[pup55]

Good posts, Rockman and Smiley.

Thought exercise:

Let's say that they're right, we will somehow come up with the $26 trillion investment to drill all that new oil, the Saudis and others actually do have all of that oil, there actually are enough undiscovered fields to have constant production from those, like the charts suggest, and we actually do not hit PO until 2030.

By then, the world population 9 billion instead of the current 7, we will have even more mouths to feed, there will be that many more Chinese millionaires who want to drive, that many more cars in the US, in a that-much-more sprawled out suburbia , and the collapse will be that much more violent.

A lot of that population growth will take place in little idiot nations that right now have big populations of 14-year olds. Pakistan, Haiti, Indonesia...a few others come to mind. They're not going to be happy campers. Can you guess what will happen when PO hits in 2030 with the population in those places doubled, and their situation getting even worse? Chaos, on an even larger scale.

My unborn grandchildren will probably be in their late teens by that time. What a world we will have left them.

Better to have it now. I would rather deal with the consequences now, rather than let the grandkids have to put up with it.

[seahorse]

No PO until 2030 is full of ASSUMPTIONS, like:

(1) Projects will continue to come on line which they are not due to the financial crisis;

(2) The investment money will be there;

(3) Population won't increase and drive up assumptions of demand, especially in Opec countries nonetheless;

[ROCKMAN]

pup,

Such thoughts run thru mind almost daily. I'm an old fart with an 8 yo daughter we adopted in China. On the one hand I hope PO (and all the nasty side effects) hits us between the eyes tomorrow. I'm still here to look after here and, perhaps, by the time she's an adult, we would have made some adjustments. On the other hand, if THSHTF when she's beginning adulthood she can make devise her own adaptation to the situation. Either way, she'll have to deal with issue we only talk about today. The best hope I can have is that PO comes farther down the line and we began making rational changes to society. But I don't really waste much time fantasizing about such unlikely responses

[seahorse]

Tony,

You said the latest "STEO estimates," what are those and where can they be located?

[pup55]

Math exercise:

a. $26 Trillion investment.

b. Replace the current capacity that is declining at X percent per year

C. Put in additional capacity to accommodate growth at Y percent per year.

If the decline rate is 5% per year (generous assumption, since everybody is saying it's more like 7)

and if the growth rate in demand is 1.2% (another generous assumption since everyone is saying it's more like 1.6%)

and the current consumption rate is 88 mbpd

You need to build a cumulative 745 mbpd capacity to replace the currently declining fields, and 264 mbpd capacity to accommodate the growth. Multiply by 365 to get the actual number of barrels--- then divide into the $26T investment to do the pumping:

Just over $70 per barrel, and that's without any profit, variable extraction cost, or anything else.

So, if they're right, buy all you can at 58.

Or the other way to look at it: at every day the price is at 58, that's one more day no one is going to drill for oil.

[seahorse]

Okay, in partial answer to my own question, I found the EIA's "short term energy outlook" but I did not see their estimates of oil demand/production for the last two months.

[VMarcHart]

$this->bbcode_second_pass_quote('SweetSmellofMoney', 'G')oogle Air Cars! Easy as PIE!

[shortonsense]

On topic!!!! Here's the executive summary: http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf pg41 ( 5th pg in the PDF ), about halfway down.

"The world is not running short of oil or gas just yet. The world’s total endowment of oil is large enough to support the projected rise in production beyond 2030 in the Reference Scenario." So much for this one being a barnburner. I'm waiting for the complete TOD review before making up my mind.

[ROCKMAN]

pup,

Towards the expense side of your comment, I just yesterday I attending a meeting presenting a Deep Water GOM well I’ll be working on next Feb. The estimated cost is just shy of $200 million. And that doesn’t included completion or infrastructure costs. It truly took my breath away when it flashed up on the screen. Just last Sept I worked on a similar well with a cost estimate of $100 million but lots of trouble ran it up to $148 million. And the new $200 million price tag doesn’t include trouble time. On the good side, it suppose to have nearly a 100% probability of success since it’s going to confirm a successful wild cat drilled a couple of years ago. On the other hand, this is the third “sure shot…can’t miss” well I’ve seen drilled in my career. And the first two missed.

These huge and long term projects require a good estimate of future oil prices to make the economic analysis viable. With the volatility we’ve seen in the last 10 months it’s easy to imagine how little confidence companies can have in their economic analysis these days. Finding oil is not enough…the numbers have to work out too. Today that analysis is pretty much down to a wing and a prayer.

[jdmartin]

$this->bbcode_second_pass_quote('ROCKMAN', 'p')up,

Towards the expense side of your comment, I just yesterday I attending a meeting presenting a Deep Water GOM well I’ll be working on next Feb. The estimated cost is just shy of $200 million. And that doesn’t included completion or infrastructure costs. It truly took my breath away when it flashed up on the screen. Just last Sept I worked on a similar well with a cost estimate of $100 million but lots of trouble ran it up to $148 million. And the new $200 million price tag doesn’t include trouble time. On the good side, it suppose to have nearly a 100% probability of success since it’s going to confirm a successful wild cat drilled a couple of years ago. On the other hand, this is the third “sure shot…can’t miss” well I’ve seen drilled in my career. And the first two missed.

These huge and long term projects require a good estimate of future oil prices to make the economic analysis viable. With the volatility we’ve seen in the last 10 months it’s easy to imagine how little confidence companies can have in their economic analysis these days. Finding oil is not enough…the numbers have to work out too. Today that analysis is pretty much down to a wing and a prayer.

[ROCKMAN]

Thanks jd. Few know a lot about everything. But most of us know a lot about a very narrow range of experience. That's one reason I like hanging out here. We have a diverse crowd that can usually plug all the holes in my limited knowledge base.

[jdmartin]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')hanks jd. Few know a lot about everything. But most of us know a lot about a very narrow range of experience. That's one reason I like hanging out here. We have a diverse crowd that can usually plug all the holes in my limited knowledge base.

[dohboi]

Perhaps they are considering all the CO2 in the atmosphere from past burning of oil to be potentially convertible back into the black slimy stuff?

[vaseline2008]

It seems that the Saudis are already in the lead with increasing their production outputs. They are also investing on more profitable ways to sell their oil. Here's the Forbes article:

The Octopus

$this->bbcode_second_pass_quote('', 'B')ut why, with prices dropping and a steep worldwide recession looming, would Aramco go all out on the most ambitious expansion plan in its 75-year history? Over the next five years it will invest $129 billion to boost its oil production capacity to 12 million barrels a day, build new refineries and petrochemical plants and pursue a high-tech exploration and production program. Executives promise that within 20 years this will increase the kingdom's proved recoverable reserves from today's 260 billion barrels to 450 billion barrels or more.

[TonyPrep]

$this->bbcode_second_pass_quote('seahorse', 'O')kay, in partial answer to my own question, I found the EIA's "short term energy outlook" but I did not see their estimates of oil demand/production for the last two months.

[sjn]

$this->bbcode_second_pass_quote('vaseline2008', 'I')t seems that the Saudis are already in the lead with increasing their production outputs. They are also investing on more profitable ways to sell their oil. Here's the Forbes article:

The Octopus

$this->bbcode_second_pass_quote('', 'B')ut why, with prices dropping and a steep worldwide recession looming, would Aramco go all out on the most ambitious expansion plan in its 75-year history? Over the next five years it will invest $129 billion to boost its oil production capacity to 12 million barrels a day, build new refineries and petrochemical plants and pursue a high-tech exploration and production program. Executives promise that within 20 years this will increase the kingdom's proved recoverable reserves from today's 260 billion barrels to 450 billion barrels or more.

[yesplease]

$this->bbcode_second_pass_quote('TonyPrep', '')$this->bbcode_second_pass_quote('AirlinePilot', 't')his latest price drop is NOT TOTALLY ABOUT DEMAND.

[ROCKMAN]

Given a long term (20 to 30 years) I can understand the KSA making such investments. First, they know how many other OPEC producers are at or close to their own PO. And no one has a better idea of how close the KSA is to their PO. But if we are to believe their budget forecasts that might be the best proof available that the KSA production rate from EXISTING fields may be getting close to the rapid decline rate phase that all oil fields eventually reach.

Not only may the KSA be anticipating a serious need to replace their own failing production but I also suspect they would like to keep the political/military climate as calm as possible. They did, after all, have a front row seat at the Iraq escapade.

[bl00k]

But ROCKMAN, if this raport is full of holes that are relatively easy to find, does that mean the IEA has some political agenda? If there are such large uncertainties, how can any sane organization publish a raport like this?

Perhaps im a little naive...

[ROCKMAN]

I really don't think so Bl00k. I think their work has been widely misrepresented by many. You have to dig it out but they do say that their reserve estimates are based on unverifiable numbers from the producing nations. They accept these numbers as correct but don't offer any proof. They simple assume the numbers are correct. But they have no other choice: the data needed to verify those numbers are not avalable. Neither the IEA or any other group has the data necessary to answer the simple question: how much proven oil is in the ground today.

If their are political agendas being thrown about it's being done by all those who REPRESENT that the IEA is offering proof that they really aren't.

The bottom line: the IEA is saying that the producers reported a certain amount of proved reserves. They then make gross assumption on how much it will cost and how long it will take to develop those "proved" reserves as well as other unknown discoveries out there. They DO NOT SAY the producers numbers are correct. They just accept them. Thus the IEA isn't really offering any proof of future oil reserves or production rates. They are simple saying if their assumtions are correct then their projections are correct.