[Oily Stuff]

I am fiercely proud of my 60 years in the oil and natural gas business. Save for the BS my industry is currently spoon feeding the American public about tight oil abundance, I'll defend the oil and gas business to my last day at the thief hatch, gauge line in oily hand.

But please, can I have someone else speak for me other than Daniel Yergin?

Like maybe, Mickey Mouse?

Mickey I am told worked some drilling rig floors, threw some spinning chain before he got into show biz. When I was a kid I never, ever heard him BS anybody...

From Peak Oil News:

RFE/RL: What did you think when you heard about the coming oil supply shock?

Daniel Yergin: "I think this comes as no surprise. U.S. oil production is up 43 percent since 2008. The increase in U.S. oil production – just the increase – is equal to Nigeria’s entire oil production. So the oil supply situation is being transformed by this revolution in unconventional oil and gas that’s now unfolding in North America."

There is that r word again. Geez. Domestic oil production I believe in 2008 was 5 million a day, at the end of 2012 it was 6.5 a day (EIA), that's 30%, not 43%. TOTAL just took another force majeure hit in Nigeria but total production in the country is now 2.5 BOPD (IEA), about a million a day more than the US, 2008-2012 increase.

Mickey could sure enough count, even with 4 fingers on each hand.

Yergin: "This means that the world, the global market, is going to be better supplied with oil. It means that there’s a rebalancing of world oil production that is now occurring, and it points to greater stability in the oil market and not that fear of shortage and peak oil that was causing so much difficulties for the global economy half a decade ago."

I guess then if the camel dung hits the fan in the ME, we'll be OK, right?

I did not know anybody was afraid of peak oil 5 years ago. Wow, that's encouraging. Oil prices spiked above 100 dollars a barrel for 7 months in 2008 then closed the year down over 72% to 38.00 dollars a barrel. If that was difficult for the global economy, I understand; you should have been around the oilfield.

As Westexas points out in another thread, Mr. Yergin in 2004 predicted 38 dollars a barrel as "permanent" oil index level going forward; but, by year end 2005 prices were 62 dollars a barrel up 40% for the year. Twenty seven months later oil prices were 142 and change, then took the express elevator down. Its hard providing the world with secure sources of hydrocarbons and a stable global economy when the price you get for the product you produce spins like a Duncan yo-yo. Thanks for stickin' up for us there, Daniel. You are all over the place with your price predictions, by the way. Mick I guarantee could do better.

From a 2011 WSJ article titled "There Will Be Oil"..."Things don't stand still in the energy industry. With the passage of time, unconventional sources of oil, in all their variety, become a familiar part of the world's petroleum supply. They help to explain why the plateau continues to recede into the horizon—and why, on a global view, Hubbert's Peak is still not in sight."

I think world oil production, C+C, thru 2012 was still pretty flat.

Mickey, with those big perddy whites of his, can see just fine. He is equipped to listen really well, too!

From "The New World Order" by Yergin: "Developing these "pre-salt" resources, as they've become known, is a big technical, political and logistical challenge for Brazil, and will require huge investments. But, if development proceeds at a reasonable pace, Brazil could be producing 5 million barrels of oil per day by around 2020, about twice Venezuela's current output - and more than half the current output of Saudi Arabia."

But...http://www.reuters.com/article/2013/06/ ... V220130604

Look, I can go on, I hope somebody else will, I loved "The Prize," it was a great book, this is a very nice man I am sure who is about as old as I am but still gainfully "employed." My country, however, needs a spokesperson from the oil and gas industry that does not fluff up the truth, that shoots straight from the hip. We need to be gearing American's up, rather way down, for some big energy problems down the road. We need a change.

And the man for the job wears big, yellow steel-toed boots. Mickey Mouse, he's our man, if he can't do it, nobody can!

[agramante]

Mr. Mouse also, I believe, did an honorable turn or two at propaganda in the 40's, so the role as disseminator of official information won't be new to him, either.

[Oily Stuff]

Yes, I recall that now, Mr. Agramante! Thank you. Above and beyond all else he is patriotic, a true American, too.

[AirlinePilot]

While I enjoyed the humor Oily, I have to say Im really pessimistic about anything changing other than business as usual. It will work as long as it does..then it wont. No one is going to step up until we feel the pain. So far we haven't even gotten close yet. We are truly boiling frogs IMHO.

[Pops]

I can't tell whether the EIA repeats everything Mr yergin says or vice versa.

Here is how things have changed in the last decade - the "main players" as Matt Mushalik at crudeoilpeak puts it.



3 pretty different countries are doing all the growing at this point, Russia & Iraq because they couldn't exploit theirs as fast as everyone else & the US, home to half a million stripper wells - and now a few thousand more.

The rest of the world is declining or inconsequential.

[westexas]

If we extrapolate the 2008 to 2012 rate of decline in Brazil + Iraq's combined ECI ratio (ratio of production* to consumption), they would collectively approach zero net oil exports in about 10 years. Note that their combined net exports fell from 2.0 mbpd in 2008 to 1.8 mbpd in 2012 (EIA).

Or in other words, the increase in Iraq's net oil exports from 2008 to 2012 could not even offset the decline in net exports from Brazil (as Brazil slipped into net importer status, even if we count biofuels as oil production).

*EIA data, production = total petroleum liquids + other liquids (mostly biofuels)

[westexas]

ExxonMobil put the annual decline rate from existing wellbores in the 4%/year to 6%/year range a few years ago. For the sake of argument, let's assume that the decline rate from existing US oil wells was about 5%/year in 2008, when the US hit the post-hurricane low production point of 5.0 mbpd (Crude + Condensate, EIA).

Let's assume that US Crude + Condensate production averages 7.5 mbpd in 2013, and let's make (in my opinion a conservative) assumption that the decline rate from existing US wellbores is about 10%/year this year, as an increasing percentage of US production comes from high decline rate shale/tight plays.

At a 10%/year decline rate, in order to simply maintain a production rate of 7.5 mbpd out to 2023, the US oil industry would have to replace the productive equivalent of every single oil field in the United States of America--everything from Thunder Horse in the Gulf of Mexico, to the Eagle Ford Play, to the Permian Basin, to the Bakken Play to the North Slope of Alaska.

Or let me put it this way, at 5%/year decline rate, in 2008 the US lost 250,000 bpd per year due to declining production. At a 10%/year decline rate and a production rate of 7.5 mbpd, we would lose 750,000 bpd this year due to declining production.

In other words, a 50% increase in net production + an increase in the decline rate from 5%/year to 10%/year would lead to a 200% increase in annual volume of oil lost to declining production from existing wellbores.

Assuming an annual loss about 750,000 bpd from existing wellbores, the gross increase in production would have to exceed 750,000 bpd in order to show a net increase in production. For example, let's assume that we average 7.5 mbpd in 2013, and let's assume that we lose 750,000 bpd (0.75 mbpd) from existing wellbores this year. In order to show a net increase of 0.25 mbpd from 2013 to 2014 (from 7.5 to 7.75 mbpd), the industry would have to show a gross increase in production of one mbpd, which would be the production from new wells in 2014 that were not producing in 2013.

If you add it all up, assuming a 10%/year decline rate from existing wellbores, in order to show a significant net increase in production, the US oil industry would have to put on line, over a 10 year period, the productive equivalent Saudi Arabia's 2005 crude + condensate production of 9.6 mbpd, which is also the US production peak that we saw in 1970.

This is why Peaks Happen, and it's why production declines are inevitable. On the upslope, new oil wells can offset the declines from existing wellbores, but with time, new oil wells can no longer offset the increasing volume of oil lost to production declines And of course the overall decline rate from existing US gas wells is almost certainly even higher than for oil wells.

We are currently averaging about 66 BCF/day in dry natural gas (NG) production in the US (EIA). If we assume a 20%/year decline rate per year from existing NG wellbores, the industry would have to put online the productive equivalent of current US dry NG production over the next five years, in order to maintain a production rate of 66 BCF/day.

So, based on a 10%/year decline rate for oil wells and a 20%/year decline rate for gas wells, in order to maintain a crude oil production rate of about 7.5 mbpd and a NG production rate of 66 BCF/day, in round numbers the industry would have to add the productive oil equivalent of one new Bakken play every year and the productive gas equivalent of 2.3 Barnett Shale plays--every single year, year after year.

[Arthur75]

lol, good one

Quite amazing how this guy, whatever he says or happens, still has some kind of "THE oil future expert sticker" stuck to his head (or back).

[westexas]

I coined two terms regarding Yergin.

First, given his prediction (in late 2004) for a long term price of $38 per barrel, as rapidly increasing production drove oil prices down below $40 per barrel, I suggested that we price oil in terms of "Yergins," with One Yergin = $38 per barrel.

Second, I described the Yergin Indicator as follows: Within one to two years of Yergin predicting a future oil price, the price would actually tend to be about twice Yergin's predicted price. Unfortunately for oil traders, it looks like Yergin has largely stopped making oil price predictions.

[ROCKMAN]

pstarr - Dang...get a room guys. LOL. Actually I think I get a bit of the credit for getting westexas to turn to the dark side...come to PO.com. His data base obviously makes a great long term thread that can readily be updated as more proof of his projections come to light.

And it's fun to watch the overly optimistic try to deal with his numbers.

[westexas]

Re: pstarr

Probably the simplest way to look at the US supply & demand situation is to focus on Crude + Condensate (C+C), versus refinery inputs. And let's go with the assumptions up the thread, to-wit, annual US production of 7.5 mbpd in 2013, with an overall decline rate of 10%/year from existing wellbores. The decline rate will probably continue to increase, but for simplicity, let's hold it constant at 10%/year. As noted above, in order to maintain a constant 7.5 mbpd production rate out to 2023, given a 10%/year decline rate, we would have to replace the productive equivalent of 100% of current US C+C production.

Now, we are currently running about 15 mbpd of crude oil, presumably C+C, through US refineries. A portion of the refined product is exported, and then we have refinery gains plus biofuels plus NGL's, but let's ignore all of that. Currently, we are producing about half of the crude oil inputs into US refineries.

If we want to produce, in 2023, 100% of the C+C that we currently use in US refineries, then we would need to add the 7.5 mbpd, in order to offset declines, plus add another 7.5 mbpd over 10 years, for a total of 15 mbpd of new production, or about 1.5 mbpd per day per year for 10 years. And of course, once we reach the 15 mbpd level, assuming a 10%/year decline rate, we would need 1.5 mbpd of new production, every year, just to maintain the 15 mbpd production rate.

To meet the 1.5 mbpd per year rate, in order to be crude oil independent by 2023, in round numbers we would need to add--every single year--the combined current productive equivalent of the Bakken Play + the Eagle Ford Play. Or, we would need to add, over 10 years, the productive equivalent of the 2012 C+C production from Saudi Arabia + Iraq + Kuwait.

[Oily Stuff]

The single best tool that I have in my box to argue faith based hydrocarbon abundance theory is production decline rates. I am occasionally asked to speak at luncheons, Lions, Rotary, that sort of thing and when the opportunity arises I love to whip out this big 'ol 4 pound hammer and go to work, first on tight oil resources and how decline rates directly affect mineral ownership, then from the standpoint of world conventional resource decline and replacement and what that means for our future.

Unless I keep it very simple, brief and fun, I inevitably lose my audience. There is an emotional component it seems that keeps people from embracing the concept of decline. They can't seem to get their arms around it; I see it in their faces and I hear in their questions.

It is perplexing to me. Natural decline seems to be a no-brainer to me. I need to be patient, I know. Nobody, I repeat nobody understands decline rates more than a working interest owner who's invested tough earned money in an oil or gas well. A working interest owner can't ignore decline rates; its like a mother in law who moves in with you. She has one of those little dogs that never stops yapping and pees on your furniture all the time. The minute she walks in the door, suitcase in tow, you know things will forever be going downhill.

I think for those of us who believe we might someday be headed for energy problems, and would like perhaps for people to be better prepared, teaching the ramifications of decline is our greatest task and where we can make the greatest gains. If we can make people grasp the idea we're a losin' it as fast we be a gettin' it, something might register.

I am pretty sure that's what 'ol Mick would say.

[westexas]

Oily,

I've concluded that most Cornucopians come from Fantasy Island, where oil wells don't decline. But back here on planet earth, oil wells decline.

Some time ago I decided to stay small and focused, looked for conventional shallow oil fields. As you know, the bigger your operation, the larger your overhead, and the greater your production, the more production you have to replace every year. I decided to stay small enough that a one million barrel field will make a material difference, and in the little corner of the Oil Patch where I work, a million barrels can hide in an area of as little as 100 acres.

Incidentally, once you are past the initial decline in production from a conventional field, and the decline settles down to a 5%/year to 10%/year decline rate, I think that there is a pretty decent chance that rising oil prices will more or less result in stable, to slowly rising, cash flow, even given a 5%/year to 10%/year decline rate. Another rule of thumb is that I predict that working interest owners will receive, at a minimum, $100 per barrel in constant inflation adjusted dollars, after the royalties and all expenses, over the life of a quality long life conventional oil field. In other words, a million barrel field would be an undiscounted net cash flow, in constant dollars, of at least $100 million.

[Oily Stuff]

Hey, Westexas, thanks for sharing that with me about yourself. I more or less suspected that you walked the walk. You and Rockman also talk the talk very well and I am counting on both of you to deliver the message that needs to be delivered. Lots of people look up to you two fellers. You guys are icons. I have to pretend to know Mickey Mouse to get people to listen to me.

Twenty five years ago I guessed someday the price of oil would be 100 dollars a barrel. I drilled lots of very marginal stuff, bought other men's junk like it was going to someday be my treasure, and hung on. It was tough, you remember that. 3 BOPD wells are pretty ugly at 9.00 dollars a barrel. But I was right, for once, and the plan worked. Now me likey 2.67 Yergins per barrel bery, bery much.

I am with you on production decline rates to oil price inflation ratios. Quick, name that ratio before history leaves it in the dust. Over the years I have actually minded my reservoir management manners and have been able to increase TFPD to offset declining OWR and keep my decline rates at about 2% per year. I was in the ME one time on a blowout and told a Saudi engineer that once and he looked at me like I was nuts.

These shinny new shale dudes now days would have me hauled away to the funny ranch if I showed them my decline curves.

[Pops]

OS you made me think of Mickey's first gig in Steamboat Willie where he was pitted against the evil boat captain. Isn't that the american dream in a nutshell, the little guy vs the titan? We see ourselves as being able to overcome obstacles and not only persevere but prosper in the face of overwhelming odds.

Unfortunately peak oil doesn't fit into the typical obstacle category that Americans have always excelled at does it? Think of the transcontinental or Hoover dam, or world war. PO isn't a brute force type of problem but if you listen, every proposed solution is a brute force remedy, every argument (aside from it hasn't happened so it won't) is from a mass manufacturing standpoint, everything from PV to wind to thermal depolymerization of turkey guts to tight oil and Drill Baby is trying to replace, "pound for pound" the concentrated energy in oil through sheer will and application of force to some other, much more diffuse primary resource. It just isn't in our bones to think we - or more correctly: They, can't come up with something.

It sucks, in our minds we're The Bomb, literally. Our self image is we should be able to fix this. That's why Saudi America resonates so easy from just a few hundred mil spent on PR. The folks who benefit learned how to run a campaign during the tobacco wars and the Dot.com and real estate bubbles. Lately the surge in the Trickle Up war on taxes has shown just how effective misinformation, obfuscation and downright lying can be. The sign of a great propaganda campaign is the folks hurt most are the most adamant proponents.

The old adage is, Sell the sizzle not the steak. The key to marketing is not to "make" consumers want a thing, that is just about impossible. The key is to figure out who your target is and what they already want (whether they know it consciously or not) then fit your product into that niche.

Aside from a few Luddites, Treehuggers and misanthropes, there just isn't a very large target market for the sizzle of peak oil.

.

[ROCKMAN]

Pops – “there just isn't a very large target market for the sizzle of peak oil.” So true. Just as there wasn’t a big market for the “sizzle” of cigs causing cancer, unprotected sex leading to STD’s and unwanted pregnancies, high school dropout unemployment, drunk driving, over eating, etc. We do seem to have a clear history of ignoring self-destructive activities. No reason to believe we would do better when it comes to energy.

[Oily Stuff]

Pops, thank you for letting me run a little with this stupid Mickey Mouse thing. People sometimes take themselves a little too seriously around here and I am just trying to lighten it up a little. That aside, I do actually believe Mick could be a better spokesperson for the oil and gas industry than Danny, really.

The sign of a great propaganda campaign is the folks hurt most are the most adamant proponents.

You nailed it right there, Pops. My industry has no credibility with the rest of America anymore. None. Truthfully we are likely the most loathed industry (profession) in the country. I agonize over that. I do what little I can to make people understand the human side of my business, the hard, manual labor, the incredible risks both physically and financially, the highs and the deep lows, and in spite of the science that a lot of times we still don't know what happens down there in the dark. People don't really care too much. Somehow Americans believe cheap energy is their...right.

A psychologist at Cal Davis said a while back that people tend to ignore facts and surround themselves with other people who feel the way they do because it validates their beliefs. To me the key to making a difference is not to preach to the choir but to take the message to the streets.

My industry actually deserves the mistrust it receives. And I believe when the dust all settles on this tight oil thing Americans are going to look back at all the BS the industry was feeding it, that people like Yergin fed it, and they are going to trust us even less. They will be right to do so.

I agree with everything you wrote, Pops.

[Matt979]

Excellent posts. For me as a person looking on it as a Financial bubble, it all boils down to the most powerful power in nature the actual end result of compounding of incremental increases and the physical barrier to growing forever due to the ever increasing required capital expenditure.

It easy enough to explain but also the most hard for people to accept.

Its going to be very interesting and at the same time most likely sad to see how the system will handle the certain decline in world oil production and the associated drastic increases in price of oil.

The irony is the more critical for society to keep up production of the remaining oil, the more despised the oil industry is going to get. Adding wall streets greed into the mix and I suspect it might get hostile and could get scary for the oil industry. Once people get the idea that oil is a declining a never seen market induced price bubble will form, this connected with the growing anger toward the oil industry/wall street, makes me personally see nationalization of all oil production in the US as an not unthinkable scenario due to national security reasons or at the minimum at least price controls and rationing, lots of people would be needed to protect OIL supply lines and oil production even in the US.

If we think society has class warfare now, more expensive energy will create class warfare not seen since the beginning of the previous century, history tells us this would then lead to populist leaders and new very strong and in some case violent political groups.

The free oil industry in the US who with their hard work gave us all the gains and is helping the country to move up the decline date to give us more time to prepare, the thanks would be that they will bare the brunt for the effects of wall streets push up of prices and get the fury of the common man.

I agree having people like Yergin re-assure people of BAU is going to make the situation worse, the message that's needed is that OIL production will not increase forever and if we prepare we could transition to a lower use economy, maybe not smoothly but we could avoid massive social unrest and very violent times, all the talk about Shale and US oil independence just adds more power to the eventual explosion.

[ROCKMAN]

Matt – Also a good post. But I’ll challenge you a little on one aspect: “…makes me personally see nationalization of all oil production in the US”. Every time I see the “nationalization” idea tossed out I always ask the same thing: exactly what does that entail? Does it mean the govt takes over the actual field production? Does it mean the govt will take over day to day drilling operations? Does it mean the govt sets prices? Does it mean the govt will decide what refineries get the oil and where the products are shipped? Does it mean the govt takes all the revenue?

Generally speaking nationalization means the govt takes over ownership of the production and all the cash flow. If this is your vision then do you understand this would be an immediate loss of $trillions of assets by many tens of millions of US and foreign citizens. The vast majority of oil/NG ownership in this country is held by folks though stock and mineral rights ownership. Take away ExxonMobil et al production and what happens to the value of their stock owned by millions of US union works through their retirement accounts? And what happens to the financial institutions that hold the debt of those thousands of oil patch corporations?

Saying “nationalize” is very easy. Now explain the details of the process and all the intended and unintended consequences. As Dirty Harry would say: “Go ahead, punk, make my day.” LOL