[westexas]

A recent item from the Motley Fool website:

Here's How You Can Profit From the United States' Oil Boom:
http://www.fool.com/investing/general/2 ... es-oi.aspx

Photo caption for the article says it all:

“Saudi Arabia can keep its oil, we have enough of our own.”

A trip down memory lane. . .

EIA data show that Alaska's crude oil production (C+C) increased from 0.17 mbpd in 1976 to 2.0 mbpd in 1988 (as production from the North Slope came on line via the Trans-Alaskan Pipeline).   This was a 20%/year rate of increase.    At this rate of increase in Alaskan crude oil production, the US would have been crude oil self-sufficient in about 7 years, around the year 1995.   Of course, reality intervened, and Alaskan crude oil production fell from 2.0 mbpd in 1988 to 1.5 mbpd in 1995, a rate of decline of 4%/year. 

And today . . .

Assuming an average annual US crude oil production rate of about 7.5 mbpd in 2013, at the 2008 to 2013 rate of increase in US crude oil production, 8%/year, the US would be approximately crude oil self-sufficient in about 9 years, around the year 2022.   On a net imports basis (based on total liquids and current data), we would actually achieve zero net liquids imports prior to 2022, probably around the 2020 mark that has been frequently mentioned.

So, either declines from discrete producing regions like the North Slope of Alaska are inevitable, or the laws of nature have been repealed. 

It's pretty clear what the conventional wisdom is these days, as we see virtually daily headlines proclaiming that the Peak Oil "Theory" is dead.  The logical conclusion one can draw from this proclamation is that the finite sum of discrete producing regions, like the North Slope, that peak and decline will result in a virtually perpetual rate of increase in production.



For an alternative (reality based) point of view, following is a link to, and excerpt from, a recent essay I wrote:

Commentary: Is it only a question of when the US once again becomes a net oil exporter?

http://www.resilience.org/stories/2013- ... l-exporter

We are currently processing about 15 million b/d of crude oil in US refineries (actually 16 mbpd in July, 2013). A portion of the refined product is exported, and then we have refinery gains plus biofuels plus natural gas liquids, but let's ignore all of that and focus on crude oil production versus refinery inputs. Currently, we are producing about half of the crude oil inputs into US refineries, and importing the other half.

If we want to produce, in 2023, 100% of the crude oil that we currently process in US refineries, based on the above assumptions (especially a 10 percent /year decline rate), we would need to add the 7.5 million b/d, in order to offset declines, plus add another 7.5 million b/d over 10 years, for a total of 15 million b/d of new production, or about 1.5 million b/d per day per year for 10 years. And of course, once we reach the 15 million b/d level, assuming a 10%/year decline rate, we would need 1.5 million b/d of new production, every year, just to maintain the 15 million b/d production rate.

To meet the 1.5 million b/d 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 crude oil production from Saudi Arabia + Iraq + Kuwait.

This exercise illustrates why peaks happen, and it shows why production declines are inevitable. On the upslope of a production increase, 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.

In reality, what the data show--at least through 2012--is that developed net oil importing countries like the US were gradually being shut out of the global market for exported oil, via price rationing, as developing countries, led by China, consumed an increasing share of a post-2005 declining volume of Global Net Exports of oil.

[John_A]

If by "shut out" you mean "the US is using less oil imported oil nowadays because of a combination of the fastest growing domestic oil production in US history and lessened consumer demand as people trade in their SUVs for more fuel efficient machines"...sure.. sounds about right. Shut out has the connotation we can't get more on the international market, when in reality we have just decided to get it locally because...we can. Could we compete with China for supplies? Sure, OPEC isn't cutting production because they want to, but because they have to..and the answer "why" they have to relates to what I mentioned above.

http://www.bloomberg.com/news/2013-07-2 ... -says.html

[agramante]

Exactly, westexas. It's hard to explain gravity to those who shut their eyes every time something begins to fall.

[Plantagenet]

the US is using less oil imported oil nowadays because of a combination of the fastest growing domestic oil production in US history and lessened consumer demand as people trade in their SUVs for more fuel efficient machines"...sure.. sounds about right.

Don't forget the effect of increased poverty in the USA. Millions of jobs have disappeared in the last 5 years, and the jobs that are being created are generally part-time and/or poorly paid. Poverty rates and government dependency is at record levels in the USA, resulting in less people going to work and less money to buy gasoline among those who have jobs.

[kublikhan]

the US is using less oil imported oil nowadays because of a combination of the fastest growing domestic oil production in US history and lessened consumer demand as people trade in their SUVs for more fuel efficient machines"...sure.. sounds about right.

Don't forget the effect of increased poverty in the USA. Millions of jobs have disappeared in the last 5 years, and the jobs that are being created are generally part-time and/or poorly paid. Poverty rates and government dependency is at record levels in the USA, resulting in less people going to work and less money to buy gasoline among those who have jobs.

+1

Increased fuel efficiency from trading in SUVs for better mileage cars accounted for a tiny 7% of the decrease in US oil consumption. The rest of the decrease were reasons planty mentioned: more unemployment, reduced economic activity, etc.

A small part of the decline in oil consumption comes from improved gasoline mileage. My analysis indicates that about 7% of the reduction in oil use was due to better automobile mileage.

Apart from improved gasoline mileage, the vast majority of the savings seem to come from (1) continued shrinkage of US industrial activity, (2) a reduction in vehicle miles traveled, and (3) recessionary influences (likely related to high oil prices) on businesses, leading to job layoffs and less fuel use.

Another point of interest is the fact that the trend in gasoline and in distillate consumption both roughly follow the trend in the number of jobs available in the US economy. There is a theoretical reason why gasoline consumption might rise and fall with employment. People who have jobs can afford to buy cars and drive them. People who don’t, often can’t afford to drive.

Why is US Oil Consumption Lower? Better Gasoline Mileage?

[westexas]

JohnA,

In regard to the point that Plantagenet touched on, are your asserting that millions of lower and middle income Americans were not forced to reduce their oil consumption as global annual crude oil prices more than quadrupled from 2002 to 2012?

In any case, here are the overall consumption data for China, India, (2005) Top 33 net oil exporters and the US as a percentage of 2002 consumption, versus annual Brent crude oil prices (oil prices in red), through 2011. These trends continued in 2012. China, India and Top 33 consumption were up from 2011 to 2012, US consumption was down from 2011 to 2012, while Brent averaged $112.

[ROCKMAN]

Great chart wt. What's interesting when you pull vehicle millage efficiency into the equation is seeing the oil consumption go up in countries like China and India. I don’t know the numbers but it’s a very safe bet the fuel economy per vehicle is much higher in China, India and probably every other country in the world compared to the US. Their much better mpg’s don’t seem to be reducing their consumption levels. I bet there are more V-8 pickups in my small Texas town then all of China.

[westexas]

I noticed something interesting.

If we assume 2013 annual crude oil production of about 3.3 mbpd for Texas + North Dakota, and given their combined 2008 annual production of 1.2 mbpd (EIA, C+C), the 2008 to 2013 rate of increase in their combined crude oil production would be 20%/year, the same as Alaska, from 1976 to 1988. However, the crucial difference is that the decline rate from existing wells is much higher now for North Dakota + Texas, than it was for Alaska, circa 1988.

[dcoyne78]

If we want to produce, in 2023, 100% of the crude oil that we currently process in US refineries, based on the above assumptions (especially a 10 percent /year decline rate), we would need to add the 7.5 million b/d, in order to offset declines, plus add another 7.5 million b/d over 10 years, for a total of 15 million b/d of new production, or about 1.5 million b/d per day per year for 10 years. And of course, once we reach the 15 million b/d level, assuming a 10%/year decline rate, we would need 1.5 million b/d of new production, every year, just to maintain the 15 million b/d production rate.

Hi WTexas,

I agree with the main thrust of your argument. A minor quibble with the need for 15 MMb/d, I agree we need to increase by 7.5 plus the amount to offset declines. The amount needed to offset a 10 % decline per year over 10 years is not 7.5 MMb/d, it is about 4.9 MMb/d for a total of 12.4 MMb/d(rather than 15 MMb/d), assuming no change in total demand for crude inputs. (Total decline is 7.5 times 0.9 to the 10th power for a 10 % decline over 10 years)

DC

[ROCKMAN]

wt - As someone might say: "All oil wells are equal...just some are more equal than others". IOW if it looks like an orange, feels like an orange and smells like an orange and it tastes like an apple it probably ain't an orange. LOL.

[John_A]

the US is using less oil imported oil nowadays because of a combination of the fastest growing domestic oil production in US history and lessened consumer demand as people trade in their SUVs for more fuel efficient machines"...sure.. sounds about right.

Don't forget the effect of increased poverty in the USA. Millions of jobs have disappeared in the last 5 years, and the jobs that are being created are generally part-time and/or poorly paid. Poverty rates and government dependency is at record levels in the USA, resulting in less people going to work and less money to buy gasoline among those who have jobs.

I stand corrected. "The Obama Effect" is certainly in this mix as well.

[John_A]

JohnA,

In regard to the point that Plantagenet touched on, are your asserting that millions of lower and middle income Americans were not forced to reduce their oil consumption as global annual crude oil prices more than quadrupled from 2002 to 2012?

Are you asking me if basic economic theory on supply, demand and price suddenly stopped functioning recently? Absolutely not...as price rises, people use less, it is what is supposed to happen and one of the saving graces of peak oil. Price is SUPPOSED to force people to do something else besides drive monster trucks to take Jimmy to Little League practice. The worst thing that has ever happened to peak oil has been the price NOT staying right up there at nose bleed level to drive all the waste out of the system. And the other ugly brother of higher prices appears to be functioning as well, suddenly we have more liquid fuels being made out of all sorts of god knows what, and it is terrible for the environment.

Rockman's POD concept covers all of this, going about as far back in time as anyone wants to take it, and he correctly notes that the big changes in price you reference end up screwing up all the assumptions which take place during the run up.

[westexas]

Re: dcoyne78

I agree that a production base of 7.5 mbpd, with a 10%/year annual decline rate, would be down to 2.8 mbpd in 10 years, but that is not what I am talking about.

The question is, how much new oil production do we need to put on line, in order to maintain a constant 7.5 mbpd production rate, assuming a (simple percentage) 10%/year decline rate? Since we are always declining from a fixed volume, the answer is 0.75/year + 0.75/year + 0.75/year and so on.

Note that an estimate of 15 mbpd new production is actually too low, based on my stipulated 10%/year decline rate (which is probably conservative anyway), because we would be losing 10%/year of an increasing volume. In reality, especially when one plugs in a (highly realistic) assumption of an increasing decline rate, as a higher percentage of production from high decline rate tight/shale plays, we would probably need to put on line something like 20 mbpd of new production over a 10 year period, in order to be crude oil self-sufficient in 2023, with a production rate of 15 mbpd in 2023. Or, all we would need to do is to put on line the productive equivalent of two Saudi Arabias.

[westexas]

Re: JohnA

So I guess we are in agreement then, that at least through 2012, developed net oil importing countries like the US were gradually being shut out of the global market for exported oil, via price rationing, as developing countries, led by China, consumed an increasing share of a post-2005 declining volume of Global Net Exports of oil.

[John_A]

Re: JohnA

So I guess we are in agreement then, that at least through 2012, developed net oil importing countries like the US were gradually being shut out of the global market for exported oil, via price rationing, as developing countries, led by China, consumed an increasing share of a post-2005 declining volume of Global Net Exports of oil.

I do not know what price rationing means, to an economist, there is just price. Its entire job is to balance off supply and demand, that entire social science is basically built on it. And certainly "shut out" does not apply when the US could go out and buy another 1/2 million a day if it wanted to, just from recent OPEC slowdowns alone, let alone more from other surplus capacity. Fortunately, we do not want to, or apparently need to. That isn't being shut out, it is not wanting to buy any more. It is like saying you were "shut out" of buying fuel for your truck after you had filled it up, if you don't bring along jerry cans to fill up as well, you weren't shut out, you just didn't need any more. Maybe you had the jerry cans and just choose not to fill them, you could, but there is no desire. Lack of desire does not equate with "shut out".

Let China have it all, the competitive advantage of this century will be dictated by those who can do more with less, and that is certainly an arena that America is already learning quickly, whereas the Chinese haven't even built out America 2 yet, and might not succeed in that if only because of things like restriction to oil supply at the global level.

While America is both using less (The Obama Effect included) and turning on some of the largest producing oil fields in the western hemisphere, China is trying to buy out others around the world. A great way to make them terribly dependent on supply lines that the American military could slice in a heartbeat, the geopolitical ramifications of this angle alone are quite breathtaking in their implications. A blue water navy unmatched in the history of the world could come in really handy for these sorts of power plays!

America, on the other hand, already has access to the largest supply on the planet of "stuff to make oil from", through treaties and whatnot no less! We promise to protect the Canadians from southern incursions, they send us the likes of Pamela Lee, and stuff to make gasoline from! Now that is about as good as it gets!

[dcoyne78]

Hi WT,

Ok I get it now. Lets assume for simplicity that the decline rate is 10 % and does not increase (lets say technology is able to counteract any tendency for the decline rate to increase). Under those conditions, 20.625 MMb/d must be added to output over 10 years, 7.5 MMb/d of new output (.75 MMb/d each year for 10 years) and 13.15 MMb/d to offset declines of the increasing output (.75+.825+.9,...,2.1+2.175+2.25). I stand corrected, (though your initial 15 MMb/d was also incorrect, it was closer to the truth than 10.1 MMb/d).

DC

[ralfy]

Related:

"The Myth of 'Saudi America'"

http://www.slate.com/articles/health_an ... dance.html

Also, I'm not sure about "we," as producers and investors are the ones who own the means of production and what is produced, and will generally sell to the highest bidders. There's also the military, which may protect various supplies for its own benefit.

[copious.abundance]

The difference between Alaska in the late 70's - early 80's and now, is that Alaska was just one relatively small area (and it was the ONLY area with an appreciable increase in production), while this time there are multiple areas over several states, some of which individually are looking to be potentially as big as the North Slope was/is.

[westexas]

Many things are possible, but it's also possible that many of the other plays will be disappointing, especially as oil plays, e.g., the Utica Shale. And we are still stuck with a high, and increasing, decline rate from existing wellbores.

In any case, Martin Payne discusses some other plays in a recent interview:

http://www.resilience.org/stories/2013- ... k-oil-dead

[ROCKMAN]

One of the more meaningful take-aways from wt's link IMHO. Refelects much of the debates we have here. About "energy independence":

"Just as it might be better if the industry folks touting energy independence toned that down, likewise those who nitpick every shale oil or shale gas play should perhaps let the people who spend the money—or their shareholders—worry about the economics and just be glad that we have these plays to develop in order to create some more time. There has been a bit of a war between the folks who do things, in terms of discovery and development, and then the folks who review that—the doers vs. the reviewers. The reviewers have been pooh-poohing these shale oil and gas plays, which actually represent a lot of oil and gas…but not enough to solve the long-term problem.