For a minute there I thought I had to get off my couch, when all the while the fact is we don't have to do anything much but keep things afloat for just a few decades more! In fact, we'd best shut up about PO, because if our offspring finds out we knew about it all along, they'll turn and wring our necks come 2036!
Posted: Wed May 07, 2008 11:41 pm Post subject: Re: Feedback Loop in Oil Pricing
threadbear wrote:
...
Is this Big Oil Apologists.com? Sheesh. "it's not oil company's fault" If you work for smaller oil companies, you are as much or more at the mercy of the distorting market and political force of the majors.
No offense threadbear but this thread is about "Feedback Loop in Oil Pricing" and NOT "Lets go on a rantfest". Anyways getting back on topic, I do not think this it is big oil's fault. Contrary to all the garbage that's coming out of the mainstream media these days it seems everybody wants to point a finger at somebody / something and say -->this<-- is the cause of my woes.
Do you want the truth? Can you handle the truth? We live in a finite world.
It doesn't matter which politician is in office or what laws are on the books, that still does not change the fact there is a finite amount of oil in the ground. That's why for example joeltrout is mentioning oil projects that need $90 / barrel. In the future there will be oil projects that require $200 just to break even.
//
BTW lets not forget oil royalties. What's to keep an oil rich dictator from saying:
"You want to drill in my country? The fee is $100 / barrel."
Posted: Thu May 08, 2008 12:13 am Post subject: Re: Feedback Loop in Oil Pricing
cube wrote:
threadbear wrote:
...
Is this Big Oil Apologists.com? Sheesh. "it's not oil company's fault" If you work for smaller oil companies, you are as much or more at the mercy of the distorting market and political force of the majors.
No offense threadbear but this thread is about "Feedback Loop in Oil Pricing" and NOT "Lets go on a rantfest". Anyways getting back on topic, I do not think this it is big oil's fault. Contrary to all the garbage that's coming out of the mainstream media these days it seems everybody wants to point a finger at somebody / something and say -->this<-- is the cause of my woes.
Do you want the truth? Can you handle the truth? We live in a finite world.
It doesn't matter which politician is in office or what laws are on the books, that still does not change the fact there is a finite amount of oil in the ground. That's why for example joeltrout is mentioning oil projects that need $90 / barrel. In the future there will be oil projects that require $200 just to break even.
//
BTW lets not forget oil royalties. What's to keep an oil rich dictator from saying:
"You want to drill in my country? The fee is $100 / barrel."
A little subtlety please. We all know it's finite, that the low hanging fruit has been picked. Does that excuse the rapacious greed that has made the problems far worse? Does it?
Posted: Thu May 08, 2008 3:12 am Post subject: Re: Feedback Loop in Oil Pricing
threadbear wrote:
...
A little subtlety please. We all know it's finite, that the low hanging fruit has been picked. Does that excuse the rapacious greed that has made the problems far worse? Does it?
There's no law against being greedy!
What does Starbucks coffee, Microsoft, and Big oil have in common? They're ALL in it for the money, they just sell different things. So why get upset about oil companies when they're really not that much different than anyone else? What's wrong with making a profit? If the market shifts in your favor and you're making money at a substantial rate, what's wrong with that?
For example during the housing market boom there were people who bought houses for $200,000 and later sold it for $400,000. What the hell did they do to "earn" $200,000? They didn't. They just got lucky. How's that any different then what the oil companies are going through now? I certainly don't remember anyone asking the government to impose a "windfall profit tax" on home owners back then.
However an oil windfall profit tax seems mighty popular these days. Hillary Clinton campaign strategy seems to even revolve around the idea. hypocrisy? -> I think yes.
Posted: Thu May 08, 2008 7:41 am Post subject: Re: Feedback Loop in Oil Pricing
Quote:
Fortunately, oil production tends not to depend on oil prices directly since there isn't much oil used in it.
I don't think it's that simple.
The chain of dependency for oil producers depends very much on the products derived from oil... perhaps not directly, but as a downstream consequence of the interconnected relationships of various manufacturing & services markets.
Think about all the equipment & services required to run successful drilling operations. Die-cast equipment, transport requirements etc... don't just effect the oil producers themselves, but also the subcontractors whom they employ.
Oil's inflationary impact on virtually all markets all but guarantees reinforcing feedback. _________________ "When you understand why you dismiss all the other possible gods, you will understand why I dismiss yours." - Stephen F Roberts.
Posted: Thu May 08, 2008 9:09 am Post subject: Re: Feedback Loop in Oil Pricing
Aaron wrote:
Quote:
Fortunately, oil production tends not to depend on oil prices directly since there isn't much oil used in it.
I don't think it's that simple.
The chain of dependency for oil producers depends very much on the products derived from oil... perhaps not directly, but as a downstream consequence of the interconnected relationships of various manufacturing & services markets.
It does, but by how much? If it's minimal, then the feedback will also be minimal. Keep in mind, that just like efficiency, the coupling of service/equipment to a specific resource is chained, so even if 28% of the energy required (prorated for all including transportation) for ore extraction is from oil, if 4% of it's energy requirements from blast furnaces, and 12% of it's specialty manufacturing is oil, then that 15% of it's energy cost from oil would be what increased the most, with a few percent from the other materials being impacted significantly. Since resources tend not to be the primary costs of specialty services like those in the oil industry, the cost of those resources, and oil's share of that, is likely much smaller.
Aaron wrote:
Think about all the equipment & services required to run successful drilling operations. Die-cast equipment, transport requirements etc... don't just effect the oil producers themselves, but also the subcontractors whom they employ.
They do, but as a percentage of their costs, those operations are influenced by oil as a cost little compared to say, demand for drilling equipment. For instance, oil only makes up around 20% of of the energy required for industrial applications in the states, most of which is used for plastics. I would guess that more oil is used in transportation of crucial equipment than by those specific industries, and even then, the entirety of tractor trailer fuel consumption, including shipping LCDs and TP a few thousand miles across the country at 70mph, is only ~10% of oil supplied. If we look at what percentage of that is used by oil companies/contractors/related, it would likely be relatively small, since most of that 10% is used for the JIT consumer economy. All told, I doubt oil prices have inflated the cost of oil's infrastructure costs by more than a few percent.
Aaron wrote:
Oil's inflationary impact on virtually all markets all but guarantees reinforcing feedback.
To an extent, but how much of that is seen in current prices? Given how little oil is likely used in industry, most of which is for plastics, and transportation, most of which is for moving the same plastic crap , I think you need compelling evidence that the support services/costs of oil are experiencing a feedback due to oil prices of more than a few percent, as opposed to fundamentals like demand and the dollar. A few LCAs would be great!
Edit-Not to mention, specialty costs from contracted companies for drilling and exploration, are still a small part of the over costs and energy required from natural gas and electricity, which compounds any oil inputs further and decreases their impact as an input. _________________
Posted: Thu May 08, 2008 10:06 am Post subject: Re: Feedback Loop in Oil Pricing
Equipment manufacturer sees higher costs associated with not only transporting their goods, but is absorbing higher prices from their primary suppliers and so forth up & down the chain.
It's an insidious relationship.
From the toothbrush their employees used this morning, to the cost of insuring their assets, taxes... you name it. The cumulative effect is to raise oil production costs by a difficult to quantify, but non-trivial amount. _________________ "When you understand why you dismiss all the other possible gods, you will understand why I dismiss yours." - Stephen F Roberts.
Posted: Thu May 08, 2008 12:42 pm Post subject: Re: Feedback Loop in Oil Pricing
cube wrote:
threadbear wrote:
...
A little subtlety please. We all know it's finite, that the low hanging fruit has been picked. Does that excuse the rapacious greed that has made the problems far worse? Does it?
There's no law against being greedy!
What does Starbucks coffee, Microsoft, and Big oil have in common? They're ALL in it for the money, they just sell different things. So why get upset about oil companies when they're really not that much different than anyone else? What's wrong with making a profit? If the market shifts in your favor and you're making money at a substantial rate, what's wrong with that?
For example during the housing market boom there were people who bought houses for $200,000 and later sold it for $400,000. What the hell did they do to "earn" $200,000? They didn't. They just got lucky. How's that any different then what the oil companies are going through now? I certainly don't remember anyone asking the government to impose a "windfall profit tax" on home owners back then.
However an oil windfall profit tax seems mighty popular these days. Hillary Clinton campaign strategy seems to even revolve around the idea. hypocrisy? -> I think yes.
Ultimately, greed is has to be tempered with restraint, or business fails. A CEO has to understand the proper pricing point or his corporation goes under, is bought up and restructured.
The only time these basic laws of restraint don't hold up is if you have monopoly or oligopoly control. (the majors survive, all the little guys go under, eventually). With housing, you are seeing right now, through the sub prime chaos, what unrestrained greed, is doing. Thanks for making my point. The housing market is failing.
Posted: Thu May 08, 2008 8:47 pm Post subject: Re: Feedback Loop in Oil Pricing
threadbear wrote:
...
Ultimately, greed is has to be tempered with restraint, or business fails. A CEO has to understand the proper pricing point or his corporation goes under, is bought up and restructured.
...
Is excessive greed bad? yes. However that does not mean it is (you, me, or anyone else's business to tell these CEO's how to run their business). If a CEO makes a bad decision and 100,000 employees end up losing their jobs well I guess that's just how life works sometimes, at least in America. And that's the way it should be IMHO. Aside from things like upholding legal contracts and making it illegal to dump harmful chemicals into a river killing off half the city population ---> I see absolutely no need for government to step in and try to manage the situation.
threadbear wrote:
...
The only time these basic laws of restraint don't hold up is if you have monopoly or oligopoly control. (the majors survive, all the little guys go under, eventually). With housing, you are seeing right now, through the sub prime chaos, what unrestrained greed, is doing. Thanks for making my point. The housing market is failing.
The closest thing to a monopoly in the oil business is the nationalized oil companies, Saudi Aramco being the largest. The oil majors as in (Exxon, Shell, Total, etc..) are actually the small fries in this game.
The housing fiasco:
Do you know what the ultimate cause of it is? To be very blunt it's because society is stupid enough to let it happen, that's why. It is not a lack of government regulation but instead it is precisely because of government involvement in the system (with public consent) that made it happen. In a free market system the tax payers would not be liable for investor losses.
Posted: Fri May 09, 2008 1:29 am Post subject: Re: Feedback Loop in Oil Pricing
Aaron wrote:
Equipment manufacturer sees higher costs associated with not only transporting their goods, but is absorbing higher prices from their primary suppliers and so forth up & down the chain.
Sure thing, but as you start going into their secondary suppliers, it chains and becomes smaller. So if company A works for an oil company, and has to buy from company B, of which oil is about 20% of B's costs, say up from 10%, and 30% of A's cost comes from B, that's only a 3% increase overall for A, and even less for the oil company. The farther we go away from oil's primary energy need, which are met almost entirely with natural gas/electricity, the less the higher costs in other sectors impact oil's costs.
Since the absolute maximum, is about 30% of oil's price, assuming most trucking and all industry oil use, is required for oil extraction/refining/transportation, which clearly isn't the case, then we start to see some significant, likely around 40+%, feedback (back of the notepad). However, since the vast majority of energy use with oil is from natural gas, and to a lesser extent electricity, and for the industries that supply oil with it's infrastructure, oil is likely at most around 10-20%, most of which is probably used for transportation, we're talking a few percent for the costs of tooling/infrastructure, and the magnitude of feedback is incredibly small, fractions of a percent.
Aaron wrote:
The cumulative effect is to raise oil production costs by a difficult to quantify, but non-trivial amount.
It depends, what is your quantification of trivial? _________________
Joined: Apr 28, 2005 Posts: 3435 Location: West shore Lake Eire, MI, USA
Posted: Fri May 09, 2008 6:20 am Post subject: Re: Feedback Loop in Oil Pricing
cube wrote:
threadbear wrote:
Cube, I'm talking about excessive greed, not simple ambition.
I think we're getting off topic.
ohh yeah back on topic.
Remember folks it's not just oil production but also oil refinery projects spinning beyond original budget forecasts.
However, because oil companies are making a goodly income right now they are able to self finance instead of taking out multi-billion dollar loans which does help a lot on the costs over the period of the initial phase when no income is coming from the project. It also gives them the option of buying up their supply chain and further insulating themselves from the crazyness that is the current credit crisis.
I think the big breaking point will be when the American oil majors start dumping money into CTL projects, if and when that happens crude will stabilize for a few months. While CTL is certainly not a panacea the USA mines a heck of a lot of coal and could double that over time. Last year the USA consumed over a billion tons of coal, run that same ammount through CTL and you get 2 billion bbl/oil. That is 5.5 mbpd, more than the oil we pull out of the ground right now.
It won't be cheap, it certainly won't be environmentally friendly. It will be done because TPTB want to keep their cushy lifestyles and the best way to do that is keep the sheeple happy. _________________ Oxygen: - An intensely habit-forming accumulative toxic substance. As little
as one breath is known to produce a life-long addiction to the gas, which addiction invariably ends in death.--Isaac Asimov
Posted: Fri May 09, 2008 2:44 pm Post subject: Re: Feedback Loop in Oil Pricing
Good thread.
It's not just oil though.
Any infrastructure project priced last year at last year's prices will have had finished hardware costs come in 20-30% over budget this year on average. Some materials less so (aluminium), some more so (steel). Manpower is a large component and is far less volatile, and some costs are fixed far ahead of time, but overall you could take a 10% hit, a few mistakes on top of that and profitability on anything becomes marginal. The effect is real. Anyone in construction right now knows full well what kind of crop they are reaping this season. And they know that everyone aims further ahead of the curve next time if they missed it this time. This isn't sticker shock yet. The little guys are still absorbing most of the pain, actually.
Greed... greed was not spending the money back then. At this rate, the next couple of years could see a lot of outfits conclude they simply missed the boat and postpone their capex until the recession deepens and crushes consumer/commercial demand in enough places to let the air out. And they would probably be right, not greedy.
This is as true of "mitigation", which will die if every year you can afford to do less with what you have. We are only seeing the progress we are seeing because money is being thrown faster at efficiency and renewables than energy/commodity price inflation can eat it. On a fixed budget, we would see the reality. We saw one example today.
Posted: Fri Jun 27, 2008 3:55 am Post subject: Re: Feedback Loop in Oil Pricing
"The practical reality … is that this crude oil will find a home. Crude oil is a worldwide commodity and there is a world price."
Quote:
Canadian oil sands producers can develop the resource responsibly, he insisted. Suncor itself has reduced emissions, per unit of production, by 44 per cent since 1990, and its use of water is down 40 per cent over the last five years.
Still, when the increase in oil sands production is taken into account, Suncor's overall emissions have risen sharply and will continue to do so.
"There are no silver bullets" to stop this trend, Mr. George said, although the industry's move to invest in carbon capture and storage technologies will help over the long term.
Their vision is a large pipeline that will carry carbon dioxide from Fort McMurray, Alta., past Edmonton to central Alberta, where the gas will be pumped into deep underground reservoirs. But that is not likely to come to fruition for several years, and will be very costly.
In the meantime, a carbon tax makes some sense, Mr. George said, as long as it is applied across all sectors and to all forms of carbon emissions, including the consumption of fuel as well as its production.
Anything that looks like a "tax grab" from industry players just won't work, he said. "If this is another National Energy Program where you're shifting money from the West to the East, then I'll tell you that in the West it will not sell."
Suncor has also been investing in clean alternative energy, such as wind power and ethanol, but Mr. George said none of these individually has the potential to displace fossil fuels on a large scale. To deal with increasing demand, particularly from the fast-growing middle class in Asia, "you've got to pull on all levers here. You've got to pull on nuclear, you've got to pull on renewables, you've got to pull on sustainable oil development."
sustainable oil development sounds like an oxymoron to me? _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Fri Jun 27, 2008 4:24 am Post subject: Re: Feedback Loop in Oil Pricing
MrBill wrote:
...
sustainable oil development sounds like an oxymoron to me?
here's a snippet of Obama's energy plan:
*warning may cause uncontrolled laughter*
"Develop and Deploy Clean Coal Technology: Obama will significantly increase the resources devoted to the commercialization and deployment of low-carbon coal technologies. Obama will consider whatever policy tools are necessary, including standards that ban new traditional coal facilities, to ensure that we move quickly to commercialize and deploy low carbon coal technology."
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, I think you need compelling evidence that the support services/costs of oil are experiencing a feedback due to oil prices of more than a few percent, as opposed to fundamentals like demand and the dollar. A few LCAs would be great! 
