Peak Oil (was "petroleum geologist explains US war policy")

[david dissadent]

http://www.iht.com/articles/2008/04/14/business/14oil.php

Mr Lima is now being investigated by Brazilian authorities for price manipulation. The current best guess is that he was shown a preliminary report that gave the fields currents estimate rage (which can be very very broad) in BOE (barrels of oil equivelant) and slightly lost his head giving the the largest estimate of oil and gas theorised as the amount of oil recoverable. So he is likely to have cocked up by thinking BOE was oil (its oil and gas), mistaking OIP oil in place and URR ultimate recoverable reserve and 5% probibility with 95% probibilty.

And never ever trust an article that quotes CERA the Cambridge Enregy Research Association. They are at the wildly extatic end of the cornucopian spectrum. Anyone speculating in the oil industry based on there projections would go broke twice a year. Mid last year there were prediciting $60 oil for 2008.

ISTANBUL, June 27 (Reuters) - World oil prices will drop to the low $60 range by the beginning of next year as long as the security premium in the world oil market does not rise, said Daniel Yergin, chairman of Cambridge Energy Research Associates

http://uk.reuters.com/article/oilRpt/idUKL2727647820070627?pageNumber=1

They are spectacularly wrong all the time on estimates of production and price.

 

[Falcon]

The head of Brazil's National Petroleum Agency said Monday that a deep-water exploration area in the Atlantic Ocean could contain as much as 33 billion barrels of oil.

That´s fantastic news - one year´s supply of oil will come in very handy - for 12 months.

Brazil´s only sensible option is to develop it then keep it in the ground for personal consumption once market supply fails.

 

[david dissadent]

Credit Suisse are now saying that 33 billion is a "blue sky" estimate of the whole are under investigation including parts that have not yet been drilled, that they think that the current field that has been investigated is about 6.7 billion barrels recoverable. It is in a pretty challenging location to drill, wont be cheap but is there and should be reachable.

However in recent news Russia and Nigeria are looking at going into depletion. Nigeria has said it may loose 30% of its oil production in ten years if new investments are not made. And Russia seems to have hit its second peak and is about to start depleting.

It is a race between new fields being developed and old fields depleting. It would take far far more information than I have to guess when we will peak and how fast the depletion will be. At a guess I would say Russian depletion will be faster than people expect when it gets going. They peaked in the 80s and depleted badly in the 90s but western technology in the 90s and 2000s meant they could get more from older fields, but this kind of technology tends to deplete quickly such as in the North Sea. This is significant as Russia is the worlds largest oil producer.

Interesting times indeed.

 

[bigfish]

That´s fantastic news - one year´s supply of oil will come in very handy - for 12 months.

As was shown earlier in the thread, in 1979 the "life-index" of global oil reserves was calculated at 35 years — suggesting, at first glance, that known oil reserves would support production through to 2007. However, by 2003, following decades of accelerated industrial production, the index had risen to 40 years. Last year the index climbed to 45 years. So, by your own calculation, adding in the Brazil find raises the index to 46 years — a new all time record high.

There is no hard evidence supporting the scarcity arguments given here by the peak oil PR propagandists. Annual global oil consumption = 31.5 billion barrels per year. One barrel of oil = 42 U.S. gallons. One cubic foot = 7.48 U.S. gallons. One cubic mile = 147.2 billion cubic feet. So the volume of oil consumed by mankind annually = (31.5 x 42) / (7.48 x 147.2) = 1.2 cubic miles of oil per year. The volume of the earth is 260,000 million cubic miles. If by volume a millionth of the interior of the earth contains oil, then there is enough to last 260,000 years. But if 1/250,000 of the earth is oil, which is only about the volume of the Mediterranean Sea, and which does not seem at all unreasonable, then at the present rate of consumption we have enough oil to last another million years.

 

[Crispy]

</lurk>

Fractions of the volume of the earth? What the hell sort of reasoned argument is that? "1/250,000 of the earth is oil, which does not seem at all unreasonable". You start your paragraph with "There is no hard evidence" and proceed to pull a figure completely out of your ass, which is why it stinks.

Again, get back to me when yearly discovery is greater than yearly production. That hasn't happened for 20 years, so there's quite a bit of catching up to do.

<lurk>

 

[yield]

There is no hard evidence

Yes there is. It has been shown again and again and again...

Much more than your specious argument.

Why are you trying to manufacture uncertainty?

And of course what Crispy, Falcon and DD said.

 

[david dissadent]

$116.80 for West Texas Intermediate.

And the US refineries have low stocks and low utilitsation on the build up to summer.

Oil is gonna be a big story this summer if the price does not collapse bellow $100 and the driving season be a damp squib. Yes the refinaries have some stocks in abundance but they are byproducts of diesel manufacture, that has been cranking away all winter too feed asia. US refinaries are poorly kitted for diesel (its all about the crack spread).

Airlines were hitting the wall with oil floating between $100 and $110. US airlines are hitting the wall or cutting routes like hell. I dont really believe these prices are remotely sustainable but hell Ive been made to look a monkey on this before. (I was saying $100+ was unsustainable back in November)

 

[Crispy]

Obviously the dollar is undervalued right now. Is there a sensible 'correction' for that value so that we can see the relative worth of a barrel of oil, without the messed up USA economy distorting the price?

 

[david dissadent]

Obviously the dollar is undervalued right now. Is there a sensible 'correction' for that value so that we can see the relative worth of a barrel of oil, without the messed up USA economy distorting the price?

What makes you think the dollar is undervalued? It is now backed with $100 of billions worth of some decidedly un-AAA grade morgage backed securities. The trade deficit is giantic, the interest rates appear headed for 1 - 0% they certainly seem to be bellow headline inflation, the federal deficit is headed for a giantic record this year, the outstanding state debt is $9+ trillion and climbing due to probibly breach $10+ trillion this fiscal year, its housing market is in melt down and its domestic market is designed for large scale consumption of $20 oil not $120.

The only thing to keep its value up is that Europe also has its problems.

 

[Crispy]

What makes you think the dollar is undervalued?

dollar:euro

ok, so 'undervalued' is a loaded, relative term, but there are factors affecting the worth of the american dollar that have nothing to do with oil, and these factors therefore distort the international price.

 

[Barking_Mad]

Oil has hit $118 a barrel.

 

[david dissadent]

That is cripplingly expensive oil. I would not like to be running the accounts of an airline right now.

 

[david dissadent]

Holy shit, its way above $119 now.

Edit its been trading at $119.72. bloody hell in early January everyone was in disbelief it had squeeked above $100.

 

[Crispy]

Now this is getting silly. There must be some market speculation involved in driving the price this high this quickly, surely?

EDIT: Although if there's a market mechanism for profitting off the bet that oil will be more expensive in 2009 than it will be in 2008, it should be the safest investment ever.

 

[david dissadent]

Now this is getting silly. There must be some market speculation involved in driving the price this high this quickly, surely?

EDIT: Although if there's a market mechanism for profitting off the bet that oil will be more expensive in 2009 than it will be in 2008, it should be the safest investment ever.

Big trouble in Nigeria, some rebels blew up a pipeline and are saying they will do some more. It is sweet crudes that have been affected. US refinaries are a bit short of product for unleaded although that story does not seem to be in the press, sweet crudes i.e. with low sulpher content are easier to refine. Shell has said it cannot meet its delivery obligations, this is all in the past day or so. So everyone is sort of thinking that the US is going to need alot of oil soon to build up its summer stocks.

 

[Random]

EDIT: Although if there's a market mechanism for profitting off the bet that oil will be more expensive in 2009 than it will be in 2008, it should be the safest investment ever.

buying futures in oil

 

[david dissadent]

Although if there's a market mechanism for profitting off the bet that oil will be more expensive in 2009 than it will be in 2008, it should be the safest investment ever.

Not really there is the concept of demand destruction. Currently a number of consumers are living beyond there means, that is they are using credit to keep operating at the levels they are. These including US truckers, most airlines and many us drivers. Not to mention Chinese refinaries are forced to sell at set prices so are making a loss. This is not very sustainable so once the full impact of the big price hikes comes through many users may stop using oil. Several small airlines have already ceased operating this year and a few big ones are cutting routes. Once price rises also turn up in a big way people will be flying less. Many Americans may forgo there summer driving holidays or buy smaller cars to get to work in. World demand for manufcatured goods may also drop we over a year or two the high prices may drive consuemers out of the market. This happened after the 1980 price super spike.

In theory if the US economy gets week enough or consumers simply cant afford the oil the price will come down. On the other hand ofcourse if the dollar continues is voyage to the center of the earth its dollar value may rise while its euro value falls.

 

[Barking_Mad]

Brent Crude over last 12 months

 

[gorski]

In 1972 the price of crude oil was about $3.00 per barrel and by the endof 1974 the price of oil had quadrupled to over $12.00.

The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5,1973. The United States and many countries in the western world showed support for Israel.

As a result of this support several Arab exporting nations imposed an embargo on the countries supporting Israel. While Arab nations curtailed production by 5 million barrels per day (MMBPD) about 1 MMBPD was made up by increased production in other countries.

The net loss of 4 MMBPD extended through March of 1974 and represented 7percent of the free world production. If there was any doubt that the ability to control crude oil prices had passed from the United States to OPEC it was removed during the Arab Oil Embargo.

The extreme sensitivity of prices to supply shortages became all too apparent when prices increased 400 percent in six short months.

From 1974 to 1978 world crude oil prices were relatively flat ranging from $12.21 per barrel to $13.55 per barrel. When adjusted for inflation the price over that period of time world oil prices were in a period of moderate decline.

http://www.wtrg.com/prices.htm

Oil demand previously collapsed in the early 1980s, after nominal oil prices rose tenfold between 1970-73 and 1980-83, to $35 a barrel from around $3.50.

Oil averaged about $25 a barrel from 2000-03, suggesting prices would have to increase to $250 a barrel in 2010-13 to have the same impact on oil users this time around, Sieminski said.

Deutsche Bank's price forecast for Brent and West Texas Intermediate oil next year is $102.50 a barrel. Oil prices have surged 82 percent in the past year as investors purchased contracts as a hedge against the dollar, which fell to a record low against the euro, and as an alternative to flagging equity markets.

Crude oil rose to a record $119.93 a barrel today after BP Plc shut a North Sea pipeline and gunmen attacked police guarding Nigeria's largest oil and gas terminal.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1iz9yKS.QHU

http://en.wikipedia.org/wiki/Oil_price_increases_of_2004-2007

http://www.inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp

http://tonto.eia.doe.gov/oog/info/twip/twip_crude.html

Crude-oil futures ended slightly higher Monday, as traders bet on a quick resolution to production outages in the U.K. and Nigeria.

Light, sweet crude for June delivery settled 23 cents, or 0.2%, higher at $118.75 a barrel on the New York Mercantile Exchange. Futures set a record high of $119.93 in overnight electronic trading, but didn't approach that level again once the U.S. trading day began.

June Brent crude on the ICE futures exchange settled 40 cents higher at $116.74 a barrel. Trading was choppy as traders weighed the growing production outages in Nigeria against the expected restart of North ...

http://online.wsj.com/article/SB120936783991649119.html?mod=googlenews_wsj http://futures.tradingcharts.com/chart/CO/M

Oh, how very enlightening....

 

[Dr Jon]

I see there are varying claims about the recent discoveries off the Brazilian coast - anything from 10 to 33 billion barrels. Some say this is one of the biggest ever discoveries and it will reduce dependence on the middle east.

Petrobras is still trying to work out how much oil it has found. Credit Suisse claim there is 98% percent less oil than the figure cited by Petrobras.

Whatever, these reserves are trapped more than a mile under the ocean floor, which itself is six miles below the surface. This oil is hot stuff - literally - at about 250°C. Quite significant engineering challenges which will require development of new technology.

Don't hold your breath...

ETA:
Matt Simmons' latest presentation here. (pdf)

 

[bigfish]

ETA:
Matt Simmons' latest presentation here. (pdf)

Simmons' nonsense is comprehensively rebutted, here:

"Crop Circles in the Desert: The Strange Controversy over Saudi Oil Production” by M. C. Lynch 2006.

http://www.gasresources.net/LynchM 06 (Crop Circles).pdf

 

[bigfish]

Brown steps into oil profits row

Gordon Brown stepped into a growing row about oil company profits today calling on BP and Shell to spend more of their combined £7bn first-quarter earnings on activity in the North Sea.

The two companies have been gradually selling off assets in Britain with Shell recently unveiling 180 job cuts in Aberdeen but the prime minister said it was time to reverse this trend.

"We do need the oil coming out of the North Sea, we do need to encourage the new exploration. That is more expensive to do. That is why I hope that these profits are going to be invested in getting more oil out of the North Sea," he said.

Brown was speaking on GMTV after BP raised replacement cost profits by 50% to $6.6bn (£3.3bn) and Shell increased its by 12% to $7.8bn on the back of a near-doubling in the price of oil since last year.

http://www.guardian.co.uk/business/2008/apr/29/oil.bp.shell

 

[Crispy]

If they manage to make the North Sea produce oil at a faster rate in the next 10 years than they have in the last 10 years, I will eat my own cock. Raw.

The only producer on record to have brought production higher than a previous long-term peak is Russia, and that peak was artificially caused by the break down of the USSR.

North Sea oil has peaked. They will find more oil, of that I am certain, but if they ever get production back up to 6m b/d, then it's time for me to eat a very unpleasant meal.

 

[david dissadent]

Simmons' nonsense is comprehensively rebutted, here:

"Crop Circles in the Desert: The Strange Controversy over Saudi Oil Production” by M. C. Lynch 2006.

http://www.gasresources.net/LynchM 06 (Crop Circles).pdf

Don't sell that SUV just yet. Oil, at a recent $66.50 a barrel, will fall to $45 by mid-2007 and could dip briefly into the 20s in 2008. Sometime next year you are going to see a $1.95 price on a gas pump.

So says Michael C. Lynch, 51, president of Strategic Energy & Economic Research in Amherst, Mass

http://www.forbes.com/forbes/2006/1002/098.html

Mike Lynch. Global laughing stock on oil price prediction.

 

[bigfish]

Mike Lynch. Global laughing stock on oil price prediction.

Dear dave

If, as you say, Michael Lynch is a laughing stock because of a single failed oil price prediction, then how should we view Colin Campbell's efforts, given we know that every single one of his predictions (apart from his latest one which he has had to move into the future) for the arrival of "peak oil" has failed so spectacularly?

 

[bigfish]

They’ve got us over a $120 oil barrel

Oil prices are soaring and show no sign of slowing. We analyse the cause and what the rise means for the economy

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3866801.ece

Notice that this piece in yesterdays Sunday Times doesn't say anything at all about "peak oil" driving up oil prices.

 

[Crispy]

The fundamental question about whether oil prices will rise further is one of supply and demand.

This is precisely what the problem of peak oil is

The supply of oil, however, has risen more slowly, either because of production cuts by Opec, political problems or as a result of a lack of investment during the years when prices were very weak.

Over the last 4 years (the period refenced by this paragraph), Opec production has risen from around 25mb/d to around 30mb/d. As for discoveries of new oil (which we need to keep production rates up) - they have been dropping since the late 60's. Even the oil shocks of the 70s weren't enough to make a bump in the decline since then. Geopolitical factors are to blame for some of today's high oil prices, as is the weak dollar. But the available production and discovery data points very strongly to a genuine peak in global oil production around about now. Strong data will convince me otherwise. Business comment columns in the times will not.

 

[max_freakout]

Oil prices are soaring and show no sign of slowing. We analyse the cause and what the rise means for the economy

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3866801.ece

Notice that this piece in yesterdays Sunday Times doesn't say anything at all about "peak oil" driving up oil prices.

Is the head of Opec right about a $200 oil price? Will a more realistic target, $150, be reached this year and what would be the consequences of that for the economy? Why has oil been surging anyway, doubling in price in a year?

lol

 

[bigfish]

... Over the last 4 years (the period refenced by this paragraph), Opec production has risen from around 25mb/d to around 30mb/d. As for discoveries of new oil (which we need to keep production rates up) - they have been dropping since the late 60's.

But why should Opec, or indeed anyone, waste valuable resources searching for new oil when its proven reserves stand at an all time record high? What you say doesn't make sense. Even simple shopkeepers understand reserves are a function of demand and that there is no need to waste time searching for new reserves when their warehouses are already bulging at the seems.

Even the oil shocks of the 70s weren't enough to make a bump in the decline since then. Geopolitical factors are to blame for some of today's high oil prices, as is the weak dollar.

Not to mention a lack of refining capacity in the US and Europe. I wonder how much blame we can attribute to that often overlooked detail?

But the available production and discovery data points very strongly to a genuine peak in global oil production around about now. Strong data will convince me otherwise. Business comment columns in the times will not.

Nonsense! I've shown you time and again that the ratio of proven reserves to current production (the "life index") improves constantly over time.

Life Index
1948 = 20 years
1979 = 35 years
2003 = 40 years
2007 = 45 years

Thus it is clear - net known reserves of recoverable petroleum have more than doubled over the last 50 years. The enormous recent finds in Brazil and the Gulf of Mexico also clearly indicate that there's lots more oil out there just waiting to be discovered. Dr J Munns, a senior geoscientist at the Department of Trade and Industry, has estimated there could be up to 47bn barrels of oil equivalent under the UK's North Sea, most of which remains under-explored. The more conservative oil companies estimate about 30bn barrels. Presumably, this might help explain why Gordon Brown last week called on BP to invest at least some of its unseemly profits boosting production in the North Sea.

 

[gorski]

The more expensive the oil is, the more viable [= potentially profitable] the new finds, deep down in Earth's crust are - as expensive to extricate as they may be - these days... with the new technology, an' all tha'... innit?

But it ain't gonna go on forever like that...