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Page added on March 11, 2015
The Peak Oil Crisis: An Update
A lot has happened to the global oil industry in recent months. First it is important to understand that the concept of “peak oil,” the time when global oil production starts to decline, is alive and well despite the current, and very temporary oil glut. Conventional oil, the kind that comes shooting out of wells at thousands of barrels per day, stopped growing about ten years back. However, non-conventional oil (fracked shale, tar sands, deep water) is increasing. These very expensive “oils” gave many the illusion that all was well despite the steep climb in oil prices, which had to be on the order of $100 a barrel or more before they made economic sense to produce.
The technology of horizontal oil drilling and fracking, which had been known for many years, only played a part in the shale oil “miracle.” It took lots of money to get shale oil out of the ground and a selling price of less than $70 or $80 a barrel was not enough to make it happen. Only China’s rapid economic growth and ability to pay high prices forced them to unprecedented levels. Moreover, the Federal Reserve and its very low interest rates made the shale oil revolution possible by permitting the drilling of unprofitable shale oil wells using cheap money. Note that most of the shale oil under is under North Dakota and south Texas, where the local landowners and governments don’t mind letting drillers tear up the roads and countryside for lucrative fees and taxes.
Last summer, however, the bonanza came to an end: too much shale oil was being produced; the Chinese and other Asian economies slowed their demand; Europe ground to a halt; a glut developed and high oil prices were over — at least for a while. Starting in June of last year and continuing into January, oil prices fell steeply until oil was going for some $40 or $50 a barrel and less in North Dakota where getting oil to markets is difficult. Now these prices were OK for those selling oil from oil wells that only cost $10 or $20 to extract, but for the shale oil, tar sands, and even new deep water drilling projects, prices around $50 or $60 a barrel are a disaster. It takes oil well over $100 a barrel to justify new drilling for unconventional oil.
Currently the world is waiting to see if prices fall back to $40 or $50 as the supply continues to outpace demand and nobody seems willing to cut production. The massive losses most shale oil and other non-conventional producers are facing have resulted in a major cutback in the drilling of new wells and other energy production facilities. Within six months to a year these cutbacks in investment in new production will clearly result in a decline in global production of oil, which may not be possible to recover from. We just may be seeing the arrival of peak oil – conventional and unconventional – sooner than most believe.
26 Comments on "The Peak Oil Crisis: An Update"
rockman on Wed, 11th Mar 2015 6:25 am
Not bad but they overplayed their hand with respect to Deep Water fields. A great many of those fields (there are over 160 DW GOM fields) were developed at or below current prices. While in absolute terms spending $150 million to drill a single well or dropping $1 billion to construct a production facility seems huge consider that a field that starts producing at a net 150,000 bopd generates $2.2 billion the first 12 months at a price of $40/bbl
marko on Wed, 11th Mar 2015 7:29 am
excellent article and excellent comment.
I believe in this
Davy on Wed, 11th Mar 2015 7:38 am
Well, if you read my earlier morning rant then you will see Tom and I are wandering and wondering around the same glut.
marko on Wed, 11th Mar 2015 7:39 am
and just to mention there is a potentially 2-3mil barrels of the market , but that wouldn’t change a bit if we want the growth and consumption before 2008. Simply we have hit the ceiling and it is only a matter of time when will shit hit the fan. In my opinion much sooner then many of us expect.So what can we do, as one smart person said we will live as it’s going to be a peace for hundred years and we will prepare our self as it will be war tomorrow
I apologies on my poor english
Davy on Wed, 11th Mar 2015 8:13 am
Marko, we appreciate your contributions and admire your bilingual abilities. So, as far as Davy is concerned feel free to contribute. We need diversity of ideas here.
rockman on Wed, 11th Mar 2015 8:19 am
marko – Your English is fine, It’s gooder then most red necks in Texas.
Davy – I’m starting to get the sense that the term “glut” has almost become meaningless. With so many definitions and qualifications it can or can’t mean anything one wants. But I’m liking the term “affordability” as a more useful term. Today $50/bbl oil is affordable to enough buyers that consumption isn’t falling. But $100/bbl apparently wasn’t affordable to enough consumers to satisfy the cash flow requirement of producers. So they lowered the price to make oil affordable to more buyers.
This approach seems much more constructive to our thought process then arguing what is and isn’t a glut.
paulo1 on Wed, 11th Mar 2015 8:51 am
I’m just waiting for the production crunch, when the bisecting demands of supply and demand cross and everyone says, “wait a minute, just what the hell is going on”?. I was going to forward this article on to some friends, (because I thought it was bang on), and simply didn’t bother. What’s the point? They either don’t believe it or don’t want to hear it.
But you folks know the story, and I agree with Rockman on the word ‘glut’. It kind of reminds me of the CPI term of ‘inflation’. Apparently there isn’t any, that the price of cheese and meat has not been rising. Vegetables from down south? What are you talking about? There’s no…..
I have been enjoying this BAU glut of late. Yesterday, I took my little old Honda Trail 110 back about 25 km into the bush looking for a new fall hunting spot and for a little fishing. The water is at summer time low flows, and I went fly fishing in some gin clear canyon pools. I ate a salmon sandwich and had tea along the river and just enjoyed the quiet. I had to slam on my brakes to keep from hitting a herd of elk crossing the road and later saw a cougar jump out in front of me about 100′ away. He saw me at the same time and did a 180 so fast I thought he’d leave his tail on the logging road.
I am involved with this PO story to the point where I am now simply enjoying what’s out there and available and putting it aside during the day. It is kind of like knowing about subduction zone quakes and living on the NW Pacific coast. You know all about what is likely to happen but life goes on. We have the supplies in and the spares, and simply hope we are at home when the ‘big one’ hits, and not on some bridge or stuck on the other side of the river.
regards
Davy on Wed, 11th Mar 2015 9:33 am
Rock, I was using glut is a sarcastic fashion mocking my buddy Planter. Affordablility is a great term but it is a value judgment type term. The current oil complex is a complex demand and supply dynamics so any one definition will be lacking. I bought into your POD definition and I am liking affordability as well.
rockman on Wed, 11th Mar 2015 9:55 am
davy – Understood. y’all beat the Plant Man up so much I was trying to be more subtle. LOL. I avoid the idea of “affordability” being a judgment call by essentially using it as a consumption metric: the world is consuming X million bopd and paying $Y per bbl. Thus X is the amount of affordable oil being produced.
Sort of the same distinction as demand not being what consumers DESIRE to buy but what they are actually buying.
SugarSeam on Wed, 11th Mar 2015 10:13 am
“Within six months to a year these cutbacks in investment in new production will clearly result in a decline in global production of oil, which may not be possible to recover from.”
This is the part I’d like to see these authors examine more closely… Econ cultists all seem to believe they’ll get right back to drilling, seamlessly, as soon as the price goes back up. I’ve seen very little focus on dispelling what I assume is a huge myth. When investment is so thoroughly spooked, how can these clowned so casually assume it will return?
marko on Wed, 11th Mar 2015 10:19 am
thank you davy , thank you rockman.
gdubya on Wed, 11th Mar 2015 10:31 am
Where is plantagillnet anyway? By now we should have heard something about Obama invading Syria & causing this oil glut. I hope he’s OK.
Perk Earl on Wed, 11th Mar 2015 11:10 am
“I’m just waiting for the production crunch, when the bisecting demands of supply and demand cross and everyone says, “wait a minute, just what the hell is going on”?.”
That’s what I’m waiting for too, Paulo. The point in time when it occurs to them that diminishing returns of a finite resource, oil, has affordability limits in direct contrast to increasing costs of production that cannot be overcome by simple supply & demand dynamics.
Plantagenet on Wed, 11th Mar 2015 11:18 am
Hi Dubya
1. Thanks for your concern— I’m doing GREAT!
2. And I’m concerned about you—Your fantasy about obama causing the oil glut by invading Syria makes me wonder about what sort of pharmaceuticals you are using. You might want to reduce the dosage, what ever it is.
3. Great to see more acknowledgement from another leader of he peak oil movement of something some contributors here still haven’t acknowledged, i.e. that we are in an oil glut—-
Cheers!
MSN Fanboy on Wed, 11th Mar 2015 11:23 am
Funny, I thought you chaps were saying the same thing 5 years ago, let me check….
yes you did.
The POD is a good forecast but do not be fooled.
When you watch another white rabbit being pulled out of the hat by the next financial implosion remember this.
We have more than a decade yet chaps.
Plantagenet on Wed, 11th Mar 2015 11:27 am
MSN makes a good point. While some predict the peak in oil production will happen in 2015, others see a longer timeline to peak oil—MSN’s prediction of 10 years is not at all unreasonable.
Brent on Wed, 11th Mar 2015 11:29 am
I agree with this. I think the big story over the six to eight months is going to be banks failures ones that invested heavily in shale oil. So then when the only supply really starts to get tight where is the financing going to come from to restart production?
coffeeguyzz on Wed, 11th Mar 2015 11:34 am
Davy, I’m a little surprised that you’ve expressed receptivity to diversity (adversarial in a non-confrontational manner) of ideas as the few ‘oppositional’ perspectives, (certainly my own), rarely, if ever, receive objectively-based counter arguments Dismissiveness, marginalization, the ever-present ad hominems prompt all but the most diehard “Fifty Shades Of Grey” advocate to spend their time elsewhere.
Sugarseam, I am not an econ cultist (ad hominem again?), but the ongoing narrative of the sale of Whiting may be of the utmost significance.
If you are unfamiliar with Whiting and /or their present status, a bit of time and Googling could bring one up to speed.
Ultra-condensed coffeeguyzz view … the biggest producer in the Bakken is supposedly up for sale at this moment.
The tens of billions of dollars that may be spent, or, in extreme opposition, the spurning of this company by deep pocketed entities, should clearly show to one and all the oil/financial world’s view on these matters.
The next few weeks should be interesting.
JuanP on Wed, 11th Mar 2015 11:51 am
I admit to having used the term Deep Water carelessly in previous comments, when I actually was thinking specifically of Brazilian pre salt and Arctic offshore, like that failed attempt a couple of years back that was all over the media with the drift platform that crashed against some island. Was that Shell? Would that be Ultra Deep Water as opposed to GOM Deep Water? Because the Brazilian stuff can’t possibly be profitable at today’s prices. Or is it? My understanding is that no profit was ever made there even when we had higher prices. It is basically a speculative bubble. Am I wrong?
keith on Wed, 11th Mar 2015 1:07 pm
Peak Oil can be pushed into the future by a hundred years, if we cull 6 billion people. Everything today is about carrying capacity. SHTF will happen at the supermarket. That is the moment our paradigm will shift.
Davy on Wed, 11th Mar 2015 1:15 pm
Coffee said – Davy, I’m a little surprised that you’ve expressed receptivity to diversity (adversarial in a non-confrontational manner) of ideas as the few ‘oppositional’ perspectives, (certainly my own), rarely, if ever, receive objectively-based counter arguments Dismissiveness, marginalization, the ever-present ad hominems prompt all but the most diehard “Fifty Shades Of Grey” advocate to spend their time elsewhere.
Coffee, you are talking above my intellectual level or bellow it. I can’t figure out your meaning or intent. Please simplify the comment so I can respond to your criticism.
If this is related to being nice to Marko. What is the issue with that? If it is related to you I have never criticized you or told you to go somewhere else that I can remember.
The only one I reserve my ad hominems for is the Makster from wakster who routinely insults me and my country. IMA insults that are unfair, unbalanced and with malicious intent and all part of a warped personal agenda of hate and resentment.
Northwest Resident on Wed, 11th Mar 2015 1:55 pm
Brent said: “…where is the financing going to come from to restart production?”
A significant portion of the investment that enabled shale production came from corporate retirement plans. When we get that major stock market “correction” that we all know is coming, a lot of those retirement plans are going to be zeroed out. With a major stock market crash, a lot more people will become unemployed, leaving even fewer corporate retirement plans to invest in shale/unconventional energy scams, I mean opportunities.
A lot of individual investors have piled into junk bonds, desperately trying to find some yield, since ZIRP has made their “safe” bond investments practically zero-yield. As shale companies go belly up, those junk bonds become practically worthless. It took a MAJOR propaganda effort combined with ZIRP to lure investors into those junk bonds to begin with. It seems silly to think that after this round of fracking crashes and burns, that they’ll be able to fire up another round of ZIRP/QE and PROPAGANDA to reel in another batch of suckers — but, you never know…
This round of fracking and unconventional production always was totally dependent on ZIRP and billions (trillions!!!) of QE money sloshing around. And some — many in fact — will also point out that the stock market is being totally manipulated to create the illusion of wealth and profit, which also played a major role.
So much financial engineering, propaganda, lies, fraud and deceit went into this “shale revolution”, I just don’t see any possible way that they (PTB) will be able to fire up another round once the current one burns to the ground — which it is, burning rapidly, right now. After this, that’s all she wrote boys.
coffeeguyzz on Wed, 11th Mar 2015 5:51 pm
Davy, I apologize for being unclear and emphatically reaffirm your statements regarding me.
This site, Mr. Patterson’s, several others are, by definition/declaration, focused on the issues hydrocarbon supply status. I am far, far from being any type of authority in this area, but over these past several years, I have taken up the study of the ‘shale revolution’ as kind of an enjoyable pastime – due, in part, to my participation in three earlier ‘oil booms’ decades ago in various parts of the world.
There has been an astounding amount of ‘pushback’ to the past few years’ production of millions of barrels of oil, trillions of cubic feet of gas from heretofore unproductive areas.
People with environmental concerns, health concerns, climate concerns, preexisting oil/gas industry interests – both domestic and foreign – have coalesced around the view of demonizing the ‘frackers’.
Those of us who follow these goings on may contribute unwanted info – such as refuting the preposterous last sentence in the third paragraph in the above article – but rigorous, constant re-evaluation of one’s views is about the only way to ward off this site – and others, no matter the subject matter – from devolving into a ‘cyber saloon’ where ‘the regulars’ reaffirm one another’s prejudices.
Cheers.
Gerard
Davy on Wed, 11th Mar 2015 8:06 pm
Coffee, thanks for responding. I am not demonizing the frackers. Coffee, I am saying you have not proven your huge resource is economic. If it is not economic it is a dud. Forget all your grandiosity of this great industry and resource if it can’t turn a profit it is a dud.
My central point is to frackers and any other persuasion just be honest. Life with less fossil fuels for a complex economy of 7BIL people is scary when one understands all locals are delocalized and for the most part completely dependent on the fragile global. IMA a global everyone wants to change but any changes will have negative consequences and unintended consequences.
I ask the AGW, AltE, Greens, and Oil patch people to realize at this point every direction has a trade-off and none good. If you got a problem with the climate then be honest that there is no low carbon economy for 7BIL people. Low carbon may work for 1BIL but I doubt much more. AltE people have not been able to prove they can self-perpetuate a complex economy and AltE with AltE. Greens want their cake and to eat with a shiny, clean, low carbon BAU and 7BIL people.
The oil patch discounts and ignores peak oil dynamics (POD) especially total production energy (ETP). Wall Streeters don’t believe in limits. They want it all and could give a shit about the public. They are the psychopaths of greed and will destroy us if allowed. They have corrupted all branches of power, manipulated all markets, and are cannibalizing the public wealth for personal profit.
The Anti-Americans claim the rest of the world can decouple from a collapsed US. American Flag waives think…well you all know what they think because it is discussed here every single day ad nauseum by the idiots with agendas.
I am a doomer and prepper not because I feel the world is coming to an end. I doom and prep because with all of the above dishonesty with the various groups. We are in an energy trap, complexity trap, with a population in overshoot with numbers and consumption. I see no easy way out and all roads lead to some kind of collapse in the near future. I can’t predict the degree or duration of the collapse. I do not know when this will happen but in all likelihood 10 years or less.
Aire on Thu, 12th Mar 2015 3:31 am
Davy you last comment was fantastic and my sentiments exactly. It’s funny how what seems to be common sense to us and a few others on here like northwest is crazy for others. Personally I feel and major crunch happening within 5 years… but MSN boy will say that’s crazy. The exact time will hardly matter once it’s happening and there is a big crisis but in the meantime it’s good to keep up-to-date on current events and in-tune with reality. When I say this, I basically mean the present but with an emphasis on trends in the near future also.
Davy on Thu, 12th Mar 2015 7:55 am
Air, I once was a quiet type. I never participated in a forum. I didn’t even read comments much. I did a 180 degree turn because of what I see is a paradigm shift of the fundamental direction of modern man. We topped the roller coaster of the slow growth climb to what appears to be at some point swift dive down to some point that is anyone’s guess. Right now we appear to be at the top point in the transition from climb to dive.
This point can be argued either way by both camps of corns and dooms. BAUtopianism claims exceptionalism of technology and innovation will drive us forward in progress. Doomerism and the market bears say “wait a minute I am going to call a spade black”. I try to distill thing down to basics. This is quiet hard in a complex world but necessary.
What could be more basic than lies, limits, diminishing returns, and overshoot of carrying capacity? If you understand the basics of multiple scientific disciplines combine them as one then you see the end of the road for BAU.
You must also combine psychology with this because human nature is not rational and currently the human nature of geopolitics and the economy is anyone’s guess. We are talking casino logic. We know statistics but we choose to gamble with personal gaming systems that are not mathematical. We are in an unreality at a point of an entropic blowout of well everything. This is peak everything even peak hopium. It takes allot of hopium to deny all this stink.
I know many tire of my preaching but I am preaching because I honestly think we have a fundamental problem here with no solutions. The only solution is you in your local to make preparation. That is if you end your denial if in denial.
These preparation may mean doing nothing because you can’t. I respect that. I am in my early 50’s and have been trapped numerous times and only swam out of the swamp after a time that felt like an eternity. I am saying either leave denial and get organized physically, mentally, or with nothing but acceptance.
The alternative is to continue to be a sheeple in denial. None us are getting out alive even peppers. So maybe we have 10 years before a collapse for you to graze your sheeple pasture. I have no answers other than I feel honesty, reality, and truth are higher spiritual endeavor. I have chosen to follow these higher values. But that is just my preference. I do not deny I may be delusional. Who am I to claim righteousness of reason?