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Page added on September 16, 2016
The Worst Oil Crisis Ever? IEA Sees Unprecedented Decline In Investment
“We see a broad shift of spending toward cleaner energy, often as a result of government policies,” Fatih Birol, the IEA’s executive director, said in a statement. “Our report clearly shows that such government measures can work, and are key to a successful energy transition. But while some progress has been achieved, investors need clarity and certainty from policy makers. Governments must not only maintain but heighten their commitment to achieve energy security and climate goals.”
Oil and gas investment declined by 25 percent in 2015 to just $583 billion. The declines are expected to continue through this year, falling by another 24 percent to $450 billion. By way of comparison, oil and gas investments exceeded $750 billion in 2014.
“It may well be the case that investment will fall in 2017,” Birol told The Wall Street Journal in an interview. “We have never seen [a three-year decline] in history,” he said.
The U.S. represented half of the decline in energy investment, with total spending at $280 billion in 2015, down nearly $75 billion from the previous year. U.S. shale in particular saw investment fall by 52 percent. On the other hand, oil and gas investments held up pretty well in the Middle East and Russia, where developing oil reserves is much less costly and still works in an era of low oil prices. Related: Saudi Arabia Overtakes U.S. As Largest Oil Producer
To be sure, much of the fall can be attributed to cost deflation – lower oil prices and falling costs for equipment and services. The IEA says that cost deflation accounts for about two-thirds of the total decline. But the other third is due to falling activity.
Renewable energy saw global investment hit $313 billion in 2015, or about one fifth of total energy spending. In fact, renewables were the largest source of power investment, and the investment in new renewable electricity capacity was more than enough to cover the growth in demand, a sure sign that renewables will continue to capture market share.
For oil and gas, the severe cutback in spending raising the possibility of tighter supplies in the future, the IEA cautions. Because fossil fuel supplies cannot be ramped up at a moment’s notice, producers may struggle to keep up with demand once the surplus is worked through. That suggests higher prices will return.
54 Comments on "The Worst Oil Crisis Ever? IEA Sees Unprecedented Decline In Investment"
rockman on Fri, 16th Sep 2016 2:17 pm
An unprecedented decline in investment? Well kiss my hairy white ass, Mr.IEA. LOL. So the recent count dropped from 2,000 to about 400. After the late 80’s boom the count fell from 4,500 RIGS DRILLING TO 500. Maybe Mr. IEA thinks the drilling contractors worked for free back then. Or the idiots didn’t bother to do a 30 second web search. No need to dig for numbers or do inflation adjusted calculations. Does anyone here think the 4,000 rig count drop in the early 80’s didn’t represent a precedent in declining capex over the 1,600 count we just experienced?
Apneaman on Fri, 16th Sep 2016 2:42 pm
Big Whoop. Next month the IEA or EIA or E-I-E-I-O will flip flop again and have another story then again and again.
“The International Energy Agency on Tuesday forecast global supply would outpace demand well into next year, marking an about-face from its assessment just one month ago that the market would essentially show no surplus for the remainder of this year.”
http://www.reuters.com/article/us-iea-oil-idUSKCN11J0QE
Plantagenet on Fri, 16th Sep 2016 2:56 pm
Clearly investment in oil exploration is falling. This is no big surprise given the fact we are now in an oil glut and oil prices are low.
When the oil ends and oil prices go back up, oil exploration budgets will increase.
Thats how the law of supply and demands works.
Cheers!
Plantagenet on Fri, 16th Sep 2016 2:57 pm
When the oil glut ends and oil prices go back up, oil exploration budgets will increase.
Thats how the law of supply and demands works.
Cheers!
shortonoil on Fri, 16th Sep 2016 4:47 pm
“That suggests higher prices will return”
Not one of these agencies have stopped to figure out what the value of a barrel of oil is to the economy. It they did they would not be reciting the same old mantras over and over again. They spend $billions trying to count barrels, and nothing on determining what they are worth. Genius!
But the simple part of the matter is that there is no new oil coming on line:
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/icbkDFACM4iA/v2/-1x-1.png
When the existing reserves are gone it is over, and the existing reserves are not going to last for very long.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/09/10/writedowns.jpg
The price decline is decimating them! The portion of the industry represented by the above graph has 3.4 Gb of reserves at present prices. And, as we have been saying for almost three years the price is not going up, it is going down!
http://www.thehillsgroup.org/depletion2_022.htm
penury on Fri, 16th Sep 2016 5:28 pm
When the oil glut ends prices will go back up. I am slightly dubious of the end of the oil “glut” working to increase prices. Based upon the facts that Short has shown the value of the contents of a barrel of whatever we call oil is decreasing, and there are no new discoveries being recorded so when the oil”glut ends the crash should be spectacular.
makati1 on Fri, 16th Sep 2016 5:36 pm
penury, I tend to agree that oil prices will not go up as the amount of oily stuff goes down. Not this time. The shrinking of the net energy in a barrel is going down with the price and can be reflected in the ability to purchase the end product at the pumps. If it does spike, it will be “the shot heard round the world” for the global economy.
onlooker on Fri, 16th Sep 2016 5:59 pm
Yes the analysis of Short and his group seems spot on. Not only is Oil becoming less useful to society but the entire debt based economic system is being weakened and will be more so as time passes by having to function in a context it was not conceived to function in, namely a non growth or contracting economy
Boat on Fri, 16th Sep 2016 6:01 pm
But, but, but Short, why is demand growth 1.4 and 1.5 mbpd year after year and the Russians, Iraq, Iran, Kuwait, the Saudi and Canada keep raising production year after year. Don’t they know they make you look silly?
Hell even the Americans are adding rigs a glut. Now here comes Nigeria and Libya to throw in, who knows, a years worth of glut. In just a few years the world will be at 100 billion barrels per day and the way these producers keep puming we may stay in a glut.
ghung on Fri, 16th Sep 2016 6:37 pm
“Oil becoming less useful to society but” not less essential. There’s the rub, and the bone of contention between Short and people like Boat. God help the folks who are utterly useless without their oil.
bahamased on Fri, 16th Sep 2016 6:52 pm
That is the point isn’t it, Oil is ESSENTIAL to our modern life.
Even as I understand the ETP model I still have a very hard time thinking about life without oil.
Something like The Lykov family
https://en.wikipedia.org/wiki/Lykov_family
onlooker on Fri, 16th Sep 2016 6:59 pm
Exactly. We built an entire Economic Edifice on Oil. I said on main forum that oil is the lifeblood of the Economy. A poster mocked me for being poetic but I think that phrase aptly describes its pivotal role in our Economy
Davy on Fri, 16th Sep 2016 7:08 pm
For me the difficulty is not thinking about life without oil. I would love to dive into such a life. I am having a hard time imagining 7BIL lives without enough oil.
onlooker on Fri, 16th Sep 2016 7:20 pm
That is the other problem 7 billion could not live with all the essentials Oil provides. If nothing else I am reminded about what I read once that just the extra Nitrogen that FF derived synthetic fertilizers provide is allowing an extra 2 to 3 billion people to be alive
Truth Has A Liberal Bias on Fri, 16th Sep 2016 7:28 pm
I’m pretty sure short doesn’t even know the definition of the word ‘value’. What a load of retarded shit the Etp model is. Probably why it’s not published for peer review. Short is one of the many mountebanks floating around the peak oil sphere. Tom Whipple and his shilling for that retarded fusion shit is another con artist selling stupid ideas. The value of oil to the economy is a law of physics according to short lol ok retard!
makati1 on Fri, 16th Sep 2016 8:15 pm
What do we have to look forward to, baring a major war?
Est. World population in 1850 (pre-oil) = 1.2 billion.
Est. World population in 2015 = 7.2 billion.
A 6+ billion reduction in population needed to bring us back to pre-oil levels.
But… if you deduct the decline in the ecosystem, the destroyed farmland, polluted water and air, depleted fish stocks, disease, etc, the supportable population would be much less than 1.2 billion. Maybe not even 0.2 billion total. And they would be concentrated in the few areas left that had agricultural friendly climates.
DANGER! PAIN, SUFFERING AND DEATH AHEAD! BUCKLE UP! THE RIDE IS JUST BEGINNING…
joe on Fri, 16th Sep 2016 9:57 pm
Oil, like all industries exists to make a profit. The margin of said profit varies from place to place and oil to oil. Its profit margins are higher and lower etc. Low interest rates and weak dollar policies have crushed profits leading to lower investment (in my opinion, this is a long term trend). Renewable and clean energy causes incrimental erosion of profitability. The industry in general only needs to have a couple of percent here and there of damage and its going to suffer. Ok, the big core of Saudi, Iran, US, Russia will be fine for the midterm but others will hurt and ARE hurting. Canada, Nigeria, Venezuela, are examples of countries that are in trouble as peak oil takes its first bite, peak oil deniers always say there’s too much oil, and there is, but the reason there is too much oil is because the system is broken. Conventional oil supply cant meet demand (peak oil) high prices fueled booms and busts wreck tight oil countries and the next round on the bumpy plateau will hurt core oil countries as they will experience low demand for their oil, the resulting low prices will perversely cause low growth economies to demand oil. This wont last forever though as the high cost of capital investment to export oil will not lead to very profitable enterprises, eg, port investment, pipe lines, industrial and chemical plant investments, infrastructure for creation of demand etc. Interesting times ahead.
tk on Fri, 16th Sep 2016 11:34 pm
The value (price) of petroleum:
“[…] Money And Work
In Critical Path, Bucky cites Francois de Chardenedes’ view that petroleum, from the standpoint of its replacement cost out of our current energy “budget” (essentially incoming solar radiation), had cost nature “over a million dollars” per U.S. gallon (US$300,000/L) to produce. From this point of view its use as a transportation fuel by people commuting to work represents a huge net loss compared to their earnings.
Instead, Bucky suggests people should be paid to stay at home in many cases, with jobs that produce useful goods and services being awarded to those talented and motivated enough to do them well and, more generally, people performing perhaps a decade of national service before retiring to a life of leisure to make sure all necessary work is done. […]”
It’s too late in my view, but it is an interesting read:
http://peakenergy.blogspot.de/2009/02/buckminster-fullers-critical-path.html
tk on Fri, 16th Sep 2016 11:35 pm
*value ≠ price
rockman on Sat, 17th Sep 2016 12:17 am
Truth – “What a load of retarded shit the Etp model is”. That’s rather harsh, buddy. LOL. I’m not saying you’re wrong. But I’m not saying you’re right either. Never studied it. But for good reason IMHO: Despite asking a number of times yet no answer: what exactly is the utility of the model? I’ve used various models throughout my career. But all for the purpose of decision making.
So again I ask: what is this model used for? There’s almost continuous f*cking arguments over it but not one damn word how anyone is actually using it. Is it just a predictive for just the sake of predicting? Fine…have at it…time will tell what’s correct and what isn’t. Since I haven’t placed any bets on it I don’t really care.
But if I missed it please clue me in: what ACTIONS are (or aren’t) being taken based on the model?
salinsky on Sat, 17th Sep 2016 12:37 am
buckminster did not invent the geodesic dome.
https://en.wikipedia.org/wiki/Geodesic_dome
Dredd on Sat, 17th Sep 2016 6:34 am
Beware of institutional names that begin with “I” (GRAVITY: It’s Wireless).
Cloggie on Sat, 17th Sep 2016 7:26 am
https://briankoberlein.com/wp-content/uploads/Newton_apple.jpg
Davy on Sat, 17th Sep 2016 7:52 am
What is any of this I ask? Why the hell is there anything? If there is anything than there could be nothing. Could it all switch off? How did it ever just switch on? This is what models are for. We need meaning to take our next step. Human Instinct is no longer trusted. Animals have their instinct we don’t have that luxury because our brain is in the way. Our instincts are now not trusted because they are complicated with desires and emotions. We don’t trust ourselves so now even our models are suspect. We are now in an existential vicious circle of doubt.
The ETP model describes depletion. I am not an expert at math but I am good with the concepts. The concept behind the model are sound. EROI is another great tool and the results we can derive from it. Will it make you money? EROI and ETP are not for making money. They can tell us what direction we are going in. What is more important money or direction? Peak oil, climate change, and the economy have their models. You can get lost in models. They constrict your movement with finding the truth but you have to have them. We must have science and we have to reflect on history but there is more to it.
I feel at this time in history it is better to be a generalist then a specialist if you are in pursuit of the truth. The truth for me concern the outcome of tomorrow. It concerns the why we started this journey. It concerns better or worse going forward. When you get up in the morning as I do with a slow wake up of a tired body better or worse matter. When you have kids better or worse matter. We are facing a multilayered cataclysm on a plane of ascending levels of abstraction. We humans have grown our civilization so wide and so complex and so far from the natural that we have created an aura of risk. Everything we do and all that supports us is at risk. Many of us are in secure lives so this risk is an existential anxiety that is destroying our happiness. How can we maintain happiness when so much horror is out there?
There are the deceived. Many of them should know but they are on a different wavelength. We have incredibly smart people that are basically wrong. We have powerful people that hold societies safety in their hands that are not concerned with society. We have well-meaning people who want to do the right thing but the wrong way. We have people who are concerned for social and natural problems but they want to solve them with prosperity and affluence when that is the problem.
Models are useful in telling us where we are going. History can tell us what worked. Science can give us the measurements and define the questions. None of this can go beyond a point. That point is human and it is meaning. None of this matters except for once we have a basic meaning. This meaning is at the point of the ego and it expands out into the greater consciousness of human civilization. We have learned so much and grown the greater knowledge do far and in the process we have lost meaning. This loss is a reflection on everything at all level human and natural. If we can’t find meaning than none of our efforts matters. We are paralyzed and paralysis is death.
This comment is an expression of just how complicated meaning has become. How much should we know to be human? What is the optimum amount of understanding? Should we have less intelligence? I would argue that man in small groups more connected to nature is more optimum than higher civilization. You may say that does not do anything for us now but I would argue this points to a wrong direction. If you are digging a hole that is your grave then maybe it is worth slowing down the dig. I believe we should downsize and practice relative sacrifice. This needs to be at the very heart of our human narrative. This will not save us but it is better than worse. The opposite is true today. We should take the foot off the accelerator and slow down. Most of the models we talk about on this blog are about deceleration. They point to physical decay, civilization decline, economic deflation, systematic dysfunction, social destabilization, and destructive change. Maybe we should slow down. That is a simple concept that is powerful. Because survival is powerful.
Models can only get us so far and then it is the stuff of faith when we take that next step into the darkness. This is a personal step so in the end it is about you and your local. When good models start telling you bad things it is time to call into question the direction of things. The ETP model is one model among many pointing to a wrong direction. I have yet to see any models pointing in the right direction. The silly articles and comments with fancy “goal seek” graphs and sloppy historical support just make me more suspect of where we are going. This false marketing is from the incompetence of those who are supposed to know better but are in denial. It is a system of perception in deception. It also points to systematic corruption at the very heart of our civilization and that is where civilizations fail.
rockman on Sat, 17th Sep 2016 8:22 am
Davy – Mucho thanks. Based on your explanation I have no need for this model and thus no need to understand it. I’ve been modeling depletion of individual wells, reservoirs and trends for 4 decades without it just fine. Made countless drilling and acquisitions based up those efforts.
It’s sounds as though it’s modeling a much broader dynamic and thus has zero utility for me or the rest of the oil patch. This is what I suspected initially. So just some prediction of future oil production/consumption so of no value in my work because such projections (right or wrong) have no impact on my decision making.
It also means that the only real debate is its FUTURE accuracy. Thus I see no reason to debate it…just wait for the future and see if it’s correct or not. Beyond being an ego maker or ego breaker it doesn’t appear to have much value.
shortonoil on Sat, 17th Sep 2016 8:28 am
“So again I ask: what is this model used for? “
So what is Hubbert’s model used for? It is a mathematical equation; usually expressed as the first derivative of the accumulated production distribution to be exact. It is a logistic function, same as the Etp Model which is expressed as a function of the accumulated production distribution, the same as Hubbert. Hubbert’s model gives a projection of oil production in units of volume. The Etp Model gives a projection of oil production using a different property; energy. Since energy is the primary reason why oil is used, it seemed like a rather logical choice.
Since Hubbert’s model only gives quantities in terms of volume, which is only useful if one is an oil company selling oil by the barrel, we modified it so it would be useful to the remainder of the world. If oil companies could figure out how their customers could get more energy out of a barrel of oil they would make a lot more money than just trying to pump more barrels, especially now that oil is getting pretty hard to find. If they could figure out how their customers could get 20,000 more BTU out of a barrel it would be more valuable to them than all the horizontal wells they have ever drilled.
To understand why that is true one needs to understand the Etp Model. That is the sort of thing the that the Model can be used for!
http://www.thehillsgroup.org/
denial on Sat, 17th Sep 2016 8:32 am
Short I think you have to be careful of when you state that oil will not go up in price as it will be used against you in the future as justification of you don’t know what you are talking about. You are right in your analysis; but oil could be $1000 dollars a gallon in the future. Money is not a rational denomination for predicting the future. It is a manipulated novel controlled by the author.
Kenz300 on Sat, 17th Sep 2016 8:47 am
The world is moving away from fossil fuels.
Climate Change will be the defining issue of our lives.
Wind, solar and geothermal continue to grow in use every year while fossil fuel use declines………..
23 States to Rely on Geothermal, Solar, or Wind Power as a Primary Source of Electric Generation in 2016
http://www.renewableenergyworld.com/articles/2016/09/23-states-to-rely-on-geothermal-solar-or-wind-power-as-a-primary-source-of-electric-generation-in-2016.html
Cloggie on Sat, 17th Sep 2016 9:08 am
The decline in investment is of course strongly tied to low oil prices and subsequent “glut”.
Meanwhile 4 out of 5 people on this planet have electricity at home.
The UN wants to change that and connect the remaining 20% to the grid as well by 2030:
http://www.un.org/sustainabledevelopment/energy/
Davy on Sat, 17th Sep 2016 9:35 am
Two different views Rock. One is tactical and one is strategic. This is the reason we have such a dysfunctional world. We don’t have the ability to distinguish the difference. Modeling individual wells does not scale up to understanding life.
BTW, I am working in the fields and this comment thread is cut off at the end of sentences so the full meaning of your comment is obscured. iPhones suck trying to read and respond to comments. I got the gist of your comment. When I get in for lunch I will read the full version.
ghung on Sat, 17th Sep 2016 9:46 am
Clog wrote: “The UN wants to change that and connect the remaining 20% to the grid as well by 2030…”
Not necessarily. There’s a big push to give ‘energy-challenged’ communities some degree of control and autonomy:
http://www.un.org/wcm/webdav/site/sustainableenergyforall/shared/Documents/SEFA-Action%20Agenda-Final.pdf
“(B)
distributed electricity solutions: Providing access to electricity through off-grid, micro- and mini-grid solutions, including targeted applications for productive uses.
High-impact opportunities:
Clean energy mini/micro-grid solutions for rural and targeted industrial applications, using both renewables and conventional sources; locally appropriate regulatory frameworks to incentivise and support commercially viable investments in decentralised electricity solutions; deployment of off-grid renewables and lighting and charging systems, including solar lighting; and self-contained systems that provide uninterrupted power
when the grid fails.”
Easy to spot the gridweenies among us. After nearly 20 years I still have folks make snide and silly remarks to me about how being off-grid doesn’t really work, that is a fad, etc. Seems they are programmed to be energy slaves who think that their highly-complex top-down solutions are the only viable path. I’ve even been accused of not being a “team player”. Empowerment is providing for one’s needs on a local or small community level, as many small villages and communities worldwide have discovered. It’s a powerful thing, and beats the shit out of this:
https://www.theautomaticearth.com/2012/08/india-power-outage-the-shape-of-things-to-come/
How do you even fix something like that?
rockman on Sat, 17th Sep 2016 10:53 am
“So what is Hubbert’s model used for?” Personally I have no use for Hubbert’s model…never have and never will. As far as the rest of the oil patch I’ve never heard a single person mention it. Just like PO: I never hear any oil patch hand speculating about it. Hubbert’s work is interesting historically but of no utility.
So what do you use it for?
rockman on Sat, 17th Sep 2016 11:04 am
“I think you have to be careful of when you state that oil will not go up in price as it will be used against you in the future…” Is that what the model says currently: that oil prices will never significantly increase above the current level? And is that what every one who buys into the model believes?
Davey – Tactical vs strategic. So what is being done based upon both perspectives? IOW as asked earlier: based upon this model what tactical actions are being taken and what strategic actions are being taken?
Davy on Sat, 17th Sep 2016 11:43 am
I wanted to reprint from ghung comment. This in a nut shell is what everyone should be doing rich and poor alike in a lifeboat preparation for the coming end of the status quo. The end of the status quo is surely going to involve the end of a reliable grid. Everything about civilization ties into the grid. Those areas not tied to the grid are profoundly influenced by those that are so that there is no place safe from the effects of a destabilized grid. Power rests where power is.
“distributed electricity solutions: Providing access to electricity through off-grid, micro- and mini-grid solutions, including targeted applications for productive uses.
High-impact opportunities:
Clean energy mini/micro-grid solutions for rural and targeted industrial applications, using both renewables and conventional sources; locally appropriate regulatory frameworks to incentivise and support commercially viable investments in decentralised electricity solutions; deployment of off-grid renewables and lighting and charging systems, including solar lighting; and self-contained systems that provide uninterrupted power
when the grid fails.”
Davy on Sat, 17th Sep 2016 11:59 am
Rock our debate is not completely tied together. My comment is referring to the liberal arts as compared to science and technology. My point is “tactical” is putting food on the table and “strategic” is asking the question “why we should put food on the table”. Tactical is markets (Price) and engineering (development). Strategic is the social narrative. What is our reason for living (strategic)? How and why are we going to apply markets and engineering to develop? Should we destroy the earth in the name of human survival (tactical and strategic)? Neither view is more important than the other. It is the balance of the two that is important. Without balance between the two we will destroy ourselves. We cannot live in contemplation while we starve yet we must contemplate the reasons for producing so we don’t starve.
donstewart on Sat, 17th Sep 2016 12:22 pm
Rockman
A dissertation on models and forecasting and doing stuff day to day. I used to be employed by a company and charged with making forecasts of the future. I concluded pretty quickly that what they needed were more robust ways of reacting to whatever happens, rather than the futile search for surefire forecasts. They didn’t want to hear it.
That said, we now know that brains are forecasting machines. At the neural level, our brains compare forecasts to what really happens and adjust on the fly. So no matter how ‘practical’ you think you are, if you are using your brain, you are reacting to forecasts …even if your forecast is that nothing is going to change.
Now my personal story about reacting to a forecast. About 2006 I became convinced that oil was reaching the end of a stage and that a debt based economy would likely collapse. I was retired at the time, with our financial well-being dependent on investments and promises to pay. As a diversification strategy, I went to work at a small farm within bicycle distance of where I live. I worked at the farm for 8 years, and retired when I just wasn’t up to the stoop labor any more.
The results of working at the farm:
*I got a lot smarter about my home garden.
*I ate a lot of veggies from the farm
*I met some fabulous young people 50 years younger than me.
At my age now, looking soberly at the situation, I am dependent on my garden and the largesse of the government to keep the pension funds solvent and to pay something to social security recipients. But I know that I am better off than a lot of my neighbors who have given the future no thought at all, and who have zero gardening skills.
The take-home, for me, in the Hill’s Group study, is the fact that thermodynamics eventually trumps finance. We can see that now in all the noise about eliminating cash (see Nicole Foss’s recent 4 part essay at Automatic Earth) as a way to grease negative returns on capital. Buying shares in oil companies with the idea that oil is going to 200 dollars is not a good idea. Nor is thinking that you can live on the returns on capital.
Don Stewart
yoshua on Sat, 17th Sep 2016 12:51 pm
Rockman – The Etp-Model predicts that the oil price will continue to fall and that it will fall to zero in 2021.
shortonoil on Sat, 17th Sep 2016 1:30 pm
“Rockman – The Etp-Model predicts that the oil price will continue to fall and that it will fall to zero in 2021.”
No it does not!
The graph projects a downward movement in price until the average lifting cost is reached. The point where cash flows is neutral or goes negative.
http://www.thehillsgroup.org/depletion2_020.htm
That is why the graph does not go to the X-axis.
It is amazing how many people can not read a simple graph.
Boat on Sat, 17th Sep 2016 1:42 pm
yoshua
http://www.eia.gov/todayinenergy/detail.cfm?id=7110
A Model only represents calculations from it’s inputs. Short posted that their model used oil with an api between 35-45 for their inputs. Check out this chart of the worlds oil. Most of it falls outside that range.
http://www.eia.gov/todayinenergy/detail.cfm?id=7110
Now look at US oil and it’s imports. Once again most of the oil consumed falls outside the 35-45 api range.
https://www.eia.gov/todayinenergy/detail.cfm?id=26132
I am but a simple high school graduate from a poor school system. On this site I am surrounded by who slap each other on the back for being smart. Funny thing is, they can’t seem to look at these two simple charts and deduct, wow, short left out most of the worlds oil in the model.
shortonoil on Sat, 17th Sep 2016 1:50 pm
“So what do you use it for?”
Long range project development.
What is happening to the petroleum industry is, and will effect the entire economy. It is a risk factor that can not be ignored.
yoshua on Sat, 17th Sep 2016 2:45 pm
Short – OK. That makes sense. The price will fall to the lifting cost at $10 per barrel in 2020 ?
yoshua on Sat, 17th Sep 2016 3:15 pm
Boat – That is bad news for the oil industry and the economy. The production of those oils are more energy intensive and the energy content in those oils are lower than light crude oil or conventional crude oil with an API from 31 to 45.
The Etp-Model is based on the production of conventional crude oil with an API of 35.7 as a way to calculate the average production cost of a barrel of conventional crude oil.
Fell free to give me critic if I’m wrong.
yoshua on Sat, 17th Sep 2016 3:44 pm
Boat – Some 65 percent of the oil produced in the U.S is light oil with an API between 31 to 45.
It would be interesting to know what the global oil production looks like.
On my comment above: it should perhaps have been – … to calculate the production cost of the average barrel of conventional crude oil.
Stabilizer on Sat, 17th Sep 2016 4:14 pm
Oil drilling won’t recover until prices recover. Prices won’t recover until demand exceeds supply. It won’t be long.
Boat on Sat, 17th Sep 2016 4:25 pm
yoshua
That’s not what short said he used for his model, 35-45. A large part of the worlds oil is below 35. Look at that chart at all the countries from 31-35. He did not include any it in the model. Refigure using 35-45 and you’ll that 65 percent number drop to below 50.
rockman on Sat, 17th Sep 2016 4:28 pm
Shorty – {“So what do you use it for?” Long range project development.}
So IOW there’s no practical utility to alter our present course. Really only the potential for an “I told you so” press release. Which IMHO there’s nothing wrong with that. I never implied there was anything wrong with developing and presenting such a model. My only question why do we burn up so much space here on a matter with no practical application being pursued by the industry or the govt?
rockman on Sat, 17th Sep 2016 5:06 pm
yoshua – “Some 65 percent of the oil produced in the U.S is light oil with an API between 31 to 45.”. Not sure globally but FYI US refineries are designed for cracking oil in a very narrow range… 31 to 33 API. Before the shale boom our refineries had to import a lot of light oil to blend with our heavy domestic production and imports.
East coast Canadian refineries have been shipping about 20 million bbls per year of S Texas Eagle Ford Shale to blend with their heavy oil imports. In fact Venezuela has recently began importing light oil from Libya for the same reason. Likewise the Alberta oil sands producers import about 130 million bbls of light US oil to blend. Otherwise they couldn’t flow that crap down pipelines.
Bottom line: light oil production has always been a critical necessity for the global dynamic. And may become even more important as heavier crudes become a higher % of global production. All of which explains why light oils sell at a higher price then the heavies.
“It would be interesting to know what the global oil production looks like.
On my comment above: it should perhaps have been – … to calculate the production cost of the average barrel of conventional crude oil.”
So again a terminology problem: do you mean the cost to produce existing wells or to produce new drilling projects? As far as the cost to produce an existing well whether it’s producing from a conventional or unconventional reservoir has no bearing on the lifting cost. There are very unique dynamics that determine those costs.
As far as the “average barrel of conventional crude oil” the is no such metric. At best one would have to calculate a weighted average. That would require knowing the volume of oil from every field along with the cost to produce each field. That data base doesn’t exist. Never has and probably never will.
yoshua on Sat, 17th Sep 2016 5:41 pm
Rockman – I’m a chef by profession and use olive oil. I’m messing with the Etp-Model without any knowledge of petroleum production, but as I understand it the model uses crude oil API 35.7 with an energy content of 140.000 BTU per gallon and the energy cost in BTU to produce (extract, process and distribute) this gallon as a way to calculate the cost to produce the “average” barrel of conventional crude oil by using the Laws of Thermodynamics (and some data inputs like well depth, water cut…).
“In 2015, the average API gravity for domestic refinery inputs was about 32 degrees, as refiners blended heavy and light crude oils to make a medium-grade feedstock” EIA
shortonoil on Sat, 17th Sep 2016 5:56 pm
“It would be interesting to know what the global oil production looks like.”
Our best estimate is that about 10% of global production has an API > 50. That is up from 3% in 2000.
“The Etp-Model is based on the production of conventional crude oil with an API of 35.7 as a way to calculate the average production cost of a barrel of conventional crude oil.
Fell free to give me critic if I’m wrong.”
It is 37.5. You probably picked that up from me. I sometimes turn the last two numbers around when I’m typing fast. API 30 to 45 (average 37.5) is what we call the “energy window”. It is the portion of hydrocarbon fractions that deliver most of the energy to the economy from petroleum. Heavier and lighter fractions act primarily as energy carriers for conventional crude.
http://www.thehillsgroup.org/
farmlad on Sat, 17th Sep 2016 7:51 pm
Rockman You ask what is the model good for? Refering to the ETP Model. The Model forcasts the price of crude and I would just imagine that that should be worth a lot to an oil producer deciding whether an investment will make a profit.
The ETP Model has even been a big deciding factor against taking on more debt on my small farm since I understand that it predicts a deflationary economy, and for the last number of years it appears to be holding true. Thanks Shorty