prices go back up, but oil investment bankers seem for now to have figured out that Oil is like any other business and loaning money to companies consistently showing a loss is the recipe for bankruptcy. For whatever reason in the 2010-2014 period this simple principal of banking was set aside and a plethora of bad investment decisions were supported in true bubble fashion. This was much like the DotCom bubble of the late 1990's or the Housing bubble of 2007-8 and seems to repeat every decade or so with a different asset class than the last time around. Internet companies today need a business plan that is convincing to the investment bankers and still they have a hard time getting loans for startups. Housing contractors have a better time of it because real estate has an intrinsic value, but in 2007 there were loans to build a strip mall on every street intersection and we do not see that same madness repeating now even though housing prices have recovered reasonably well. My suspicion is the fracking companies will have the same kind of expectations from investors now that would have slowed down or prevented the mad rush to drill and complete which took place especially in 2012-2014 at the peak of easy money loans for fracking companies. If you have a proven track record of making a profit fracking oil getting a loan is not an issue, but if you are a start up or your business plan sounds too good to be true, or you have had a string of not quite profitable wells then getting a loan becomes an order of magnitude less likely in the current environment.
This begs the question, what is the next financial bubble because as soon as something catches on it will drain a lot of financial potential out of the system. I think perhaps it will be EV's/autonomous vehicles because the media has been hyping them for over a year now and that is usually a sign the fix is in. Unlike housing or oil, or the internet however an EV in every garage is a much tougher sell because they remain both expensive and of limited utility to the average American driver.
$this->bbcode_second_pass_quote('Alfred Tennyson', 'W')e are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.
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Re: When do we fall off the undulating plateau? Pt 2
by KaiserJeep » Tue 07 Nov 2017, 11:16:24
$this->bbcode_second_pass_quote('Revi', 'I') keep hearing that 2020 is when the wheels really fall off. The US surplus is about gone, and we are going into 2018 with an oil price almost at $60. (Hard to tell if that's just due to Saudi instability or caused by scarcity) When will be world economy crack and oil prices fall again? Hard to tell. It's like we are falling down a set of steps. So far the steps have been small, but soon they get steeper and steeper...
What, pray tell, will cause "the wheels really fall off"? We suffered through $130 oil during the oil embargo, and the wheels didn't fall off. We still have an oil glut as of today, the US is currently the largest oil producer in the world, and the US will be able to pay higher prices than anyone else if we have to again increase oil imports. There are at least 50-60 years of declining production left in existing oil fields, there are tar sands and oil shales in production. Our refineries will have oil from all these sources, via pipelines and tanker ships. We are fracking oil and gas out of the ground and mining coal. The average cost of a kWh of grid electricity has rizen from $0.117 in 2013 to $0.129 in 2016, and who knows, might break through the $0.130 barrier in 2017.
The steadily increasing cost of energy is hurting the world, and the hurt will grow from year to year until countries with marginal economies begin to break. But for the life of me, I can't see any reason why the USA should not be the last to suffer, and suffer the least. We also have more resources to devote to renewable energy production, why should that not continue to increase?
I personally will not buy another ICE vehicle, although I did promise one to the wife, I'll only insist that she get the flex fuel option, as I believe that even with more and more expensive oil, there will still be corn grown and ethanol including E85 fuels in the MidWest. We just busted through the $4./g mark in the SF Bay area - again. This year I expect the same will be true on Nantucket, but we don't buy much there, either. Like I said, I'm well under 100 gallons for this year. I will keep the Jeep Wrangler in Wisconsin, and drive it in the Winter. I hope to add at least one EV and will charge it with renewable energy generated on my property. We will keep the former MIL's 20+ year old downsized Chevy Blazer on Nantucket, and probably put less than 500 miles on that annually.
I actually do believe in the end of oil, and that it will constitute a disaster. I expect this will cause political unrest in the USA, and has already produced starvation, refugees, and general disarray in some parts of the world. But we seem better positioned in the USA than anywhere else, and will probably suffer less, not more. But Kunstler's "Long Emergency" scenario has been in place for decades.
I guess I am not feeling especially Doomish today. The undulating plateau stretches to the horizon in all directions.
KaiserJeep 2.0, Neural Subnode 0010 0000 0001 0110 - 1001 0011 0011, Tertiary Adjunct to Unimatrix 0000 0000 0001
Resistance is Futile, YOU will be Assimilated.
Warning: Messages timestamped before April 1, 2016, 06:00 PST were posted by the unmodified human KaiserJeep 1.0
Resistance is Futile, YOU will be Assimilated.
Warning: Messages timestamped before April 1, 2016, 06:00 PST were posted by the unmodified human KaiserJeep 1.0
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Re: When do we fall off the undulating plateau? Pt 2
by GHung » Tue 07 Nov 2017, 11:40:44
" But we seem better positioned in the USA than anywhere else, and will probably suffer less, not more."
I'm not so confident. Our economy is built around current levels of consumption and our population is largely deluded, has a strong sense of entitlement, isn't getting along so well, politically, and is prone to blaming their own. Externally, other countries own a huge amount of our debt and generally don't like us much as of late. The US is utterly reliant upon our current position in an interconnected global economy. We have squandered our ability to adapt for short-term faux growth, while most of the world I've seen first hand is more used to change and adaptation.
In short, the US population is spoiled rotten and it will take a couple of generations to purge ourselves of our deluded exceptionalism.
I'm not so confident. Our economy is built around current levels of consumption and our population is largely deluded, has a strong sense of entitlement, isn't getting along so well, politically, and is prone to blaming their own. Externally, other countries own a huge amount of our debt and generally don't like us much as of late. The US is utterly reliant upon our current position in an interconnected global economy. We have squandered our ability to adapt for short-term faux growth, while most of the world I've seen first hand is more used to change and adaptation.
In short, the US population is spoiled rotten and it will take a couple of generations to purge ourselves of our deluded exceptionalism.
Blessed are the Meek, for they shall inherit nothing but their Souls. - Anonymous Ghung Person
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Re: When do we fall off the undulating plateau? Pt 2
by vtsnowedin » Tue 07 Nov 2017, 13:00:37
$this->bbcode_second_pass_quote('GHung', '[')i]" But we seem better positioned in the USA than anywhere else, and will probably suffer less, not more."
I'm not so confident. Our economy is built around current levels of consumption and our population is largely deluded, has a strong sense of entitlement, isn't getting along so well, politically, and is prone to blaming their own. Externally, other countries own a huge amount of our debt and generally don't like us much as of late. The US is utterly reliant upon our current position in an interconnected global economy. We have squandered our ability to adapt for short-term faux growth, while most of the world I've seen first hand is more used to change and adaptation.
In short, the US population is spoiled rotten and it will take a couple of generations to purge ourselves of our deluded exceptionalism.
I'm not so confident. Our economy is built around current levels of consumption and our population is largely deluded, has a strong sense of entitlement, isn't getting along so well, politically, and is prone to blaming their own. Externally, other countries own a huge amount of our debt and generally don't like us much as of late. The US is utterly reliant upon our current position in an interconnected global economy. We have squandered our ability to adapt for short-term faux growth, while most of the world I've seen first hand is more used to change and adaptation.
In short, the US population is spoiled rotten and it will take a couple of generations to purge ourselves of our deluded exceptionalism.
Don't sell the millennials so short. They are the same genetic stock as their grandparents that lived through the great depression just have been raised without any adversity in their lives as of yet. Let hard times befall them and they will rise to the occasion in a time span measured in months or a few years not in whole generations.
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