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Page added on February 10, 2015
US oil output ‘party’ to last to 2020
The United States will remain the world’s top source of oil supply growth up to 2020, even after the recent collapse in prices, the International Energy Agency said, defying expectations of a more dramatic slowdown in shale growth.
The agency also said in its Medium Term Oil Market report that oil prices LCOc1, which slid from $115 a barrel in June to a near six-year low close to $45 in January, would likely stabilize at levels substantially below the highs of the last three years.
Oil prices deepened their decline after the Organization of the Petroleum Exporting Countries in November shifted strategy and declined to cut its own output, choosing to retain market share against rival supply sources such as U.S. shale oil.
“The market rebalancing will likely occur relatively swiftly but will be comparatively limited in scope,” the IEA said.
“The price correction will cause the North American supply ‘party’ to mark a pause; it will not bring it to an end.”
Supply growth of U.S. light, tight oil will initially slow to a trickle but regain momentum later, bringing production to 5.2 million barrels per day (bpd) by 2020, the IEA said. The outlook for Russian output is less optimistic.
“Russia, facing a perfect storm of collapsing prices, international sanctions and currency depreciation, will likely emerge as the industry’s top loser,” it said, forecasting production looked set to contract by 560,000 bpd from 2014 to 2020.
Partly as a result of lower non-OPEC output, the IEA predicted global demand for OPEC crude will rise in 2016 to 29.90 million bpd, after holding at 29.4 million bpd this year.
Other forecasters see lower prices and investment cuts to have a larger impact on non-OPEC supply. OPEC itself, in a monthly report on Monday, forecast demand for its oil this year would be higher than expected as its strategy to not prop up prices hits other producers.
The IEA’s latest report contrasts with its previous medium-term outlook published in June, which had higher oil demand forecasts and highlighted risks to supply such as from violence Iraq.
Now, the IEA expects global growth in oil demand to accelerate to 1.13 million bpd in 2016 from 910,000 bpd in 2015. Still, it saw the price decline as having a marginal impact on demand growth for the rest of the decade.
“Expectations of global economic growth have been repeatedly revised downwards in the last six months despite steeply falling prices, slashing prior forecasts of oil demand growth for the rest of the decade by about 1.1 million bpd,” the report said.
33 Comments on "US oil output ‘party’ to last to 2020"
Davy on Tue, 10th Feb 2015 6:15 am
More IEA disconnect between the economy and the energy sector. You can forecast a rebound in oil. You do this by oil and economy link in growth. I call it faux growth but growth nonetheless for the digital economy. The real economy is and has been in a bumpy plateau IOW mild recession since 08. If this is not the case then please tell me why interest rates are at historic lows, debt is at all-time highs, and governments have huge liabilities real and unfunded?
If you forecast exponential growth continuing which is a goal seek policy then you necessarily must forecast oil price rebound. The two are link and must operate in tandem. There is no question about this. Marm, our resident corn, can porn us with Fred charts showing a decouple of energy and GDP but most know better. Energy and growth are linked.
We have two conditions that will not support growth. These conditions are deflationary tendencies of a real economy in disequilibrium. This disequilibrium is the real and physical economy in a long term recession. There has been no recovery in the real and physical economy. The recovery has been in the digital which represent wealth transfer and cannibalization of the real economy and the public commons for individual gain. This digital economy recovery has been achieve by speculative polices driven by the moral hazard of the central bank subsidies for global investors. In effect the central banks offer liquidity at low cost for global central bank cliental to invest at a carry profit.
Oil and the real economy do not decouple. People and machines burn oil. The only oil the digital economy burns is digital electricity and the gas to get to the penthouse suite. The digital economy is driving the physical economy but not in a healthy way. Corruption, manipulation, and seeding of the public policy by private players is parasitically skimming the production of the many for the few. It is the many that produce. If you impoverish the many it is only a matter of time before real growth suffers. These consitions have been in effect at least 15 years or more enough time to do damage. The few produce little for the system as a whole and they consume proportionately little except high end luxury items.
Oil prices may rebound some but the physical economy will limit any significant rebound. The POD & ETP of oil is an economic oil brick wall. Economic oil is a scientific analysis not MSM goal seek and economic hopium. Oil that has lower economic value cannot by definition drive more production and wealth. This increasingly uneconomic oil coupled with limits of growth, diminishing returns of macro catch 22’s, and predicaments of BAU are converging in disequilibrium. This disequilibrium is stable at the moment only because of the central banks actions.
Everywhere instability lurks with an uneasy confidence supporting liquidity. This is the last thread folks and that is confidence. Confidence is human nature. Would you base a forecast on human nature? Would you trust that human nature will remain rational? Do you believe the central banks can coral the herd of human nature long term?
I would respect the IEA’s forecast if they caveated it with a stipulation that the economy is unstable and the stable disequilibrium could break to a much lower level of economic activity in a spiral down of demand and supply destruction. IOW my definition of a bumpy plateau giving way to the bumpy descent.
shortonoil on Tue, 10th Feb 2015 7:19 am
We posted this yesterday under “There Is No Peak Oil–But We Are Approaching Peak Low-Cost Oil” It seems pertinent to the present discussion.
*Present shale production levels can not be maintained in this price environment, and both the EIA, and the IEA are perfectly aware of this. They are both intentionally ignoring the elephant in the room.
Can you explain that? Because i’ve always that that the two are separate i.e. production/supply could be down but demand could be thru the roof.
At the present time it takes about half of the energy content of a unit of oil (barrel, gallon, etc) to extract, process, and distribute the product. It takes half of the energy from oil to produce it, therefore it takes half of the production. Producing petroleum, and its products creates a demand for petroleum!
Here is the 2012 energy breakdown for the “average” barrel:
Extraction………618,870 BTU/barrel
Processing…….2,053,800
Distribution…….267,330
Total……………..2,940,000
The energy content (exergy) of 37.5 deg. crude is 5.88 million BTU/barrel:
http://www.thehillsgroup.org/depletion2_011.htm
That is 50%
As production goes down demand will go down by half.
That percentage is changing with time; for example in 1980 it took 931,500 BTU/barrel to extract, process, and distribute the average barrel. 16% of the energy content of a 35.7 deg. crude. A 1 mb/d drop in production in 1980 reduced demand by 160,000 b/d. In 2012 a 1 mb/d drop would have reduced demand by 500,000 b/d.
This commonly ignored fact makes predictions for the supply/demand balance inaccurate. It will take a production cut of at least 3.0 mb/d to bring the markets’ excess of 1.5 mb/d back in line.
Actually, we are estimating a 4 mb/d reduction will be necessary because of end user demand decline from a slowing global economy. The strong demand that has been seen in the last few years has been largely due to petroleum production itself. This is especially true of shale production which is at best a net zero energy product.
It seems likely that OPEC is aware of this phenomena, and that would explain their reluctance to cut production to raise prices. Production cuts could never be offset by sufficient enough price increases to compensate for their fall in revenue. For OPEC it would be like pushing on a string. For them cutting production would only mean a greater loss of revenue.
http://www.thehillsgroup.org/
dave thompson on Tue, 10th Feb 2015 7:39 am
Short if it takes half the oil that puts EROEI at 1:1. No way does industrial civilization run on 1:1 EROEI.
Plantagenet on Tue, 10th Feb 2015 7:42 am
The global oil glut is set to continue until 2020, according to the IEA.
I’ll be surprised if US shale oil production doesn’t drop noticeably before that given the fall in U.S. rig counts
shortonoil on Tue, 10th Feb 2015 7:42 am
“More IEA disconnect between the economy and the energy sector.”
The IEA knows that shale production can not be maintained. They are trying to kick a 10 ton can down the road another foot, or so. The only thing holding this fragile, decrepit economy together is a very tenuous thread of confidence. Once broken, the whole experiment of Central Bank management of the economy will unravel like a cheap sweater.
What this article is informing us of is that TPTB knows that US oil production (the illusion of shale) is essential to maintaining the confidence needed to keep the financial players in the game. This smacks more of a desperate attempt to do that, than anything else.
paulo1 on Tue, 10th Feb 2015 7:57 am
You hit the info nail right on the head, Short. Very well said and an accurate analysis, imho.
The confidence continues, until it doesn’t.
“Everyone has a plan ’till they get punched in the mouth”. (Mike Tyson)
Any day, now.
shortonoil on Tue, 10th Feb 2015 8:09 am
Short if it takes half the oil that puts EROEI at 1:1. No way does industrial civilization run on 1:1 EROEI.
ERoEI is our term (we coined it in 2004, or so) for Energy Returned on Energy Invested at the “well head”. What you are looking at is the EROI, and that depends on where it is calculated. It is different at the well head, than at the refinery exit gate, than in Grannie’s go-mobile. The EROI to the end consumer is now 2:1 (140,000 BTU/gal/70,000 BTU/gal). The ERoEI at the “well head” is now about 9.3:1. EROI is a positional variable, and changes with time. It is those two factors that primarily lead to the confusion in its usage, and is the main argument used by some for its discontinuance.
dave thompson on Tue, 10th Feb 2015 9:23 am
Here is the 2012 energy breakdown for the “average” barrel:
“Extraction………618,870 BTU/barrel
Processing…….2,053,800
Distribution…….267,330
Total……………..2,940,000
The energy content (exergy) of 37.5 deg. crude is 5.88 million BTU/barrel:
http://www.thehillsgroup.org/depletion2_011.htm
That is 50%” Short going by this calculation Granny ain’t got no gas.
Perk Earl on Tue, 10th Feb 2015 12:04 pm
“If you forecast exponential growth continuing which is a goal seek policy then you necessarily must forecast oil price rebound. The two are link and must operate in tandem.”
Give that man a ceegar! Right you are, Davy. The price of oil must be high enough to incentivize new oil sources put into production to replace declines from existing supply sources while increasing cheap supply. By cheap meaning it generates high enough profit to support growth. There must be growth to substantiate loan origination.
How does that continue with Capex requirements for many marginal sources exceeding consumer affordability? We are in the late stages of the oil age. Unless oil price rises and remains steady the whole system is in danger.
It still works kind of, but requires fiscal assistance from central banks with pressures building on that front, such as the real possibility of Greece exiting the Euro, with Italy not far behind. Globalization is being pressured in the direction of localization. I just hope it can do so before all hell breaks loose between super powers.
shortonoil on Tue, 10th Feb 2015 1:12 pm
Short going by this calculation Granny ain’t got no gas.
The economy uses petroleum for two purposes: as a feed stock to make other compounds, and as an energy source. Only about 13% of petroleum is used as a feedstock. Its principal function is to power other economic activity, where transportation is petroleum’s primary application. The quantity of energy it delivers per unit declines with time as the energy to produce it increases. This is implicit in the depletion process, and is a consequence of entropy production in the system.
The energy decline rate is, however, not linear. It follows a logistic curve like the production profile has followed, but a few years ahead of production. For the greater part of the oil age the two mapped each other fairly closely. It was a reasonable estimate to use production quantity as an indicator of the energy being delivered. About 2000 that relationship began to change. After 2012 the energy delivered per unit began to plunge. That is what is demonstrated in this graph:
http://www.thehillsgroup.org/depletion2_022.htm
Because petroleum is a foundational commodity – you can’t run much of an economy without it, as petroleum loses it capacity to deliver energy the economy will react congruently. We believe that is the underlying factor in the ongoing world wide economic decline. In other words: “Granny ain’t got much gas”, and the situation is not going to be improving.
http://www.thehillsgroup.org/
Northwest Resident on Tue, 10th Feb 2015 1:36 pm
Looks like we hit Peak Net Energy. Forgot about how many barrels of crap they are calling “oil” — doesn’t matter. The economy is totally dependent on how much energy is available, not the other way around. And we are AT Peak Energy. Behold, the sucker bet and world class scam that is the shale “BOOM”:
Arthur Berman: Why Today’s Shale Era Is The Retirement Party For Oil Production
https://www.youtube.com/watch?v=5tOVp1vSeVA
JN2 on Tue, 10th Feb 2015 1:50 pm
NWR:
>> Looks like we hit Peak Net Energy <<
No prob, as long as we can still have hot showers and cold beer (Amory Lovins).
bobinget on Tue, 10th Feb 2015 1:51 pm
DEFINITION OF ‘DEMAND’
An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.
an insistent and peremptory request, made as if by right.
“a series of demands for far-reaching reforms”
synonyms: request, call, command, order, dictate, ultimatum, stipulation
“I gave in to her demands”
pressing requirements.
“he’s got enough demands on his time already”
synonyms: requirement, need, desire, wish, want; More
ECONOMICS
the desire of purchasers, consumers, clients, employers, etc., for a particular commodity, service, or other item.
“a recent slump in demand”
synonyms: market, call, appetite, desire
“there is a big demand for such toys”
China’s population: 1,293,784,xxx
India’s population: 1,267,402,xxx
USA’s population: 322,584,xxx
It may be time to stop counting beans and begin
calculating BTU’s per calories required to feed seven, eight, nine billion individuals.
Leave one hydrocarbon era, oil, enter another, gas.
Shortonoil simply gets to third base, “shortongas”.
dave thompson on Tue, 10th Feb 2015 2:02 pm
Thanks Short, I am not the best writer and you explain the predicament well. Yes Bobin, the hue and cry will now be count the btus not the beans.
bobinget on Tue, 10th Feb 2015 2:22 pm
The US won’t switch-over to gas because it gets too cheap. The US converts to coal, gas, because those combinations of hydrocarbons are still plentiful.
Certain liquid fuels are immutable https://www.google.com/search?client=safari&rls=en&q=definition:+demand&ie=UTF-8&oe=UTF-8#rls=en&q=definition+immutable
We may put off travel, even replace travel with technology, but we can’t put off hunger.
In cities an able bodied person can walk, bike.
Farming 63 Million Acres of US wheat, 95 Million Acres corn,millions more in ‘beans’ is yet another tale of woe and intrigue.
http://www.ncga.com/upload/files/documents/pdf/WOC%202013.pdf
Pumping water, making fertilizer, transportation,
drying grains, chemicals, oil, all adds up.
When feeding seven billion becomes optional, get back to me.
Perk Earl on Tue, 10th Feb 2015 3:15 pm
“About 2000 that relationship began to change. After 2012 the energy delivered per unit began to plunge. That is what is demonstrated in this graph:”
Looking at that graph link, Short, if that consumer affordability price descent is accurate, then we are in freefall. I mean grab your golden parachutes if you got em and have them ready.
Is there any possibility that descent line could have a softer angle?
alokin on Tue, 10th Feb 2015 4:09 pm
Thanks peak. If that does not already exist, it would be nice making a graph out of you first post, beginning maybe in the 60s or even after WWII. This, I find is much more telling than the dollars even if they are inflation adjusted it does not tell the story because we are spending money so much different than back then.
Ted Wilson on Tue, 10th Feb 2015 6:00 pm
A lot of Oil that is consumed is Heavy Oil which also needs Hydrogen to produce lighter motor fuels. And the hydrogen itself is produced from Natgas.
So when they say that Oil production is 90 Million b/d, it includes not only NGL, but also Biofuels and Natgas.
Soon they will use Solar power & heat to produce Hydrogen which will be used in oil refining and still this will be included in Oil to show that Oil is the World’s largest source of energy.
Oil is slowly moving from source of energy to consumer of energy.
shortonoil on Tue, 10th Feb 2015 6:23 pm
Is there any possibility that descent line could have a softer angle?
Hi Perk,
I doubt if there will be much change in the trend line until the industry begins to cannibalize its own infrastructure. That is, they begin mining the embedded energy in it. Of course we have no way of knowing when that will happen, but my WAG would be somewhere in the $20 to $30 range. That would be 4 to 5 years from now. The Etp model puts arrival at the “dead state” for the average barrel about 2030, so that all works out about right.
We will definitely see this coming as the petroleum industry will obviously be collapsing before the end arrives. Of course the BIG unknown is how long can the monetary financial system stay together. 2015 is likely to turn out to be a very bad year looking at events transpiring around the world. The second one is, are the war dogs in power going to get us involved in some insane war that can not be won, and will only serve to sap our last remaining resources.
I know, a lot of ifs, and all of them with a bad ending. I’d like to be an optimist, but we’re getting short of things to be optimistic about.
Perk Earl on Tue, 10th Feb 2015 6:53 pm
“Of course the BIG unknown is how long can the monetary financial system stay together.”
That’s the big matso ball question out there, short, absolutely. As depletion marches on at what tipping point do all the convoluted fiscal efforts to extend and pretend fail? I guess that’s what were going to find out the hard way.
As far as military action goes it seems like one of the positive side effects of globalization is we are all connected at the hip, so I think what we see is more posturing due to fiscal pressures than a real interest in war. I’m of a mind that something financial will occur that will scare governments so much they’ll be occupied just trying to get enough to dole out at soup lines (so people don’t riot) rather than entertaining cross world aggression.
Hey, the chart is the chart, but wow it’s all going down from here pretty fast.
Davy on Tue, 10th Feb 2015 7:42 pm
Perk, I know, that chart is scary. It is the first quantifiable scientific measurement of our oil predicament that has given me a time frame. I am basing my prep on its implications as the brick wall.
Perk, I am like you something is going to give on the financial side of BAU and probably sooner than later. The financial is my immediate contraction concern.
Joe Clarkson on Tue, 10th Feb 2015 8:12 pm
According to this source: “For example, if energy in asphalt, road oils, and other miscellaneous products (as shown in Table 3) is excluded from refinery energy output, the U.S. refinery energy efficiency is reduced from
90.1% to 86.4%.”
This means that the processing energy cost of crude oil is at most about 14% of the energy in a barrel of crude, not 35% as suggested by shortonoil.
I haven’t checked his other numbers, but they may not be accurate either.
Davy on Tue, 10th Feb 2015 8:54 pm
Sounds like a challenge Joe Joe. Have chosen weapons yet?
GregT on Tue, 10th Feb 2015 11:31 pm
2 comments especially worth paying attention to;
“The only thing holding this fragile, decrepit economy together is a very tenuous thread of confidence. Once broken, the whole experiment of Central Bank management of the economy will unravel like a cheap sweater.”
and
“Of course the BIG unknown is how long can the monetary financial system stay together.”
Thanks Short, my conclusions exactly.
tahoe1780 on Wed, 11th Feb 2015 10:27 am
Short, can you provide detail on the processing number? Seems way high.
“Here is the 2012 energy breakdown for the “average” barrel:
“Extraction………618,870 BTU/barrel
Processing…….2,053,800
Distribution…….267,330
Total……………..2,940,000
The energy content (exergy) of 37.5 deg. crude is 5.88 million BTU/barrel:”
Don on Wed, 11th Feb 2015 12:02 pm
I gotta admit, with a 20 gal tank in the impala and only 13 or so mpg, I wouldn’t mind this $2 gal gas lasting another 5 years. Unfortunately, I just don’t think I believe it.
ghung on Wed, 11th Feb 2015 12:08 pm
I gotta admit, I use so little fuel these days, the price of fuel doesn’t mean much. It must suck being an addict of hydrocarbons to the point where it’s even worth commenting on.
bobinget on Wed, 11th Feb 2015 12:35 pm
Gotta see how goes auto and light truck sales in the US. Interested?
http://www.wsj.com/articles/chrysler-sales-jump-in-january-1422968401
excerpt.
By CHRISTINA ROGERS and JOHN D. STOLL
Updated Feb. 3, 2015 6:26 p.m. ET
47 COMMENTS
Fueled by low gasoline prices and easier credit, the U.S. auto industry pulled its recent winning streak into 2015 with a nearly 14% January sales increase and over half of sales comprised of high priced pickups and sport-utility vehicles.
The momentum, which includes double-digit percentage sales increase for each of the Detroit Three car makers compared with the same period a year ago, continues the upturn’s major trends: U.S. demand for trucks and sport-utility vehicles are skyrocketing amid $2-per-gallon gasoline, boosting transaction prices and margins..
OKAY, that was those Capitalist Pigs over at WSJ
Let’s look at at least one more source.
http://news.yahoo.com/us-auto-sales-jump-january-165908809.html
excerpt:
“About 1.15 million cars and light trucks were sold in the first month of the year, an increase of 9.3 percent from a year ago and the best monthly performance since 2006, according to industry consultant Autodata”.
‘The blazing performance came after a banner 2014 for US sales. At more than 16.5 million vehicles, it was the auto industry’s best year since 2006, ”
How about diesel?
http://www.nass.usda.gov/Newsroom/2014/06_30_2014.asp
The two crops could almost equalize in 2015, with 87.9 million acres projected for corn and 89.7 million acres for soybeans, according to KSU.
U.S. rice acreage could rise by about 400,000 acres to 2.8 million in the coming year…..
Wheat? http://www.agweb.com/article/2015-outlook-can-us-wheat-stay-strong-in-the-export-game-sara-schafer/
http://www.agweb.com/blog/Farmland_Forecast_148/
Not to get too far off message, I’ll ask the question,
how much evidence do we need to show,
proving gasoline and diesel demand is higher?
bobinget on Wed, 11th Feb 2015 12:41 pm
Energy consumption for row crops;
http://www.agweb.com/blog/Farmland_Forecast_148/
“Diesel fuel used for field operations varies with management practices. A range of 4 to 6 gallons per acre is common, particularly if one primary and one or more secondary tillage operations are used (Figure 1). Seeds must be planted, grain harvested, and weeds controlled (typically with spraying). Fuel used for these operations is typically 2 to 2.5 gallons per acre, which represents fuel consumption for a no-till system. The energy required for tilling soil can be an ADDITIONAL 2 gallons of fuel per acre or more”
bobinget on Wed, 11th Feb 2015 12:49 pm
LET’S NOT FORGET to Support Our Troops (again)
The Pentagon, even in peacetime, this is not peacetime, consumes as much oil as Denmark everyday.
http://www.commondreams.org/news/2015/02/02/ukraine-spirals-again-violence-us-contemplates-pouring-fuel-fire
http://climateandcapitalism.com/2015/02/08/pentagon-pollution-7-military-assault-global-climate/
shortonoil on Wed, 11th Feb 2015 5:05 pm
This means that the processing energy cost of crude oil is at most about 14% of the energy in a barrel of crude, not 35% as suggested by shortonoil.
I’ve been over that study several times. Is it wrong? Not for what it does, but it is for what it doesn’t include. They added up all the direct energy inputs as reported by the refinery. But that does not include the inputs that the refinery doesn’t keep track of. Those we term “societal” costs. For example: it doesn’t include the gas that went in the refinery employees car so that they could get to work. Without employees there wouldn’t be any production at the plant. It doesn’t include the energy to build the plant. A refinery is a complex of pumps, values, specialize equipment, and 100s of miles of pipe. They run into the $billions to build. It doesn’t include the wear on the public roads that the refinery needs to conduct business. There are probably millions of channels that input energy to that refinery, and there is no way to determine them all empirically.
It is an interesting study, and worth the time to examine it, but its methodology is insufficient for an accurate summation of the energy balance equations.
shortonoil on Wed, 11th Feb 2015 5:09 pm
Short, can you provide detail on the processing number? Seems way high.
Processing…….2,053,800
That number came from a 2010 EIA published report. Who actually did the study I don’t known (probably U.T. at Austin). Their determination was that it took 16,300 BTU/$ of finished product, which was increasing by 300 BTU/$ per decade. We calculated the 2012 weighted wholesale price of petroleum products, and came up with an average of $3.03 $/gal. We used $3.00/gal * 16,300* 42 to get 2,053,800 BTU/barrel. This value, along with others, like the price correlation was used to test the model.
The output of the Etp Model for 2012 is a little different:
Extraction………609,000 BTU/barrel
Processing….2,101,848
Distribution…….267,330
Total……………………2,978,178 BTU/barrel
or a difference of 1.3%, which is well within the 4.5% margin of error of our study.
The Etp Model, being a thermodynamic analysis, should be expected to produce somewhat different results than a strict empirical study. The empirical studies are, however, important for model verification. We are lucky that organizations like the EIA has been able to supply us with many good studies to test against. The EIA, and U. Texas has certainly been worth the tax payers dollars that have been invested into them.
http://www.thehillsgroup.org/
Hiruit Nguyse on Wed, 11th Feb 2015 6:56 pm
http://www.economic-undertow.com/2015/02/09/fatal-ignorance/