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16 December 2015

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walter

Econ 101: High prices lead to increased production/supply which lead to lower prices as supply outstrips demand.

technology advances like fracking, directional drilling have increased supply; weakening economies around the world have decreased demand

JJackson

pl
OK I'll bite. Short term price fluctuations should not be in this argument as they are symptoms of short and medium term market fluctuations governed by factors other than the long term decline in the planetary oil reserve. A rolling decadal trend would be a fairer guide.
I trust you would not dispute that we are using the reserve at a vastly faster rate than any new oil is being created. I would argue that the only remaining question is whether we can find a replacement energy supply large enough, and fast enough, to replace fossil fuels before they become so expensive that they have disastrous political and social effects.

Wyoming

The implications of the 'peak oil thingy' statement are not correct.

Absent climate change the Peak Oil argument would hold due to the increasing 'energy' cost of exploration, extraction and distribution eventually getting so close to the amount of energy produced that we could not possibly support our current global infrastructure. You cannot fuel the world if it takes more energy to get the oil out of the ground than there is in it. So the theory is rock solid. The arguments made along the lines of 'prices' and Econ 101 do not trump the laws of physics. One can have their own opinion but not their own facts.

But the real point we have to keep in mind going forward is that, due to climate change, we already know 'where' there is far more..far more..coal, oil and natural gas than we ever dare burn. So it does not matter that the laws of physics support Peak Oil Theory as we have more supplies than we dare burn anyway. There is no longer any justification for spending resources on exploration for those commodities. All possible resources need to be put towards transitioning as soon as possible away from the fossil fuels. We have no choice.

A side benefit of such necessary actions is that the dynamics of conflict which this blog concentrates so well on will inevitably change significantly in focus and location. Which one can certainly point out will have both issues and opportunities to act on as well as think and talk about.

A Pols

Various non-hysterical peak oil theorists have stated for over a decade that increasing price volatility will be part of the equation and that demand destruction caused by higher prices would lead to price crashes. The higher costs in money and energy inputs required to produce new discoveries in both oil and gas are also part of the reality that the low hanging fruit has already been picked. Nobody except the chicken little set really thinks oil supplies will suddenly dry up leaving us in a "Mad Max" scenario, but it's also true that only the odd "cornucopian" thinks planetary petroleum reserves are inexhaustible and constantly replenished from mysterious sources.
So, you're certainly right enough that there is no immediate crisis, yet the pressures exerted on the world economy via reduced EROEI ratios do have a part to play in some of the janky economic stuff going on these days.

Seamus Padraig

The problem with that line of reasoning though, is that some of those new technologies--like fracking--are only profitable when prices are high. When prices go too low, the R.O.I. disappears.

Seamus Padraig

JJ's right. The only real argument is about when, not if. After all, if the earth's mass is finite, then everything in it--including oil--must be finite as well, right?

Trey N

It's not just oil -- ALL commodities prices have collapsed far below the cost of extraction, and few analysts have picked up on the stunning implications of that fact. A rare exception:

http://www.marketoracle.co.uk/Article53270.html

If this trend continues (and I see no reason for it to reverse in the foreseeable future), the world is going to be a very different place soon....

Fred

Wyoming,

Arguments along the line of "settle science" and "crisis" mean we make regulatory changes forcing billions of dollars of investment into technologies where the winners are politically connected and powerful and the losers are not. Peak oil theory and the laws of physics don't matter to the "laws" of political science.

Amir

Extracting Saudi oil costs around 1 $ per barrel. Iranian oil can cost between 1.5-10 $ per barrel to extract. Fracking and Russian oil costs somewhere between 40-85$ per barrel to extract. Obviously these fracking related costs will partly decline as more oil per fracked well is out out, considering an higher initial investment compared to still necessary ongoing investment.

begob

Yes. Great blog, but the OP betrays stupidity.

turcopolier

All

How long does the decline in crude prices have to continue before you "oilies" begin to doubt your faith? pl

Bobo

Technology has put the "Peak Oil" Theory into the dustbin of life. Fracking is the recent wave that is growing which has started in China, Russia and hopefully Europe in time. New technologies are coming and there will be plenty of oil for generations to come. Technology also is needed in curtailing exhaust gases and other emissions.
While Climate Change & Global Warming are the hot topics today we all realize that our air& water is cleaner than fifty years ago but still has a way to go. Reasonable efforts have gotten us to this point and reasonable efforts will get us into the future with cleaner air. While Solar, Wind, Nuclear, Tidal, and other energies all have a place and should grow over time as a supplement to our needs Oil will be with us for generations to come and should you think differently, well, there is a bridge for sale in NewYork real cheap.

Wyoming

No sir that is not quite right.

Saudi oil production costs at one time were much lower than now, but they were never as low as $1 per barrel. Production costs in their fields falls in the range of $10-20 per barrel today. As not all fields have the same geology, sulfer content or are in different stages of decline you get different numbers. There was never actually a time when the number was as low as $1 as to get that number the people claiming it had to take out capital costs - which is basically cheating. About $5 per barrel was their low. The Iranians also cannot hit such numbers as to ramp up production they will have to invest hundreds of billions in capital to modernize and refurbish their infrastructure. Plus they still have to take into account all the old investment which has deteriorated so badly by now. Your numbers on fracked wells are good but there is not likely to be much further decline in costs (at least in places like the US) as the crash in oil prices has pushed the industry to pretty much maximum efficiency. However the key point is that the price of oil is not relevant to the point of Peak Oil as what really counts are the energy ratios.

The important thing to keep in mind here is what I said above about fossil fuels. We already have discovered the location of far more oil, coal and natural gas than we ever dare burn. If we would stop being stupid and make a concerted effort to improve our energy efficiency, convert to renewables and adjust our livestyles to one less opulent and consumer oriented then we would quickly reach the point here in the US where we actually could supply our own fossil fuel needs (until we eliminate their use altogether). The great benefit to this action would be we could then stop basing so much of our foreign policy and national security on what is transpiring in the Middle East.

Wyoming

Sir,

Faith is an opinion which does not take into account the facts.

Just as this blog applies a fairly rigid standard to using the facts and reality to judge military matters the same should be applied to other subjects. While I have experience in several wars and served my country 21 years I do not claim to have the knowledge of many here in such matters.

However I do have deep knowledge on what I am talking about here. The facts say otherwise to your opinion.

Wyoming

Technology is based upon the application of the laws of physics. And technology cannot over throw those laws. The propagandists of the oil industry would like people to believe such nonsense as you stated. But it simply ignores the facts. The core issue is the energy ratios of the oil being produced. There is no avoiding this as it takes energy to find, produce and transport and as those energy costs go up there is less available energy left in the produced oil to use productively. Fracked oil has a much lower energy ratio than oil from say the typical field in SA. As the good fields get used up the average energy cost goes up.

You have a deep misunderstandings about what climate change is. The issue is not about how clean our air is. That is like thinking a snow storm disproves climate change. Our energy needs are not to supplement oil or the other fossil fuels. If that is all we do and we are indeed using large amounts of fossil fuels 50 years from now we will have guaranteed the destruction of most of civilization. Just like the energy issues forming the foundation of what is called Peak Oil the facts of climate change are irrefutable. We need far more than reasonable efforts to handle this crises. Full effort is required.

Even if we fully deploy renewables and cease using fossil fuels entirely in the next 50 years we are far from solving the problem of climate change. For climate change is not a single problem wrapped around the emissions of green house gases by the consumption of fossil fuels. There are a host of other human activities which generate emissions such as cement production and deforestation. What we are really dealing with at the macro level is an interrelated trifecta of problems; emissions of greenhouse gases, a rapidly growing already overpopulation, and already significantly exceeding the global carrying capacity (which is also in rapid decline). These problems cannot be separated from each other and thus have to be addressed simultaneously. A not trivial situation. Every human can only continue to exist by the consumption of a minimum amount of resources. Should they live in any version of a modern civilizational structure they then will consume vastly more. It is impossible to avoid some minimum expenditure of greenhouse gases per person so the number of them there are is critically important to the solution. As the worlds ability to supply the food and ecological needs to support us and the rest of the creatures which live in it and which are essential to our survival continues to rapidly decline that problem runs directly into the rapidly growing population which requires more from it. A situation which cannot last. I won't go on as there are a host of places where one can go and learn about this topic and the energy topics out there. Some of what you find will be mine as in the last decade I have written at least a million words on the topics. The set of problems wrapped around climate change constitutes the greatest challenge of human history. We can chose to deal with this reality or we can wait for that reality to deal with us. The choice belongs to all of us and our responsibility to future generations weighs heavily... what will you do? The intelligent time to act was long ago, but we do have to act. The longer we wait the worse we are going to suffer for having a lack of courage or because we were just weak in mind and will. I am a pessimist by nature as I learned long ago that optimists die young ... as I watched them go. It is better to be hard nosed, stick to reality, plan for the worst and be prepared.

Jack

Sir

It's not just crude that has dropped significantly in price. Natural gas, iron ore, copper, zinc, etc have all had a decent price haircut. One of course is supply where the perverse effect of central bank driven easy money ostensibly to fight deflation was to create more price deflation in the industrial commodity complex. The recent illiquidity and price decline in high yield bonds imply less financing for more marginal production in the immediate future.

The other side is demand. China was the primary destination for many commodities as they built at a scale not seen in human history. They have to keep inflating their credit edifice lest it collapse on itself. Of course we too have been living beyond our own levels of productivity growth by borrowing from our grandchildren. But...that is a problem to be addressed at some future date as kick the can is the mantra of the 21st century.

While in the short term there could be price rebounds many indicators are pointing to a general slowdown across the global economy so recovery to former price glory for many commodities may be way out in the future during the next business cycle upswing.

Commodity dependent countries from Norway, Russia, Brazil and of course our dear Saudi "friends" are now facing financial challenges as their government spending relative to revenues are moving in the wrong direction. I'm surprised not to see the "petrodollar" conspiracy theorists out in force. Petrodollar volumes have shrunk in half yet the Treasury complex has a strong bid.

different clue

I first read about "peak oil" several decades ago in Mother Earth News in an article about M. King Hubbert. He was basing the theory on his observations of discovery rates and pumping rates of oilfields in the US given the technology of the time. He turned out to predict fairly closely the onset of decline of production from American fields at that time under those technology conditions.

More recently I read various websites devoted to predicting the peak and falloff of oil production. There was The Oil Drum (maybe legacy posts still online somewhere). There was Oil Depletion Analysis Center and Association For the Study of Peak Oil and maybe others. I learned about eboes and erois and stuff. Against the long cycles of history I don't doubt that eventually there will be no new oil reserves left unfound and the rates of pumping from what we have will eventually start going down. But for now, perhaps the peak oil theory should be shrunken down to the peak "easy" oil theory or the peak "conventional" oil theory. As one low-difficulty-level of oil starts running shorter, another higher-difficulty-level of oil gets found. So perhaps people need to start thinking in narrower types of oil and see if the peak and falloff of "easy" oil, "frack" oil, tar "oil" and etc. can be predicted separately. To whatever extent these separate peaks turn out to appear as predicted, to just that extent is the theory still useful.

I suppose the one peak I still expect us to reach someday is peak eboes and peak erois. When it takes so much more energy to find and develop new reserves of oil than the energy we can recover from the new reserves we find, then we have reached "peak findability" and then we will just have to string out the diminishing resource we have. But I think we will reach "peak pollution survivability" long before that happens.

Jack

A vignette on the current supply glut.

http://www.zerohedge.com/news/2015-12-16/something-strange-taking-place-middle-atlantic-ocean

JJackson

pl
100 years.

VietnamVet

Colonel,

It isn’t peak oil. This is pricing. Commodity prices have crashed.

“Piling more debt on a base that isn’t expanding fast enough to support skyrocketing debt leads to a collapse of the feebly supported debt: borrowers default, asset prices crash as buyers vanish and lenders go bankrupt as the assets held as collateral are repriced.”
http://www.businessinsider.com/american-dream-over-and-voters-know-it-2015-12

When the energy needed to extract stored fossil sunlight is greater than the amount produced, gasoline and diesel powered transportation will end. The question is what happens before the world gets to this point; malaise, wars or mass migrations. Or, does mankind learn to get along with the sunlight directly shining on them?

JJackson

Walter the problem with your Econ 101 is this this not production it is extraction. Find a way to make oil and then refine it and I would agree with your math but this is just digging up caches of gold marked on a treasure map and setting a price based on an extraction and a cleaning fee - what happens to your business model once you have found the last accessible cache?

Babak Makkinejad

Global Warming be damned; I am driving my Tahoe and I do not care one whit about Eco-NAZIs, Environmental Weenies and assorted shriveled-up weak-minded pinko liberals...

They can go to India and learn to cook with cow dung...

I just love, absolutely love, the internal combustion engine.

The Virginian

The concept of peak oil is theoretically plausible, but we are a very long way from getting to that point for the mix of technological and market reasons stated already in this thread. What would be helpful to the public debate on climate change and fossil fuel use would be to better represent the full hydrocarbon value chain - it is not just about fuels, but about plastics and other petroleum-based products that we use daily. Another area that would be helpful is to better represent the energy inputs needed to create all of the renewable components (ie. steel, aluminum, rare earth metals, plastics again, etc.), plus the impact of consumer behavior. Few politicians dare tell the masses that the desire for an iPhone 6 or other items should be curbed. It would seem that much of the political hot air is premised on technologies that don't yet exist, subsidized R&D (not always a bad thing), and a message to the masses of "don't worry, you continue to consume and we will just have to come up with a new way to allow you to do so". Getting to a series of closed or near closed loop systems that recycle and draw a reduced amount out of the earth would be the gold standard, but that would truly require a sea change in technology as well as politics and markets.

If government's wanted to make a near term impact then pragmatic approaches would see coal use frozen than eventually banned (BTW - most of Germany's powergen is coal fired, and coal is some 40+% of the energy mix in Australia), with gas used as a transition fuel (still emits, but less than coal, oil, diesel, kerosene) and a more thought through approach to integrating renewables in a grid / off grid strategy. For transportation the biggest thing would be to turn to mass transit systems, but that is another non-starter as folks want their independence. Non-fossil fuel vehicles emit less, or zero, but are still carbon intensive for construction and destruction thus need more development.

Charles Michael

You start by a classic mistake: confusing Peak Oil prediction with End of OIl prediction.
The engineer King Hubbert predicted in 1956 that the Oil production in USA would pick in 1970/71. And it did happen; that's a fact. And since then USA has been importing OIL, even to the present days, even with the success of Fracking and the 4 to 5 millions of barel per day so newly provided.
Alaska production has peaked, North sea production has peaked, Syria has peaked, Mexico same, etc... Romania production has almost desappeared, etc...
Petrole is there for generation, sure, but harder to get.

Europe has been experimenting fracking notably in Poland and Rumania without success, all majors companies has just quit. UK these days will try anf we gone a see with what results. China and South Africa are also developping fracking, we will see.
In some way the success in fracking in USA, shows certainly a real (this time) measure of how exceptional USA is.

In fact the low prices, are due partly to global recession, (global recession may have started with unsustainable high prices) and partly to power play amongst the Big Producers, with maybe some geo-political play.

The tar-sands exploitation in Alberta started with the high prices and now is declining. That's brougth Canada to recession.

A lot of analysts financial and geological have been puzzled by the sharp drop in prices, lot of different opinions could not reach a conclusive explanation. But most agree that reduction in investments (CAPEX) in OIl reasearch and development (this take 5 to 15 years between discovery and delivery) might in the next decade be a real supply problem.

One must keep in mind that the normal yearly decline rate per well is around 5 % and more for older wells.
The EIA consider that's from now to 2035 the Oil industry will need to find and bring to the market about 4 millions b/d.

Ulenspiegel

"Technology has put the "Peak Oil" Theory into the dustbin of life."

That is wrong. Fracking produces expensive unconventional oil, the current crude price is not sustainable for the companies which want to make money with fracking.

The production of (cheap) conventional oil has very likely peaked in 2005.

A good take on the current situation by Steven Kopits:

http://www.cnbc.com/2015/11/13/why-oil-could-rally-big-in-2016-commentary.html

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