[Pops]

Biggest oil find in decades becomes cautionary tale

By NARIMAN GIZITDINOV
Bloomberg News

ALMATY, Kazakhstan — After 11 years and $39 billion of investment, Exxon Mobil Corp., Royal Dutch Shell and their partners have yet to sell a drop of oil from what was touted as the world’s biggest discovery in four decades.
Centered on a man-made island 44 miles from Kazakhstan’s coast, the Kashagan project is just months away from completion, $15 billion over budget and eight years behind schedule. As the milestone of first oil nears, the Kazakh government is pressuring the group for a commitment on an even-bigger second phase, a project the oil companies are undecided on and one analyst says may not make money.
“The biggest worry is whether the project can ever be profitable given the huge cost escalation and start-up delays,” said Julian Lee, a senior analyst for the Centre for Global Energy Studies in London. It may be “impossible for investors to earn a return on any investment in a second phase before their contract for the field expires” in 2041.

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This is it in a nutshell. Just because the press release says we're saved, don't bet the farm. Demand will be destroyed, but not because we don't desire oil, we'll just not be able to afford oil.

[Lore]

Jim Cramer, of Mad Money and CNBC, says; BULLYA back to you!

I love it when pundits like him run up these old fossil fuel energy plays.

[Keith_McClary]

Then ice heeves and flows decommission entry during the frigid Siberian winters (minus 22 F).

Says -36C (-33F) here

This lovely place made me peakoil aware.

[rockdoc123]

Who says EROEI doesn't trump economics

has zip to do with EROEI.
When they entered into this project the project economics which have fu**k all to do with EROEI were wildly positive. The costs have run away from them which given what they have to deal with (rising costs and a challenging environment) isn't surprising especially when you add in the Nuzurbayeh factor (money going to Swiss Bank accounts).
And as time progresses and the capital spent is "sunk cost" they have to look at point forward economics, which they are doing.
Their decisions are not based on EROEI but economics....which is in the best interest of their shareholders which are the only reason for their existence.
Your assertions to the contrary are not only ill-informed but, to the point, incredibly ignorant.

[MD]

has zip to do with EROEI.
...
Their decisions are not based on EROEI but economics....which is in the best interest of their shareholders which are the only reason for their existence.
Your assertions to the contrary are not only ill-informed but, to the point, incredibly ignorant.

A bit overstated. We've reached a point where wise business practice includes looking at energy flow in production projects.

We haven't in the past due to the incredible energy density of the resulting production. Energy investment costs weren't a significant factor, and therefore were mostly ignored. That is changing rapidly.

Outright thievery I can believe, as you alluded to in your Swiss bank account reference.

[Pops]

I think it's unfortunate that Peakers get so hung up on the pillars of peak oil. There just aren't any hard and fast rules at this point.

EROEI is the perfect example. Investors don't give a rip about Energy ROI because they don't invest energy and it doesn't buy yachts, money does. So if a particular endeavor nets 0 energy but makes bucket loads of money, who cares?

For example, the same people who bellow that ethanol is a net energy loser swear up and down that a positive EROEI is the ironclad rule of energy production. How can that be?

Maybe a better guage would be Energy Returned on Effort Invested.

[dorlomin]

If you can extract 1000 joules of oil using 1100 joules of coal you are still going to turn a profit.

For example if you needed to pump up the oil using electricity from a local coal power station.

[ColossalContrarian]

Who says EROEI doesn't trump economics

has zip to do with EROEI.
When they entered into this project the project economics which have fu**k all to do with EROEI were wildly positive. The costs have run away from them which given what they have to deal with (rising costs and a challenging environment) isn't surprising especially when you add in the Nuzurbayeh factor (money going to Swiss Bank accounts).
And as time progresses and the capital spent is "sunk cost" they have to look at point forward economics, which they are doing.
Their decisions are not based on EROEI but economics....which is in the best interest of their shareholders which are the only reason for their existence.
Your assertions to the contrary are not only ill-informed but, to the point, incredibly ignorant.

So the cost run away is in no way shape or form related to EROEI but instead economics?

I could give a flying f#ck about shareholders but I want to know what this means for everyone else? It sounds like you're saying this isn't economically profitable but in no way shape or form related to EROEI, it's just "economics" which is a bit vague...

[Pops]

Not to put words in rockdocs mouth but he's said many times before that the calculation around the board room table is never "Can we make positive net energy from this project?" but "Can we make money?"

Not surprisingly, I doubt the shareholders give a rat's patoot about what you want.

[Pops]

In fact I'd bet that way before EROEI ever shuts down any production plain old monetary ROI will. If the idea that oil priced above a certain level restricts economic activity is correct, then projects like in the OP may simply not be viable.

[ColossalContrarian]

What it sounds like to me is that it's economics for the shareholders and EROEI for everyone else....

[Loki]

Does anyone care about EROEI besides ecological economists and peak oilers?

Seems to me that EROEI is not unrelated to economics (low EROEI = higher costs). But economics is what matters.

[ColossalContrarian]

I think there should be a name for this component that makes oil fields unprofitable because I believe it will continue to happen. Maybe "unprofitable" is good enough but there may come a time when a thread starts here archiving all the unprofitable oil fields in competition with OF2's "new oil/gas find" threads....

[ColossalContrarian]

For instance it is possible to convert giant coal seams directly to liquid automobile fuel. (Fischer–Tropsch) So why bother going offshore for oil? We can convert field corn into ethanol auto fuel. Why bother drilling 10,000 ft. horizontal wells through impermeable shale oil for oil? Simple. Really simple. It's cheaper to do one rather than the other. What is cheaper? Less effort. What's effort? Work. Why is this a problem?

Thanks pstarr that makes rockdocs point easier to understand.

[davep]

Don't start on Pimentel, pstarr... His much-vaunted all-in energy costs were grossly overstated (especially in the context of a local ethanol plant integrated into a wider use of inputs and outputs).

I think there should be a name for this component that makes oil fields unprofitable because I believe it will continue to happen.

Value of Energy Returned on Cost of Energy Invested (VEROCEI) maybe?

Here's an interesting argument against Pimentel:

http://journeytoforever.org/ethanol_energy.html#pimentel