[Threepwood]

For those who disagree with everything stated or implied regarding oil depletion...
Pops

[quote="Pops"]Here are 10 facts about Peak Oil:

[list]
Peak Oil
1. This was true 100 years ago, and will be true 100 years from now, meanwhile oil continues to be plentiful and to revolutionize standards of living worldwide


Discoveries
2. The definition of 'conventional' is not fixed . offshore was considered unconventional till it became conventional- likewise how 'unconventional' would shale be when it's providing most of our oil?

Exploration Costs
3. Of course you take the lowest hanging fruit first, that does not make hand picking apples more economically viable than mechanized picking-

Energy Return On Energy Invested
4. As above, only if you ignore economy of scale and advances in technology.

Export Land Model
5. global production continues to rise

The Consequences of Cheap and Expensive Oil

7. 'Increasing oil prices can decrease oil demand by reducing the amount of oil consumers can afford to purchase' where freedom in the market allows, not in much of the world where oil is heavily taxed or subsidized-


9. EV's are 19thC technology predating the combustion engine which made horses/ electric cars/ steam redundant over 100 years ago

10. agree, privatization would help here too?

[Pops]

Peak Oil
1. This was true 100 years ago, and will be true 100 years from now, meanwhile oil continues to be plentiful and to revolutionize standards of living worldwide

Hence "Peak"oil.
Are you saying that nothing will have changed regarding continually increasing production in 100 years?

Discoveries
2. The definition of 'conventional' is not fixed . offshore was considered unconventional till it became conventional- likewise how 'unconventional' would shale be when it's providing most of our oil?

Semantics. Substitute "simple, onshore, vertical" or just "cheap". The upshot is extracting oil is becoming continually harder and more expensive. Or are you arguing deep water, x-heavy, bitumen and tight oil in fact is less expensive to produce?

Exploration Costs
3. Of course you take the lowest hanging fruit first, that does not make hand picking apples more economically viable than mechanized picking-

You are torturing that metaphor somewhat, the point is that extraction costs are rising.

Energy Return On Energy Invested
4. As above, only if you ignore economy of scale and advances in technology.

Your point is that as oil becomes more difficult and expensive to find and extract oil that it becomes less energy intensive?

Export Land Model
5. global production continues to rise

At a fraction of previous rates, at multiples of previous cost, in a dozen counties in the US, using half the world's drilling rigs.

[Threepwood]

Hence "Peak"oil.
Are you saying that nothing will have changed regarding continually increasing production in 100 years?

Perhaps not no

The same question was asked 100 years ago, & nobody in their wildest dreams predicted that production would climb as it has- because of precisely the same arguments. Obviously I can’t make a prediction, price/availability has always depended on political far more than physical variables

Hand picking the lowest fruit intuitively seems the cheapest easiest method, but using a very ‘expensive’ tractor/shaker to get those ‘hard to extract’ apples is even cheaper and easier

The oil industry is a more extreme example of this, when unskilled manual labor was first used to collect oil spewing out of the ground in TX- who in their right minds would have predicted that we’d get much cheaper oil by building floating cities, flying highly paid workers out on helicopters and drilling the sea bed?

[Strummer]

The oil industry is a more extreme example of this, when unskilled manual labor was first used to collect oil spewing out of the ground in TX- who in their right minds would have predicted that we’d get much cheaper oil by building floating cities, flying highly paid workers out on helicopters and drilling the sea bed?

But what has that to do with today's situation? Jeffrey Brown posted some numbers over at peakoilbarrel.com:

For 1999 to 2005 inclusive, globally we spent $1.5 Trillion to offset declines and to boost production by an average of 2.5 mbpd, relative to 1998 – $0.6 million per one bpd average increase in production.

For 2006 to 2012 inclusive, globally we spent $3.5 Trillion to offset declines and to boost production by an average of 0.1 mbpd, relative to 2005 – $35 million per one bpd average increase in production.

Therefore, we have seen a 58 fold increase in the capital costs necessary (per bpd of average increased production) to offset production declines and to show one bpd of increased average incremental production as we went from the 1998 to 2005 time period to 2005 to 2012 time period.

As the incremental increase in production approaches zero, the capital costs required to show an incremental one bpd increase in production approaches infinity.

Those are some pretty frightening numbers, if you ask me, and the complete opposite of the claimed "technological progress" that is supposed to save us.

[ROCKMAN]

“The definition of 'conventional' is not fixed”. Not really true. ”Unconventional oil” is not a term used in the industry. It’s a made up concept that probably came from the media misunderstand what the industry classified a “conventional” and “unconventional” RESERVOIRS. There is a very specific and unchanging definition for those two categories. Search on line for a detailed explanation. A fractured shale reservoir is an unconventional reservoir…always has been and always will be. One is free to define “unconventional” anyway they want. Which is why it actually has no fixed meaning IMHO.

Exploration costs: “But while operating costs may be rising, so are upstream profits”. Which gets back to the point that increasing oil prices are not a result of increased drilling costs but just the opposite. Higher oil prices allow more expensive/risky wells to be drilled. If oil prices collapse so will the amount of that can be spent on drilling a particular well.

ELM: Global oil production increases as the price of oil increases. ELM isn’t about the amount of global oil production…it’s about the amount of oil that’s exported. Global production may increase X% but if internal consumption by the exporters increase the same amount the global NET export oil volume does not increase. But even with an increase in net global oil exports it doesn’t guarantee any particular country will continue to import volumes as it had previously. Countries such as China and India are rapidly increasing their oil imports. If global net oil exports don’t at least match the growth in those new buyers some of the current importers will receive less oil even in the face of sustained net oil export.

But once the resources are exploited at a particular price they decline just as was seen in the US during the last 40 years. When prices increase previously uneconomic resources become viable and are developed as we are seeing in the shale plays today. No technology exists which would have made these plays commercial had not oil prices increased significantly. And as has been seen in every oil play ever developed in the US those viable shale wells will be drilled only until all are developed. Additional resources, which today are not economically viable, would only replace them if oil prices increase sufficiently.

“Privatization” is a very loaded term. It can mean anything to anyone IMHO. Thus it really has no meaning unless fully described.

[Threepwood]

Those are some pretty frightening numbers, if you ask me, and the complete opposite of the claimed "technological progress" that is supposed to save us.

You could have left those dates out and I'd have guessed them within a year or two..

1999 saw pretty much the cheapest oil in history in real terms - down in the teens per barrel, I remember getting gas for 96c in Indiana- so of course, not a massive amount of investment in new production at this time! (I remember being told in the 70's that oil would have run out by this date- using similarly 'frightening numbers')

2005 - 06 was precisely when a number of factors came together to reverse this-
a decade of low investment coupled with massive unexpected demand from asia, ME instability etc etc..
so of course there has been huge new investment in new supply in the past few years, much of which has yet to come on line.


At the same time nobody predicted 100 years ago that the worlds largest consumer of oil would willingly restrict access to it's own resources, so like I said, the political factors have impacted prices more than geological one's so far, so I think this is likely to remain true in the future also?

[Threepwood]

in response to ROCKMAN..

I take you points there..
Though all the supply/cost/demand arguments refer to market forces which are not very free to operate-
where you have state run oil companies, fixed/subsidized prices for consumers in one half of the world.. and prices so heavily taxed in the other that the market cost is buried. The U.S. consumer is somewhat unusual in having consumption influenced by actual price per barrel cost yes?

demand is largely unhinged from supply for political reasons- which I think is a larger real life problem than hypothetical ever increasing geological limits..

[Pops]

Hand picking the lowest fruit intuitively seems the cheapest easiest method, but using a very ‘expensive’ tractor/shaker to get those ‘hard to extract’ apples is even cheaper and easier

Again here you are implying that cost to produce oil today is less that ever because of "tractors". Would be a good extension of the metaphor if it were true.

In the real world it is demonstrably wrong. New oil costs more to produce than ever - and the corollary; the great majority of new oil to come online only does so because of higher prices.

[Threepwood]

Hand picking the lowest fruit intuitively seems the cheapest easiest method, but using a very ‘expensive’ tractor/shaker to get those ‘hard to extract’ apples is even cheaper and easier

Again here you are implying that cost to produce oil today is less that ever because of "tractors". Would be a good extension of the metaphor if it were true.

In the real world it is demonstrably wrong. New oil costs more to produce than ever - and the corollary; the great majority of new oil to come online only does so because of higher prices.

only if you use the last decade to represent the long term trend.. instead of just looking at the actual long term trend

In the real world it is demonstrably true over time, extraction has become ever more 'difficult' and 'expensive' yet real world cost per barrel has been flat to even slowly declining over the last century- not withstanding the spikes and gluts produced by various unpredictable political factors. This is true even WITH ever increasing headwinds of taxes, regulations, fines , restrictions on oil extraction- direct & indirect. Removing that premium on the cost would also change the numbers significantly

[kublikhan]

only if you use the last decade to represent the long term trend.. instead of just looking at the actual long term trend

In the real world it is demonstrably true over time, extraction has become ever more 'difficult' and 'expensive' yet real world cost per barrel has been flat to even slowly declining over the last century- not withstanding the spikes and gluts produced by various unpredictable political factors. This is true even WITH ever increasing headwinds of taxes, regulations, fines , restrictions on oil extraction- direct & indirect. Removing that premium on the cost would also change the numbers significantly

Are you saying the cost rises of the last decade have been nothing more than a short term spike produced by political factors? And that you expect oil prices to fall to levels they were a decade ago, ie $30-$40?

[Threepwood]

Are you saying the cost rises of the last decade have been nothing more than a short term spike produced by political factors? And that you expect oil prices to fall to levels they were a decade ago, ie $30-$40?

In short yes eventually, probably a better argument for cheaper oil now than with the 70's spike- and almost nobody predicted a price collapse then. The political factors are hard to predict, otherwise I'd be very rich trading commodities! but combining;

an Asian slowdown,
investments in new exploration/production maturing,- conventional and otherwise
investment cycling away from commodities (remember almost EVERY commodity experienced a similar spike over the last decade)-
a more oil friendly political landscape in the U.S.
I.e. pretty much the opposite of what drove prices up, would put them closer to what they were- adjusted for inflation of course- so maybe around $50 -
I'd be willing to bet we'll see that level or lower within a decade

[ROCKMAN]

Don't want to quibble over the definition of long term. But as far as the technology goes the hottest oil play in the US in recent times started over 20 years ago when they began horizontally drilling and frac’ng the Austin Chalk in Texas. Much more active than the EFS has been, the AC is another fine-grained fractured unconventional reservoir that covers an area at least 4X greater that the current EFS play. As pointed out by Ray Holifield (“Mr. Austin Chalk”): “The Giddings Field has been the incubator of many new ideas and technological improvements to oil field technologies that have transferred to other oil fields around the world. The Giddings Field is the largest oil field found in Texas during the last fifty years.” The EFS formation sits immediately below the AC.

You don’t hear too much about the AC these days because it has been rather well developed. Just as the EFS will be some day. Current high oil prices are leading some operators to pay attention to the AC again since it sits under acreage acquired to develop the EFS. But so does the Georgetown and Buda formations as well as other unconventional reservoirs overlapping their trends.

[Strummer]

I'd be willing to bet we'll see that level or lower within a decade

China' economy will be double of what it is today within a decade. I find it extremely hard to believe that there will be enough oil (and for that matter, every other resource) to support that growth, and to even drive down prices at the same time.

[Threepwood]

I'd be willing to bet we'll see that level or lower within a decade

China' economy will be double of what it is today within a decade. I find it extremely hard to believe that there will be enough oil (and for that matter, every other resource) to support that growth, and to even drive down prices at the same time.

Malthus found it extremely hard to believe that we wouldn't have run out of everything a long time ago, even while vastly underestimating growth rates. I'd hope China and the rest of the world continues to grow economically, raising standards of living and lowering pop growth globally.

[Strummer]

Malthus found it extremely hard to believe that we wouldn't have run out of everything a long time ago, even while vastly underestimating growth rates. I'd hope China and the rest of the world continues to grow economically, raising standards of living and lowering pop growth globally.

Ah, the good old "Malthus got it wrong" argument. Tell that to the 90 million Egyptians.

[kublikhan]

And I assume you mean sustained prices around $50, not just a blip down for a few months like we had in 2009? If so, I'll take that bet. Let's look at your points one by one:

an Asian slowdown

Technology and high prices are opening up new oil resources, but this does not mean the world is on the verge of an era of oil abundance.

The annual report, released today in London, presents a central scenario in which global energy demand rises by one-third in the period to 2035. The shift in global energy demand to Asia gathers speed, but China moves towards a back seat in the 2020s as India and countries in Southeast Asia take the lead in driving consumption higher.

IEA: Oil demand, CO2 load still rising

Hmmm, the IEA says the shift in energy consumption to Asia is gathering speed, not slowing down. So this doesn't really seem to fit your prediction.

investments in new exploration/production maturing,- conventional and otherwise

Yet cost inflation and capital expenditures continue to grow:

Spending on exploration and production has recovered to pre-2008 levels as producers, excluding OPEC member countries and national oil companies, are expected to spend close to $270 billion in 2013, according to a Lux Research report.

The Race to Replace Reserves report, which will be released in full later this month, said spending is expected to reach $300 billion by 2020 and $400 billion by 2033. The increase in spending is being driven by declining production from the world’s largest fields, which is putting 12 percent of the world oil production at risk, and oil prices in a range that justify large capital budgets. Production has remained relatively flat, despite the increase in spending, a signal that the days of easy-to-find oil are over.

Oil Replacement Costs Soar 350 Percent

investment cycling away from commodities (remember almost EVERY commodity experienced a similar spike over the last decade)-

Spending on exploration and production has already passed the peak 2008 levels. And this is with other commodities like metals declining. Clearly something other than commodity prices alone is driving oil cost inflation.

The impact of slowing emerging market growth is being felt on commodity prices, particularly metals. Metals prices have declined while energy and food prices have edged up. The IMF’s Primary Commodities Price Index is unchanged from March 2013, with declines in metal prices offset by small gains in food and energy prices.

Although coal and natural gas prices have fallen, oil spot prices have remained above $105 a barrel. Elevated crude oil prices have played a role in keeping food prices relatively high because energy is an important cost component.

Commodity Market Review

a more oil friendly political landscape in the U.S.

Oil drilling in the US requires high oil prices to be profitable. If oil prices dropped to $50 a barrel, don't expect a whole lot of oil wells to be drilled in the US regardless of the political landscape.

Bryan Sheffield, a third-generation oil wildcatter in Texas’ Permian Basin, knows what he’ll do if crude drops to $80 a barrel: shut down half his drilling rigs. Energy producers on average need oil prices of about $96 a barrel to break even on wells drilled in Permian layers known as the Cline Shale and Mississippi Lime, says Mike Kelly, an analyst at Global Hunter Securities. Other areas of the Permian need a price of just $70 to $74. That compares with average break-even prices of about $78 a barrel in the Eagle Ford Shale a few hundred miles east of the Permian and $84 in the Bakken of North Dakota.

There will be more pressure to make every well a gusher if prices continue to fall. Wildcatters squeezed by slumping oil prices may lose their nerve and look to get out.

A Texas Oil Bubble Could Pop Due to Low Prices

[Pops]

only if you use the last decade to represent the long term trend.. instead of just looking at the actual long term trend

If recoverable oil is infinite then production can continue increasing forever, no argument there.

If on the other hand oil is not infinite there is a point the situation changes, in which case the long term trend fails.

You say we'll see a glut of oil and prices will fall to $50 within 10 years? It won't happen unless the economy tanks. The difference between now and 1980 is it costs more than $50 to replace depleted production. In fact, with LTO they have to drill one after another just to stay even.

Next year could test your theory. 3Mbd could come back online overnight from Iran, Iraq, Libya. I'd guess OPEC will defend price rather than production so don't expect a 50% drop, 15%-25% maybe, any more than that and LTO drilling will stop soon after, I'm guessing.

-- Just an aside
I think it's funny though and instructive about our outlook, to think of the 100 year history of oil as a "long term trend".

[ROCKMAN]

“Malthus found it extremely hard to believe that we wouldn't have run out of everything a long time ago”. Ahh, the favorite straw man. I never see anyone use the term “running out” except for those folks who argue that we were not running out. The problem never really has been about running out of oil. The problem has been the cost of energy and if an economy can afford to function well at that price level. And lately, with the growth of economies such as China and India, a new problem has emerged: it’s not a question of the world running out of oil but in a world of increased oil production who can out bid who for access to that production? The planet is producing more oil than ever before yet oil consumption by the PIIGS has dropped more than 1/3. How can that be in a world of such abundance? In a world in which “we” aren’t running out of oil? That answer depends upon who “we” is obviously. A lot of folks started running out of oil a while ago.

[John_A]

Those are some pretty frightening numbers, if you ask me, and the complete opposite of the claimed "technological progress" that is supposed to save us.

Jeffrey Brown was scared of his own numbers back in like 2006, now he has you doing it? Learn from his mistakes.

And "technological progress" isn't future tense, it has ALREADY saved us. What peak oil does is hypothesize that it will STOP saving us. The economic answer to that question is obvious...no one requires more oil to save us depending on the price of said oil, and the price and utilization of obvious alternatives.