[ROCKMAN]

Pstarr - A fact of life: rarely is a geologist running an oil company especially pubcos. When I started almost 4 decades ago engineers usually made it to the top of the food chain. Today someone from the accounting or legal side running the show isn't uncommon. But even if I were running ExxonMobil I would still have to follow the lead of the board. And thus back to quarter by quarter goals. Even my current privco was designed to last only 5 to 7 years. Then we flip the company and all go to the house permanently. At least those of us old farts that were still alive.

I've think I've the point very clear what the goals of the oil patch are and none of them involve the long term viability of the US economy despite what Chevron says in those silly commercials

[ROCKMAN]

pstarr - I would offer several reasons why you don't see more oil patch hands here. First, a large percentage of the hands know little about geology or reservoir production. We are very compartmentalized. Most rigs hands understand very little about geology. Most production hands and geologists know little about drilling. Etc. Second, the ones that do have a grasp of the bigger picture see no point in spending time at a site like this: they know (or think they know) all there is on the subject. Third, most have a life unlike some crippled geologists who have a monitor in front of them for the majority of their waking hours. LOL.

To be rarely serious for the moment: the vast majority of the oil patch couldn't care less if the public understands what we do. They know we'll be ignored when prices are low and blamed when they are high. Since we're either invisible or lying bastards very few care to have conversations with the public. Don't blame us: if the politicians and public paint us as the enemy how else would you expect us to respond? Me? Deep down under this all American money grubbing exterior of a dirty lying bastard I'm a natural born teacher. Just like most self-proclaimed know-it-alls. I cannot stop myself from explaining things to folks whether they want to know or not. Just ask my wife. She usually leaves the room when the Discovery Channel is on because I can’t help pointing out what they’ll fail to mention. LOL

[Pops]

$this->bbcode_second_pass_quote('ROCKMAN', 'I') cannot stop myself from explaining things to folks whether they want to know or not. Just ask my wife. She usually leaves the room when the Discovery Channel is on because I can’t help pointing out what they’ll fail to mention. LOL

[agramante]

Well, Pops/Rock, a three-year-old might just test your loquacity! Mine has me coming up with all kinds of stories these days, like the different kinds of monsters and where they come from. My least favorite is when she asks a question, I'm giving the answer, and she's got her follow-up "Why." before I'm even finished. And the "Why." is more of a statement than a question. But this beats the phase that will eventually follow, though--when she knows better than I do, about everything.

Anyhow, a month or so ago I came up with a graph somewhat to the point of the price plateau: namely Americans' ability to purchase oil, i.e. transportation fuel (or whatever significance you choose to read into it). I've since found a better record of WTI which spans back far enough to match the US Census data for median American household income. And I simply divided price per barrel into the median income, by year. That eliminates inflation as a consideration, because both income and price of oil are affected similarly by it. Since WTI is a current index I thought it would be useful. One might choose to take 25%, or 33%, of household income instead of 100%, but that would change only the absolute number of barrels per household, not the historical trend. And here it is:

Median Household Oil.jpg

We certainly haven't been on a plateau in terms of energy affordability lately--or if you choose to call that a plateau, it's one bumpy SOB.

[SeaGypsy]

Up until very recently an increasing amount of this oil has had to be imported; making the USD$ trade weighted index for the period an important factor. There has been much more significant variation on the dollar exchange than basket inflation within the USA would indicate.

[ROCKMAN]

A & Gypsey - good points and why I think we tend to focus on various plateaus a tad too much... including me. Consider the price plateau. In general seems to be holding a fairly narrow range which could be interpreted as some equilibrium. But when you pull it apart and look at smaller subsets of the global economies.

England comes to mind. Holding it together at the moment but I sense a degrading situation even if prices stay stable. And no need to go into details about the PIGGS. OTOH in the US thanks to out magical digital printing press we doing OK...kinda.

Same point about the global oil rate plateau. Somewhat but behind the numbers there's ELM working silently along with China removing significant amounts of oil from the future market place via various efforts. Global oil rate may stay plateaued for a good while. But that doesn't guarantee the distribution patterns or prices will hold as they now exist.

[SeaGypsy]

The potentially very short reprieve in import requirements has bought some time on the debt clock and trade balance, this with automatic fiscal restraint measures kicking in has the dollar strengthening- making imports cheaper but hurting exports. ELM is a sleeping tiger in the wings in the USA, only because of the spike in production and import offsets. Same tiger looks to be wide awake in some parts of the world and doing much damage. China seems relatively to be making the tiger it's pet- if that were possible- acting as if they are more savvy than anyone on peak oil related development and acquisition.

[FarQ3]

As an oil company worker. It wouldn't make sense for oil company management to come out and say 'Hey the cupboard is nearly bare' Oil company management want to attract investment not scare it off. Would a savy investor stake a claim in an oil company with a declining oil production and with little prospect of increasing it? ... Not likely. So although I feel that the majority of my workmates are spoon fed the 'there will always be enough oil' story many are also worried directly about where our next producing field will be. You can't go home and explain to the wife that the 110,000bbl/d field you work on is now only producing 12,000bbl/d without causing her to worry. The exploration record of the oil majors in recent times has not shown much promise.

[wildbourgman]

FarQ3, It goes even farther than that. I've often run into old oil field hands (some retired) that point to wells in the Gulf of Mexico that were plugged back (T&A) in the 1980's that could produce enough to run Amurca for 100 years. I have a hand that works for me that told the exact same legend except he said it was the Permian Basin in Texas rather than the GOM. For some we've created an artificial reality rather than logic.

Since the Early 1990's every well that I have ever been involved with was produced as fast as possible with no regard to energy prices of the day. We could have had $1.80 natural gas, a falling rig count, massive layoffs, and no need for additional production, but when that well came online they produced it fast enough to damage the formation, sand up the well or collapse the completion. We never held back anything at that point. Even as a young hand I felt the oilfield legends were BS because of the actions of oil companies.

[Pops]

That's funny guys thanks. Everyone wants to be in the know...

$this->bbcode_second_pass_quote('', 'W')illiams said that in the 1970s Alyeska Pipeline Service Co. had given him a position as chaplain for people working on the northern section of the trans-Alaska oil pipeline and the camp at Prudhoe Bay. He said that Alyeska became so pleased with his success in counseling workers that they gave him executive privileges on the North Slope, thus enabling him to sit in on board meetings held by company executives.
Williams said that in 1976 he stumbled across the discovery of a vast oil field penetrated by an exploration well drilled on Gull Island by ARCO. He said that at the time of the discovery he had attended the management meeting in ARCO’s North Slope base camp, in which the “top eight oil company men of the world” had confirmed the find. But ARCO refused to make public the Gull Island discovery and the field has remained a closely guarded secret ever since, Williams said.

[ROCKMAN]

"...the field has remained a closely guarded secret ever since." Makes sense to me: whenever I want to keep a secret closely guarded the first thing I do is tell a door-to-door bible thumper. They are all know to be very closed-mouth.

[Tanada]

Now that prices in the USA are rising we need a definition of what the Price Plateau value was and how long we must depart from it to say we have left it behind.

Pops you are the wizard at this kind of data, what price is the Plateau, what was it for each year we were on it and how long do we have to leave the plateau before we declare it over? Six months? Three months? Two years?

[ROCKMAN]

Here’s an interesting chart (http://chartsbin.com/view/oau) showing oil prices since 1860 in 2009 $’s. I wonder who was paying $90+ per bbl in the 1860’s…maybe war time prices. And then a modestly declining plateau for the next 90 years or so. A little bump for WWI but nothing for WWII. Perhaps due to the discovery of the giant East Texas oil field. Some historians give much credit for our victory to this discovery.

And then the boom of the late 70’s followed by the 80’s and 90’s plateau. And then our current price boom. I was just starting my career in the late 70’s and walked right into the boom. I remember no one…absolutely no one… expected the price bust that developed in the 80’s. Just the opposite: companies were using 15%+ price growth for many years into the future.

And then came the global recession that no one I recall predicted until it began. And today look at how we tend to mock anyone that predicts much lower oil prices in the future. Of course, many are doing so based upon the expectation of a great surge in production. In such cases a bit of mockery may be called for IMHO. But if we see a global recession grow it may not have the same impact on prices even if we are slipping towards a global PO during a time when some economies can afford the higher energy costs. This could bring about a long term global economic decline never seen before: no eventual recovery.

We did see the global economic reaction to $140/bbl in ’08 but that was relatively short lived. The price drop was short lived…not the global economic slowdown. But now we need to step back and stop being focused on global trends. Not that it’s solely dependent upon energy prices but they are a significant factor IMHO. An oil price plateau says something about oil prices but not the economic fallout. The PIGGS looking at the current plateau and see a nightmare. The Chinese see it as an opportunity to acquire the energy the need to expand as well as lock up future reserves. Granted an odd take: higher oil prices are removing potential buyers from the market place that would compete with China for oil acquisition. Such has been an advantage the US has held for a long time. Higher prices don’t help the US/Chinese economies but OTOH it does thin out the energy consuming heard.

As I’ve said before when it comes to PO it doesn’t matter how littler the world is producing as much as it matters how much a country is importing. Maybe we’re not at Peak Global Oil yet…maybe we are. In either case it doesn’t matter to countries that can’t afford to complete with the US and China for oil. The high oil prices aren’t good for the US economy but we are showing some growth even if it isn’t great. And China is still booming at that “anemic” 6%+ rate.

[Tanada]

Nice chart, but it stops dead five years ago :D

This thread is about the last 3 years Price Plateau and guessing how much longer it will last lol!

[ROCKMAN]

Tanada – yep…couldn’t find one with such a long time span that was more recent. But we know where oil has been the last five years and despite that short bust in early ’09 I would call it a plateau.

But to your important question: how long will it last. That was my speculation that with the US recovering a bit and China booming (at least for the moment) we may never have seen this dynamic before: demand destruction following a paralle path of reduced supplies. Unlike the early 80’s demand destruction there isn’t as big a potential to flood the market with large volumes of relatively cheap oil. In the late 80’s that helped the global economy recover.

But mow the majority of OPEC can’t dump those volumes on the market. Perhaps the KSA still could but that brings up another important question: why would they if they aren’t losing market share? If you caught my other post: the KSA, thanks to higher oil prices, has doubled their income in just 5 years. IOW if prices slide they could cut production volumes, keep prices up and have the same revenue or more as in 2007. I don’t recall anyone saying the KSA was in financial trouble back then.

So that theoretical scenario: economic bad times continue to hold many economies down. Oil production capabilities decline and thus less oil to the market. But prices can’t rise too high less too much consumption is reduced. But some economies, such as the US, China and perhaps a few more can still afford current prices. So as we go down the PO path production declines hand in hand with consumption while prices stay on a plateau. Or at least a very slowly declining one as we saw in the first half of the last century.

But what if the US and Chinese economies go into a deep recession? Different game then. But what would cause such a meltdown? Higher energy prices? Both economies are doing adequate to good under current prices so something else would have to happen. Maybe it’s getting close to start considering two PO scenarios: one that cripples economies that can’t afford current prices and one where some economies can grow under current pricing. In this world oil prices stay on a plateau because decreasing production can’t drive prices up without destroying too much demand and PO doesn’t allow too much oil to reach the market and drive prices down.

I’ll make up some numbers that I can’t possibly predict for 2050: max global oil production = 60 mmbopd. Oil price = $95/bbl (2013 price). The US/Chinese economies continue to do adequately since they have been able to continue affording such an oil price. Many other economies obviously don’t do very well. But there you go: a 40 year stable price plateau. Again, not a prediction. Just a story. A nightmare King-like story for many of the global economies but just a story none the less.

There it is: you say not too long and I say for a long time. I'm confident the realty will fall somewhere between those two positions. LOL

[sparky]

.
I'll go with a plateau , quite a few economies can cope with expensive oil ,
it result in very small growth ,
there is more of an issue for developed , indebted advanced countries
people have more to loose

[Pops]

Yes, I am definitely the Guru of the Illustrated WAG!
Thanks for the prompt T. I hadn't done this in a while.

Here is my same old chart showing my predictions from a couple years ago with updated prices. (WTI was anomalous for a couple of years, decoupled from the "real-er" waterborn price)



Wow, I suprise myself!
Is that erie or what?

Brent has touched the $120 Econo Ceiling 3 time and dropped back to the orange Demand Destruction line. The green "Depletion/supply price floor/etc" line has more or less crossed the Red Econo Ceiling Line, the price dropped to the oranged "Demand Destruction" line just as predicted!

For those new to this bit of blather, back in 2010 or 11 sometime, I noticed the price was moving exactly like it had in the '04-'06 period - the 2 green lines are dups, exactly the same angle. To my little brain that meant something so I extended the second green line (starting from 2009) into the future and drew the "Demand Ceiling" line sort of arbitrarily at $120, figuring it took a while for higher prices to kill demand in '08 but that that would be the price point that stopped growth - both economic growth and price growth.

My question was, what would happen when the "cost" floor (green line) crossed the Economic price ceiling (red line). I guessed that rather than increasing forever as per everyone, oil prices could only rise to some level - $120, then as they eroded the economy they would become more and more unstable starting and stopping drillers but the trend would be lower and lower. That is the light orange line.

Here is the 2020 Price Challenge thread chart from last year...




Bow down mortals, I wield the power of PShop!

P.S. I guess I can't let my head get too big, I dropped from 3rd to 11th place in the brent game, lol Cog, Auntie, Midessa are 1,2,3 right now.

[Pops]

BTW, that whole wedge form of rising cost and lowering economic ceiling was what prompted the Price of Collapse thread trying to figure out what happens when costs rise but the economy can't pay the price

Here's one of the first scribbles I can find along that line