Low oil prices and an increasingly
costly war in Yemen have torn a yawning hole in the Saudi budget and created a crisis that has led
to cuts in public spending, reductions in take-home pay and benefits for government workers and a
host of new fees and fines. Huge subsidies for fuel, water and electricity that encourage
overconsumption are being curtailed. ...
"Bonanza Creek Energy Inc and two other energy firms announced on Friday plans
to file for bankruptcy in coming weeks, joining a long list of U.S. energy
companies that have succumbed to a drop in oil prices."
"As of Dec. 14, 114 oil and gas producers had filed for bankruptcy in 2016 with
$57 billion in total debt, more than double the number of filings in 2015, "
"Among companies that provide well-site services to energy exploration firms,
110 had filed for Chapter 11 protection with $17 billion of debt as of Dec. 14,
also more than double the 2015 number, according to Haynes & Boone."
224 total companies, $74 billion total debt whoo whee, sounds like a lot
of write downs
Dakota Plains Holdings Inc. (NYSE MKT: DAKP) and six of its wholly owned
subsidiaries filed voluntary Chapter 11 petitions in the United States
Bankruptcy Court for the District of Minnesota on Tuesday, December 20,
2016, initiating a process intended to preserve value and accommodate an
eventual going-concern sale of Dakota Plains' business operations.
.
Dakota Plains Holdings Inc. is an integrated midstream energy company
operating the Pioneer Terminal transloading facility. The Pioneer Terminal
is centrally located in Mountrail County, North Dakota, for Bakken and Three
Forks related Energy & Production activity.
Essentially this is very close to BofA Merrill Lynch price prediction. Does not
promise great profitability for shale ;-).
This price might increase the chance of Seneca Cliff.
And does not save KAS from its huge budget deficit (Platt thinks that they need
at least $85 to balance the budget). Russia probably can balance budget at this
price (anything about $55 average will suit)
In February of this year, when WTI was just over US$31, Brandon Blossman
at Tudor Pickering Holt & Co said he expected oil at US$70 by the end of the
year, and at US$90 by the end of next year, commenting on the Colliers International
Trends 2016 Commercial Real Estate Market Update, as quoted by Houston Agent
Magazine.
Raymond James forecast WTI at US$75 in the first quarter next year and at US$80
in the fourth quarter of 2017.
U.S. Energy Information Administration (EIA) expects Brent Crude prices to average
US$51.66 in 2017, with WTI Crude prices averaging US$50.66 next year.
BofA Merrill Lynch one of the optimistic viewpoints among the investment banks
said in its 2017 Market Outlook that its forecast for WTI Crude is US$59 and
Brent at US$61. BofA Merrill Lynch also factors in a rebound of the U.S. shale
patch in its price projections.
How Americans Spent Their Money In The Last 75 Years (In 1 Simple Chart)
Tyler Durden
Dec 25, 2016 11:55 PM
0
SHARES
Consumer spending makes up 70% of the United States economy.
We all have
bills to pay and mouths to feed, but where do Americans spend their money?
Here is a
breakdown
of how Americans spent their money in the last 75 years...
In the chart above, spending is broken into 12 categories:
Reading, alcohol, tobacco, education, personal care, miscellaneous, recreation &
entertainment, healthcare, clothing, food, transportation and housing. Each category is
further broken down into spending by year, from 1941 to 2014, and each category is given
a unique color. The
data were
collected from the Bureau of Labor Statistics
. The data is adjusted for inflation
and measures median spending of all Americans.
Unsurprisingly, housing expenses have almost always been the largest area
of spending in America for over 70 years.
The only exception is 1941, when
spending on food averaged $8,311, whereas spending on housing came to $7,537.
However, in 1941 the government included alcohol in the food spending category, which
inflates the food spending data for that year. In the other years, alcohol was given its
own category. In every other year measured, spending on housing outpaced every other
category.
Another interesting trend is the downward slope of spending on
clothing.
Americans spent the most on clothing in 1961 for an average of
$4,157. In every year measured since 1961, spending on clothing fell, even when
accounting for inflation.
At the same time, Americans began spending more on education,
transportation and healthcare.
Spending on education has increased far more
than any other category, jumping from $242 in 1941 to $1,236 in 2014. Education spending
increased at a particularly fast rate between 1984 and 1994 and onward. While spending
on healthcare increased between 1941 and 2014, overall spending dipped between 1973 and
1984, but then began rising rapidly thereafter.
Between 1941 and 2014 Americans spent money on most of the same
things, with a few changes.
Housing has persisted as a large area of spending
for Americans, as has the food category. However, spending on food and clothing has
fallen when adjusting for inflation while spending on education and healthcare has risen
quickly.
"... "was the most traded contract on Tuesday across the whole ICE Brent market." ..."
"... "That's a relatively cheap lottery ticket," ..."
"... "It's clearly not the consensus in the market that we're going to see a return to those prices any time soon, so it's more likely a hedge against unforeseen geopolitical events during that time." ..."
Oil prices are rising and speculators are already staking out bullish positions on futures for the
next few months, but some traders are rolling the dice on a much bigger price spike in the next two
years.
Some contracts that pay off big time if oil prices hit $100 per barrel by December 2018 just saw
a spike in interest, according to
Bloomberg
. The $100 December 2018 call option, Bloomberg says,
"was the most traded contract
on Tuesday across the whole ICE Brent market."
That contract gives the owner the right to buy
Dec. 2018 futures at $100 per barrel.
Few oil analysts expect oil prices to rise that high within the next two years. The oil market is
still oversupplied, and even with the OPEC deal which will take 1.8 million barrels per day off
the market if fully fulfilled the world is still flush with oil sitting in storage. It will take
time to work through those inventories, providing a cushion to a tightening market. However, the
sudden interest in such a remote possibility of a large price spike suggests that investors are growing
more confident that the market is on the upswing.
"That's a relatively cheap lottery ticket,"
Ole Hansen, head of commodity strategy at Saxo
Bank A/S, said in an interview with Bloomberg.
"It's clearly not the consensus in the market
that we're going to see a return to those prices any time soon, so it's more likely a hedge against
unforeseen geopolitical events during that time."
Purchasing these options may not be such a huge risk Bloomberg says they could cost a bit more
than $1 million while the payoff would be multiples of that if prices happened to go that high. It
is similar to going to Vegas and playing roulette, putting some money on a single number or a few
numbers, which have long odds but huge payouts. On the other hand, the spike in interest in the $100
options could also just be a small part of a broader hedging program from some companies, cropping
up now since the contracts are two years out.
With oil back above $50 per barrel, money managers have become much more bullish on crude. In fact,
collectively, hedge funds and other investors have sold off short bets and purchased long positions,
building up the
most bullish net-long position
in more than two years. OPEC has not yet cut back by a single
barrel, but its Nov. 30 deal in Vienna has succeeded in sparking a bull run for oil.
"... Efforts which led to impoverishment of lower 80% the USA population with a large part of the US population living in a third world country. This "third world country" includes Wal-Mart and other retail employees, those who have McJobs in food sector, contractors, especially such as Uber "contractors", Amazon packers. This is a real third world country within the USA and probably 50% population living in it. ..."
"... While conversion of electricity supply from coal to wind and solar was more or less successful (much less then optimists claim, because it requires building of buffer gas powered plants and East-West high voltage transmission lines), the scarcity of oil is probably within the lifespan of boomers. Let's say within the next 20 years. That spells deep trouble to economic growth as we know it, even with all those machinations and number racket that now is called GDP (gambling now is a part of GDP). And in worst case might spell troubles to capitalism as social system, to say nothing about neoliberalism and neoliberal globalization. The latter (as well as dollar hegemony) is under considerable stress even now. But here "doomers" were wrong so often in the past, that there might be chance that this is not inevitable. ..."
"... Shale gas production in the USA is unsustainable even more then shale oil production. So the question is not if it declines, but when. The future decline (might be even Seneca Cliff decline) is beyond reasonable doubt. ..."
"What is good for wall st. is good for America". The remains of the late 19th century anti
trust/regulation momentum are democrat farmer labor wing in Minnesota, if it still exists. An
example: how farmers organized to keep railroads in their place. Today populists are called deplorable,
before they ever get going.
And US' "libruls" are corporatist war mongers.
Used to be the deplorable would be the libruls!
Division!
likbez -> pgl...
I browsed it and see more of less typical pro-neoliberal sentiments, despite some critique
of neoliberalism at the end.
This guy does not understand history and does not want to understand. He propagates or invents
historic myths. One thing that he really does not understand is how WWI and WWII propelled the
USA at the expense of Europe. He also does not understand why New Deal was adopted and why the
existence of the USSR was the key to "reasonable" (as in "not self-destructive" ) behaviour of
the US elite till late 70th. And how promptly the US elite changed to self-destructive habits
after 1991. In a way he is a preacher not a scientist. So is probably not second rate, but third
rate thinker in this area.
While Trump_vs_deep_state (aka "bastard neoliberalism") might not be an answer to challenges the USA is
facing, it is definitely a sign that "this time is different" and at least part of the US elite
realized that it is too dangerous to kick the can down the road. That's why Bush and Clinton political
clans were sidelined this time.
There are powerful factors that make the US economic position somewhat fragile and while Trump
is a very questionable answer to the challenges the USA society faces, unlike Hillary he might
be more reasonable in his foreign policy abandoning efforts to expand global neoliberal empire
led by the USA.
Efforts which led to impoverishment of lower 80% the USA population with a large part of
the US population living in a third world country. This "third world country" includes Wal-Mart
and other retail employees, those who have McJobs in food sector, contractors, especially such
as Uber "contractors", Amazon packers. This is a real third world country within the USA and probably
50% population living in it.
Add to this the decline of the US infrastructure due to overstretch of imperial building efforts
(which reminds British empire troubles).
I see several factors that IMHO make the current situation dangerous and unsustainable, Trump
or no Trump:
1. Rapid growth of population. The US population doubled in less them 70 years. Currently
at 318 million, the USA is the third most populous country on earth. That spells troubles for
democracy and ecology, to name just two. That might also catalyze separatists movements with two
already present (Alaska and Texas).
2. Plato oil. While conversion of electricity supply from coal to wind and solar
was more or less successful (much less then optimists claim, because it requires building of buffer
gas powered plants and East-West high voltage transmission lines), the scarcity of oil is probably
within the lifespan of boomers. Let's say within the next 20 years. That spells deep trouble to
economic growth as we know it, even with all those machinations and number racket that now is
called GDP (gambling now is a part of GDP). And in worst case might spell troubles to capitalism
as social system, to say nothing about neoliberalism and neoliberal globalization. The latter
(as well as dollar hegemony) is under considerable stress even now. But here "doomers" were wrong
so often in the past, that there might be chance that this is not inevitable.
3. Shale gas production in the USA is unsustainable even more then shale oil production.
So the question is not if it declines, but when. The future decline (might be even Seneca
Cliff decline) is beyond reasonable doubt.
4. Growth of automation endangers the remaining jobs, even jobs in service sector .
Cashiers and waiters are now on the firing line. Wall Mart, Shop Rite, etc, are already using
automatic cashiers machines in some stores. Wall-Mart also uses automatic machines in back office
eliminating staff in "cash office".
Waiters might be more difficult task but orders and checkouts are computerized in many restaurants.
So the function is reduced to bringing food. So much for the last refuge of recent college graduates.
The successes in speech recognition are such that Microsoft now provides on the fly translation
in Skype. There are also instances of successful use of computer in medical diagnostics.
https://en.wikipedia.org/wiki/Computer-aided_diagnosis
IT will continue to be outsourced as profits are way too big for anything to stop this trend.
(nypost.com)
139
Posted by
BeauHD
on Friday December 09, 2016 @09:45PM
from the
hazmat-suit
dept.
An anonymous reader quotes a report from New York Post:
Radiation from
Japan's 2011 Fukushima nuclear disaster
has apparently traveled across the Pacific
. Researchers reported that
radioactive matter -- in the form of an isotope known as cesium-134 -- was
collected in seawater samples from Tillamook Bay and Gold Beach in Oregon. The
levels
were extremely low
, however, and don't pose a threat to humans or the
environment. In 2011, a 9.0-magnitude earthquake triggered a wave of tsunamis
that caused colossal damage to Japan's Fukushima Daiichi nuclear power plant.
The disaster released several radioactive isotopes -- including the dangerous
fission products of cesium-137 and iodine-131 -- that contaminated the air and
water. The ocean was later contaminated by the radiation. But cesium-134 is the
fingerprint of Fukushima due to its short half-life of two years, meaning the
level is cut in half every two years. Cesium-137 has a 30-year half-life.
Particles from Chernobyl, nuclear weapons tests, and discharge from other
nuclear power plants are still detectable -- in small, harmless amounts. While
this is the first time cesium-134 has been detected on US shores, Higley said
"really tiny quantities" have previously been found in albacore tuna. The
Oregon samples were collected by the Woods Hole Oceanographic Institution in
January and February. Each sample measured 0.3 becquerels, a unit of
radioactivity, per cubic meter of cesium-134 -- significantly lower than the 50
million becquerels per cubic meter measured in Japan after the disaster.
(bbc.com)
302
Posted by
BeauHD
on Monday November 28, 2016 @09:05PM
from the
unintended-consequences
dept.
An anonymous reader quotes a report from BBC:
Japan's government estimates
the cost of cleaning up radioactive contamination and compensating victims of
the 2011 Fukushima nuclear disaster
has more than doubled
,
reports say. The latest estimate from the trade ministry put the expected cost
at some 20 trillion yen ($180 billion). The original estimate was for $50
billion, which was increased to $100 billion three years later. The majority of
the money will go towards compensation, with decontamination taking the next
biggest slice. Storing the contaminated soil and decommissioning are the two
next greatest costs. The compensation pot has been increased by about 50% and
decontamination estimates have been almost doubled. The BBC's Japan
correspondent, Rupert Wingfield-Hayes, says it is still unclear who is going to
pay for the clean up. Japan's government has long promised that Tokyo Electric
Power, the company that owns the plant, will eventually pay the money back. But
on Monday it admitted that electricity consumers would be forced to pay a
portion of the clean up costs through higher electricity bills. Critics say
this is effectively a tax on the public to pay the debt of a private
electricity utility.
December U.S. light-vehicle sales are forecast to finish strong enough for
2016 to top 2015's record 17.396 million units. However, actual volume
largely will be determined by results in the final third of the month,
because a major portion of December's deliveries typically occur after
Christmas.
The forecast
17.7 million-unit seasonally adjusted annual rate
is
below November's 17.8 million, but above December 2015's 17.4 million.
...
Despite the drop in December's volume, total 2016 sales will end at 17.41
million units, barely edging out the all-time high set last year.
emphasis added
Here is a table (source: BEA) showing the 5 top years for light vehicle sales
through November, and the top 5 full years. 2016 will probably finish in the
top 3, and could be the best year ever - just beating last year.
Light Vehicle Sales, Top 5 Years and Through November
Saudi Arabia expects to earn 46% more from oil revenues in 2017
compared to this year, with expectations of rising global demand
combining with the OPEC-led global production cut to push prices higher.
In its annual budget unveiled Thursday, the kingdom said its oil revenues
were projected to hit Riyals 480 billion ($128 billion) next year, up
from Riyals 328 billion ($88 billion).
The budget did not reveal any details about Saudi Arabia's oil production
plans or targets, nor does it say what price it expects to receive for
its oil, though it cited the International Monetary Fund's estimate of
2017 oil prices at $50.60/b. Oil prices in 2016 averaged $43/b, the
budget document said.
Overall revenues for 2017, including non-oil revenues, are expected to
rise 31% from 2016 levels to Riyals 692 billion.
With the budget laying out an expenditure plan for Riyals 890 billion
($237 billion), an 8% increase over this year, this means the kingdom
will be facing a deficit of 198 billion riyals ($53 billion), down 33%
from this year, as Saudi Arabia has had to tap into its reserves to
withstand the low oil price environment of the last two years.
"The 2017 budget was prepared in light of developments in the local and
global economy, including the estimated price of oil," the budget
document states, attributing the increases in projected revenues and
expenditures to energy pricing reforms.
"As the kingdom's economy is strongly connected to oil, the decrease in
oil prices over the past two years has led to a significant deficit in
the government's budget and has impacted the kingdom's credit rating."
Total national debt for 2016 was about Riyals 316.5 billion ($84
billion), or 12.3% of projected GDP.
(bbc.com)
243
Posted by
BeauHD
on Friday December 02, 2016 @10:30PM
from the
cease-and-desist
dept.
The mayors of four major global cities -- Paris, Mexico City, Madrid and Athens
-- announced plans to
stop the use of
all diesel-powered cars and trucks by 2025
. The leaders made their
commitments in Mexico at a
biennial meeting of
city leaders
. BBC reports:
At the C40 meeting of urban leaders in
Mexico, the four mayors declared that they would ban all diesel vehicles by
2025 and "commit to doing everything in their power to incentivize the use of
electric, hydrogen and hybrid vehicles." "It is no secret that in Mexico City,
we grapple with the twin problems of air pollution and traffic," said the
city's mayor, Miguel Angel Mancera. "By expanding alternative transportation
options like our Bus Rapid Transport and subway systems, while also investing
in cycling infrastructure, we are working to ease congestion in our roadways
and our lungs." Paris has already taken a series of steps to cut the impact of
diesel cars and trucks. Vehicles registered before 1997 have already been
banned from entering the city
, with restrictions increasing each year until
2020. The use of diesel in transport has come under increasing scrutiny in
recent years, as concerns about its impact on air quality have grown.
The World Health Organization (WHO) says that around
three
million deaths every year are linked to exposure to outdoor air pollution
.
Diesel engines contribute to the problem in two key ways -- through the
production of particulate matter (PM) and nitrogen oxides (NOx). Very fine soot
PM can penetrate the lungs and can contribute to cardiovascular illness and
death. Nitrogen oxides can help form ground level ozone and this can exacerbate
breathing difficulties, even for people without a history of respiratory
problems. The diesel ban is hugely significant. Carmakers will look at this
decision and know it's just a matter of time before other city mayors follow
suit.
Posted by EditorDavid
on Saturday December 17, 2016 @02:34PM
from the
low-energy-nuclear-reactions
dept.
An anonymous reader writes:
Scientific American magazine has published a
guest column on low-energy nuclear reactions (LENR) [putting] into context the
history of what was mistakenly referred to as cold fusion and what happened.
The bottom line is that
there is compelling cumulative evidence for nuclear reactions taking place
,
including shifts in the abundance of isotopes, element transmutations, and
localized melting of metals. Furthermore, those reactions do not have the
characteristics of either nuclear fission or nuclear fusion. Despite sharp
criticism from much of the scientific community after the 1989 announcement by
Fleischmann and Pons, the Department of the Navy's Space and Naval Warfare
Systems Center and other reputable organizations continued the research and
published many papers.
The article reports that "to the surprise of many
people, a new field of nuclear research has emerged," adding that even in the
early 20th century, atomic scientists were already reporting "inexplicable
experimental evidence of elemental transmutations."
(newatlas.com)
156
Posted by
BeauHD
on Monday November 28, 2016 @08:25PM
from the
one-man's-trash-is-another-man's-treasure
dept.
Scientists at the University of Bristol have
found a way to
convert thousands of tons of nuclear waste into man-made diamond batteries
that can generate a small electric current for thousands of years. New Atlas
reports:
How to dispose of nuclear waste is one of the great technical
challenges of the 21st century. The trouble is, it usually turns out not to be
so much a question of disposal as long-term storage. Disposal, therefore is
more often a matter of keeping waste safe, but being able to get at it later
when needed. One unexpected example of this is the
Bristol team's work on a major source of nuclear waste from Britain's aging
Magnox reactors
, which are now being decommissioned after over half a
century of service. These first generation reactors used graphite blocks as
moderators to slow down neutrons to keep the nuclear fission process running,
but decades of exposure have left the UK with 104,720 tons of graphite blocks
that are now classed as nuclear waste because the radiation in the reactors
changes some of the inert carbon in the blocks into radioactive carbon-14.
Carbon-14 is a low-yield beta particle emitter that can't penetrate even a few
centimeters of air, but it's still too dangerous to allow into the environment.
Instead of burying it, the Bristol team's solution is to remove most of the
c-14 from the graphite blocks and turn it into electricity-generating diamonds.
The nuclear diamond battery is based on the fact that when a man-made diamond
is exposed to radiation, it produces a small electric current. According to the
researchers, this makes it possible to build a battery that has no moving
parts, gives off no emissions, and is maintenance-free. The Bristol researchers
found that the carbon-14 wasn't uniformly distributed in the Magnox blocks, but
is concentrated in the side closest to the uranium fuel rods. To produce the
batteries, the blocks are heated to drive out the carbon-14 from the
radioactive end, leaving the blocks much less radioactive than before. c-14 gas
is then collected and using low pressures and high temperatures is turned into
man-made diamonds. Once formed, the beta particles emitted by the c-14 interact
with the diamond's crystal lattice, throwing off electrons and generating
electricity. The diamonds themselves are radioactive, so they are given a
second non-radioactive diamond coating to act as a radiation shield.
(arstechnica.com)
351
Posted by
BeauHD
on Monday November 28, 2016 @05:00PM
from the
whole-is-greater-than-the-sum-of-its-parts
dept.
An anonymous reader quotes a report from Ars Technica:
Last week the
Environmental Protection Agency (EPA) announced its
final renewable fuel standards for 2017
, requiring that fuel suppliers
blend an additional 1.2 billion gallons of renewable fuel into U.S. gas and
diesel from 2016 levels
. The rule breaks down the requirements to include
quotas for cellulosic biofuels, biomass-based diesel, advanced biofuel, and
traditional renewable fuel. Reuters points out that the aggressive new biofuel
standards will
create a dilemma
for an incoming Trump administration, given that his
campaign courted both the gas and corn industries. While the EPA under the
Obama administration has continually increased so-called renewable fuel
standards (RFS), the standards were first adopted by a majority-Republican
Congress in 2005 and then bolstered in 2007 with a requirement to incorporate
36 billion gallons of renewable fuel into the fuel supply by 2022, barring "a
determination that implementation of the program is causing severe economic or
environmental harm," as the
EPA writes
. Some biofuels are controversial not just for oil and gas
suppliers but for some wildlife advocates as well. Collin O'Mara, CEO of the
National Wildlife Federation, said in a statement that the corn ethanol
industry that most stands to benefit from the EPA's expansion of the renewable
fuel standards "is responsible for the destruction of millions of acres of
wildlife habitat and degradation of water quality." Still, the EPA contends
that biofuels made from corn and other regenerating plants offer reductions in
overall fuel emissions, if the processes used to make and transport the fuels
are included. "Advanced biofuels" will offer "50 percent lifecycle carbon
emissions reductions," and their share of the new standards will grow by 700
million gallons in 2017 from 2016 requirements, the EPA says. Cellulosic
biofuel will be increased by 81 million gallons and biomass-based diesel will
be increased by 100 million gallons. "Non-advanced or 'conventional' renewable
fuel" will be increased to 19.28 billion gallons from 18.11 billion gallons in
2016. Conventional renewable fuel "typically refers to ethanol derived from
corn starch and must meet a 20 percent lifecycle GHG [greenhouse gas] reduction
threshold," according to EPA guidelines. Other kinds of renewable fuels include
sugarcane-based ethanol, cellulosic ethanol derived from the stalks, leaves,
and cobs leftover from a corn harvest, and compressed natural gas gleaned from
wastewater facilities.
"... Every OPEC nation is now producing at absolute maximum capacity. With the exception of the two countries, Libya and Nigeria, that have political production problems, they are all overproducing their reservoirs. They are doing this so when they are "forced" by OPEC to cut production, they can just cut back to normal production. ..."
"... People who still talk about "OPEC spare capacity" haven't a clue as to what the hell they are talking about. ..."
"... "Ultimately, our work on Saudi Arabia's fiscal balance suggests that the kingdom has a strong incentive to cut production to achieve a normalization of inventories, even if it requires a larger unilateral cut, consistent with comments last weekend by the energy minister," Goldman said in a note. ..."
OPEC oil production
comes primarily from conventional reservoirs. These reservoirs require
reservoir pressure management. Some have suggested that Saudi Arabia's
rationale for cutting production was to reverse the reservoir damage that
overproduction has, or may have, caused. Preservation of reservoir integrity
may ultimately limit "immediate" increases to inventories from OPEC.
Okay, will someone please tell me how Saudi Arabia could have any "spare
capacity" at all if their reservoirs have been damaged from overproduction? If
they are overproducing their reservoirs now, then to produce even more "spare
capacity", they would have to over-overproduce those reservoirs. That would be
an absurd proposal.
Every OPEC nation is now producing at absolute maximum capacity. With the
exception of the two countries, Libya and Nigeria, that have political
production problems, they are all overproducing their reservoirs. They are
doing this so when they are "forced" by OPEC to cut production, they can just
cut back to normal production.
People who still talk about "OPEC spare capacity" haven't a clue as to what
the hell they are talking about.
One of the biggest obstacles to Saudi Arabia's planned initial public
offering (IPO) for state oil giant Saudi Aramco has been the sensitive
requirement to subject Saudi oil reserves to public regulatory scrutiny. But
in an unconventional move, Riyadh is considering an approach to exclude
reserves from any formal accounting of Aramco's assets, according to
Petroleum Intelligence Weekly. Instead, it wants to value the company based
on financial returns from production over a period of years or decades.
While this approach risks lowering the valuation of the company and limiting
the foreign exchanges where it could have a listing, it has the advantage of
preserving an important state secret. The argument for this approach is that
the state owns the reserves, not Saudi Aramco, which is the monopoly
producer.
.
The reserves issue was always going to be thorny, and the current thinking
is to derive the value of the IPO from the value created from each barrel
produced, based on a revised tax and royalty scheme that the company has
been working on for months, according to Saudi industry sources. Investors
will be presented with details about Aramco's 12 million barrel per day
production capacity, which for the time being will not be expanded, its
average yearly production and profit per barrel - or "economic rent." Aramco
will only provide the unaudited 261 billion barrels of reserves that it
publishes in its annual reports, and uses in a bond prospectus, as it did in
October.
The justification for this unusual approach to the IPO is that Aramco does
not own the reserves, the state does. And while Aramco has a monopoly to
produce those barrels, it does not have the right to reveal what are the
kingdom's most important assets and a closely guarded secret. Inevitably, a
decision to avoid vetting reserves will reinforce suspicions by those that
already think Saudi Arabia has something to hide.
Goldman Sachs raised Friday its oil price forecasts for 2017 after
reassessing the likelihood that key global oil producers, led by Saudi
Arabia, will stick to output cut pledges under OPEC's efforts to clear the
oil market glut.
After analyzing Saudi Arabia's fiscal revenue outlook for 2017, the bank
said it sees the motivation for an average 84% compliance with the announced
collective OPEC and non-OPEC production cuts which it estimates at a total
1.6 million b/d.
"Ultimately, our work on Saudi Arabia's fiscal balance suggests that the
kingdom has a strong incentive to cut production to achieve a normalization
of inventories, even if it requires a larger unilateral cut, consistent with
comments last weekend by the energy minister," Goldman said in a note.
Saudi energy minister Khalid al-Falih on Saturday said his country was
prepared to slash production below 10 million b/d, after having previously
agreed to cut down to 10.058 million b/d.
Saudi Arabia expects to earn 46% more from oil revenues in 2017
compared to this year, with expectations of rising global demand
combining with the OPEC-led global production cut to push prices higher.
In its annual budget unveiled Thursday, the kingdom said its oil revenues
were projected to hit Riyals 480 billion ($128 billion) next year, up
from Riyals 328 billion ($88 billion).
The budget did not reveal any details about Saudi Arabia's oil production
plans or targets, nor does it say what price it expects to receive for
its oil, though it cited the International Monetary Fund's estimate of
2017 oil prices at $50.60/b. Oil prices in 2016 averaged $43/b, the
budget document said.
Overall revenues for 2017, including non-oil revenues, are expected to
rise 31% from 2016 levels to Riyals 692 billion.
With the budget laying out an expenditure plan for Riyals 890 billion
($237 billion), an 8% increase over this year, this means the kingdom
will be facing a deficit of 198 billion riyals ($53 billion), down 33%
from this year, as Saudi Arabia has had to tap into its reserves to
withstand the low oil price environment of the last two years.
"The 2017 budget was prepared in light of developments in the local and
global economy, including the estimated price of oil," the budget
document states, attributing the increases in projected revenues and
expenditures to energy pricing reforms.
"As the kingdom's economy is strongly connected to oil, the decrease in
oil prices over the past two years has led to a significant deficit in
the government's budget and has impacted the kingdom's credit rating."
Total national debt for 2016 was about Riyals 316.5 billion ($84
billion), or 12.3% of projected GDP.
Growth in African Energy Demand If you build it they will come: Top line energy consumption
on the continent is growing by about 2% per annum as infrastructure spending multiplies. A growing
middle class is buying wheels and appliances. We've seen this movie before. The billion people
living in the sub-Sahara are embracing joules generated by oil and gas in greater quantities than
any other primary source (Figure 1). Is Africa the new China-and-India?
Escalating Oilfield Service Costs Oil producers have been smug about how they have cut
their costs by 20 to 30% over the past two years. But much of that has been accomplished by crippling
the margins of the oilfield service sector. Rising rig counts are already germinating the first
hints of oilfield inflation. If costs escalate again, $60/B may not be the new $90 (see past blog
"$60 is in Style For Now").
In a
Reuters
poll of 29 analysts and economists carried out after the OPEC deal, Raymond James had the highest
2017 forecast for Brent price, at US$83 per barrel, while the poll saw Brent averaging US$57.01
next year.
...The market is likely to
move into deficit
in the first half next year by an estimated 600,000 bpd, said the
International Energy Agency (IEA), as long as OPEC and non-OPEC producers manage to (and are
willing to) stick to promised cuts.
... ... ...
At oil above US$55 next year, energy consultancy
Wood Mackenzie
sees the oil and gas
industry turning cash flow positive for the first time since the downturn, and expects 2017 will
be a year of "stability and opportunity" for the sector.
...(EIA) expects Brent Crude prices to average US$51.66 in 2017, with WTI Crude prices
averaging US$50.66 next year.
...BofA Merrill Lynch - one of the optimistic viewpoints among the investment banks said in
its 2017 Market Outlook that its forecast for WTI Crude is US$59 and
And while the Saudis believe the country's budget deficit will fall modestly next year
even with an increase in spending
, it is still set to be a painful 8% of GDP
suggesting the Saudi cash burn will continue even with some generous oil price
assumptions
.
The budget deficit for 2017 is expected decline 33% to 198
billion riyals ($237 billion), or 7.7% of GDP, from 297 billion riyals or 11.5% of GDP
in 2016 year and 362 billion riyals in 2015, the Finance Ministry said in a
statement
on its website
on Thursday. In 2016, the finance ministry said its spending of 825
billion riyals ($220 billion) was under the budgeted 840 billion, and the 2016 budget
deficit came to 297 billion, below the 362 billion in 2015.
"... ...in 2016, 96 percent of all new vehicle sales featured a combustion engine. IHS Markit estimates the average vehicle life globally to be about 15 years, which means that the impact of new vehicle technologies is expected to take time to materially affect the vehicle fleet and overall fuel demand. ..."
...in 2016, 96 percent of all new vehicle sales featured a combustion engine. IHS Markit
estimates the average vehicle life globally to be about 15 years, which means that the impact of
new vehicle technologies is expected to take time to materially affect the vehicle fleet and
overall fuel demand.
Proved reserves of crude oil in the U.S. declined by 4.7 billion barrels or 11.8 percent from
their year-end 2014 level to 35.2 BBbls at year-end 2015. Natural gas proved reserves decreased
64.5 Tcf to 324.3 Tcf, a 16.6 percent decline.
... ... ...
Proved reserves are volumes of oil and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
"U.S. Rig Count Up on Land, Flat Offshore
permian"
By MarEx...2016-12-16
"For the seventh week in a row, the benchmark Baker Hughes Rig Count trended upwards, bringing
the combined count of active oil and gas rigs in the U.S. to 637. However, only 22 of these were
offshore rigs, essentially unchanged from the same period last year.
The largest part of the onshore increase was in Texas, where activity in the Permian Basin and
Eagle Ford fields has brought the state's count by 14 rigs in one week. Taken together, the
Permian and Eagle Ford accound for nearly half of U.S. drilling activity, with 302 rigs between
them. Compared with offshore projects, onshore shale drilling campaigns like those in the Eagle
Ford are remarkably inexpensive and brief; a shale well's breakeven price point is typically in
the range of $30-40, depending on the field, and it is often a matter of weeks between setting up
a rig and pumping first oil.
West Texas Intermediate crude prices were at $52 per barrel on Friday, well above the price
point that would induce shale producers to begin new drilling, analysts say. In addition, Goldman
Sachs raised its outlook for crude oil prices for mid-2017, predicting WTI prices at $57.50 by
the second quarter. Goldman cited the recent OPEC and non-OPEC agreements to cut production by
1.6 million barrels per day, and said that it expects compliance with the cut agreement in excess
of 80 percent.
However, assuming that the OPEC agreement holds and that competitors do not raise output to
offset it, a price of $57.50 is still below the level at which many offshore projects become
competitive, says Wood Mackenzie. In July, the firm found that only 20 percent of deep- and
ultra-deepwater projects at the pre-FID stage are commercially viable at $60 per barrel
suggesting that offshore activity may remain quiet until prices rise further."
"... What's shocking about that chart AlexS is that even with the sharp price increases of oil between 2000 and 2014, the oil R/P ratio has still steadily declined. With investment having been crushed in the last few years, looks like we are facing a Seneca cliff. ..."
The situation with global natural gas is different.
1) There is significant spare capacity in a number of countries. For
example, Russia has reduced gas production in the past few years due to
falling demand from Europe, but can easily increase it if demand returns.
2) There are significant developed and undeveloped proven reserves.
Reserves/production ratio is much higher for natural gas (see the chart
below).
3) Natural gas resources are generally explored less than oil. Potential
for increase in proven reserves is much bigger for natural gas.
The countries and regions with significant resource potential and able to
sharply increase production include: Iran, U.S., Russia, East Mediteranean,
several countries in Asia (including China).
Several countries in Africa are not producing at full potential.
Global proven reserves / production ratio for oil and natural gas
source: BP Statistical Review of World Energy 2016
What's shocking about that chart AlexS is that even with the sharp price
increases of oil between 2000 and 2014, the oil R/P ratio has still
steadily declined. With investment having been crushed in the last few
years, looks like we are facing a Seneca cliff.
The chart is named "Annual conventional oil and gas volumes discovered".
Onshore Canada production is dominated by oil sands; US lower-48 onshore
by tight oil.
Conventional output in both cases is from mature fields; and there were
no major conventional discoveries for many years.
US shallow-water GoM is also a mature province. New discoveries were
made in deepwater GoM.
Norway 2001 ..3.2 .1.6 +14.4
U.K. 1999 ..2.7 .1.5 -22.0
Sum .. 5.9 .3.1 .0.0
U.S. DOE/EIA's Projections
Norway ..2005 .3.9 .3.7 +97.9
U.K. ~2006 3.3 .3.0 ..+143.9
Sum .. 7.2 .6.7 ..+116.1
Actual Production Values
From U.S. DOE/EIA
Norway ..2001 .3.226 1.87
U.K. .. 1999 .2.684 1.23
Sum .. 5.91 3.1
The 2010 values for the US DOE/EIA are based upon an interpolation between the peak projected
values and the 2020 projected values
Actual Production data is based upon data from the US DOE/EIA
Mexican Oil Production
In 2003, the U.S. DOE/EIA was projecting that total liquid hydrocarbons production (crude oil
+ condensate + liquefied petroleum gas + biofuels + refinery gain) for Mexico would rise above
4.2 mb/d by 2010. Specifically, here is what they stated in their International Energy Outlook
2003:
"Mexico is expected to adopt energy policies that will encourage the efficient development
of its resource base. Expected production volumes in Mexico exceed 4.2 million barrels per day
by the end of the decade and remain near that level through 2025."
It was clear by 2003 that Cantarell complex oil production (crude oil + condensate) would start
declining in approximately 2005. Since the Cantarell complex produced about 60% of Mexico's oil
production in 2002, it appeared obvious that as Cantarell complex oil production started declining,
it would bring down Mexico's oil production as well as its total liquid hydrocarbons production.
Mexico's oil production peaked in 2004 at 3.48 mb/d. By 2010, it was down to 2.62 mb/d, a decline
of ~860,000 b/d. In 2010, Mexico's total liquid hydrocarbons production was down to 2.98 mb/d
according to US DOE/EIA data. The U.S. DOE/EIA was high by at least 1.22 mb/d for their 2010 Mexican
production forecast.
The Oil Mystery Behind Saudi Arabia's Production Cut
By
Nick Cunningham
- Dec 15, 2016, 4:56 PM CST
Saudi Arabia surprised the world by helping to engineer an unexpectedly
strong agreement from OPEC members to cut production by 1.2 million
barrels per day, followed by
additional cuts from non-OPEC members. While the two agreements
incorporate cuts from a wide range of oil producers, Saudi Arabia will do
much of the heavy lifting, cutting nearly 500,000 barrels per day and
even promising to go further than that should the markets warrant steeper
reductions.
Depending on one's perspective, Saudi Arabia demonstrated
its diplomatic prowess and made OPEC relevant again, succeeding in
talking up oil prices without sacrificing much. After all, Saudi Arabia
often lowers production in winter months. Other analysts look at it a
different way Riyadh was actually pretty desperate for higher oil
prices, given the toll that the two-year bust has taken on the country's
economy. That led Saudi Arabia to shoulder most of the burden of
adjustment, achieving only small concessions from other OPEC members,
most notably Iran. Riyadh was the big loser of the deal, the thinking
goes, but ultimately had no choice as the government needed higher oil
prices.
There are arguments to made for both sides, but then there is a third
possibility: Saudi Arabia was motivated to pullback because it was
actually leaning on its oilfields too hard this year when it pushed
output up to 10.7 million barrels per day, an output level that might
have strained the reservoirs of some of its largest fields. Producing too
aggressively can ultimately damage the long-term recovery of oil
reserves. Reuters reports in an
exclusive report that Saudi Aramco could have been pushing its oil
fields to the limit this year, and had little choice to but to climb down
from record high output levels.
Instead of switch to
hybrids and smaller cars as well as using nat gas for local city tranport they are trying to comsume
as much as possible. Without high tax of SUVs and opther "oil waisting" personal tranporation
veiches it is impossible to sustain the US economy. the only question is when it falls from the
cliff.
I've never understood the urgency of using up US oil so quickly. Better to buy someone else's at
a cheap price and save ours for a time when it is depleted elsewhere.
Its' not only the USA. KAS, Iran and Russia are doing
the same. There are a lot of short termism obsessed
politicians besides Obama administration
Especially KAS in 2014-2016. Who were instrumental
in the current oil price crash.
But behavior of the Iran and Russia was also
deplorable. Iran decided to get back its former market
share at all costs. But they like KAS are governed by
religious fanatics, so what we can expect?
At the same time Russia, which theoretically should
be a rational player and have enough space and steel to
build huge national oil reserves, using it as
alternative currency reserves, did nothing. Instead
Russia also increased oil production selling its
national treasure left and right, while prices were
hovering below $50.
Another bunch of short termism obsessed suckers. So
much about Putin as a great statesman. And what he got
in return for his stupidity - only additional sanctions
and allegations that he fixed elections for Trump. Such
a huge payoff.
IMHO of big oil producing nations only China behaved
rationally.
Oil is not renewable resource and burning it in
large SUVs and small trucks carrying one person to
commute to work is a suicide. That's what the USA is
doing on the national scale. Add to this all those wars
for the expansion of the US neoliberal empire, the USA
is fighting, which also consume large amount of oil and
it looks even worse. See
http://www.ucsusa.org/clean_vehicles/smart-transportation-solutions/us-military-oil-use.html
The U.S. military is the largest institutional
consumer of oil in the world. Every year, our armed
forces consume more than 100 million barrels of oil
to power ships, vehicles, aircraft, and ground
operations-enough for over 4 million trips around
the Earth, assuming 25 mpg.
So out of the total US oil consumption (let's say 20
MB/day) around 0.3 MB/day is consumed by military. I
think that the figure in reality might be twice larger
that cited as it is not clear how consumption of planes
operating in Iran, Syria, Libya, Yemen (and generally
outside the USA) is counted. But even 0.3 Mb/day is
approximately the same amount that Greece, or Sweden,
or Philippines are consuming. The latter is a country
with over 100 million people.
In twenty-forty years this period would probably be
viewed as really crazy.
"... Saudi Arabia could produce more but it would likely come at the expense of optimal reservoir practices. They could certainly bring on new fields but this is a lengthy process (years) and expensive as well ..."
"... So far the kingdom is not adding any significant new producing capacity based on project announcements and rig activity but rather replacing the aforementioned 4 to 6 percent annual decline rate. ..."
"... As the chart below shows, in the past 2 years Saudi Arabia increased oil production by about 1 mb/d. The country was the main contributor to the current oil glut over that period. Now the Saudis pledge to remove from the market about half of this incremental supply. ..."
Article in Reuters explaining Saudi Arabia's shift from output maximization / market share defending
to price support policy.
There are also estimates of Saudi oil production capacity.
Cost of pump-at-will oil policy spurred Saudi OPEC U-turn
Saudi Arabia has long said it could produce as much as 12 million barrels per day (bpd) of
oil if needed, but that pump-at-will claim which would require huge capital spending to access
spare capacity has never been tested.
Sources say the kingdom may have stretched its current limits by extracting a record of around
10.7 million bpd this year, which could be one reason why Riyadh pushed so hard for a global deal
to cut production.
..
With tight resources, Saudi Arabia found itself weighing the prospect of investing billions of
dollars to raise oil output further if it wanted to gain more market share under a strategy adopted
in 2014.
Instead, cutting production amid a global glut and low prices to take the pressure off its oilfields,
secure better reservoir management and save itself unnecessary expenses, seemed the perfect deal.
"You invest in raising your production when prices are high, not when they are low," a Saudi-based
industry source said.
"Choices are tougher now. The question is, would the Saudi government with its tight budget put
huge investment in raising production or put it somewhere else where it's needed more?"
Under the deal, Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries,
will from January cut output to around 10 million bpd well below the 12 million bpd that the
state has affirmed it can produce.
Saudi-based industry sources and market insiders say the kingdom cannot sustain historically high
output for long. State oil giant Saudi Aramco has never tested 12 million bpd and would find it
hard to keep the needed investments flowing with current low oil prices, they said.
Aramco, responding to a Reuters request for comment, said only that the company does not comment
on current production levels.
One source familiar with Aramco production management said the firm's capacity stood at 11.4 million
bpd and it was still working to boost that figure to 12 million by 2018.
"Twelve million bpd has been planned since 2008-2010 and every annual budget worked towards that
goal," the source told Reuters on condition of anonymity.
To achieve that goal, the company has annual operating expenses (opex) of $20 billion and capital
expenditure (capex) at around $40 billion, the source said.
"When the 12 million bpd plan is achieved
by 2018, the overall capex will fall to $20 billion," he added.
Aramco does not disclose its opex or capex figures.
SHIFT IN THINKING
In a note to clients in May, U.S. consultancy PIRA estimated Saudi Arabia's instantly available
capacity at that time at 10.5 million bpd, after tracing expansion plans since 2008 and calculating
an annual decline rate of 4 percent.
"Saudi Arabia could produce more but it would likely come at the expense of optimal reservoir
practices. They could certainly bring on new fields but this is a lengthy process (years) and
expensive as well," PIRA wrote.
"So far the kingdom is not adding any significant new producing capacity based on project announcements
and rig activity but rather replacing the aforementioned 4 to 6 percent annual decline rate."
Saudi oil officials have said they can produce up to 12 million or even 12.5 million bpd if needed,
particularly in the event of a sudden, global supply disruption.
Some say it is not a question of whether Saudi can do it, it is a matter of how soon.
Former oil minister Ali al-Naimi had said that to reach 12 million, Saudi Aramco would need 90
days to move rigs from exploration work to drill new wells and raise production.
Saudi Arabia has been working for most of this year towards boosting prices, rather than leaving
that job to market forces, a shift from the strategy it had championed since November 2014.
The pain of cheap oil was enough to bring other producers to the negotiating table, but industry
sources said the kingdom was also keen to seal a deal as it plans to offload a stake in Aramco
by 2018.
-----------------
My comment:
According to OPEC agreement, the Saudis pledged to cut supply by 486 kb/d from a reference
production level of 10,544 kb/d to 10,058 kb/d. According to Saudi official sources (shown as
"direct communication' in OPEC's monthly report), the country's crude output reached record level
of 10,720 kb/d in November. According to the IEA's estimate and Reuters survey, Saudi output was
also higher in November vs. October. By contrast, estimates from "secondary sources" (also shown
in OPEC's MOMR), indicate a slight decline to 10,512 kb/d.
In any case, important to note that in 2016, unlike the previous years, KSA's output has stayed
at elevated levels in 4Q despite the usual seasonal decline in winter when domestic consumption
of crude burning for power is less. Saudi crude exports have also been high in recent months.
Earlier this month, KSA cut January oil price to Asia to four-month low to keep market share.
It seems that the Saudis are trying to sell as much crude as they can before the planned cuts.
Meanwhile, Saudi Arabia has informed its clients in North America and Europe that their crude
oil deliveries in January will be lower, to reflect the country's compliance with the production
cut agreed by OPEC members.
As the chart below shows, in the past 2 years Saudi Arabia increased oil production by about
1 mb/d. The country was the main contributor to the current oil glut over that period. Now the
Saudis pledge to remove from the market about half of this incremental supply.
Saudi Arabia oil output and agreed production quota (mb/d)
source: OPEC Monthly Oil Market Report, December 2016
The IEA's estimate from its Oil Market Report shows an even bigger growth: by 300 kb/d to 34.20 mb/d,
led by increases from Angola along with Libya and Saudi Arabia. The group's output stood 1.4 mb/d
higher than a year ago.
https://www.iea.org/oilmarketreport/omrpublic/
China's crude oil production increased 3.6% in November from the previous month to about 3,915
kb/d, the highest since July.
Output was down 382 kb/d (8.9%) from the same month last year.
Crude production has fallen 294 kb/d (6.9%) in the first 11 months of 2016 to 3,984 kb/d.
Comment
from Bloomberg:
"China's output has declined this year as state-owned firms shut wells at mature fields that
are too expensive to operate at current prices. The country needs oil above $50 a barrel to stabilize
production, according to analysts at Sanford C. Bernstein, as well asFu Chengyu, the former chairman
of both Cnooc Ltd. and China Petroleum & Chemical Corp. Production is forecast to drop 335,000
barrels a day this year, followed by a further slide next year of 240,000 barrel a day, the International
Energy Agency said Tuesday.
"November's output pickup is probably just a blip, which won't likely persist," said Gao Jian,
an analyst with Shandong-based industry consultant SCI International. "For the next six months,
unless oil prices stay above $50 a barrel, we we won't see solid recovery."
The rise in production last month was in anticipation of higher crude prices amid OPEC meetings,
said Amy Sun, an analyst with Shanghai-based commodities researcher ICIS-China.
China's annual crude output is seen falling to 200 million tons this year (about 4 million
barrels a day), down roughly 7 percent from nearly 215 million tons last year, according to estimates
from SCI International and ICIS-China."
Yes, the US clearly needs some kind of energy policy, and I think one thing that highlights
how badly this is needed is the ability of anyone who can raise the money to be able
to drill 96 horizontal wells in one section of land (two if the laterals are the two
mile variety).
But, I guess any mention of conservation in the US industry these days
is heresy.
I would not be too critical of Chinese production falling. Seems to me they are buying
up all the cheap oil they can from overproducing nations, and storing it. Makes sense
to me.
The OPEC production agreement, which we called correctly, has already helped hoist the profitable
oil stocks we held, but what about 2017? One way I've looked at oil and oil stocks is by looking at
the crude curve the differentials between monthly contract prices. And a recent big move in the
curve makes 2017 look very positive indeed.
I've seen all kinds of futures curves in my 30+ years of trading oil, and many analysts believe that
the crude curve is really predictive of the future but more often than not, it is merely an outline
of what traders and hedgers are thinking.
here's a look at Thursday's curve:
... ... ...
These numbers represent an enormous change from the numbers we saw even two weeks ago, before the
big OPEC deal in Vienna. Since 2014, we had been seeing a deep contango market, where oil prices in
the future were a lot higher than where they were trading in the front (present) months. But what
does a contango market mean?
Many like to look at contango markets as a signal of crude storage, and that has merit but I like
to look at the curve through the eyes of its participants: when the oil market is collapsing, as it
has been since 2014, players in the futures markets know that the costs of oil recovery fall well
above the trading price, and will buy future oil contracts banking on a recovery. This drives buying
interest away from the present and into the future and creates our contango. This kind of market is
dominated by the speculators, who are willing to buy (bet) on higher prices later on.
In contrast, the hedging players are in retreat in busting markets, dropping capex and working wells
and trying merely to survive to see the next boom. It's when prices begin to recover and they gain
confidence in future prices that they try to hedge and plan for the coming up-cycle. This is when
speculators, if they are buying, are likely to move closer to the front months if they're buying
while producers (commercials) are looking to sell futures 12-24 months out. Suddenly, you have a
curve that is being more dominated by commercial players, selling back months and creating the
backwardation we're starting to see right now.
You may remember that I was able to nearly predict this year's bottom in oil prices by looking
for that flattening move of the crude curve in February. This latest move from a discount to a
premium curve has moved more than two dollars in the last week alone. This gives me added confidence
in oil prices for 2017:
Let's look, as a practical matter, why a premium (backwardated) market is absolutely REQUIRED to
see a long-term recovery in oil.
Imagine you're a shale producer and you've seen prices move from $45 to $52. You've been waiting for
a move like this to restart some non-core acreage that you could have working by the middle of 2017.
With a deep contango market, you might have gotten $55 or even more for a hedged barrel of crude in
June of 2017.
But you're not alone in looking to come out of your bunker, hedge some forward production and
restart some idle wells every other producer is trying to do the same thing. If all of you could
depend on a future premium, every producer would hedge out new production and ultimately add to the
gluts that have been already slow to disappear.
Related: The OPEC Effect? U.S. Rig Count Spikes Most In 31 Months
If you think about it, a premium market works to DISCOURAGE fast restarts and quick restoration of
gluts that a two-year rebalancing process has only slowly managed to fix and this is a good thing.
Producers have to be wary of adding wells so quickly, even in a market that is clearly ready to
again rise in price. In a truly backwardated market, the futures work to keep the rebalancing
process on track and production increases slow. That governor on production is the key to keeping a
rallying market strong, and the frantic addition of wells at a minimum.
The proof of all this is in the type of curves we see depending on how the markets are trading.
Now, take another look at the December-December spread chart I put up and you'll see that a Contango
market was a critical component to the bull markets we saw in oil prior to 2014. Unless something
very strange is happening, a Contango curve is indicative of a strong market, while a backwardated
one indicates a market under pressure. It's something I've watched closely for more than 30 years to
help me find major trends.
And convinces me today that oil will have a constructive 2017.
"... its amazing to me, given how many times we have caught the shale oil industry lying thru its teeth, how many people (EIA and the NDIC) still believe everything it says about itself: http://www.worldoil.com/news/2016/9/22/analyst-touts-industry-s-cost-reductions-in-us-shale-plays ..."
"... "Technically" recoverable reserves is a wild ass guess based on volumetric calculations of shale OOIP over a hypothetical homogeneous area in all the producing basins throughout the country that has absolutely nothing to do with reality. Reality is that only about 5-6% of that oil is recoverable thru primary means, not 74%. ..."
"... as we have seen in the past, poor economics did not deter sharp growth in LTO production. It seems that financial markets are ready to resume funding of the shale sector, although more cautiously than in 2011-14. And shale companies are already announcing their growth plans for next year. ..."
"... I expect growth in LTO production to resume next year and accelerate in 2018. This growth will be much slower than during the years of the shale boom, but the U.S. LTO production may reach a new peak in the beginning of the next decade. ..."
"... When the EIA states we can recover 70 plus percent of TRR shale oil in America that is a grave disservice to the public. As is "undiscovered TRR," whatever the hell that is. ..."
"... If you were to poll most Americans I believe the vast majority would say we no longer have a hydrocarbon problem in America, that we have 150 years of shale oil and more than that in natural gas and that we should, and can, isolate ourselves from the rest of the energy world and become energy independent. That is a mistake. ..."
"... The shale industry, and its "groupies," has deceived many people over the past 14 years and that pisses me off, big time. ..."
Alex S is mostly talking about the short term forecast. I agree that the long term forecast
in the EIA's AEO for LTO is much too optimistic and that Hughes' estimates are quite good.
Note that one mistake Hughes makes is confusing the undiscovered TRR with TRR, he needs to
account for 2P reserves and add those to UTRR for the Bakken/Three Forks. His estimates for Bakken/Three
Forks are a bit low. Maybe a couple of Gb.
Dennis, what in the hell is the difference in undiscovered TRR and TRR? What shale oil resources
are out there left to be discovered, do you reckon? "Technically" recoverable reserves is a wild
ass guess based on volumetric calculations of shale OOIP over a hypothetical homogeneous area
in all the producing basins throughout the country that has absolutely nothing to do with reality.
Reality is that only about 5-6% of that oil is recoverable thru primary means, not 74%. Lordy.
As Dennis says, I was talking about the EIA's short-term forecasts, which are the initial topic
of this thread. The fact is that the EIA was generally too conservative in its forecasts for U.S. C+C production,
which my charts above show. I think their forecast for 2017 is still too low and will be revised
upwards, especially as oil prices will likely be higher than the EIA was assuming in December
STEO ($51 average).
Long-term forecasts in the Annual Energy Outlook are a different story.
AEO-2012, 2013 and 2014 had too conservative projections.
AEO-2015 was more realistic, in my view, although it failed to predict the extent of the 2015-16
oil price slump and its impact on LTO production. Finally, projections in the AEO-2016 indeed look speculative, especially as they did not provide
detailed assumptions.
Note, that I totally agree with your view on shale economics. But as we have seen in the
past, poor economics did not deter sharp growth in LTO production. It seems that financial markets
are ready to resume funding of the shale sector, although more cautiously than in 2011-14. And
shale companies are already announcing their growth plans for next year.
I expect growth in LTO production to resume next year and accelerate in 2018. This growth
will be much slower than during the years of the shale boom, but the U.S. LTO production may reach
a new peak in the beginning of the next decade.
Thank you, Alex; I am aware of the title of the post and the fact that it contains information
on IEA export data for Iran, JODI data on the KSA, the Marcellus gas "miracle" a discussion of
Russian politics, the usual sprinkling of ant-oil, EV stuff, Donald Trump and Obamacare. You will
of course forgive me for not fully understanding this statement: " the EIA's projections tend
to underestimate U.S. oil production in general, and LTO output, in particular."
My interest in LTO economics is multi-faceted and because shale oil extraction is extremely
expensive, and woefully unprofitable, unlike yourself, perhaps, I do not believe it will have
a significant role in our energy future until we sort out how to pay for it. Hoping for higher
oil prices, and "predicting" higher oil prices is not a plan, therefore stating it will grow in
the future, without stating how, is dangerous, in my opinion. I don't believe it can be funded
as it has been; that WILL stop, eventually. At best, whether we believe people like David Hughes,
or the EIA, we only have 6-8 years of shale oil to provide to the US's total annual crude oil
needs. When the EIA states we can recover 70 plus percent of TRR shale oil in America that is
a grave disservice to the public. As is "undiscovered TRR," whatever the hell that is.
If you were to poll most Americans I believe the vast majority would say we no longer have
a hydrocarbon problem in America, that we have 150 years of shale oil and more than that in natural
gas and that we should, and can, isolate ourselves from the rest of the energy world and become
energy independent. That is a mistake.
The shale industry, and its "groupies," has deceived many
people over the past 14 years and that pisses me off, big time. MY industry should tell the truth
about the oil and gas future. It doesn't. We will likely have to explain to our children someday
why we pissed off all of our remaining resources and did not leave them anything.
IEA also upped its forecast for global oil demand for this year and next year due
to revised estimates for Russian and Chinese demand. It saw growth of 1.4 mb/d for 2016,
120,000 barrels a day above the previous forecast. Growth in 2017 is now seen at 1.3
mb/d, an increase of 110,000 barrels a day from its previous estimate.
likbez, 12/13/2016 at 11:40 am
Realistically the only country that can substantially increase its oil production in 2017 in
Libya. But that requires the end of the civil war in the country which is unlikely. Iran card was
already played.
Iraq is producing without proper maintenance. At some point they might have substantial
difficulties.
"... The IEA also upped its forecast for global oil demand for this year and next year due to revised estimates for Russian and Chinese demand. It saw growth of 1.4 mb/d for 2016, 120,000 barrels a day above the previous forecast. Growth in 2017 is now seen at 1.3 mb/d, an increase of 110,000 barrels a day from its previous estimate. ..."
...OPEC ... crude output in November was 34.2 million barrels per day (mb/d) - a record high -
and 300,000 barrels a day higher than in October.
The IEA also upped its forecast for global oil demand for this year and next year due to
revised estimates for Russian and Chinese demand. It saw growth of 1.4 mb/d for 2016, 120,000
barrels a day above the previous forecast. Growth in 2017 is now seen at 1.3 mb/d, an increase of
110,000 barrels a day from its previous estimate.
"... Peak oil is not just about cars. Oil is the reason why our civilization exists in its current form. Oil is why we have 7 billion people on this planet. Oil is about agriculture and food supply, it is about distribution of everything we buy and not least it is about the raw materials for many if not most of our goods. It is about almost every economic and social transaction that takes place. ..."
"... It is unbelievable what misinformation has been spread by the media. I attended a public forum of the Australian Energy Council and one participant thought that OPEC had increased oil production. My presentation on the need to replace oil by natural gas as transport fuel (instead of exporting it as LNG) was met with silence and did not spark a debate. Another participant was running away when he heard the word peak oil. ..."
"... Further re climate, most agree CO2 is a greenhouse gas but estimates of the temperature change caused by a doubling of its concentration have been coming down over the last 15 years. In other words, it may not warrant the type of policy response that is being promoted at present. ..."
"... Meanwhile the IPCC projections continue with climate sensitivity estimates of 3 to 6 degrees when the more recent estimates of ECS and TRC are consistently under 2 degrees. So contrary to what is alleged above, there is lots of doubt about the IPCC models. ..."
"... I agree with author. If you look at 2 previous OPEC meetings, the players claim disorder and inability to control output only to find resolution the day after the meeting. I believe OPEC is setting up for a freeze as we are only 1% oversupplied now. If the OPEC big wigs need to fatten the bank accounts, what better way than to set up your own long call on the cheap? ..."
"... Balance this with Iran and Iraq incapable of proper well maintenance and we will soon see inadequate supply not later than 2qtr 17′. ..."
is out with crude only production numbers for October 2016. All charts are in thousand barrels
per day.
OPEC crude only production reached 33,643,000 barrels per day in October. This includes Gabon.
Since May, OPEC production has increased 1.05 million barrels per day.
Algeria is in slow decline.
There was a sudden drop in Angola oil production in October, down 200,000 barrels per day
since August. I have no idea what the problem was. There is nothing in the news to indicate any
problem.
Ecuador was sharply down in August but seems to be holding steady for the last two years.
Gabon was added to OPEC a few months ago but their production is so low it will have little
effect one way or the other.
Indonesia will also not affect OPEC production in a big way one way or the other.
Iran's increase since sanctions were lifted has slowed to a crawl. There are other problems
on the horizon for Iran. They are talking about changing all their oil field contracts to "buy
back" contracts. That is they want the option to nationalize all everything. This will likely
cause a mass exodus of foreign oil companies from Iran and hit their production considerably.
Iraq's production was up 97,000 bpd in September and another 89,000 bpd in October. Iraq,
like everyone else in OPEC, is positioning themselves for an OPEC "freeze" in oil production.
So they are producing every barrel possible in order to freeze at the very highest level possible.
Kuwait has recovered from the problems they had in April. I expect their production to flatten
out soon with a slight decline over the next few years.
Libya's oil production was up 168,000 bpd in October. Is peace breaking out in Libya? I doubt
it but only time will tell.
Nigeria increased production 170,000 bpd in October. It is likely erratic increases and declines
in production will continue.
The decline in Qatar's oil production seems to have slowed since late 2014.
Saudi saw a slight decline in October.
The United Arab Emirates had some problems earlier this year but they seem to have recovered.
I think they will hold production steady for a while now. I really don't think they can increase
production much above 3 million barrels per day.
Venezuela's oil production is still dropping but the decline seems to be slowing. Venezuela has
very serious economic problems. They are nearing the "failed state" status.
World oil supply is very near its November 2015 peak.
All this oil tens of billions of barrels all of it non-renewable, never to be seen- or made
use of again for a hundred million or more years, for all practical purpose, ever!
the greatest bulk of it put into cars where it is wasted, by people driving aimlessly in
circles from gas station to gas station for entertainment purposes only By way of this idiocy
we destroy ourselves and our futures. We aren't doomed, we are damned.
The big mistake most energy illiterates make is to talk about their cars when the peak oil subject
comes up. Most hope or assume that another form of fuel or energy will power their ride post oil.
Peak oil is not just about cars. Oil is the reason why our civilization exists in its current
form. Oil is why we have 7 billion people on this planet. Oil is about agriculture and food supply,
it is about distribution of everything we buy and not least it is about the raw materials for
many if not most of our goods. It is about almost every economic and social transaction that takes
place.
When oil becomes expensive our economies and societies will implode, jobs and goods imported
from far away will disappear. This will apply worldwide. The citizens of Addis Ababa are just
as dependent as the ones in Amsterdam or Atlanta.
We have exhausted most of our soils and lost the skill to eke out a living from Mother Nature
without fertilizers and machines. Could it be that the least "developed" countries will lead post
oil because our "developed" nations are the least able to cope without oil?
Mike, that's exactly what I have been trying to tell folks for years. Most just don't want to
believe it. They see solar, wind and other such things as keeping BAU going for awhile.
Why don't you post over on the post section. We get a lot more traffic over there.
Big mistake thinking that this crisis will not arrive with plenty of time to avoid it. Oil prices
will rise slowly over time. However we create energy, we will find a way to pay for locomotion
or create food.
Oil is down 50% This is because of new sources of supply combined with continuing energy efficiency
improvement. Doomed or damned, don't hold your breath. I am sure you will find something else
-- perhaps global warming, now climate change, to scare people with.
Argh. Your comment suggests that you are a militantly ignorant troll. 97% of the competent climatologists
fully support the IPCC global warming summary model. There is no reasonable doubt about this science.
In my opinion there has been a revolution in drilling technology over recent years. However,
the measured rate of additional improvement is now very modest as measured by the US EIA.
Most of the recent improvement is explained by the discovery and exploitation of sweet
spots which are being rapidly drained. For an objective look at prospects going forward for oil
and gas you should read David Hughes' Drilling Deeper report.
This is an exhaustive analysis based on a data base of all existing US oil and gas wells. It
impressively documents a future of peak oil and gas based on fully exploiting fracking technology.
I don't see any magical technology that will get the projected fossil fuel resources required
for business as usual. It is just not there.
Oil is the reason why our civilization exists in its current form.
Not really. There's nothing magical about oil. 100 years ago civilization was pretty recognizable,
and it didn't require oil.
Oil is about agriculture and food supply
For the moment. Batteries and synthetic fuel can move tractors. Electricity (from many sources)
can create fertilizer.
it is about distribution of everything we buy
Rail works awfully well.
is about the raw materials for many if not most of our goods.
Meh. It produces some of our raw materials. But plastic can be produced from a lot of different
hydrocarbons, and it's production doesn' necessarilly create CO2, so we could produce plastic
from coal for centuries. That's plenty of time for a smooth transition.
"Not really. There's nothing magical about oil. 100 years ago civilization was pretty recognizable,
and it didn't require oil." You missed his point entirely. The reason there is 7 billion people
now is because of oil and what it has done for industrial, agriculture ect ect ect.
There was 1.7 billion people 100 years ago. How many people do you think would be here if not
for oil and all it has done?
">For the moment. Batteries and synthetic fuel can move tractors. Electricity (from many sources)
can create fertilizer<".
This is lack of a better word retarded for you to even consider that a battery will be used
even in the distant future to power agricultural machinery on a mass scale. Maybe the little ride
on mower you cut grass with, but that is it.
" Rail works awfully well."
Ya it does, but when it gets to a terminal, it will have to be unloaded and transported
then. Which basically happens now, so what is your point? And your last comment I wont even pick
apart because you obviously know little to very little about the uses of oil and the advantages
it has brought humanity.
@ Steve from Vaginia: Did you ever consider that some People have to drive to *work* and *produce*
so that you can sit around and swing your testicles and so that your mommy can prepare your lunch
and dinner?
So when you sit around the whole day you can think what happens in 300 years, when most of the
oil and gas has been used up. We don't have time for that, but we are sure that People will find
a solution.
One or the solution will be not driving to work and wasting time in gridlock so we can
have more time to swing our balls be 'productive' on our own and our real community's
terms. Real community that includes momma
Oil will get more expensive, some day slowly. Right now the cost is down (50%!!!) because of new
sources and efficiency improvements. I think that those who predict doom will be disappointed.
The falling EROI destroys your lousy assumption in spades. Your time might be better spent burning books or working on one of the dozen worthless Presidential
campaigns.
Oil is very precious raw material, our demand for oil increases day after day, year after year
and century after another. The search and use other sources such as atomic, wind, tide, solar,
geothermal and others will continue but the prospects / trend to keep on using oil as a main source
of energy still quite high and will continue with time due to the following reasons:
Worldwide population trend is going up drastically. (Main factor).
Oil as a source of energy still quite cheap in comparison with other sources.
It may be easy to apply the new technology in certain fields but not for all fields.
Oil proofs to be available all over the world and at different levels, hence oil production
cost will suit all the times and condition worldwide but not for all the countries.
Oil is quite important as a raw material for petrochemical products, and our needs for plastic,
paints and other products increases day after day drastically.
Oil civilization will continue for a few centuries to come if not for ever and playing with
its prices is subject to market condition, political matters, and other technical issues.
Thanks for the graphs. Saudi Arabia may be ramping up production ahead of the air-conditioning
season. Around 600 kb/d are needed in the hottest month.
It is unbelievable what misinformation has been spread by the media. I attended a public
forum of the Australian Energy Council and one participant thought that OPEC had increased oil
production. My presentation on the need to replace oil by natural gas as transport fuel (instead
of exporting it as LNG) was met with silence and did not spark a debate. Another participant was
running away when he heard the word peak oil.
Im lost by ur comments. 1st of all the graphs clearly show that Opec has increased production
by 2+m/d in the last year.
2ndly, Saudi's oil output charts above are for just Oil not NG. Ive never been there, are you
suggesting they run generators from oil for electricity and subsequent air conditioning. Why
wouldn't
they run thier power plants on Natural Gas? Please educate me.
No doubt that investor sentiment and market makers are playing a significant role in price
decline, as opposed to actual supply/demand issues. How do you find out how much the Opec nations
have sold oil short in the various markets. Not a bad deal for them, if they can lay rigs down
World wide and make the money in the commodity markets while doing so. But prices can only slide
so far and for so long before that game is up. It seems like if short selling or hedging slows,
buyers will outweigh sellers and the price should rise soon
Greg, Saudi Arabia is very short of natural gas and have been for several years now. They would
love to run all their power plants and desal plants on natural gas if they just had enough of
it. They don't. They do burn a lot of natural gas but their supply is far short of what they need.
...Saudi is producing flat out right now just like every other OPEC country except Iran. Sanctions
are holding Iran back. Political violence is holding Libya back, but they are still producing every
barrel they can. It's just that violence keeps them from producing any more.
Re Saudi, yes their domestic usage of oil is around 3 M bopd (they produced 10.5 M in June
but exported around 7 M bopd). Their refinery capacity is increasing but a large amount is burnt
for electricity generation. They have delays in the development of some large gas fields, and
so gas supply is behind the demand curve. Various service companies such as Baker Hughes, Halliburton
and Schlumberger have been demonstrating unconventional gas production in Saudi as a response.
Meanwhile the IPCC projections continue with climate sensitivity estimates of 3 to 6 degrees
when the more recent estimates of ECS and TRC are consistently under 2 degrees. So contrary to
what is alleged above, there is lots of doubt about the IPCC models. The latter point comes from
peer reviewed science, by, among others, Nic Lewis.
Another point of interest is the relative steadiness of Venezuelan production. Allegedly various
of the empresas mixtas (Joint Ventures between PDVSA and International Oil Co.'s) are not proportionally
funded by PDVSA as they should be. As a result production is down or is not reaching targets.
Apparently contractor companies will not accept new contracts from PDVSA unless they set up an
escrow account or other arrangement that guarantees payment in foreign currency. It is surprising
therefore that Venezuelan production shows a slight rise since December.
Yes one day we will be without oil that is pumped from the earth. This is not going to happen
for 100's of years. Our intellect will probably find chemical or biological solution to this problem
long before we run out. If not humanity will survive. Global warming, yes its real and one day
the Sun will double in size and engulf the earth. I am not worried about either. I hate winter
anyway.
The problem humanity will face and not discussed near enough is the lack of clean drinking
water. Everyday it becomes harder to deliver enough clean water to all areas in need. States fight
over the rights to what little water pass through their terrain every year. Many times it has
to be pumped from other states at a premium. The worlds population grows larger every second.
crops demand more and more. Ethanol was forced on us without thought as usual by the oil fear
mongers. You do not grow food to solve a commodity problem.
The land resources, water resources, and corrosive properties that Ethanol introduced far out
weigh any benefit accomplished but still its forced down our throats destroying everything its
poured into. So please build those oil pipelines all across the country and pump that oil at rates
that keep our prices low so I can drive in circles any time I feel like it. I am not going to
worry about it because about the time we run out of oil we will need those pipelines to pump clean
water to all that need it.
I agree with author. If you look at 2 previous OPEC meetings, the players claim disorder and inability
to control output only to find resolution the day after the meeting.
I believe OPEC is setting up for a freeze as we are only 1% oversupplied now. If the OPEC big
wigs need to fatten the bank accounts, what better way than to set up your own long call on the
cheap?
OPEC will shut in wells before the Fed adjusts interest rates resulting in magnified downward
pressure on oil.
Balance this with Iran and Iraq incapable of proper well maintenance and we will soon see inadequate
supply not later than 2qtr 17′.
Shallow,
If we look just at numbers the biggest "cut" (non-volunteer) actually
come from Shale in the last year and half. Without that non-volunteer
"cut" price would not be where it is today. I suspect that the discussion
within/between OPEC and non-OPEC was aimed just to keep price between
$50-60 in the first half 2017. We really can't say at this point if they
are going to do that by just "talking about it" or doing some actual
"cuts". It seems at this point that it would be combination of both.
I wouldn't characterize an increase of 4% to be soaring.
Oil prices soar on global producer deal to cut crude output | Reuters :
"Oil prices shot up by 4 percent to their highest level since 2015 early on
Monday after OPEC and other producers over the weekend reached their first
deal since 2001 to jointly reduce output in order to rein in oversupply and
prop up the market."
Info like this makes me wonder what the pro-gas and oil Trump appointees
plan to do. Why do we need more production?
OPEC Skeptics Flee as Production Cut Rockets Oil Past $50 Bloomberg :
"U.S. crude inventories at 485.8 million barrels are at the highest seasonal
level in at least 30 years, EIA data show. Total fuel demand slipped 1.4
percent to an average 19.6 million barrels a day in the four weeks ended
Dec. 2, the lowest since April.
'This tells me that a lot of U.S. output is going to be coming on line
early next year because they've sold forward production,' Stephen Schork,
president of the Schork Group Inc., a consulting company in Villanova,
Pennsylvania, said by telephone. 'The market still faces big, strong
headwinds. Inventories are still very high, demand is suspect.'"
Some OPEC countries increasing output ahead of the projected cut.
from
Reuters:
Saudi Arabia pumped record-high amounts of oil in November, amid talks
over a global deal to cut production, defying market expectations of lower
output on slower domestic demand and refinery maintenance.
The world's top oil exporter told the Organization of the Petroleum
Exporting Countries it pumped 10.72 million barrels per day last month, an
OPEC source said, up from 10.625 million bpd in October.
In July, the kingdom's production was 10.67 million bpd, the previous high.
Iraq said its November output was 4.8 million bpd, up from 4.776 million bpd
in October, another OPEC source said, as oil exports reached a record high
of 4.051 million bpd.
Gulf OPEC member Kuwait reported output at 2.9 million bpd in November,
lower than its 3 million bpd in October, while the United Arab Emirates kept
its output virtually steady at 3.195 million bpd, according to official
figures reported to OPEC.
"... An evaluation of giant fields by date of peak shows that new technologies applied to those fields has kept their production higher for longer only to lead to more rapid declines later. ..."
"... Land-based and offshore giants that went into decline in the last decade showed annual production declines on average above 10 percent. ..."
Some OPEC countries increasing output ahead of the projected cut.
from Reuters:
Saudi Arabia pumped record-high amounts of oil in November, amid talks over a global deal to cut
production, defying market expectations of lower output on slower domestic demand and refinery maintenance.
The world's top oil exporter told the Organization of the Petroleum Exporting Countries it pumped
10.72 million barrels per day last month, an OPEC source said, up from 10.625 million bpd in October.
In July, the kingdom's production was 10.67 million bpd, the previous high.
Iraq said its November output was 4.8 million bpd, up from 4.776 million bpd in October, another
OPEC source said, as oil exports reached a record high of 4.051 million bpd.
Gulf OPEC member Kuwait reported output at 2.9 million bpd in November, lower than its 3 million
bpd in October, while the United Arab Emirates kept its output virtually steady at 3.195 million
bpd, according to official figures reported to OPEC.
What is the estimate of global depletion of
operating oil wells for 2017? In other words
what part of OPEC and non-OPEC oil production
cut can be attributed to the natural decline
due to well depletion and malinvestment during
the last two years? And would happen anyway.
If you reread posts from this blog from
early 2015 (which is a pretty educational and
sobering read, I can tell) it is interesting
how slow things change as for oil production
decline in comparison with our expectations
(of cause Iran played the role of a Trojan
horse here, no question about it; it looks
like lifting sanctions was, at least
partially, designed to get this particular
effect).
Like inertia of a huge tanker, the inertia
of this giant global oil producing machine is
simply tremendous, as most oil producing
countries have state budgets linked to oil
price and oil prices crush created for them
classic "chess-style" Zugzwang situation in
which cutting oil production was as bad option
as continuing to sell oil at dumping prices
dictated by KSA and the wolf packs of global
"paper oil" speculators.
But, anyway, this sobering two year
experience suggests that like in software
development all forecasts of oil production
decline should be always multiplied by the
factor two, or even three
Still judging from hysterical reaction from
US MSM on OPEC cut (and instant publishing of
tons of stories about cheating as inevitable
outcome, size of inventories alarms, revival
of US shale fairy tales, etc ), 2017 might be
the time when supposed (illusive) neoclassical
"balance" of production and consumption is
achieved.
Although I never managed to understand how
realistic this simplistic concept of oil
"overproduction" works, and how much it was
trifecta of "Iran is back news" + "wolf packs
of oil speculators" + "KSA dumping the oil
(with the cheerful help from Iran ayatollahs)"
It is interesting how eagerly ayatollahs
were ready to waist their national treasure
selling it at really low prices after enduring
years of sanctions which supposedly should
teach them not to trust West (and undermining
Russia in the process).
BTW one interesting side effect of this oil
crush was a rapid raise of refining facilities
on oil producing nations, which makes export
of raw oil shrink in addition to well decline
as refined products almost always have better
margins then raw oil.
An interesting side question is what price
level EIA meant, when it forecasted really
rapid increase of shale production in the US
in the second half of 2017. It is over $80? Or
like Shallow Sand suggested shale oil will
again rely on loans from "investors" (who are
expected to be so greedy that they somehow
managed to forget the lesson or 2014-2016) to
get things rolling again.
"What is the estimate of global depletion of operating oil wells for
2017?"
There is no specific estimate for 2017.
Most estimates are for production declines in the fields that are post
peak.
Decline rates are very different for onshore and offshore fields, big and
small fields,
conventional, LTO and oil sands operations, etc.
There are estimates for natural declines; for declines with applied
secondary and tertiary recovery, etc.
Production in mature fields can be supported by drilling of new wells.
"In other words what part of OPEC and non-OPEC oil production cut can
be attributed to the natural decline due to well depletion and
malinvestment during the last two years? And would happen anyway."
Of course, some of the decline can be attributed to the natural
decline due to well depletion and lower investment during the last two
years. And would happen anyway.
But I cannot say exactly which portion of the projected declines is due
to these factors.
This question should be analyzed country-by-country.
> This question should be analyzed country-by-country.
You probably can limit yourself to giant fields, as in general
only they matter.
Here are the data for 2009: which suggest around 6% annual
decline, which is around 6 Mb/d a year.
I wonder, if three years of absence of new investments will get
us closer to this figure. But even half of that (3%) is more then
OPEC plans to cut. So IMHO they essentially do not need to do
anything to achieve the cut - the natural decline will cover the
bases and limited access to new investments might prevent "waive
dead chicken" tactic used in shale oil.
1.The world's 507 giant oil fields comprise a little over one
percent of all oil fields, but produce 60 percent of current
world supply (2005). (A giant field is defined as having more
than 500 million barrels of ultimately recoverable resources of
conventional crude. Heavy oil deposits are not included in the
study.)
2."[A] majority of the largest giant fields are over 50 years
old, and fewer and fewer new giants have been discovered since
the decade of the 1960s." The top 10 fields with their location
and the year production began are: Ghawar (Saudi Arabia) 1951,
Burgan (Kuwait) 1945, Safaniya (Saudi Arabia) 1957, Rumaila
(Iraq) 1955, Bolivar Coastal (Venezuela) 1917, Samotlor (Russia)
1964, Kirkuk (Iraq) 1934, Berri (Saudi Arabia) 1964, Manifa
(Saudi Arabia) 1964, and Shaybah (Saudi Arabia) 1998 (discovered
1968). (This list was taken from Fredrik Robelius's "Giant Oil
Fields -The Highway to Oil.")
3.The 2009 study focused on 331 giant oil fields from a
database previously created for the groundbreaking work of
Robelius mentioned above. Of those, 261 or 79 percent are
considered past their peak and in decline.
4.The average annual production decline for those 261 fields
has been 6.5 percent. That means, of course, that the number of
barrels coming from these fields on average is 6.5 percent less
EACH YEAR.
5. Now, here's the key insight from the study.
An
evaluation of giant fields by date of peak shows that new
technologies applied to those fields has kept their production
higher for longer only to lead to more rapid declines later.
As the world's giant fields continue to age and more start
to decline, we can therefore expect the annual decline in their
rate of production to worsen.
Land-based and offshore giants
that went into decline in the last decade showed annual
production declines on average above 10 percent.
6.What this means is that it will become progressively more
difficult for new discoveries to replace declining production
from existing giants. And, though I may sound like a broken
record, it is important to remind readers that the world remains
on a bumpy production plateau for crude oil including lease
condensate (which is counted as oil), a plateau which began in
2005.
The question to you - do any newer data for such fields exist,
as new technologies to extend the life of the field were developed
since 2010. Also infill drilling is now used extremely aggressively
by all major players, as if there is no tomorrow
Supream1
1
hour ago
Oil prices are about 10 to 20 below price
[needed for profitable shale and deep see
oil extraction]. Need to go up about to 63
this will be good for US oil. To low a
price will do no one any good high a price
hurt all
Just think of oil as you would think of the
USD. To high is bad to low is also way to
bad need a mid level ( Only few people will
understand this )
The one who wont are the people who want us
to go back to gold standard
XOM has long coveted the Siberian and sub-Arctic oil and Russia deeply needs
our technology and capital to develop them. Remember, Russia is a petro state
and their economy is highly dependent on hydrocarbons. Also, as one of the
great kleptocracies the ruling class, driven by Putin, needs higher oil prices
to continue to drive their personal wealth. A major reason Russia seized the
Crimea is that there is a very large offshore natural gas reserve that the
Ukraine was putting up for bid and it looked like Gazprom wouldn't get it. A
new, major source of natural gas to W. Europe is a direct threat to Russia
which uses natural gas for both economic gain and political leverage. As I
recall when they were trying to exercise political power in Ukraine they shut
down the pipe of gas to them. I do not believe it is an accident that the
Glencore investment into Rosneft occurred once Trump won and the prospects for
a change in US policy looked possible (probable?). Russia is heavily indebted
and any increase in export revenues can only help them. There has been some
appreciation in the Ruble since the election. [Though I would expect a cold
winter in W. Europe to help them more in the short run than the time it will
take to alter US policies.]
This probably means an end to the US participation in the multi-lateral
agreement with Iran, which somewhat helps Russia as it keeps US dollars out and
slows the development and export of Iran's oil. A modest potential bump up in
oil prices. I would expect a loosening or end to the sanctions against Russia
by Treasury pretty quickly.
One also has to wonder if the recent agreement by OPEC to cut production was
influenced by Trump's win. It either is a signal by the Saudi's that they can
influence oil prices in the short term, which in this case pushes them up.
Though I suspect they will be cautious and keep them below say $80 per barrel
for Brent to ensure that there isn't a resumption of fracking in the US. For
all the bluster, fracking is expensive oil and the drop in drilling reflects
economics and isn't a function of regulations.
Best rationale I've seen for the Saudis' sudden willingness to cut and
cut some more, is that $80 crude will bolster Aramco's valuation in the
planned 2018 IPO.
Another factor in pulling off Aramco's epic IPO will be keeping the
global economy out of recession and OECD stock prices bubbly.
Perhaps the Saudis could give us a hand with that last bit.
Dow
22,942!
The news that President-elect Donald Trump is expected to nominate Rex
Tillerson, the chairman and chief executive of ExxonMobil, as his Secretary of
State is astonishing on many levels. As an exercise of public diplomacy, it
will certainly confirm the assumption of many people around the world that
American power is best understood as a raw, neocolonial exercise in securing
resources.
"... I'd like to see a lot more about steady-state economics on here; that means I and you should dig up articles and sources and send them to "blogger" or to Lambert for the Watercooler. They don't take assignments and they're infernally busy, but they do appreciate suggestions. ..."
"Every species that finds a large amount of free energy reacts the same way: proliferation.
The unconscious drive is to use up the energy as fast as possible. If only we could understand
that. But understanding it would get in the way of the principle itself. The only thing we
can do to stop the extinction is for all of us to use a lot less energy. But because energy
consumption provides wealth and -more importantly- political power, we will not do that. We
instead tell ourselves all we need to do is use different forms of energy."
In the wake of the election, I have heard many on here (including the curators) talking about
how the election was all about jobs - read economic growth. As Herman Daly has pointed out, perpetual
growth is an oxymoron when constrained by a finite number of energy resources. So please, can
someone on here offer an explanation for the obvious cognitive dissonance? In general, I'm convinced
most of the people that interact on this page would call themselves environmentalists.
So how, out of the other side of our mouth, can we talk about focusing on economic growth as
a panacea to our political problems? This goes to the root of what I think my most important mission
is moving forward. Namely, finding a way to bring labor and environmentalism together. Thoughts
anyone?
To avoid death, for many people, it means having a job (or more).
When one is not facing death, one can elevate oneself to think about high ideals when one is
exceptional, perhaps one can do that while looking at the Grim Reaper.
I believe we can happier with a smaller GDP. That's not growth. That's opposite of growth.
As it turns out, the destination is easy to understand. Perhaps because its too late to avoid
arriving there, as more a few have commented, the game now is about taking control during the
journey with many climate renaissance sweet spots to live comfortable around the globe. That game
is tied to wealth and power inequality.
It's not about cutting down overall carbon emissions, but who should cut more. It's not that
there will be droughts, but securing water sources huge underground aquifers, for example.
And so on and so forth.
To the extent the deplorables are visible now, it gives hope that the journey will not be one
where they're simply jettisoned along the way.
Growth means an increase in wealth. Wealth and energy do not have a one-to-t-one relation,
it seems to me. A low-energy appliance can be more valuable than a high-energy one, for example.
So sustainable growth means doing more with less. Recycle old inefficient wealth into new, more
efficient wealth.
Wealth can also mean services, and many services can be performed without much use of energy or
resources.
You're not alone. In fact, there's NC slang for the concept: "groaf."
The contradiction is built into liberal economics, including MMT. The political motive is that
reality turns economics into a zero-sum game: the "grim science." As far as I know, Daly and his
movement are the only ones to really address the problem.
The solution is to substitute redistribution for growth. A refinement is to redefine "standard
of living," so it isn't just "standard of consumption" but measures quality of life. Of course,
redistribution is a big political challenge; furthermore, it tends to encourage growth poor
people spend all they get.
I'd like to see a lot more about steady-state economics on here; that means I and you should
dig up articles and sources and send them to "blogger" or to Lambert for the Watercooler. They
don't take assignments and they're infernally busy, but they do appreciate suggestions.
Pretty easy really. I'll wing it and create a new offshoot of economics.
I'll call it Refrigerator Economics. Growth for the consumer would be if it could purchase
the good old refrigerator that lasted 25 years and pay 10% more to include energy saving technology.
More insulation and more efficient motor/compressor. Even if this doesn't sound very innovative.
Growth for the industry is when they crappify and sell 9 year refrigerators for the same money.
Then the consumer has to buy a new one and have the old one hauled to a landfill. Industry is
busy digging holes to obtain resources to make the new crappy refrigerator. In spite of industry
being known for it's beady eyed efficiency, typically these are not even the same hole in the
ground. Buying furniture works the same way.
Conventional economic theory tells us the second way is better. One more reason to hate economics.
I believe in the growth of knowledge as contributing to the GNP. We could invest in basic research.
The H1-B problem could be eliminated with major research efforts employing the brightest and best
from around the world. We used to do that kind of thing - the space race provides a pale example.
There are problems to solve - major problems - and we are on the cusp of great discoveries in
many fields. I am most bullish on chemistry and biochemistry.
If unused or under-utilized labor really is available to be employed through the machinations
of fiat currency I can't think of a better application of excess capacity than putting the many
researchers we've trained to work doing research.
I skimmed it the other day. Found it too long and whiny I'm afraid, but then I'm technically
minded and long familiar with the issues.
It seems unlikely to me that we can prevent the collapse of technological civilisation worldwide
due to our exhaustion, pollution and destruction of the ecosphere. We would need to reduce our
population quite quickly, keep (or put) most of it in poverty and only allow a small elite to
live like Americans. This seems to be the current gameplan.
A more ethically acceptable, but less certain, approach would be to try to quickly bring everyone
up to a level of prosperity and security where population falls naturally, whilst minimising resource
use and pollution. The latter will require technological improvements and is a race against time
and energy depletion. It will also require some kind of defeat of the current elite.
"... Libya and Venezuela peaked long ago. Russia is at her peak right now. Iran is very likely post peak. Iraq can increase production slightly but is very near her peak. Kazakhstan is at 1.75 million bpd and if they can manage to keep the toxic oil from Kashagan from corroding their pipes they may one day get to 2 million bpd. Big deal. ..."
"... The Ukraine crisis was provoked by NATO itself (see: EuroMaidan) and Russia reacted to it. NATO was long looking for an excuse as well as the right timing for imposing sanctions on Russia. ..."
What Ron Patterson and the Peak Oil-ers in general fail to include
in their calculations is the geopolitical aspect of oil, as well as
Global Economics.
In order for us to understand what the imperatives are in
dictating oil production levels, prices etc we should be at first
able to distinguish between the different types of oil producers.
To provide the most obvious contrasting example, let's take Russia
& the USA. These two major oil producers are quite dissimilar to
each other, if not outright opposites. For Russia a much poorer
country oil production is *the* core industry, as well as the
core export item which is vital for the country's success or
failure. The US a much wealthier country despite its high
production levels, is still a massive importer. This distinction
makes a world of difference. For the US, the aim of oil production
is to be maximized, so that imports can be minimized and also that
oil exporters (such as Russia) can enjoy far less strategic or
economic leverage. Hence, the expensive and risky gambit on shale
oil and tar sands in North America. For Russia on the other hand,
the goal is never to maximize production, their aim is to balance
production levels with price levels so that the Russian economy can
get the best results and the country the most leverage possible in
the long-run. My point here is that when we make forecasts over
future production we should always make the distinction between
countries that are producers, yet importers and countries that are
producers-exporters and rely to a high (or absolute) degree on oil
revenues for their well-being. So, the first distinction we can
make, is between oil-producing-exporters and
oil-producing-importers. The first category would include: Russia,
KSA, Iraq, Iran, Kuwait, UAE, Libya, Venezuela etc, while the 2nd
would include the US, China, UK, India etc But another, even more
important distinction is crucially important here. Some of the oil
exporters are part and parcel of the US-EU (NATO) economic-military
structure while others are not. The first category would include:
KSA, Kuwait, UAE, Norway, Canada etc while the second category
would include: Russia, Iraq*, Iran, Libya*, Venezuela, Kazakhstan
etc
From the above, another clear conclusion arises. The US-EU Axis
(NATO) has calculated that the oil exporters it doesn't already
control must be attacked until a high degree of control over them
can be imposed. This has taken the form of a direct military attack
as in the cases of Libya and Iraq, or the form of Hybrid Warfare
methods of sabotage and subversion against all the others.
Now, how does all this relate to actual production levels? My
point here is this, the dominant US-EU Axis is very much interested
in suppressing the levels of oil production (or conversely, the
level of prices) from places such as Russia, Iran, Iraq etc
whenever this is possible (for example, when the North Sea and
North Slope were being developed, or when shale/tar sands came
online more recently) In fact they have been doing exactly that for
decades now (pressure on Yeltsin's Russia, sanctions on Saddam's
Iraq, sanctions on Iran and now sanctions on Russia) As you can
see, the sanctions carousel shifts between these 3 oil giants that
NATO does not control.
This is the point I have been periodically making on this blog
but nobody seems to be picking up on it. Yes, countries such as the
US, Norway, UK, Indonesia etc have peaked to various degrees and
can only maintain or increase production temporarily via massive
capital expenditure and technological breakthroughs. While
countries that have been victims of US-EU (NATO) hostility are
merely trying to navigate out of the siege laid against them until
they hold enough leverage to produce closer to their real
potential.
So, for the umpteenth time, Russia, Iran, Iraq, Kazakhstan and
very possibly Libya and Venezuela are nowhere near the peaks and
will be growing producers in the coming decades. The only question
is whether this will be done under their own terms, or under NATO's
terms.
For the US, the aim of oil production is to be maximized, so
that imports can be minimized and also that oil exporters (such
as Russia) can enjoy far less strategic or economic leverage.
Baloney! The US
government
does not have an aim of oil
production. The US
government
does not produce a single
barrel of oil. Oil, in the USA, is produced by private and
publicly owned companies. Their aim is to make money, nothing
else.
Hence, the expensive and risky gambit on shale oil and tar
sands in North America.
Again, that risky gambit was not made by the US government,
it was made by private and publicly owned companies. They took
that risky gambit because they thought they could make a
fortune. Do you really believe they had Russia in mind when they
decided to drill and frack that oil bearing shale? Do you really
believe they did it because they wanted Russia to enjoy less
economic leverage? I doubt that any of them really gave a shit
about Russia's welfare.
The US sanctions against Russia was because of their takeover
of Crimea and their invasion into Ukraine. It had nothing to do
with trying to suppress their oil production. Ditto for the
Iranian sanctions. Obama wanted to halt their development of
nuclear weapons. Good God man, do you really believe those
sanctions was about suppressing their oil production instead?
So, for the umpteenth time, Russia, Iran, Iraq,
Kazakhstan and very possibly Libya and Venezuela are nowhere
near the peaks and will be growing producers in the coming
decades.
Libya and Venezuela peaked long ago. Russia is at her
peak right now. Iran is very likely post peak. Iraq can increase
production slightly but is very near her peak. Kazakhstan is at
1.75 million bpd and if they can manage to keep the toxic oil
from Kashagan from corroding their pipes they may one day get to
2 million bpd. Big deal.
So you really believe that the USG has no way of influencing
what the various American corporations do? There is no such
thing as "free-market" in the abstract, the state is involved
heavily every step of the way. Legislation, regulation,
taxation, subsidies (or lack thereof) directions to financial
institutions, bail-outs etc etc etc. I am not of course
saying that the USG commands US corporations as would be the
case under say a Stalinist system, but you can bet it can
*influence* it. Several laws were passed around more than a
decade ago in order to precisely encourage shale operations
(Cheney was behind them) Secondly, I find it shocking that
you deny the most obvious statement I made, namely that major
oil importers struggle any which way they can to minimize oil
imports, maximize own oil production (if they have any oil
reserves that is) and also control the countries that do
export oil. Just read what the CIA said about the Persian
Gulf right after WWII. Control of oil-rich regions has been
an absolute imperative for US FP since then. Astonishing that
anyone that can doubt that. As for your claims about
anti-Russian sanctions, again your ignorance about
geopolitics is astonishing.
The Ukraine crisis was provoked by NATO itself (see:
EuroMaidan) and Russia reacted to it. NATO was long looking
for an excuse as well as the right timing for imposing
sanctions on Russia.
The Ukraine crisis, as well as
rising oil production in North America provided a perfect
opportunity for those sanctions to be imposed at the time
they did, otherwise they would have looked pretty pathetic.
And notice what the sanctions were all about: a) no
selling of oil equipment to RUS firms, b) no lending to RUS
oil firms, c) no US-EU oil corporation can invest in RUS oil
or cooperate with RUS oil companies. This, coupled with a
crushed price was hoped that would discourage/impede the
Russian oil industry. It's so eye-popping it hurts. BTW, I am
not moralizing here, I am just presenting the facts as I see
them, from the prism of RealPolitik.
As for your persistent belief that every country in the
world has peaked in terms of oil production. How long do you
have to be proven wrong until you admit it? I am sure that
you thought that Iraq under Saddam had "peaked" or that
during the early years of US occupation it had also peaked.
But what do we see?
A war ravaged country being able to rapidly expand
production. Imagine what the Iraqi oil production levels
would be if the country enjoyed some relative piece and the
global market called for it? My point here is that these
countries are constrained by market as well as geopolitical
factors, which you seem to completely ignore.
So, I hope that your blog is still around in the coming
years, when all of Russia, Iran, Iraq, Libya, Venezuela &
Kazakhstan boost oil production. Some of them will boost
their production massively, others significantly. You will
see.
I'm sure the world looks like you depict it, from where
you look Stravos. But it doesn't look like that from here.
Russia has sanctions imposed on it for acting aggressive
on its borders. I'm sure it feels uncomfortable to be
surrounded, and not have a good port to the south for its
navy. I truly believe that USA and the rest of the modern
world were hoping Russia would join in a constructive and
cooperative role after the Soviet breakup, but they have
failed miserably so far. Still hope though.
And Iran has sanctions imposed because they have been
an extremely aggressive theocracy that no one wants to
have nukes- the sanctions imposed included China and
Russia as sponsors. Also, it was to Russia advantage
economically, to not have Iranian oil on the market.
China, Europe and USA do prefer to have Iranian oil on
the market, but not at the cost of a theocracy (bizarre)
with nucs.
More to say- but thats enough to chew on.
I talk Real-Politik but you have again collapsed into
the cheap hypocritical nonsense of the MSM and
pseudo-experts. The mere suggestion that Iran has been
"aggressive" is insulting to my intelligence. Iran
can't be aggressive regardless of their inner desires.
Iran can only hope to defend itself from the US & its
allies and even that would have been impossible without
Russian and Chinese support from behind the scenes. I
don't see why you think that Russia & China going along
with the West on imposing sanctions on Iran somehow
proves that the excuse for them was truthful. No,
Russia & China both make deals with the West all the
time, in the hope that they can serve their own
interests as best possible. If it means screwing Iran
in some cases, then so be it. Every state is in this
for its very own interests (no permanent allies, only
permanent interests)
As for Russia. There wouldn't be a more catastrophic
scenario imaginable for the West (especially Europe) if
Russia ever managed or was allowed to enter the global
marketplace in anything remotely resembling "fair
terms". The reason why NATO is so obsessed with Russia
is because that country possesses *all* the necessary
elements (massive hydrocarbon reserves, nukes, metals,
strategic location, geographic size) for a superpower,
except of course the economic part. But, as NATO
strategists are keenly aware, that can change, and if
it does, then the Global Balance of Power changes
radically and at the expense of NATO. This is why
Russia is NATO's number one target and not say China,
or India or anybody else. Most people have been fooled
by thinking that power in international relations is
all about the size of your GDP. While this may be true
for most countries, it's definitely not true when it
comes to Russia. If I were NATO I would be doing the
same and more in order to bring Russia down.
International rig counts are out up five overall, mostly a bounce back to around September numbers
from an unusually big dip in October, especially in the North Sea.
Also I took a look at some of the Bakken daily reports for this week, new permitting and completions
announcements seem to have come to a stop maybe the extra cold weather, or maybe someone on vacation
and not completing the paperwork, or a sign of things to come?
Is this the news of an industry with a rosy glow of optimism following the OPEC announcements?
Too early to feel the impact yet I guess.
"... Most shale oil companies are looking down the barrel of loans coming due beginning 2017 and continue to do stupid things with borrowed money because they have no choice. In spite of lower costs and higher EUR's brain washing campaign, they are all still losing money hand over fist. Even mighty EOG. ..."
I won't deny there is an uptick in drilling coming, it is just that I perceive
a different rationale for it, than assuming they are jumping at $50 oil to plan
to go all out for that reason. Some companies are completing wells that would
only be profitable at $100 a barrel. No rationale for those, other than they
are simply trying to hold on to the lease, and hope. I follow EOG fairly
closely, and from my own lease, I know they are trying to hold on to fairly
good leases, but only drill what they have to. I think that is the reason your
seeing an uptick. They are planning on what will hold the leases for 2017. They
are balancing those permits for "marginal" wells at $50, with permits in the
sweet spots. From a planning perspective, it makes sense on getting that over
with first. Then you can concentrate on what is going to keep you alive. It is
interesting to note that the Austin Chalk (Sugarcane) has become their new
sweet spot in Karnes County. They have 5 or 6 now producing, and 9 more planned
so far for next year. All are doing very well, and two had first month
production in excess of 100k barrels a month. Less decline than the Eagle Ford,
so far. Other companies are now jumping on it, too.
Mr. Minton do you have continuous drilling provisions in your lease and if
so may I ask, what year did you lease to EOG?
I contend that at these oil prices the speculation about "drilling to
hold leases" is vastly overblown, that most leases made in the Eagle Ford
and Bakken before 2012-2013 had no continuous drilling provisions in them,
and that most of the drilling still being done in those two plays, at these
oil prices, are actually related to loan covenants regarding booking PDP
reserves, SEC 5 year rules regarding PDNP reserves and to reduce taxable
income thru IDC deductions.
Most shale oil companies are looking down
the barrel of loans coming due beginning 2017 and continue to do stupid
things with borrowed money because they have no choice. In spite of lower
costs and higher EUR's brain washing campaign, they are all still losing
money hand over fist. Even mighty EOG.
HZ Austin Chalk wells cost considerably less that shale wells because
they don't typically require frac'ing. Some of the initial IP's and IP90's
in the Chalk have been spectacular, especially for EOG who is well know for
gutting wells to create big EUR's; take it from me, an old Chalk hand,
however, the decline on Chalk wells after 12-18 months will suck the hardhat
over the top of your head and I am quite certain 95% of those wells will NOT
payout either. They did not in 1981, 1991, 2001 nor will they this time
around the block either.
Yes it has continuous drilling clause.
Austin chalk wells by EOG are frac'ed. Who cares what happens to the
decline in 12 to 18, if you recover over 300k the first year?
If EOG frac's those Chalk wells then they cost essentially what an EF
well costs. If a Chalk well makes 300,000 BO in the first year, which
they don't, then declines 80% annually after the first 12 months and
every year thereafter, they'll never reach payout. If your only
interest in any of that is from the standpoint of a royalty owner,
then I am sure you don't care about profitability. I do.
I contend that most mineral leases made before 2013 did not contain
"drill and earn provisions" in them (drilling commitments) and that
one well could hold the entire lease. I can confirm that in S. Texas
and I suspect less knowledgeable mineral owners in the Bakken that
leased early in the play had no drilling commitment provisions in them
either. Leases made later in both plays involved more sophisticated
mineral owners who required drilling commitments. In W. Texas, for
instance, all that now being drilled is subject to drilling
commitments.
SEC rules are very clear regarding 'proven but not producing'
reserves that were "booked" and made into assets they must be drilled
within 5 years or lost. DUC wells are PDNP reserves and they too must
be completed within 5 years.
I am familiar with two new loan covenants, particularly relative to
recent credit swaps, etc. that if a company gets more money in the
equity swap, they must develop PDNP reserves or suffer penalties.
None of this precludes the fact that 95% of the shale oil wells
being drilled in America and these oil price levels will not payout
unless prices rise dramatically. Those wells ARE drilled at a sure
loss. The shale oil industry is penned up now like a heard of goats;
they voluntarily drill unprofitable wells with borrowed money because
they need cash flow and they need to book more assets to be able to
borrow more money. They are also forced to drill and complete wells
that are unprofitable for reasons I have explained. The ONLY way out
for them, even the biggest of them, is if oil prices rise into the
80's and 90's and that is not going to happen for a long time, short
of some big chicken fight somewhere in the world that would have an
affect on supply.
Not really. There is not a lot of interest in drilling for $50 to $60 oil in
the shale. Go back and look at what happened in 2009 when oil dropped to
$60. Most places are profitable to drill at $80 to $100. Very few are
profitable at $50. The press can hype all they want. It won't change
reality.
I think the press helps if enough people buy it, silly money will give
free loans to these companies to continue drilling. You can loose as much
money as you like, as long as you have creative bookkeeping and a
neverending roll in of money.
We had this here in Germany in the wild
2000s film making fonds have been the red hot burner, people lost
millions but continues investing until alle these companies where
history. Hollywood was laughing about Germany "silly money".
It's
little surprise that Credit Suisse recently stated:
"With service prices, particularly pressure pumping expected to rise in
2017 on the back of increased activity, a Permian operator commented that it is
already seeing greater than a 20% increase in completion costs. The biggest
concern for Permian management teams has been a potential scramble for
equipment and services that higher commodity pricing could introduce, and the
OPEC move has the potential to drive faster service cost inflation than we
would have otherwise seen, muting the impact of the oil spike on returns for US
shale operators."
In other words, the cost of drilling is likely to go up just as fast as the
price of oil goes up if there is a cut in production by OPEC.
Most of the new "drilling efficieny" is a result of depressed
costs and drilling in primarily "sweet spots". Easy financing
is a thing of the past. Can't see a big enough resurgence in
shale drilling to overcome drops in production in the short
term. A 20% increase is a killer, but that is only the
beginning. The way I see it, because the new drills won't
keep up wit the decline rates of the old wells; they have to
recoup all their drilling costs the first year, to enable
them to keep drilling. That leaves only a few areas to drill
in. The only reasons it surged in the past, were easy money
and oil at $100 a barrel. Both are no longer available, now.
"Iran's total crude oil and condensates sales likely reached around
2.8 million barrels per day in September, two sources with knowledge
of the matter said, nearly matching a 2011 peak in shipments before
sanctions were imposed on the OPEC producer.
Iran sold 600,000 bpd
of condensates for September, including about 100,000 bpd shipped from
storage, to meet robust demand in Asia, the two sources said.
September crude exports increased slightly from the previous month to
about 2.2 million bpd, they said."
"Iran's condensate production has exceeded 610,000 b/d this year,
with 561,000 b/d of this - or around 90% - coming from the 16
operating phases at the giant offshore South Pars gas field in the
Persian Gulf, Akbary said.
The latest additions to the project were phases 17, 18 and 19,
which came into operation this year, Akbary said.
In addition, eight new phases are currently being installed at the
field. Phases 20 and 21 will become operational in 2017, Akbary said,
while phases 13 and 22-24 are expected to begin in 2018. Iran hopes
the entire development will be completed in 2021.
By then, South Pars condensate production will exceed 1 million
b/d.
Smaller offshore fields under development could add another 50,000
b/d, with a further 55,000 b/d on top of this should additional
projects be approved.
Onshore fields could add a further 115,000 b/d, taking total capacity
to more than 1.2 million b/d.
Iran's domestic consumption currently stands at around 260,000 b/d,
leaving a surplus of more than 350,000 b/d this year. But consumption
is forecast to rise to more than 700,000 b/d by 2021 with the
completion of new condensate splitters, such as the 360,000 b/d
Persian Gulf Star.
as a result, Iran's condensate exports are expected to drop to
around 250,000 b/d in 2021."
http://www.platts.com/latest-news/natural-gas/dubai/major-investment-needed-to-avoid-output-fall-26601277
Crude prices could rise to $60 to $70 a barrel if the Organization of Petroleum Exporting
Countries succeeds in bring inventories back to a normal level, Venezuelan Oil Minister Eulogio
del Pino said last week, echoing a widely held view within the group, from Saudi Arabia to Iran.
... ... ...
The International Energy Agency expects the re-balancing will happen early next year, while
consultants at Rystad Energy expect a 1.26 million barrels-a-day deficit in the first quarter of
next year if Russia is the only non-OPEC country to join the effort.
Also, my google news feed is packed with articles touting peak demand not
peak production. Is this some sort of distraction effort? I know the topic
of peak demand has been discussed before, but I am having severe memory
issues.
Ezrydermike, did you not read the article that you, yourself, posted?
"Peak oil by any other name is still peak oil."
Peak oil is peak oil
is peak oil.
Peak demand and peak supply are the same thing. That is,
when the production of crude oil peaks, regardless of the cause, that
will be peak oil. I don't know how I could make it any simpler than that.
When there is peak supply, including
all hand waving about storage tapping and what's in pipelines and
assorted gobbledygook, there will be demand for more than that supply,
with lines at gas stations and requests for more than the ration
allowed, but the gas station guy will say no and the customer's
consumption will be limited to whatever rationing is available - if
his license plate is an even number and it's an even day - if an odd
numbered day, he gets to consume none, regardless of how much he
demands of gas station dood.
yes Ron I get that. I was more remarking on how my Google news feed is
presenting the articles as peak demand not peak oil. Many of these
seem to be trying to replace the terminology and pointing that some
oil can be left in situ for future production. For example, this
article from the CSM.
"The threat of the world facing a declining
supply of oil, so-called peak oil, has given way to a forecast that is
calling forth its much more benign cousin: peak demand."
"... The chain of announcements signal that Saudi Arabia is trying to push oil prices above $60 a barrel -- and perhaps closer to $70 a barrel -- as it attempts to fill a fiscal hole and prepares a partial flotation of its crown jewel, state-owned oil company Saudi Aramco, in 2018... ..."
Russia among non-OPEC nations pledging to cut 558,000 barrels
Saudi minister says he'll go beyond commitment at OPEC meeting
Saudi Arabia signaled it's ready to cut oil production more than expected, a surprise
announcement made minutes after Russia and several non-other OPEC countries pledged to
curb output next year.
... ... ...
"This is shock and awe by Saudi Arabia," said Amrita Sen, chief oil analyst at Energy
Aspects Ltd. in London. "It shows the commitment of Riyadh to rebalance the market and
should end concerns about OPEC delivering the deal."
.... ... ...
The chain of announcements signal that Saudi Arabia is trying to push oil prices above $60
a barrel -- and perhaps closer to $70 a barrel -- as it attempts to fill a fiscal hole and
prepares a partial flotation of its crown jewel, state-owned oil company Saudi Aramco, in 2018...
BP's numbers for oil exports (available from 1980) and production less
consumption (available from 1965) are slightly different, which may reflect
changes in inventories and other balancing items.
According to BP, Middle
East oil exports in 2015 was 20.6 mb/d, the record for the period from 1980.
Production less consumption was 20.5 mb/d vs. all-time high of 20.8 mb/d in
1976-1977.
But 2016 should see a new record due to ramp-up in production and exports
from Saudi Arabia, Iran and Iraq.
Middle East oil exports (mb/d)
Source: BP Statistical Review of World Energy
These EIA projections are indeed to be taken with a grain of salt, I think.
Especially concerning the USA. Why would the production suddenly stabilise?
There has been a -10% decrease over the course of the last 1,5 year. (= a
severe decline). And now, miraculously, things will stabilise?
I think, over the course of the next 365 days, the USA will lose another
million barrels per day of oil production.
Wasn't going to be the first one to go that far. Pretty sure we have another
half million to go by end of 2017. Including the Gulf. Still, that would be
about a million barrels less than EIA is projecting.
Supposedly the increase in oil price should stabilize US production that has
been severely affected by low prices. It remains to be seen if OPEC+Russia
cuts (no article on this?) in 2017 realize and if US production can increase
to compensate for the cuts. Obviously OPEC+Russia think not or they would
not be cutting production, unless it is a fake cut in the first place.
Stones: From the press release of the startup: " September 6, 2016. Shell
announces today that production has started from the Stones development in the
Gulf of Mexico. Stones is expected to produce around 50,000 barrels of oil
equivalent per day (boe/d) when fully ramped up at the end of 2017
That would suggest a gradual ramp all the way from Sept. 2016 through
December 2017. At best a 20% initial flow in September or 10k b/d
Julia: The first well came on line in April and the 2nd one was to start a
few weeks later:
ExxonMobil starts up Julia oil field in the deepwater Gulf of Mexico
04/19/2016
Offshore staff
IRVING, Texas Exxon Mobil Corp. has started oil production at the Julia
field in the deepwater Gulf of Mexico under budget and ahead of schedule. The
first production well is now online and a second well will start production in
the coming weeks.
The Julia development is located about 265 mi (426 km) southwest of New
Orleans in water depths of more than 7,000 ft (2,134 m). The initial
development phase uses subsea tiebacks to the Chevron-operated Jack/St. Malo
production facility.
According to ExxonMobil, the development includes the use of subsea pumps
that have one of the deepest applications and highest design pressures in the
industry to date.
Neil W. Duffin, president of ExxonMobil Development Co., said: "Successful
deepwater developments like Julia, located more than 30,000 ft [9,144 m] below
the ocean's surface, benefit from ExxonMobil's disciplined project execution
capabilities and commitment to developing quality resources using advanced
technology.
"This initial production will provide ExxonMobil with insight into the
potential future development of the reservoir."
The Maersk Viking drillship is currently drilling a third well, which is
expected to come online in early 2017.
So when you consider the start dates and the companies own reports, then
there is no evidence of any material GOM oil production growth from the GOM
starting October 2016. Furthermore, there is not one 2017 GOM project. So, the
EIA forecasting oil production growth of 500k b/d by the end of 2017 is pure
fiction. To compound the error, the EIA excludes GOM depletion of what I recall
is ~22% depletion in the GOM for 2017 of ~300k b/d (1.5 million b/d of
production @20%).
The EIA oil production forecast for the GOM is a complete fabrication!
This shows production from the new leases reported to BOEM since 2015,
except Hadrian South which is mainly a gas field, but including Julia which
EIA missed. Also missing is Gunflint (nameplate 60 kbpd) which hasn't
reported any production although supposed to have started in early 2016. Son
of Bluto 2 started early and looks to be watering out quickly. Dantzler also
cut a lot of water early and is in decline. Silvertip was tied in as part of
Great White (Perdido spar). West Boreas and Deimos South are considered part
of Mars B (tied into Olympus spar I think) but I can't tell if they are
operating (there are two new leases that appear to have started in 2016).
Stones only started operating in September. Heidelberg has a very slow ramp
up. Julia has two wells on line but is only at half nameplate (I don't know
if it is limited by capacity at the Jack hub. As others I don't see where
300 kbpd of new capacity is supposed to come from, especially given high
declines in mature deep water fields.
I noticed I missed off Big Bend that started up October last year hit
an early plateau and looks to be in slight decline at 16 kbpd at the
moment. (note the graph is stacked production, oil only none of the
leases reported condensate).
Gunflint is probably identified by BOEM as
Freedom/Gunflint but I don't see any reported production for that
either through September.
Julia production is not limited by Jack capacity. Jack capacity is around
170 kbopd, and is currently around 120 (with Jack, St. Malo and Julia).
George,
I think what you show as Horn Mountain Deep and Holstein Deep are
actually just the base production from those fields. I don't think
either Horn Mountain Deep or Holstein Deep are on production yet - I
think.
Agreed probably the numbers are given by lease number only.
Sometimes there can be more than one well to a lease (they give the
number of completions so sometimes you can see when something
starts up then), but additional complications are that BOEM
sometimes use different names from the E&P company, and there are
often several leases per field. Tie backs, even if given a
particular name, are listed against the main filed only. I think
there is a way to apportion production to particular wells and from
there to a particular tie-back, but it's beyond may attention span
at the moment. I was more interested in the overall shape of the
curve which shows a clear flattening. Horn Mountain Depp added
two completions in March/April, I need to check further on
Holstein, I might have screwed up there as the curve looks
suspiciously similar to Horn Mountain Deep. I think there probably
is another 150 kbpd ramp up nameplate capacity between Gunflint,
Stones, Heidelberg and Julia and maybe 50000 extra tiebacks if they
are drilled but that would only just about cover decline over the
next 15 to 18 months.
It's also interesting that, though now in
decline, Dantzler and Big Bend initially exceeded expected
production capacity, and still do.
Another correction: Son of Bluto 2 didn't cut a lot of water, I
looked at the wrong column, so I don't know why it declined so
fast. I think it may have capacity for a second well there.
Interesting, that, in the Annual Energy Outlook 2016, the EIA projects
further growth in the U.S. Federal offshore (ex Alaska) oil production to
1.93 mb/d in 2021.
Given high decline rates for deepwater fields, that
implies new start-ups or ramp-ups.
One of these projects is BP's Mad Dog Phase 2 . Is there anything else?
The additional ones I can think of are Stampede and Big Foot, both in
2018, and Shell's Appomattox, but I don't know when that is slated to
come online.
In addition, there will be a fair number of 1-3 well tiebacks to
existing facilities. (Maybe 3-4 a year??)
There are Thunder Horse South tie backs next year (BP, nameplate maybe
42,000 bpd), Heidelberg Phase II might add another 30,000 in 2021,
small tie backs to Delta House (Odd Job next year at 5000, maybe
others), Vita (c/w Power Nap) has gone out for FEED but I don't think
it could get done before 2022 now, possibly Caesar/Tonga additions
next year (20,000 ??), and I think Typhoon (or might be called Tornado
now) might have started up recently at 13,000 tie back to Helix
producer.
So I corrected Holstein Deep (I don't think there have been any new tie
ins and it is in gradual decline), added Big Bend, Gunflint (though it is
zero flow) and Pheonix (no change in the dates shown but Tornado has
started up at 20 kbpd this month and will be choked to 13 to 16 kbpd at
plateau (this used to be Typhoon I think, but all these names are quite
confusing) there are other tie-back options for Phoenix, which is
serviced by the Helix producer, in the future, including a second Tornado
well and Motormouth.
The plateau through 2016 is maintained but I think
there will be a jump in October and then a steady rise at least for a few
months. I don't know the issue with Gunflint but if it has a lot of
predrilled wells and is just waiting on getting the production facilities
operating there could be another big increase then.
Also I had a thought on Julia and Horn Mountain Deep: it's possible
that the completions listed by BOEM include producer and injector pairs
so at the moment Julia has only one producer, but two wells, and
therefore with another producer to come to give full capacity (at up to
35 kbpd).
Alex I don't think there will be as high a peak as they say I
don't see where the projects ramping up or in late development
stages are that could achieve that (I still go for around 1.85
mmbpd sometime in mid 2017 as peak). But equally the decline might
be less steep than they show and the tail fatter. Two other
projects not yet approved are Shenandoah and Kaskida. I think they
would both be about 150 kbpd nameplate, but they are high
temperature / high pressure and Kaskida has sand issues I think
(maybe they both do), and both might need relatively many wells
so very expensive. There's also Tiber / Gila / Gibson / Guadelupe
(I don't know much about that but over 100 kbpd), Anchor (also
about 100 kbpd), some fields around Tahiti for tie backs and
Constellation (ex-Hopkins) which used to be considered a big find
with BP but know looks like a smaller tie back (30 kbpd maybe) for
Anadarko. After those only bits and pieces are left, and with not
much frontier exploration going on so little prospect of big finds
either. Anadarko and BP have a lot of the prospects which would
tend to mean they'll get spread out a bit. I've also been surprised
at how long the schedules are for Appomatox and Mad Dog II (and
also Trion on the Mexican side) they all are around 7 years from
FID to plateau rates.
"... The real danger is that the media, as well as the general public, has been sold the idea that peak oil has now been discredited because of shale oil. It has not. And that only increases the dramatic shock effect it will have when it finally becomes obvious that peak oil has arrived. ..."
"... Of course some will agree but say that "No big deal, renewables will make peak oil a non event!" And these folks are in for an even bigger shock than the peak oil deniers . Well, in my opinion anyway. ..."
"... To me, that is like a farmer saying I estimate next year and beyond that the cost of seed, chemicals, fertilizer, fuel, labor, real estate taxes, etc, will fall by 60%. I am not familiar with any commodity based business where that is reality. Yet almost ALL US LTO did the same thing, 30-60% reduction. ..."
"... The point is, had they not done that, they would have basically lost ALL of their proved reserves at 2015 prices. My point is, how can a company that is losing large amounts, pre-reserve write downs, have any economic reserves? If the costs cannot all be recovered for the well at SEC prices, there are no reserves for that well. ..."
"... 2016 SEC prices are about $10 lower. We shall see what they come up with. ..."
"... I also agree peak oil will be obvious before long, I think eventually (by 2020 at least unless a big recession intervenes) oil prices will rise, maybe to $100/b. Most will expect a big surge in output, but any surge will be small (1 Mb/d at most) and likely short lived (if it happens at all). ..."
Hi Ron. Thanks for your awesome website. The word blog doesn't do it justice.. It is truly the
best, and attracts a great group of commenters. May I ask how you might see 'serious depletion'
playing out, roughly speaking? Do you have any predictions or wild ass guesses on the slope of
the production decline or perhaps where world crude plus condensate production might be by 2020
and/or 2025? Given your wisdom and insight into human nature what are your feelings about the
human response to these future conditions?
Do you have any predictions or wild ass guesses on the slope of the production decline or perhaps
where world crude plus condensate production might be by 2020 and/or 2025?
Not really. We all had a pretty good idea where things were heading until shale oil raised
its ugly head. No one that I know of predicted that. But now it looks like shale oil is a USA
phenomenon with no appreciable production anywhere else in the world.
My strong feeling right now is that the shale oil phenomenon has given the entire world the
idea that peak oil is, or was, an illusion or an idea that had no valid support in the real world.
But peak oil is as real as it ever was. The amount of recoverable oil in the ground is finite.
We may have had the numbers wrong in our personifications because of shale oil. But that does
not change the big picture. The peak oil phenomenon is as real as it ever was.
The real danger is that the media, as well as the general public, has been sold the idea that
peak oil has now been discredited because of shale oil. It has not. And that only increases the
dramatic shock effect it will have when it finally becomes obvious that peak oil has arrived.
Of course some will agree but say that "No big deal, renewables will make peak oil a non event!" And these folks are in for an even bigger shock than the peak oil deniers . Well, in my opinion
anyway.
2016 10K will be out in late February-early March for US LTO producers.
It will be interesting to compare 2014, 2015 and 2016. In particular I am waiting to see the
estimates of future cash flows to see how much more the engineering firms let them slash future
estimated production costs and estimated future development costs.
In my opinion, there was a lot of hocus pocus in those particular numbers, which, of course
provide the basis for proved reserves and PV10.
The amounts slashed from 2014 to 2015 were incredible, for example Mr. Hamm's CLR dropped its
estimate of future production costs by 60%.
To me, that is like a farmer saying I estimate next year and beyond that the cost of seed,
chemicals, fertilizer, fuel, labor, real estate taxes, etc, will fall by 60%. I am not familiar
with any commodity based business where that is reality. Yet almost ALL US LTO did the same thing,
30-60% reduction.
The point is, had they not done that, they would have basically lost ALL of their proved reserves
at 2015 prices. My point is, how can a company that is losing large amounts, pre-reserve write
downs, have any economic reserves? If the costs cannot all be recovered for the well at SEC prices,
there are no reserves for that well.
2016 SEC prices are about $10 lower. We shall see what they come up with.
"And these folks are in for an even bigger shock than the peak oil deniers . Well, in my opinion
anyway."
I think the odds are pretty good that Ron is right. We can hope that Dennis C and the others
who think production will stay on a plateau for a while and then gradually decline rather slowly
are right.
If they are, and the electric car industry does as well as hoped, then the economy national
and world wide can probably adapt fast enough to avoid catastrophic economic depression brought
on specifically by scarce and expensive oil.
If for some reason, any reason, oil production declines sharply and suddenly, for a long period
or permanently, we are going to be in a world of hurt.
People need not starve, at least in richer and economically advanced countries, but millions
of people could lose their jobs and a lot of businesses dependent on cheap travel would fail.
The effects of these lost jobs would expand outward thru the economy doing Sky Daddy alone knows
how much damage.
In poor countries, starvation is a real possibility.
The time frame I have in mind in making this comment is out to twenty or thirty years. After
that, it's anybody's guess what the population will be, and what the economy will be like.Hell,
it's anybody's guess as far as next week is concerned, so far as that goes.
Plateau until 2019 or 2020 then some decline slow at first and gradually accelerating. Unless
a recession hits in that case acceleration is more rapid.
I also agree peak oil will be obvious before long, I think eventually (by 2020 at least unless
a big recession intervenes) oil prices will rise, maybe to $100/b. Most will expect a big surge
in output, but any surge will be small (1 Mb/d at most) and likely short lived (if it happens
at all).
Whether oil prices spike and this leads to either Great Depression(GD) 2 or a lot of EV and
plugin sales is unknown, it might be the latter at first with GD2 following between 2025 and 2030.
It will depend on how quickly oil output falls, I think it might be 1% or less until 2030 if oil
prices are high with faster decline rates once the depression hits.
As usual big WAGs by me. Of course nobody knows, but your insights on how things might play
out would be interesting.
Hi Dennis,
If I am not mistaken, you have moved up your estimate of global petroleum peak, and perhaps the
pace of the decline.
Just months ago, your opinion was that it would not occur until 2025. Are you moved by any specifics
that you would like to share?
Thank you, and as a follower of your good work, I appreciate your insight.
Steve at SRS Rocco report has a new, very informative post up showing that Middle East oil exports
are lower today than 40 years ago!
"According to the 2016 BP Statistical Review, the Middle East produced 30.10 mbd of oil in
2015 compared to 22.35 mbd in 1976. This was a growth of 7.75 mbd. However, Middle East domestic
oil consumption increased from 1.51 mbd in 1976 to 9.57 mbd in 2015. Thus, the Middle Eastern
economies devoured an additional 8.06 mbd of oil during that 40 year time-period."
Would be great to see an update on the global export land model that Jeff Brown (westexas)
used to update us on. How much C+C is available on the global markets as of today after domestic
consumption?
I΄m not Jeff B. but if I remember last version of BP stats. correctly, the net export market has
been on a bumpy plateau between 2005-2015. It has varied between 41-44 Mb/day (approx.). 2015
set a record which was just slightly higher than 2005. It΄s possible that 2016 will be slightly
higher.
World exports have been bumpy flat for 10 years or so.
Ecuador might be an importer soon'ish.
I like this site as I take an interest in observing the changes as exporters become importers.
The country charts provide some rough idea of those timings.
2015 was indeed a net export record. The increase came mainly from Canada, Iraq and Russia. Iran
may boost net exports in 2016, Kazakhstan will also add some. At least to me it seems unlikely
that net-exports will grow substantially above the 2015/16-level. Increase from the mentioned
countries will be needed to compensate decline in Mexico, Colombia, etc (+problems in Venezuela).
Seems more likely it will continue on the plateau or decline. Nigeria and Libya are wildcards.
mazamascience also use BP-data but seems to give a much higher number, ~48Mb/day. Don't know
why.
How do you calculate world total net export numbers if total global exports = total global imports?
Meanwhile, BP statistics for world oil exports (not net exports) show a rising trend.
I expect further increase in 2016, due to rising exports from Saudi Arabia, Iran, Iraq and Russia.
The IEA Oil Market Report, November 2016 on Iran's oil production and exports:
"With gains of 810 kb/d so far this year, Iran has emerged as the world's fastest source of
supply growth. Crude oil output rose by 40 kb/d in October to reach a pre-sanctions rate of 3.72
mb/d and shipments of crude oil climbed well above 2.4 mb/d, a rate not seen in at least seven
years.
For six straight months, the National Iranian Oil Co (NIOC) has been exporting more than 2 mb/d
of crude double the volume seen under sanctions."
But that's not what your chart says, in controvention to BP's data.
Your chart says KSA exports at 9. Production is known or thought to be 10.5. And since consumption
is all liquids, that chart's products level is the correct number.
"... the capitalist economy is more and more an asset driven one. This article does not even begin to address the issue of asset valuations, the explicit CB support for asset inflation and the effect on inequality, and especially generational plunder. ..."
"... the problem of living standards is obviously a Malthusian one. despite all the progress of social media tricks, we cannot fool nature. the rate of ecological degradation is alarming, and now irreversible. "the market" is now moving rapidly to real assets. This will eventually lead to war as all war is eventually for resources. ..."
No matter what central banks do, their actions will not be able to create the same level of
economic growth that we have become used to over the past seven decades.
Economic growth does not come from the central banks; if government sought to provide the basics
for all its citizens, including health care, education, a home, and proper food and all the infrastructure
needed to give people the basics, then you could have something akin to "growth" while at the
same time making life more pleasant for the less fortunate. There seems to be no definition of
economic growth that includes everyone.
This seems a very elaborate way of stating a simple problem, that can be summarised in three
points.
The living standards of most people have fallen over the last thirty years or so because of
the impact of neoliberal economic policies. Conventional politicians are promising only more
of the same. Therefore people are increasingly voting for non-conventional politicians.
Neoliberalism has only exacerbated falling living standards. Living standards would be falling
even without it, albeit more gradually.
Neoliberalism itself may even be nothing more than a standard type response of species that
have expanded beyond the capacity of their environment to support them. What we see as an evil
ideology is only the expression of a mechanism that apportions declining resources to the elites,
like shutting shutting down the periphery so the core can survive as in hypothermia.
I really don't have problem with this. Let the financial sector run the world into the ground
and get it over with.
In defference to a great many knowledgable commentors here that work in the FIRE sector, I
don't want to create a damning screed on the cost of servicing money, but at some point even the
most considered opinions have to acknowledge that that finance is flooded with *talent* which
creates a number of problems; one being a waste of intellect and education in a field that doesn't
offer much of a return when viewed in an egalitarian sense, secondly; as the field grows due to,
the technical advances, the rise in globilization, and the security a financial occuptaion offers
in an advanced first world country nowadays, it requires substantially more income to be devoted
to it's function.
This income has to be derived somewhere, and the required sacrifices on every facet of a global
economy to bolster positions and maintain asset prices has precipitated this decline in the well
being of peoples not plugged-in to the consumer capitalist regime and dogma.
Something has to give here, and I honestly couldn't care about your 401k or home resale value,
you did this to yourself as much as those day-traders who got clobbered in the dot-com crash.
the capitalist economy is more and more an asset driven one. This article does not even
begin to address the issue of asset valuations, the explicit CB support for asset inflation and
the effect on inequality, and especially generational plunder.
the problem of living standards is obviously a Malthusian one. despite all the progress
of social media tricks, we cannot fool nature. the rate of ecological degradation is alarming,
and now irreversible. "the market" is now moving rapidly to real assets. This will eventually
lead to war as all war is eventually for resources.
"... RBC Capital Markets' Global Head of Commodity Strategy Helima Croft outlined three potential scenarios for WTI crude on CNBC's "Fast Money" for the new year. The most bullish situation would be seeing more than a million barrels of oil pulled off the market and prices averaging in the $60 dollar range. ..."
"... "If you are thinking about sort of about a mid-$30s average for WTI, low-$40s, I think that's a bearish scenario," said Croft, who's also a CNBC contributor. ..."
"... "Our base case is this sort of middle range... $52 is our WTI call for next year," she said, implying that U.S. crude would be nearly one-third higher than its current trading levels. The fourth quarter "is really where you want to be looking for WTI to sort of take-off," she added. ..."
RBC Capital Markets' Global Head of Commodity Strategy Helima Croft outlined three potential
scenarios for WTI crude on CNBC's "Fast Money" for the new year. The most bullish situation would
be seeing more than a million barrels of oil pulled off the market and prices averaging in the
$60 dollar range.
The worst case scenario involves a tsunami of new production from OPEC, Saudi Arabia, Iran and
Libya hitting the market -- all but certain to drive prices even lower. On Thursday, the final day
of trading before the Christmas holiday, Brent and U.S. crude closed up by more than a percent,
but still well under $40 per barrel.
"If you are thinking about sort of about a mid-$30s average for WTI, low-$40s, I think that's
a bearish scenario," said Croft, who's also a CNBC contributor.
... ... ....
"Our base case is this sort of middle range... $52 is our WTI call for next year," she
said, implying that U.S. crude would be nearly one-third higher than its current trading levels.
The fourth quarter "is really where you want to be looking for WTI to sort of take-off," she
added.
"... mazamascience.com/oilexport and the BP bible says 2015 oil consumption growth in China was +5%. There is no continue to decline. And they have 21 million more cars this year burning oil. How can there be much decline, at all? ..."
"... Just checked EIA. No evidence of any significant fall in US consumption. It will probably rise. Indian consumption was +7% last year. No real evidence of a global drop in consumption. Population grows. So why is this surprising? ..."
Here is the sort of stuff going on. Some stuff profoundly right. Some stuff completely, factually
wrong. Final paras from a ZH article:
In sum, OPEC has so far managed to fool the market,
and send the price of oil surging off all time lows hit in early 2016 even as OPEC output has
reached record highs, and the just concluded deal may end up eliminating just a small fraction
of this excess supply.
All true.
There is also risk that demand most notably out of China will continue to decline, delaying
the so-called market equilibrium even assuming full OPEC and non-OPEC compliance.
mazamascience.com/oilexport and the BP bible says 2015 oil consumption growth in China was
+5%. There is no continue to decline. And they have 21 million more cars this year burning oil.
How can there be much decline, at all?
And, courtesy of Modi's ridiculous "demonetization" attempt, India's economic outlook is
suddenly in jeopardy: should Indian oil import demand decline as a result, OPEC will have to double
its daily production cuts just to catch up to the drop in global demand.
Just checked EIA. No evidence of any significant fall in US consumption. It will probably rise.
Indian consumption was +7% last year. No real evidence of a global drop in consumption. Population
grows. So why is this surprising?
Perhaps the best forecast at this point is that the price of oil will remain rangebound
between $45 and $55. Below that and more jawboning will emerge; above it and concerns about shale
output will dominate.
That's not best. They are all equally worthless.
Finally, it is safe to say that this is OPEC's final attempt to prove it is still relevant
in a shale-driven world after the "2014 Thanksgiving massacre" when Saudi Arabia essentially unilaterally
crushed the organization, and the price of oil. Should OPEC blow this, it will likely be game
over for any future attempts to artificially prop up the oil price by the world's oil exporters.
Prime Minister Haider al-Abadi told The Associated Press that current prices are not sustainable
for oil-producing countries.
Al-Abadi's comments could be critical because Iraq - along with Iran - has been reluctant to go
along with cuts, creating an obstacle for an OPEC deal, according to published reports.
Al-Abadi said he understands that OPEC members will agree to reduce production by between 900,000
and 1.2 million barrels per day - that would be a cut of between 2.7 percent and 3.6 percent from
October levels. He said it would be enough to push prices up.
"Yes, we will take our share and we agreed to this," he told the AP.
Kenneth Medlock, director of an energy-studies center at Rice University, said if Iraq pledges to
cut its own production it could influence other reluctant countries and help push OPEC to an
agreement. The size of the cuts suggested by al-Abadi would be big enough to push up prices, he
said.
A successful production-cut might re-establish the cartel as oil's swing producer - able to
balance global supply with demand and influence prices - "because they will then have the most
flexible capability of dealing with near-term price instability, Medlock said, particularly if
global inventories tighten quickly."
Benchmark international oil rose $1, or 2 percent, on Monday to close at $48.24 a barrel. Al-Abadi
said for every dollar oil prices rise, Iraq gains about $1 billion.
In late 2014, as crude prices tumbled from more than $100 a barrel, OPEC countries decided not to
intervene - they expected falling prices to drive high-cost producers in the U.S. out of
business.
But a worldwide glut of oil has persisted and OPEC has been pumping at record levels. Now the
cartel is trying to regain some of its historical ability to affect prices.
"... I do not understand the financial behavior of shale oil development, no. In the Bakken and the Eagle Ford it was indeed about reserve "growth," as Alex points out. Growth at the expense of profitability. That model failed (look at the debt, debt to asset ratios and losses for operators in those two shale oil plays) because the price of oil collapsed. ..."
"... Now, in spite of that, the Permian is using the same business model; growth at the expense of profitability. It is borrowing billions in the bottom of a price down cycle (it thinks) believing prices have no where to go but up. ..."
"... I think oil prices are a long way away from being high enough to save the shale oil industry. ..."
"... We may be overthinking all this and Alex is right again; it may be a simple matter of everyone taking advantage of a loosey goosey monetary policy in America. Money gets printed, Central Banks give it away, lenders are in desperate need of miniscule yields and CEO's and upper management borrow it, make millions personally on bonuses and incentives for growing reserves, then walk away from the whole shebang (Sheffield) before the loans come due. America looks the other way because they get cheap gasoline. ..."
I do not understand the financial behavior of shale oil development, no. In the Bakken and the
Eagle Ford it was indeed about reserve "growth," as Alex points out. Growth at the expense of profitability.
That model failed (look at the debt, debt to asset ratios and losses for operators in those two shale
oil plays) because the price of oil collapsed.
Now, in spite of that, the Permian is using
the same business model; growth at the expense of profitability. It is borrowing billions in the
bottom of a price down cycle (it thinks) believing prices have no where to go but up.
I would
say this particular shale play might work, except that from the data I see the UR's on those wells
are going to be pitiful at best, far less than the Bakken. Unless it is by the shear number of wells
those operators are not going to have a lot of reserves that will appreciate with rising prices.
It will therefore fail too, just like the others, perhaps for different reasons, I don't know.
I think oil prices are a long way away from being high enough to save the shale oil industry.
We may be overthinking all this and Alex is right again; it may be a simple matter of everyone
taking advantage of a loosey goosey monetary policy in America. Money gets printed, Central Banks
give it away, lenders are in desperate need of miniscule yields and CEO's and upper management borrow
it, make millions personally on bonuses and incentives for growing reserves, then walk away from
the whole shebang (Sheffield) before the loans come due. America looks the other way because they
get cheap gasoline.
Happy
Thanksgiving Mike! This article is for you! The RRC just refused to allow Pioneer to reclassify
oil wells in the Eagle Ford to .. wait for it .GAS WELLS.
I believe Pioneer just admitted the you, Shallow, Alex, and the others have been right all
along about the GOR going up, up and up.
It seems that Pioneer is trying to take advantage of the "high cost gas tax credit" designed
to encourage gas production in HIGH COST low permeable tight gas reservoirs.
Interestingly, this move by Pioneer has initiated a discussion about whether there should
be a new category for classifying wells. Hmmm sounds like the industry is about to hit the
new Texas Legislative session up for some new tax relief to encourage horizontal drilling in
its new favorite geological province the Permian Basin. But it will apply to the Barnett, Haynesville,
Eagle Ford, and all those other disasters.
Happy Thanksgiving to you too, John -- I had actually seen this before. Scoundrels they are,
one and all; Pioneer too, a Texas Company start to finish. The TRRC will roll over in another
year or so, watch.
Despite the CEOs not worrying about profits, I would think at some point the people
buying the bonds or stock of these companies would realize that the Emperor is naked.
Eventually when enough investors get burned, the money will stop flowing. Maybe not in 2016,
and perhaps not in 2017, but if oil prices remain low for the long term as experts in the field
seem to suggest is a likely event (though nobody really knows future oil prices), the money
will dry up. In that case these companies are done.
"... "Our analysis shows we are entering a period of greater oil price volatility (partly) as a result of three years in a row of global oil investments in decline: in 2015, 2016 and most likely 2017," IEA director general Fatih Birol said, speaking at an energy conference in Tokyo. ..."
"... Oil prices have risen to their highest in nearly a month, as expectations grow among traders and investors that OPEC will agree to cut production, but market watchers reckon a deal may pack less punch than Saudi Arabia and its partners want. ..."
"... BMI's outlook is more optimistic than groups like the International Energy Agency, which said last week that the industry might cut spending in 2017 for a third year in a row as companies continue to grapple with weaker finances. Oil prices still hover around $50 a barrel, less than half the level of the summer of 2014. ..."
"... The chart below shows Exxon's E&P capex in 2007-2015 (in US$bn). There was a sharp increase in US capex (both in absolute in relative terms) following the XTO deal. In 2015, the company cut spending both in the US and abroad ..."
Investment in new oil production is likely to fall for a third year in 2017
as a global supply glut persists, stoking volatility in crude markets, the head
of the International Energy Agency (IEA) said on Thursday.
"Our analysis shows we are entering a period of greater oil price
volatility (partly) as a result of three years in a row of global oil
investments in decline: in 2015, 2016 and most likely 2017," IEA director
general Fatih Birol said, speaking at an energy conference in Tokyo.
"This is the first time in the history of oil that investments are
declining three years in a row," he said, adding that this would cause
"difficulties" in global oil markets in a few years.
Oil prices have risen to their highest in nearly a month, as
expectations grow among traders and investors that OPEC will agree to cut
production, but market watchers reckon a deal may pack less punch than Saudi
Arabia and its partners want.
The Organization of the Petroleum Exporting Countries meets next week to try
to finalize to output curbs.
"Our analysis shows that when prices go to $60, we'll make a big chunk of
U.S. shale oil economical and within the nine months to 12 months of time, we
may see a response coming from the shale oil and other high-cost areas," Birol
told Reuters, speaking in an interview on the sidelines of the conference.
"And this may again put downward pressure on the prices."
Birol said that level would be enough for many U.S. shale companies to
restart stalled production, although it would take around nine months for the
new supply to reach the market.
The IEA director general said it is still early to speculate what Donald
Trump's presidency in the United States will have on energy policies.
"Having said that, both U.S. shale oil and U.S. shale gas have a very strong
economic momentum behind them," Birol said.
"Shale gas has significant economic competitiveness today, and we think it
will be so in the next years to come."
Capital spending seen growing 2.5% in 2017 and 7%-14% in 2018
U.S. independents, Asian giants seen spurring spending growth
The oil industry may be ready to open its wallet after two years of
slashing investments.
Companies will spend 2.5 percent more on capital expenditure next year
than they did this year, the first yearly growth in such spending since
2014, BMI Research said in a Sept. 22 report. Spending will increase by
another 7 percent to 14 percent in 2018. It will remain well below the $724
billion spent in 2014, before the worst oil crash in a generation caused
firms to cut back on drilling and exploration to conserve cash, the
researcher said.
North American independent producers, Asian state-run oil companies and
Russian firms are prepared to boost investments next year, outweighing
continued cuts from global oil majors such as Exxon Mobil Corp. and Total
SA, BMI said, based on company guidance and its own estimates. Spending will
increase to a total of $455 billion next year from $444 billion this year,
BMI said.
"North America is where we're really expecting things to turn around,"
Christopher Haines, BMI's head of oil and gas research, said by telephone.
"We've seen a push to really reduce costs, reduce spending and take out any
waste and inefficiency. These companies have gotten to the point where
they're all set up to react."
BMI's outlook is more optimistic than groups like the International
Energy Agency, which said last week that the industry might cut spending in
2017 for a third year in a row as companies continue to grapple with weaker
finances. Oil prices still hover around $50 a barrel, less than half the
level of the summer of 2014.
From what I am reading, Permian hz wells will be drilled in greater numbers in
2017, regardless of price.
These wells are generally less prolific than those in the Bakken and EFS.
However, the money has been raised and therefore it will spent.
To me, a good question is how much money is being diverted away from longer
term projects that will ultimately produce more oil, to drill these Permian
wells?
The Permain wells have no staying power. Under 50 bopd after 24 months is
the rule, not the exception. Under 200,000 cumulative in 60 months is the rule,
not the exception.
"To me, a good question is how much money is being diverted away from longer
term projects that will ultimately produce more oil, to drill these Permian
wells?"
shallow sand
The companies that are postponing longer term projects are not the same
companies that are planning to increase drilling in LTO plays.
"The companies that are postponing longer term projects are not the same
companies that are planning to increase drilling in LTO plays."
I
assumed he meant investment money. If investors want to be in gas and
oil, are they picking the companies with best chance of long-term success
(if there is such a thing anymore)?
ExxonMobil, Chevron, ConnocoPhillips, Hess, Marathon and Oxy all
have significant LTO production and all are, or were considered
international upstream producers.
I agree the supermajors are defensive stocks. But there were
many "growth" stock US companies which explored and produced
offshore/internationally or both, prior to the LTO boom.
Most of large US E&Ps and mid-sized integrateds have divested
their overseas assets during the years of shale boom.
I'm not sure that Exxon and Chevron are planning to increase
their shale exposure in the near term. For Exxon, US upstream
operations were hugely loss-making in 2015-16. And it has
recently made two relatively large discoveries outside US.
AlexS. Are those XOM international discoveries primarily oil
or gas?
Also, for the international assets you refer to
which US companies divested, do you know whether the buyers
are aggressively developing them? Just a guess, but I suspect
maybe not.
11/30 is a big day, hoping for a cut, hard to say if it
occurs whether it will be adhered to, other than by maybe the
Gulf States.
Interesting to
note Nexen is a partner in both ventures, while Hess
and Chevron are in one each.
I agree XOM has sustained significant losses in
North America, but they continue to spend money on new
wells. Had they not spent the money they have in North
America (both shale and tar sands) would the money have
been spent elsewhere. A tough one to know the answer
to.
I recall XOM was going to partner in Russia on
projects and those were halted for political reasons?
Did those projects go ahead without them?
I'm not saying that Exxon stopped
investing in U.S. upstream. My point is that oil
supermajors, like Exxon, Chevron, BP, Shell and Total are
not diverting investments from deep offshore, LNG and
other long-term projects to U.S. shale. They cut upstream
capex both in U.S. and in overseas projects.
The chart below shows Exxon's E&P capex in
2007-2015 (in US$bn). There was a sharp increase in US
capex (both in absolute in relative terms) following the
XTO deal. In 2015, the company cut spending both in the US
and abroad
"... In the second quarter of 2016, the companies reduced production by nearly 930,000 bpd, according to Morgan Stanley. ..."
"... Large oilfields, such as deepwater developments off the coasts of the United States, Brazil, Africa and Southeast Asia, typically take three to five years and billions in investment to develop. ..."
"... "Still, unless investment rebounds relatively soon, this steep downward trend is likely to resume in 2018 and beyond." ..."
"... We haven't even begun to see a "steep downward trend" yet. As to "softening" there is less new production coming on next year, overall and for the IOCs, than this highlighting Canada, Brazil etc. doesn't change that. ..."
"... Also when are they going to actually understand that the companies don't ever "slash" output, like its a choice depletion does it for them. ..."
"... I don't know when peak decent reporting happened but it's well into decline now (another big internet age negative). ..."
"... Also, the author quotes a report by Morgan Stanley (that we haven't seen). Apparently, those "109 listed companies that produce more than a third of the world's oil" are covered by MS equity research team. And changes in their output may not fully reflect trends in overall global oil production. ..."
"... But I agree that articles in Reuters, Bloomberg and other MSM sources often misinterpret third party research. A recent example are numerous article about USGS assessment of TRR in the Wolfcamp formation ..."
The world's listed oil companies have slashed oil output by 2.4 percent so
far this year.
The aggregated production of 109 listed companies that produce more than a
third of the world's oil fell in the third quarter of 2016 by 838,000 barrels
per day from a year earlier to 33.88 million bpd, data provided by Morgan
Stanley showed.
In the second quarter of 2016, the companies reduced production by
nearly 930,000 bpd, according to Morgan Stanley.
The firms include national oil champions of China, Russia and Brazil,
international producers such as Exxon Mobil and Royal Dutch Shell, as well as
U.S. shale oil producers like EOG Resources and Occidental Petroleum.
The drop in oil companies' output is particularly compelling given the
increase in 2015, when third-quarter production rose by some 1.9 million bpd.
"Clearly, we have seen a large swing in the year-on-year trend in
production, from strong growth as recent as a year ago, now to steep decline.
This is the outcome of the strong cutbacks in investment," Morgan Stanley
equity analyst Martijn Rats said.
Capital expenditure for the companies combined more than halved from $136
billion in the third quarter of 2014 to $58 billion in the same period this
year, according to Rats.
Oil executives and the International Energy Agency have warned that a sharp
drop in global investment in oil and gas would result in a supply shortage by
the end of the decade.
Large oilfields, such as deepwater developments off the coasts of the
United States, Brazil, Africa and Southeast Asia, typically take three to five
years and billions in investment to develop.
Cost reductions and increased efficiencies have only partly offset the drop
in production as a result of the lower investment. Technological advancements
have also helped boost onshore U.S shale production.
"These declines should temporarily soften in 2017 as new fields are coming
on-stream in Canada, Brazil, the former Soviet Union and U.S. tight oil
probably stabilizes," Rats said.
"Still, unless investment rebounds relatively soon, this steep downward
trend is likely to resume in 2018 and beyond."
We haven't even begun to see a "steep downward trend" yet. As to
"softening" there is less new production coming on next year, overall and
for the IOCs, than this highlighting Canada, Brazil etc. doesn't change
that.
When is someone in Reuters or Bloomberg going to figure out that 2017 + 3
(or 5) + 1 (for FEED and FID approval at the beginning and ramp up at the
end) = 2021 (or 2023) so there is no way to cover drops "at the end of the
decade" now.
Also when are they going to actually understand that the
companies don't ever "slash" output, like its a choice depletion does it
for them.
And how about this paragraph
"Cost reductions and increased efficiencies have only partly offset
the drop in production as a result of the lower investment. Technological
advancements have also helped boost onshore U.S shale production."
He/she has suddenly started to talk about company finances rather than
production, but without actually telling the reading public.
Cost reductions caused the drop for heavens sake. "Increased
efficiencies" and "technological advancements" do you think the author has
the faintest idea what that actually means and how it is related to anything
else he says.
I don't know when peak decent reporting happened but it's well into
decline now (another big internet age negative).
"When is someone in Reuters or Bloomberg going to figure out that 2017 +
3 (or 5) + 1 (for FEED and FID approval at the beginning and ramp up at
the end) = 2021 (or 2023) so there is no way to cover drops "at the end
of the decade" now."
It should be actually 2015 + 3 (or 5), as pre-FID
projects have been posponed since end-2014 early 2015.
Also, the author quotes a report by Morgan Stanley (that we
haven't seen). Apparently, those "109 listed companies that produce more
than a third of the world's oil" are covered by MS equity research team.
And changes in their output may not fully reflect trends in overall
global oil production.
But I agree that articles in Reuters, Bloomberg and other MSM
sources often misinterpret third party research. A recent example are
numerous article about USGS assessment of TRR in the Wolfcamp formation
"... This suggests the sweetspot theory is also bogus, unless there are 9 years of them, meaning it's ALL been sweetspots so far. 9 yrs of sweetspots might as well be called just normal rather than sweet. ..."
"... It is pretty much all bogus, yes, Watcher. With any rudimentary understanding of volumetric calculations of OOIP in a dense shale like the Bakken, there is only X BO along the horizontal lateral that might be "obtained" from stimulation. More sand along a longer lateral does not necessarily translate into greater frac growth (an increase in the radius around the horizontal lateral). Novices in frac technology believe in halo effects, or that more sand equates to higher UR of OOIP per acre foot of exposed reservoir. That is not the case; longer laterals simply expose more acre feet of shale that can be recovered. Recovery factors in shale per acre foot will never exceed 5-6%, IMO, short of any breakthroughs in EOR technology. That will take much higher oil prices. ..."
"... Its very simple, actually bigger fracs (that cost lots more money!!) over longer laterals result in higher IP's and higher ensuing 90 day production results. That generates more cash flow (imperative at the moment) and allows for higher EUR's that translate into bigger booked reserve assets. More assets means the shale oil industry can borrow more money against those assets. Its a game, and a very obvious one at that. ..."
Here is the production graph. Not that much has happened. There was a big drop for 2011. 2009
on the other hand saw an increase. Up to the left, which is very hard to see, 2015 continues to
follow 2014 which follows 2013 which follows 2012. Will we see 2013 reach 2007 the next few months?
Its on purpose both because I wanted to zoom in and because the data for first 18 months or so
for the method I used above is not very usable. Bellow is the production profile which is better
for seeing differences the first 18 months. Above graph is roughly 6 months ahead of the production
profile graph.
And I guess we can all see no technological breakthru. 2014's green line looks superior to
first 3 mos 2015.
2016 looks like it declines to the same level about 2.5 mos later, but is clearly a steeper
decline at that point and is likely going to intersect 2014's line probably within the year.
There is zero evidence on that compilation of any technological breakthrough surging output
per well in the past 2-3 yrs.
In fact, they damn near all overlay within 2 yrs. No way in hell there is any spectacular EUR
improvement.
And . . . in the context of the moment, nope, no evidence of techno breakthrough. But also
no evidence of sweetspots first.
I suppose you could contort conclusions and say . . . Yes, the sweetspots were first - with
inferior technology, and then as they became less sweet the technological breakthroughs brought
output up to look the same.
clarifying, the techno breakthrus are bogus. They would show in that data if they were real.
And it would be far too much coincidence for techno breakthrus to just happen to increase flow
the exact amount lost from exhausting sweet spots.
This suggests the sweetspot theory is also bogus, unless there are 9 years of them, meaning
it's ALL been sweetspots so far. 9 yrs of sweetspots might as well be called just normal rather
than sweet.
It is pretty much all bogus, yes, Watcher. With any rudimentary understanding of volumetric
calculations of OOIP in a dense shale like the Bakken, there is only X BO along the horizontal
lateral that might be "obtained" from stimulation. More sand along a longer lateral does not necessarily
translate into greater frac growth (an increase in the radius around the horizontal lateral).
Novices in frac technology believe in halo effects, or that more sand equates to higher UR of
OOIP per acre foot of exposed reservoir. That is not the case; longer laterals simply expose more
acre feet of shale that can be recovered. Recovery factors in shale per acre foot will never exceed
5-6%, IMO, short of any breakthroughs in EOR technology. That will take much higher oil prices.
Its very simple, actually bigger fracs (that cost lots more money!!) over longer laterals
result in higher IP's and higher ensuing 90 day production results. That generates more cash flow
(imperative at the moment) and allows for higher EUR's that translate into bigger booked reserve
assets. More assets means the shale oil industry can borrow more money against those assets. Its
a game, and a very obvious one at that.
Nobody is breaking new ground or making big strides in greater UR. That's internet dribble.
Freddy is right; everyone in the shale biz is pounding their sweet spots, high grading as they
call it, and higher GOR's are a sure sign of depletion. Moving off those sweet spots into flank
areas will be even less economical (if that is possible) and will result in significantly less
UR per well. That is what is ridiculous about modeling the future based on X wells per month and
trying to determine how much unconventional shale oil can be produced in the US thru 2035. The
term, "past performance is not indicative of future results?" We invented that phrase 120 years
ago in the oil business.
That, sir, is pretty much the point. I see what looks like about 20% IP increase for the extra
stages post 2008/9/10. How could there not be going from 15 stages to 30+?
I see NO magic post peak. They all descend exactly the same way and by 18-20 months every drill
year is lined up. That's actually astounding - given 15 vs 30 stages. There should be more volume
draining on day 1 and year 2, but the flow is the same at month 20+ for all drill years. This
should kill the profitability on those later wells because 30 stages must cost more.
But profit is not required when you MUST have oil.
Freddy, is there something going on in the data? How can 30 stage long laterals flow the same
at production month 24 as the earlier dated wells at their production month 24 whose lengths
of well were MUCH shorter?
I can only speculate why the curves look like they do. It could be that the newer wells would
have produced more than the older wells, but closer well spacing is causing the UR to go down.
Here is the updated yearly decline rate graph. 2010 has seen increased decline rates as I suspected.
The curves are currently gathering in the 15%-20% range.
2007 only has 161 wells. So it makes the production curve a bit noisy as you can see above. Current
yearly decline rate for 2007 is 7,2% and the average from month 98 to 117 would translate to a
10,3% yearly decline rate. The 2007 curve look quite different from the other curves, so thats
why I did not include it.
Thanks. The 2008 wells were probably refracked so that curve is messed up. If we ignore 2008,
2007 looks fairly similar to the other curves (if we consider the smoothed slope.) I guess one
way to do it would be to look at the natural log of monthly output vs month for each year and
see where the curve starts to become straight indicating exponential decline. The decline rates
of many of the curves look similar through about month 80 (2007, 2009, 2010, 2011) after 2011
(2012, 2013, 2014) decline rates look steeper, maybe poor well quality or super fracking (more
frack stages and more proppant) has changed the shape of the decline curve. The shape is definitely
different, I am speculating about the possible cause.
2007 had much lower initial production and the long late plateau gives it a low decline rate also.
But yes, initial decline rates look similar to the other curves. If you look at the individual
2007 wells then you can see that some of them have similar increases to production as the 2008
wells had during 2014. I have not investigated this in detail, but it could be that those increases
are fewer and distributed over a longer time span than 2008 and it is what has caused the plateau.
If that is the case, then 2007 may not be different from the others at and we will see increased
decline rates in the future.
Regarding natural log plots. Yes it could be good if you want to find a constant exponential
decline. But we are not there yet as you can see in above graph.
One good reason why decline rates are increasing is because of the GOR increase. When they
pump up the oil so fast that GOR is increasing, then it's expected that there are some production
increases first but higher decline rates later. Perhaps completion techniques have something to
do with it also. Well spacing is getting closer and closer also and is definitely close enough
in some areas to cause reductions in UR. But I would expect lower inital production rather than
higher decline rates from that. But maybe I΄m wrong.
Ok Enno's data from NDIC shows 73 well completions in North Dakota in Sept 2016, 33 were confidential
wells, if we assume 98% of those were Bakken/TF wells that would be 72 ND Bakken/TF wells completed
in Sept 2016.
I have 75 in my data, so about the same. They have increased the number of new wells quite alot
the last two months. It looks like the addtional ones mainly comes from the DUC backlog as it
increased withouth the rig count going up. But I see that the rig count has gone up now too.
Ron you say " Bakken production continues to decline though I expect it to level off soon."
A few words of wisdom as to the main reasons why it would level off? Price rise?
Even though you asked Ron. He might think that the decline in the number of new wells per month
may have stabilized at around 71 new wells per month. If that rate of new completions per month
stays the same there will still be decline but the rate of decline will be slower. Scenario below
shows what would happen with 71 new wells per month from Sept 2016 to June 2017 and then a 1 well
per month increase from July 2017 to Dec 2018 (89 new wells per month in Dec 2018).
I am not so convinced that either Texas or the Bakken is finished declining at the current level
of completions. There was consistent completions of over 1000 wells in Texas until about October
of 2015. Then it dropped to less than half of that. The number of producing wells in Texas peaked
in June of this year. Since then, through October, it has decreased by roughly 1000 wells a month.
The Texas RRC reports are indicating that they are still plugging more than they are completing.
I remember reading one projection recently for what wells will be doing over time in the Eagle
Ford. They ran those projections for a well for over 22 years. Not sure which planet we are talking
about, but in Texas an Eagle Ford does well to survive 6 years. They keep referring to an Eagle
Ford producing half of what they will in the first two years. In most areas, I would say that
it is half in the first year.
The EIA, IEA, Opec, and most pundits have the US shale drilling turning on a dime when the oil
price reaches a certain level. If it was at a hundred now, it would still take about two years
to significantly increase production, if it ever happens. I am not a big believer that US shale
is the new spigot for supply.
The wells being shut in are not nearly as important as the number of wells completed because
the output volume is so different. So the average well in the Eagle Ford in its second month of
production produces about 370 b/d, but the average well at 68 months was producing 10 b/d. So
about 37 average wells need to be shut in to offset one average new well completion.
Point is that total well counts are not so important, it is well completions that drive output
higher.
Output is falling because fewer wells are being completed. When oil prices rise and profits
increase, completions per month will increase and slow the decline rate and eventually raise output
if completions are high enough. For the Bakken at an output level of 863 kb/d in Dec 2017 about
79 new wells per month is enough to cause a slight increase in output. My model slightly underestimates
Bakken output, for Sept 2016 my model has output at 890 kb/d, about 30 kb/d lower than actual
output (3% too low), my well profile may be slightly too low, but I expect eventually new well
EUR will start to decrease and my model will start to match actual output better by mid 2017 as
sweet spots run out of room for new wells.
Guess I will remember that for the future. The number of producing wells is not important. Kinda
like I got pooh poohed when I said the production would drop to over 1 million barrels back in
early 2015.
Do you agree that the shut in wells tend to be low output wells? So if I shut down 37 of those
but complete one well the net change in output is zero.
Likewise if I complete 1000 wells in a year, I could shut down 20,000 stripper wells and the
net change in output would be zero, but there would be 19,000 fewer producing wells, if we assume
the average output of the 1000 new wells completed was 200 b/d for the year and the stripper wells
produced 10 b/d on average.
How much do you expect output to fall in the US by Dec 2017?
Hindsight is 20/20 and lots of people can make lucky guesses. Output did indeed fall by about
1 million barrels per day from April 2015 to July 2016, can you point me to your comment where
you predicted this?
Tell us what it will be in August 2017.
I expected the fall in supply would lead to higher prices, I did not expect World output to
be as resilient as it has been and I also did not realize how oversupplied the market was in April
2015. In Jan 2015 I expected output would decrease and it increased by 250 kb/d from Jan to April,
so I was too pessimistic, from Jan 2015 (which is early 2015) to August 2016 US output has decreased
by 635 kb/d.
If you were suggesting World output would fall from Jan 2015 levels by 1 Mb/d, you would also
have been incorrect as World C+C output has increased from Feb 2015 to July 2016 by 400 kb/d.
If we consider 12 month average output of World C+C, the decline has been 340 kb/d from the 12
month average peak in August 2015 (centered 12 month average).
The dropping numbers are not as much from the wells that produce less than 10 barrels a day, but
from those producing greater than 10, but less than 100. The ones producing greater than 100 are
remaining at a consistent level over 9000 to 9500. The prediction on one million was as to the
US shale only. It is your site, you can search it better than I can,
But then don't take my word for it. You can find the same information under the Texas RRC site
under oil and gas/research and statistics/well distribution tables. Current production for Sep
can be found at online research queries/statewide. It is still dropping, and will long term at
the current activity level. Production drop for oil, only, is a little over 40k per day barrels,
and condensate is lower for September. Proofs in the pudding.
My guess is that you would see a lot more plugging reports, if it were not so expensive to plug
a well. At net income levels where they are, I expect they would put that off as long as they
could.
I trust the NDIC numbers much more than the EIA numbers which are based on a model. Enno Peters
data has 66 completions in August 2016, he has not put up his post for the Sept data yet so I
am using the Director's estimate for now. I agree his estimate is usually off a bit, Enno tends
to be spot on for the Bakken data, for Texas he relies on RRC data which is not very good.
Dennis. Someone pointed out Whiting's Twin Valley field wells being shut in for August.
It appears this was because another 13 wells in the field were recently completed.
It appears that when all 29 wells are returned to full production, this field will be very
prolific initially. Therefore, on this one field alone, we could see some impact for the entire
state.
Does anyone know if these wells are part of Whiting's JV? Telling if they had to do that on
these strong wells. Bakken just not close to economic.
I also note that average production days per well in for EOG in Parshall was 24. I haven't
looked at some of the other "older" large fields yet, but assume the numbers are similar.
I agree higher prices will be needed in the Bakken, probably $75/b or more. To be honest I
don't know why they continue to complete wells, but maybe it is a matter of ignoring the sunk
costs in wells drilled but not completed and running the numbers based on whether they can pay
back the completion costs. Everyone may be hoping the other guys fail and are just trying to pay
the bills as best they can, not sure if just stopping altogether is the best strategy.
There is the old adage that when your in a hole, more digging doesn't help much.
So my model just assumes continued completions at the August rate for about 12 months with
gradually rising prices as the market starts to balance, then a gradual increase in completions
as prices continue to rise from July 2017($78/b) to Dec 2018 (from 72 completions to about 90
completions per month 18 months later). At that point oil prices have risen to $97/b and LTO companies
are making money. Prices continue to rise to $130/b by Oct 2020 and then remain at that level
for 40 years (not likely, but the model is simplistic).
I could easily do a model with no wells completed, but I doubt that will be correct. Suggestions?
Dennis. As we have discussed before, tough to model when there is no way to be accurate regarding
the oil price.
I continue to contend that there will be no quick price recovery without an OPEC cut. Further,
the US dollar is very important too, as are interest rates.
At some point OPEC may not be able to increase output much more and overall World supply will
increase less than demand. My guess is that this will occur by mid 2017 and oil prices will rise.
OPEC output from Libya an Nigeria has recovered, but this can only go so far, maybe another 1
Mb/d at most. I don't expect any big increases from other OPEC nations in the near term.
A big guess as to oil prices has to be made to do a model.
I believe my guess is conservative, but maybe oil prices will remain where they are now beyond
mid 2017.
I expected World supply to have fallen much more quickly than has been the case at oil prices
of $50/b.
"EIA does this by using a relatively new dataset-FracFocus.org's national fracking chemical
registry-to identify the completion phase, marked by the first fracking. If a well shows up on
the registry, it's considered completed "
There is an unlikely peak oil related editorial writer hiding in the most unlikely place: a weekly
English business paper called Capital Ethiopia. The latest editorial is again putting an excellent
perspective on world events.
http://capitalethiopia.com/2016/11/15/system-failure/#.WC1ZCvl9600
For the record, I have no interest or connection to this publication other than that of a paying
reader.
Wouldn't it be nice if mainstream publications would sound a bit more like this.
Thanks all. I thought that the red queen concept meant that there had to be an increase in the
rate of completions. So that 71 year-on-year in north Dakota would only stabilise temporarily.
Perhaps the loss of sweet spots are being counteracted by the improvements in technology? I'm
assuming that even with difficulties of financing there will be a swift increase in completions
should the oil price take off, but not sure how sustainable this would be
Sometimes I think that once the price of oil is up enough that sellers can hedge the their
selling price for two or three years at a profitable level, it will hardly matter what the banks
have to say about financing new wells.
At five to ten million apiece, there will probably be plenty of money coming out of various
deep pockets to get the well drilling ball rolling again, if the profits look good.
Sometimes the folks who think the industry will not be able to raise money forget that it's
not a scratch job anymore. The land surveys, roads, a good bit of pipeline, housing, leases, etc
are already in place, meaning all it takes to get the oil started now is a drill and frack rig.
I don't know what the price will have to be, but considering that a lot of lease and other
money is a sunk cost that can't be recovered, and will have to be written off, along with the
mountain of debts accumulated so far, the price might be lower than a lot of people estimate.
Bankruptcy of old owners results in lowering the price at which an old business makes money
for its new owners.
The Red Queen effect is that more and more wells need to be completed to increase output.
As output decreases fewer wells are needed to maintain output. So at 1000 kb/d output it might
require 120 wells to be completed to maintain output (if new well EUR did not eventually decrease),
but at 850 kb/d it might require about 78 new wells per month to maintain output.
The FED oil production number for October came out yesterday. In below chart the production decline
(blue line) is the same as in the previous month, yet the trend is still a massive decline year
over year. In my view year over year comparison can show the dynamic of a trend. And it shows
clearly that in the current cycle the oil price recovery is in contrast to the cycle in 2008/9
very slow and tentative.
The year over year oil price (green line in below chart) actually decreased again year over
year and the risk of a double dip in the oil price is growing by the day. Drilling follows very
cautiously the oil price in a parallel line (red line in below chart). If there would be really
a technological advantage for shale, the red and the green line would not be paralell, but the
red line for drilling would rise much stronger. This is actually the case for Middle East drilling,
which barely fell during this cycle. This indicates that most Middle East producers still have
high margins at the current oil price. Middle East producers and also Russia can quite easily
cope with an oil price of 40 +/- 10 USD per barrel. This is why I think that the oil price will
bounce at the bottom of the barrel within above range for a few years.
There is also something interesting going on with the world economy. The shippers rose exponentionally
over the last few days (DRYS up over 1000%). Also the baltic Dry index is up 600% since the beginning
of this year. House prices here in London fell mostly at the high end. Rents for expensives
homes are down by up to 36%. Donald Trump has clearly changed something already as it becomes
increasingly clear that the dollar hoarders are paying for the infrastructure spending. I am not
sure if he understands that he is doing a lot of harm to his own business empire as well.
I expect if that depressing old banker were here he would note that instability is dangerous,
and that all the moves in treasuries currency and possibly trade flow create changes of which
the results are difficult or impossible to predict
I can easily understand your assertion that Middle Eastern and Russian oil is profitable at
forty bucks.
But if the price is to stay around forty, then it follows that you think that between them,
the producers in the Middle East and Russia will be able to supply all the oil the world wants
for the next few years.
Am I correct in saying this?
Do you think western producers will continue to pump enough at a loss ( most of them are apparently
losing money at forty bucks ) to make up the difference?
If you are willing to venture a guess, when do you think the price will get back into the sixty
dollar and up range?
If you think it won't for a lot of years, is that because you believe the economy is will be
that anemic, or because electric cars will substantially reduce demand, or both ? Or maybe you
have other reasons ?
The US has thrown the gauntlet to OPEC by claiming to becoming an oil net exporter. This has
brought OPEC in a very difficult situation. If they cut and oil gets to 70 USD per barrel
shale will pick up the slack and produce the amount OPEC has cut within a short period of time.
So, OPEC is forced to cut again, until it has lost a lot of market share and thus also a lot
of revenue.
In my view OPEC has no other choice than to produce come hell and water until something breaks.
This could be that many shale companies give up or that for instance Iran is not allowed to export
as much as they do, or there is a major conflict in the Middle East, or Saudi Arabia is running
out of cash ..
He who has the market share now, will cash in when the oil price rises. And it will rise, yet
not until something breaks. This is how business works. This is how Microsoft crushed Apple in
the nineties in the PC market and Apple then crushed Nokia in the smart phone market .
I do not think that Saudi Arabia has the freedom to compromise here even if they want. If
they blink they will be crushed by shale producers. So, the stand-off will go on for a while,
at a loose-loose situation for both parties. However this is great luck for consumers as they
can enjoy low energy prices for 2 to 3 years.
I think your numbers reflect numbers reported from ND DMR but Bloomberg might be closer to
reality for wells that will actually ever be completed (just a guess by me though). How do Bloomberg
get their numbers (e.g. removing Tight Holes, or removing old wells, not counting non-completed
waivers etc.)?
Yes indeed. The difficulty with DUCs is always, which wells do you count. I don't filter old
wells for example, and already include those that were spud last month (even though maybe casing
has not been set). I don't do a lot of filtering, so the actual # wells that really can be completed
is likely quite a bit lower. I see my DUC numbers as the upper bound. I don't know Bloombergs
method exactly, so I can't comment on that.
Discussion of Venezuelan politics should be in the open thread, but politics are going to determine
how much oil is produced there for the next few years, and the situation looks iffy indeed.
Concerning Freddy's chart of production profile of wells drilled in various years.
They all line up by about month 18 of production. This should not be possible. The later wells
have many more stages of frack. They are longer, draining more volume of rock. But the chart says
what it says. At month about 18 the 2014 wells are flowing the same rate as 2008 wells. We know
stage count has risen over those 6 yrs. 2014 wells should flow a higher rate. The shape of the
curve can be the same, but it should be offset higher.
Explanation?
How about above ground issues . . . older wells get pipelines and can flow more oil . . . nah,
that's absurd.
There needs to be a physical explanation for this.
These new wells have higher IPs, but also higher decline rates.
Closer spacing (see Freddy's comment above) and depletion of the sweet spots may also impact production
curves and EURs.
That doesn't make sense. They are longer. By a factor of 2ish. How can a 6000 foot lateral flow
exactly the same amount 2 yrs into production as a 3000 foot lateral flows 2 yrs into production?
Look at the lines. At 18 months AND BEYOND, these longer laterals flow the same oil rate as
the shorter laterals did at the same month number of production. Higher IP and higher decline
rate will affect the shape, but There Is Twice The Length..
I don't think we have information on the length of the wells, since 2008 the length of the
lateral has not changed, just the number of frack stages and amount of proppant. This seems to
primarily affect the output in the first 12 to 18 months, and well spacing and room in the sweet
spots no doubt has some effect (offsetting the greater number of frack stages etc.).
The combination of longer lateral lengths and advancements in completion technology has allowed
operators to increase the number of frac stages during completions and space them closer together.
The result has been a higher completion cost per well but with increased production and more emphasis
on profitability.
In the past five years, DTC Energy Group completion supervisors in the Bakken have helped oversee
a dramatic increase from an average of 10 stages in 2008 to 32 stages in 2013. Even 40-stage fracs
have been achieved.
One of the main reasons for this is the longer lateral lengths operators now have twice as
much space to work with (10,000 versus 5,000 feet along the lateral). Frac stages are also being
spaced closer together, roughly 300 feet apart as compared to spacing up to 800 feet in 2008,
as experienced by DTC supervisors.
By placing more fracture stages closer together, over a longer lateral length, operators have
successfully been able to improve initial production (IP) rates, as well as increase EURs over
the life of the well.
blah blah, but they make clear the years have increased length. Freddy was talking about well
spacing, this text is about stage spacing, but that is achieved because of lateral length.
Freddy can you revisit your graph code? It's just bizarre that different length wells have
the same flow rate 2 yrs out, and later.
Take a look at Enno΄s graphs at https://shaleprofile.com/
. They look the same as my graphs and we have collected and processed the data independently
from each other.
If the wells have the same wellbore riser design irrespective of lateral length (i.e. same depth,
which is a given, same bore, same downhole pump) then that section might become the main bottleneck
later in life and not the reservoir rock. With a long fat tail that seems more likely somehow
compared to the faster falling Eagle Ford wells say (but that is just a guess really). But there
may be lots of other nuances, we just don't have enough data in enough detail especially on the
late life performance for all different well designs it looks like the early ones are just reaching
shut off stage in numbers now. I doubt if the E&Ps concentrated on later life when the wells were
planned they wanted early production, and still do, to pay their creditors and company officers
bonuses (not necessarily in that order).
Hmmm. I know it is speculation, but can you flesh that out?
If some bottleneck physically exists that defines a flow rate for all wells from all years
then that does indeed explain the graphs, but what such thing could exist that has a new number
each year past year 2?
We certainly have discussed chokes for reservoir/EUR management, but the same setting to define
flow regardless of length?
The flow depends on the available pressure drop, which is made up of friction through the rock
and up the well bore (plus maybe some through the choke but not much), plus the head of the well,
plus a negative number if there is a pump. The frictional and pump numbers depend on the flow
and all the numbers depend on gas-oil ratio. Initially there is a big pressure drop in the rock
because of the high flow, then not so much. Once the flow drops the pressure at base of the well
bore just falls as a result of depletion over time, the effect of the completion design is a lot
less and lost in the noise, so all the wells behave similarly. That's just a guess I have never
seen a shale well and never run a well with 10 bpd production, conventional or anything else.
A question might be if the flow is the same why doesn't the longer well with the bigger volume
deplete more slowly, and I don't know the answer. It may be too small to notice and lost in the
noise, or to do with gas breakout dominating the pressure balance, or just the way the the physics
plays out as the fluids permeate through the rock, or we don't have long enough history to see
the differences yet.
The number of rail cars hauling petroleum is a constant in the range of 7,200 to 7,400 petroleum
cars hauled each week for a good six months now.
Seems as though petroleum by rail is more of a necessity than a choice.
The volume is down a good thirty percent since about 2013 when over 10,000 cars were hauled
per week.
Demand decreases, contracts expire, better modes of transport emerge and cost less. not as
much call for Bakken oil. Plenty of the stuff somewhere else in this world.
The trend is down, not up for petroleum hauled by rail.
If there were orders for Bakken oil for one million bpd, the production would be one million
bpd.
Over the whole rail system, petroleum and petroleum product rail car loadings were down to
10.5 thousand in September. That compares to a high point of 16.3 thousand railcars in Sept of
2014.
Coal car loadings are on the rise, from a low of 61,000 in April to 86,000 in Sept. Coal was
running a near steady 105,00 to 110,000 railcars every month in 2013 and 2014.
The chart below from RBN shows that Bakken pipeline capacity did not increase since early 2015.
But production dropped, and this primarily affected volumes of Bakken oil transported by rail.
Given the higher percentage of oil transported by pipelines, the average transporation cost
for Bakken crude should have decreased. Interesting, however, that the price differential between
the well-head Bakken sweet crude and WTI has remained within the $10-12/bbl range.
Bakken Crude Production and Takeaway Capacity
Source: RBN
Bakken Blend differentials at terminals close to North Dakota wellheads held their lowest assessment
since December Tuesday, closing at the calendar-month average of the NYMEX light sweet crude oil
contract (WTI CMA) minus $6.25/b.
While one factor dragging on Bakken differentials has clearly been a tight Brent/WTI spread -
trading around 42 cents/b Tuesday, well in from the steady $2/b seen this summer - the return
of Louisiana Light Sweet to the Midwest market may also be having an impact, according to traders.
One trader said there was an increase in volumes heading up the Capline pipeline, however, differentials
suggest LLS is still too expensive, at least compared to Bakken. Platts assessed LLS at WTI plus
$1.15/b Tuesday.
Considered by some to be the "champagne of crudes," it is unclear what appeal LLS still has for
a Midwest refiner as margins for LLS actually - and unusually - lag those for Bakken.
S&P Global Platts data shows LLS cracking margins in the Midwest closed at $3.30/b Monday, compared
to Bakken cracking margins of $6.37/b. In fact, the advantage of cracking Bakken has grown steadily
since August.
Platts margin data reflects the difference between a crude's netback and its spot price.
Netbacks are based on crude yields, which are calculated by applying Platts product price assessments
to yield formulas designed by Turner, Mason & Co.
What is clear however, is that the steeper discounts available for Bakken provide the biggest
incentive for a Midwest refiner.
The cost of getting Bakken to this market is around $3.48/b, according to Platts netback calculations,
compared to just $1.02/b for LLS.
These costs make up a significant portion of the Bakken discount.
Further, LLS moving up the Capline after many years of relative inactivity does not necessarily
suggest a new trend is in the making. However, recent pipeline reversals between Texas and Louisiana
mean more Permian crudes are capable of reaching Louisiana refineries, and thus, if priced accordingly,
could displace incremental volumes of LLS from its home market.
With current pipeline capacity out of North Dakota typically full, the marginal Bakken barrel
often gets to market via rail, and this cost has traditionally sets the floor to Bakken's discount
to WTI. And part of the recent downturn in Bakken could be chalked up to an increase in railed
volumes to the US Atlantic Coast, as Bakken cracking margins there are again in the black.
In fact, Association of American Railroad's latest monthly and weekly data shows crude and refined
product rail movements appear to have bottomed, having grown in September from August.
Weekly data bears this out as well, showing increases in three of the last four weeks.
It remains to be seen how long this will last, however, should Energy Transfer Partners Dakota
Access Pipeline go ahead as planned.
Linefill for the pipeline could boost Bakken differentials, potentially making the grade too expensive
to rail east. However, the devil is in the details.
Traders and analysts have pegged Dakota Access pipeline tariffs between $4.50-$5.50/b for uncommitted
shippers between North Dakota and Patoka, Illinois. A further $6.50/b would be needed to bring
the crude south from Patoka to Nederland, Texas, sources have said.
If this $11-$12/b combined pipeline estimated cost were to pan out, it would be more expensive
than the $10.20/b Platts assumes in its Bakken USAC rail-based netback calculation.
Oil rig count in the Permian is up 73.5% from this year's low the biggest increase among
all US basins.
It is still only 41% of October 2014 peak, but this is much better than the Bakken and especially
the Eagle Ford where drilling activity remains depressed.
As of September 2016, 4 counties produced 90.1% of all the Bakken/Three Forks oil production
in North Dakota: McKenzie, Mountrail, Williams and Dunn. Relative to December 2014, North Dakota
Bakken/Three Forks oil production is off 243,098 b/d relative to December 2014 while the number
of producing wells is up 1861 based upon data from the state.
Based upon state data, the number of producing wells/square mile is 1.29 in Mountrail County,
1.22 in McKenzie County, 1.02 in Willams County, and 0.86 in Dunn County. How high can the number
of producing wells/square mile go?
Is there something more than reduced drilling to explain the drop in production?
This shows well density and production from last September. The distance is concentric from a
"production centre of gravity" i.e. weighted average by production for all wells. The core area
("sweet spot") is a circle of about 50 to 60 kms only (it's squashed out a bit to the west and
missing a bite in the SW). Maximum well density (and with the best wells is 120 to 160 acres,
and falls off quickly outside the core. The core is getting saturated.
"U.S. drilling activity is increasingly concentrated in the Permian Basin . The Permian now
holds nearly as many active oil rigs as the rest of the United States combined, including both
onshore and offshore rigs, and it is the only region in EIA's Drilling Productivity Report where
crude oil production is expected to increase for the third consecutive month."
Permian Basin also dominates M&A activity in the US E&P sector.
From the same EIA report:
"Several of the larger M&A deals involved Permian Basin assets, where drilling and production
is beginning to increase.
Based on data through November 10, the second half of 2016 already has more M&A spending than
the first half of 2016, but on fewer deals. The 93 M&A announcements in the third quarter of 2016
totaled $16.6 billion, for an average of $179 million per deal, the largest per deal average since
the third quarter of 2014. Although only 11 of the 49 deals so far in the fourth quarter of 2016
are in the Permian Basin, they accounted for more than half of total deal value."
RRC Texas for September came out recently. As others will probably elaborate more on the data,
I just want to show if year over year changes in production could be use as a predictive tool
for future production (see below chart).
It is obvious that year over year changes (green line) beautifully predicted oil production
(red line) at a time lag of about 15 month. Even when production was still growing, the steep
decline of growth rate indicated already the current steep decline.
The interesting thing is that the year over year change is a summary indicator. It does not
tell why production declines or rises. It can be the oil price, interest rates or just depletion
even seasonal factors are eliminated. It just shows the strength of a trend.
I am curious myself how this works out. The yoy% indicator predicts that Texas will have lost
another million bbl per day by end next year. That sounds quite like a big plunge. One explanation
could be the fact that we have now low oil prices and high interest rates. In all other cycles
it has been the other way around: low oil prices came hand in hand with low interest rates. This
could be now a major obstacle for companies to grow production.
This concept of following year over year changes works of course just for big trends, yet for
investment timing it seems exactly the right tool. Another huge wave is coming in electric vehicles
which are growing in China by 120% year over year. Here we have the same situation as for shale
7 years ago: Although current EV sales are barely 1 million per year worldwide, the growth rate
reveals already an huge wave coming. So as an investor it is always necessary to stay ahead of
the trend and I think this can be done by observing the year over year% change.
"... I am a petroleum Geologist drilling wells in the Wolfcamp, the USGS report means nothing. They periodically review basins to assess how much petroleum is there, we have been drilling Horizontal wells in the Wolfcamp for almost a decade, and vertical wells for many decades. Right now there are as many rigs running drilling this rock formation as there are in the rest of the country combined, so it is already baked in to the US production data. This is not like a Saudi Arabia field with a low drill and complete and development cost, it will take many billions of drilling capital to get a small percentage of the oil in place. The big deal is that the area is fairly resilient to low oil prices and will cushion the drop in US production due to lack of investment in other basins. ..."
"... I think when seismic, land, surface and down hole equipment is included, the number is much higher. With $20-60K per acre being paid, land definitely has to be factored in. Depending on spacing, $1-5 million per well? ..."
"... In reading company reports, it seems they state a cost to drill and case the hole, another to complete the well, then add the two for well cost. This does not include costs incurred prior to the well being drilled, which are not insignificant. Nor does it include costs of down hole and surface equipment, which also are not insignificant. ..."
"... Land costs are all over the map, and I think Bakken land costs overall are the lowest, because much of the leasing occurred prior to US shale production boom. I think a lot of acreage early on cost in the hundreds per acre. Of course, there was quite a bit of trading around since, so we have to look project by project, unfortunately. For purposes of a model, I think $8 million is probably in the ballpark. ..."
"... I would not include equipment for the well, initially, as OPEX (LOE is what I prefer to stick with, being US based). The companies do not do that, those costs are included in depreciation, depletion and amortization expense. ..."
"... Once the well is in production, and failures occur, I include the cost of repairs, including replacement equipment, in LOE. I am not sure that the companies do that, however. ..."
"... I think the Permian is going to be much tougher to estimate, as there are different producing formations at different depths, whereas the Bakken primarily has two, and the Eagle Ford has 1 or 2. ..."
"... What most interests me are suggestions that there is so much available oil in Wolfcamp and what that will do to oil prices and national policy. Seems like any announcement of more oil will likely keep prices low. And if they stay low, there's little reason to open up more areas for oil drilling. ..."
"... The key question is what part of these estimated technically recoverable resources are economically viable at $50; $60; $70; $80; $90, $100, etc. ..."
"... In November 2015, the EIA estimated proven reserves of tight oil in Wolfcamp and Bone Spring formations as of end 2014 at just 722 million barrels. ..."
"... AlexS. Another key question, which is price dependent, is how many years will it take to fully develop the reserves? ..."
"... If oil prices go back to $100/b in 2018 as the IEA seems to be concerned about, it could ramp up at the speed of the Eagle Ford ..."
"... It's impossible for IEA to make statements like: "the end of low cost oil will negatively affect economic growth", "geology is about to beat human ingenuity" etc. ..."
I am a petroleum Geologist drilling wells in the Wolfcamp, the USGS report means nothing. They
periodically review basins to assess how much petroleum is there, we have been drilling Horizontal
wells in the Wolfcamp for almost a decade, and vertical wells for many decades. Right now there
are as many rigs running drilling this rock formation as there are in the rest of the country
combined, so it is already baked in to the US production data. This is not like a Saudi Arabia
field with a low drill and complete and development cost, it will take many billions of drilling
capital to get a small percentage of the oil in place. The big deal is that the area is fairly
resilient to low oil prices and will cushion the drop in US production due to lack of investment
in other basins.
Thank you, JG -- Straight from the horses mouth, respectfully. The USGS lost all credibility with
me as to estimating TRR in the Monterrey Shale in California. It baffles me, after five years
of publically discussing unconventional shale oil resources, that modelers, internet analysts
and predictors completely ignore economics, debt and finances. Extracting oil is a business; it
must make money to succeed. If it does not succeed, all bets are off regarding predictions.
The Monterrey shale estimate was by the EIA not the USGS. The EIA had a private consultant
do the analysis and it was mostly based on investor presentations, very little geological analysis.
It would be better if the USGS did an economic analysis as they do with coal for the Powder
River Basin. They could develop a supply curve based on current costs, but they don't.
Do you have any idea of the capital cost of the wells (ballpark guess) for a horizontal multifracked
well in the Wolfcamp? Would $7 million be about right (a WAG by me)?
On ignoring economics, I show my oil price assumptions. Other financial assumptions for the
Bakken are $8 million for capital cost of the well (2016$). OPEX=$9/b, other costs=$5/b, royalty
and taxes=29% of gross revenue, $10/b transport cost, and a real discount rate of 7% (10% nominal
discount rate assuming 3% inflation).
I do a DCF based on my assumed real oil price curve. Brent oil price rises to $77/b (2016$)
by June 2017 and continue to rise at 17% per year until Oct 2020 when the oil price reaches $130/b,
it is assumed that average oil prices remain at that level until Dec 2060. The last well is drilled
in Dec 2035 and stops producing 25 years later in Dec 2060.
EUR of wells today is assumed to be 321 kb and EUR falls to 160 kb by 2035. The last well drilled
only makes $243,000 over the 7% real rate of return, so the 9 Gb scenario is probably too optimistic,
it is assumed that any gas sales are used to offset OPEX and other costs, though no natural gas
price assumptions have been made to simplify the analysis.
This analysis is based on the analyses that Rune Likvern has done in the past, though his analyses
are far superior to my own.
I think when seismic, land, surface and down hole equipment is included, the number is much higher.
With $20-60K per acre being paid, land definitely has to be factored in. Depending on spacing,
$1-5 million per well?
I am doing the analysis for the Bakken. A lot of the leases are already held and I don't know
that those were the prices paid. Give me a number for total capital cost that makes sense, are
you suggesting $10.5 million per well, rather than $8 million? Not hard to do, but all the different
assumptions you would like to change would be good so I don't redo it 5 times.
Mostly I would like to clear up "the number".
I threw out more than one number, OPEX, other costs, transport costs, royalties and taxes,
real discount rate (adjusted for inflation), well cost.
I think you a re talking about well cost as "the number". I include down hole costs as part
of OPEX (think of it as OPEX plus maintenance maybe).
Dennis. The very high acreage numbers are for recent sales in the Permian Basin.
In reading company reports, it seems they state a cost to drill and case the hole, another
to complete the well, then add the two for well cost. This does not include costs incurred prior to the well being drilled, which are not insignificant.
Nor does it include costs of down hole and surface equipment, which also are not insignificant.
Land costs are all over the map, and I think Bakken land costs overall are the lowest, because
much of the leasing occurred prior to US shale production boom. I think a lot of acreage early
on cost in the hundreds per acre. Of course, there was quite a bit of trading around since, so
we have to look project by project, unfortunately. For purposes of a model, I think $8 million
is probably in the ballpark.
I would not include equipment for the well, initially, as OPEX (LOE is what I prefer to stick
with, being US based). The companies do not do that, those costs are included in depreciation,
depletion and amortization expense.
Once the well is in production, and failures occur, I include the cost of repairs, including
replacement equipment, in LOE. I am not sure that the companies do that, however.
I think the Permian is going to be much tougher to estimate, as there are different producing
formations at different depths, whereas the Bakken primarily has two, and the Eagle Ford has 1
or 2.
An example:
QEP paid roughly $60,000 per acre for land in Martin Co., TX. If we assume one drilling unit
is 1280 acres (two sections), how many two mile laterals will be drilled in the unit?
1280 acres x $60,000 = $76,800,000.
Assume 440′ spacing, 12 wells per unit.
$76,800,000/12 = $6,400,000 per well.
However, there are claims of up to 8 producing zones in the Permian.
So, 12 x 8 = 96 wells.
$76,800,000 / 96 = $800,000 per well.
Even assuming 96 wells, the cost per well is still significant.
If we assume 96 wells x $7 million to drill, complete and equip, total cost to develop is $.75
BILLION. That is a lot of money for one 1280 acre unit, need to recover a lot of oil and gas to
get that to payout.
I am neither an oil man nor an accountant, so regardless of what we call it I am assuming natural
gas sales (maybe about $3/barrel on average) are used to offset the ongoing costs to operate the
well (LOE, OPEX, financial costs, etc), we could add another million to the cost of the well for
surface and downhole equipment and land costs. Does an average operating cost over the life of
a well of about $17/b ($14/b plus natural gas sales of $3/b of oil produced)seem reasonable?
That
would be about $5.4 million spent on LOE etc. over the life of the well (assuming 320 kbo produced).
Also does the 10% nominal rate of return sound high enough, what number would you use as a cutoff?
You use a different method than a DCF and want the well to pay out in 60 months. This would correspond
to about a 14% nominal rate of return and an 11% real rate of return (assuming a 3% annual inflation
rate.)
"The Monterrey shale estimate was by the EIA not the USGS. The EIA had a private consultant do
the analysis and it was mostly based on investor presentations, very little geological analysis."
Exactly.
USGS' estimate as of October 2015 is very conservative:
"The Monterey Formation in the deepest parts of California's San Joaquin Basin contains an
estimated mean volumes of 21 million barrels of oil, 27 billion cubic feet of gas, and 1 million
barrels of natural gas liquids, according to the first USGS assessment of continuous (unconventional),
technically recoverable resources in the Monterey Formation."
"The volume estimated in the new study is small, compared to previous USGS estimates of conventionally
trapped recoverable oil in the Monterey Formation in the San Joaquin Basin. Those earlier estimates
were for oil that could come either from producing more Monterey oil from existing fields, or
from discovering new conventional resources in the Monterey Formation."
Previous USGS estimates were for conventional oil:
"In 2003, USGS conducted an assessment of conventional oil and gas in the San Joaquin Basin,
estimating a mean of 121 million barrels of oil recoverable from the Monterey. In addition, in
2012, USGS assessed the potential volume of oil that could be added to reserves in the San Joaquin
Basin from increasing recovery in existing fields. The results of that study suggested that a
mean of about 3 billion barrels of oil might eventually be added to reserves from Monterey reservoirs
in conventional traps, mostly from a type of rock in the Monterey called diatomite, which has
recently been producing over 20 million barrels of oil per year."
I am corrected, RE; USGS and Monterrey. I still don't believe there is 20G BO in the Wolfcamp.
Most increases in PB DUC's are not wells awaiting frac's but lower Wolfcamp wells that are TA
and awaiting re-drills; that should tell you something. With acreage, infrastructure and water
costs in W. Texas, wells cost $8.5-9.0M each. The shale industry won't admit that, but that's
what I think. What happens to EUR's and oil prices after April of 2017 is a guess and a waste
of time, sorry.
What most interests me are suggestions that there is so much available oil in Wolfcamp and what
that will do to oil prices and national policy. Seems like any announcement of more oil will likely keep prices low. And if they stay low,
there's little reason to open up more areas for oil drilling.
"Their assessment method for Bakken was pretty simple pick a well EUR, pick a well spacing,
pick total acreage, pick a factor for dry holes multiply a by c by d and divide by b."
USGS estimates for average well EUR in Wolfcamp shale look reasonable: 167,ooo barrels in the
core areas and much lower in other parts of the formation.
I do not know if the estimated potential production area is too big, or assumed well spacing
is too tight.
The key question is what part of these estimated technically recoverable resources are economically
viable at $50; $60; $70; $80; $90, $100, etc.
Significant part of resources may never be developed, even if they are technically recoverable.
Keep in mind these USGS estimates are for undiscovered TRR, one needs to add proved reserves times
1.5 to get 2 P reserves and that should be added to UTRR to get TRR. There are roughly 3 Gb of
2P reserves that have been added to Permian reserves since 2011, if we assume most of these are
from the Wolfcamp shale (not known) then the TRR would be about 23 Gb. Note that total proved
plus probable reserves at the end of 2014 in the Permian was 10.5 Gb (7 Gb proved plus 3.5 GB
probable with the assumption that probable=proved/2). I have assumed about 30% of total Permian
2P reserves is in the Wolfcamp shale. That is a WAG.
Note the median estimate is a UTRR of 19 Gb with F95=11.4 Gb and F5=31.4 Gb. So a conservative
guess would be a TRR of 13.4 Gb= proved reserves plus F95 estimate. If prices go to $85/b and
remain at that level the F95 estimate may become ERR, at $100/b maybe the median is potentially
ERR. It will depend how long prices can remain at $100/b before an economic crash, prices are
Brent Crude price in 2016$ with various crude spreads assumed to be about where they are now.
I just looked at Permian Basin crude reserves (Districts 7C, 8 and 8A) and assumed the change
in reserves from 2011 to 2014 was from the Wolfcamp. I didn't know about that page for reserves.
It is surprising it is that low.
In any case the difference is small relative to the UTRR, it will be interesting to see what
the reserves are for year end 2015.
Based on this I would revise my estimate to 20 Gb for URR with a conservative estimate of 12
Gb until we have the data for year end 2015 to be released later this month.
My guess is that the USGS probably already has the 2015 year end reserve data.
The EIA proved reserves estimate for 2015 will be issued this month. I think we will see a
significant increase in the number for the Permian basin LTO.
Also note that USGS TRR estimate is only for Wolfcamp.
I can only guess what could be their estimate for the whole Permian tight oil reserves.
But the share of Wolfcamp in the Permian LTO output is only 24% (according to the EIA/DrillingInfo
report).
That makes sense. I also imagine the USGS focused on the formation with the bulk of the remaining
resources. It is conceivable that the 30 Gb estimate is closer to the remaining oil in place and
that more like 90% of the TRR is in the Wolfcamp, considering that the F5 estimate is about 30
Gb. That older study from 2005 may be an under estimate of TRR for the Permian, likewise the USGS
might have overestimated the UTRR.
If oil prices go back to $100/b in 2018 as the IEA seems to be concerned about, it could ramp
up at the speed of the Eagle Ford (say 2 to 3 years). It will be oil price dependent and perhaps
they won't over do it like in 2011-2014, but who knows, some people don't learn from past mistakes.
If you or Mike were running things it would be done right, but the LTO guys, I don't know.
"This estimate is for continuous (unconventional) oil, and consists of undiscovered, technically
recoverable resources.
Undiscovered resources are those that are estimated to exist based on geologic knowledge and
theory, while technically recoverable resources are those that can be produced using currently
available technology and industry practices. Whether or not it is profitable to produce these
resources has not been evaluated."
If it requires slave labor at gunpoint to get the oil out, then that's what will happen because
you MUST have oil, and a day will soon come when that sort of thing is reqd.
This follows on from reserve post above (two a couple of comments). In terms of changes over the
last three years there really weren't anything much dramatic. We'll see what 2016 brings, especially
for ExxonMobil, but it looks like they already knocked a big chunk off of their Bitumen numbers
already in 2015.
Note I went through a lot of 20-F and 10-K reports watching the rain fall this morning and
copied out the numbers, I'm not guaranteeing I got everything 100%, but I think the general trends
are shown.
Note the figures are totals for all nine companies I looked at.
IEA WEO is out:
http://www.iea.org/newsroom/news/2016/november/world-energy-outlook-2016.html presentation
slides, fact sheet and summary are available online (report can be purchased). IEA seems to be
_very_ concerned about underinvestment in upstream oil production. Several pages of the report
is devoted to this, the title of that section is "mind the gap". More or less all of the content
has been discussed on this website, including the issue with high levels of debt and that this
can affect suppliers' capacity to rebound, and how much demand can be reduced as a result of a
stringent carbon cap.
From the fact sheet (available free of charge):
"Another year of low upstream oil investment in 2017 would risk a shortfall in oil production
in a few years' time. The conventional crude oil resources (e.g. excluding tight oil and oil sands)
approved for development in 2015 sank to the lowest level since the 1950s, with no sign of a rebound
in 2016. If there is no pick-up in 2017, then it becomes increasingly unlikely that demand (as
projected in our main scenario) and supply can be matched in the early 2020s without the start
of a new boom/bust cycle for the industry"
Presentation 1:09 Dr. Birol gives his view: "depletion never sleeps"
I wonder who that paragraph is aimed at. As I indicated above the companies that would be investing
in long term conventional projects don't have a very large inventory of undeveloped reserves (17
Gb as of end of 2015, some of this has gone already this year and more is in development and will
come on stream in 2017 and 2018 (and a small amount in later years for approved projects). I'd
guess there might only be less than 10 Gb (and this the most expensive to develop) that is currently
under appraisal among the major western IOCs and larger independents; allowing for their partnerships
with NOCs in a lot of the available projects that could represent 20 to 30 Gb total. That really
isn't very much new supply available, and a large proportion is in complex deep water projects
that wouldn't be ramped up fully until 6 to 7 years after FID (i.e. already too late for 2020).
Really the main players need to find new fields with easy developments, but they obviously aren't,
probably never will, and actually aren't looking very hard at the moment.
My interpretation is that this is IEAs way of saying that it does not look good. Those who can
read between the lines get the message. Also, a few years from they will be able to say "see we
told you so".
It's impossible for IEA to make statements like: "the end of low cost oil will negatively affect
economic growth", "geology is about to beat human ingenuity" etc.
WEO have become more and more bizarre over the years. On the one hand they contain quantitative
projections which tell the story politicians wants to hear. On the other hand, the text describes
all sorts of reason of why the assumptions are unlikely to hold. Normally, if you don't believe
in your own assumptions you would change them.
"... If we are to rethink capitalism, let's make sure to include as one key element the banishment of the phrase "human capital". ..."
"... "On both sides of the Atlantic, public companies are sitting on record piles of cash-around $2 trillion in the U.S. and a similar amount in Europe" ..."
"... The first function of unemployment (which has always existed in open or disguised forms) is that it maintains the authority of master over man. The master has normally been in a position to say: "If you don't want the job, there are plenty of others who do." When the man can say: "If you don't want to employ me, there are plenty of others who will," the situation is radically altered. ..."
"... Illiberal libertarians: Why libertarianism is not a liberal view ..."
"... "Sustained exponential growth is mathematically impossible." ..."
Where is the sustainable part? It is not in goals of growth. The goal should be sustainable
evolution.
Government enshrines process and practices. It doesn't evolve well. Government also has a devastating
track record on picking investments to incentivize - oil over ethyl alcohol back in the 1920's.
Promoting land development and farming practices in the western plains that created the dust bowl.
Government does do an amazing job of steam rolling contrary information, ideas, etc.
The rigorous and scientific economics profession just needs to decide
"Which way is up?"
40 years ago, most economists and almost everyone else believed the economy was demand driven
and the system naturally trickled up. Now most economists and almost everyone else believes the
economy is supply driven and the system naturally trickles down. Economics has been turned upside
down in the last 40 years.
For a supply side, trickle down world you need Neo-Keynesian stimulus, where money is fed into
the top of the economic pyramid, the banks, to be lent out, invested and trickle down.
For a demand driven, trickle up world you need traditional Keynesian stimulus, where money
is fed into the bottom of the economic pyramid through infrastructure spending, to create jobs
and wages which will be spent into the economy and trickle up.
The West has been doing Neo-Keynesian stimulus for the last eight years and asset prices have
been maintained but little has trickled down to the real economy.
Oh dear, today's economics is upside down, let's try some good old Keynesian fiscal stimulus.
Brexit and Trump are the result of not working out "which way is up?" a little sooner.
China did fiscal stimulus after 2008, how did that go? China was the engine of global growth
after 2008, its insatiable demand for raw materials made lots of other emerging economies boom
too. Keynes is the man; he's the right way up.
Let's form a global economy guided by ideas of economic liberalism where we put the economy
first over the interests of people.
1980s boom
Early 1990s bust
Late 1990s boom
Early 2000s bust
Mid 2000s boom
Late 2000s bust
2008 on stagnation
Unfortunately, no one really understood how the economy worked.
2008 "How did that happen?"
What more evidence do we need?
What is wrong with economics when science can successfully send space craft to the outer edges
of the solar system?
Science has been allowed to develop successfully as it cannot be modified to suit certain vested
interests to make them richer.
Economics is not like this.
There is something wrong with economics that was first spotted at the end of the 19th century
and pretending it is a real science today is little more than wishful thinking.
Thorstein Veblen wrote an essay in 1898 "Why is economics not an evolutionary science?". Real
sciences are evolutionary and old theory is replaced as new theory comes along and proves the
old ideas wrong. Economics jumps about like a cat on a hot tin roof and is not evolutionary, in
the late 1970s Keynesian ideas were ditched for the ideas of Milton Freidman. We threw out the
old Keynesian economics and bought in something new and untested just as we are about to embark
on globalisation, it was asking for trouble. Milton Freidman hadn't realised real science is evolutionary.
Looking back we can see other problems.
Malthus came up with an economics that worked for the vested interests of the land owning class.
Ricardo came up with an economics that worked for the vested interests of the financial class.
Marx came up with an economics that worked for the ideology he was trying to put forward.
It's complex, quite fuzzy and can be easily biased to suit vested interests.
Early on it became very apparent to the wealthy and powerful that economics needed to be biased
in the right direction for their interests.
As Classical Economics reached its zenith in the 19th Century it had come to some unfortunate
conclusions powerful, vested interests didn't like so they backed a new, neoclassical economics
that missed out the undesirable conclusions from Classical Economics like the differentiation
of "earned" and "unearned" income.
Most of the UK now dreams of giving up work and living off the "unearned" income from a BTL
portfolio, extracting the "earned" income of generation rent.
The UK dream is to be like the idle rich, rentier, living off "unearned" income and doing nothing
productive.
This distinction between "earned" and "unearned" income has been buried ever since, but was
hidden is later revealed by who this economics favours.
Neoclassical economics led to the Wall Street Crash of 1929 and the Great Depression, where
its ideas just made things worse.
Keynes came up with some new ideas that were incorporated into the "New Deal" and the recovery
began in the US.
Keynes ideas had some unpleasant conclusions as well and so economists moulded some of Keynes
ideas into neoclassical economics ready to use after the Second World War. Keynes had said that
capitalism was inherently unstable and recognised the dangers from financial asset investing,
not the sort of ideas that were desirable.
The Golden Age of the 1950s and 1960s followed.
The new hybrid Keynesian ideas went wrong in the 1970s and its ideas did not lead to recovery.
The powerful vested interests sought an opportunity to bring back their really biased pure
neoclassical economics and use it as the basis for a global economy.
It was improved, but still had all the old problems:
1920s/2000s high inequality, high banker pay, low regulation, low taxes for the wealthy,
robber barons (CEOs), reckless bankers, globalisation phase 1929/2008 Wall Street crash 1930s/2010s
Global recession, currency wars, rising nationalism and extremism
Left to their own devices, powerful vested interests will develop an economics that is so biased
the economic system will collapse due to the polarisation of wealth at the personal and national
level (like now).
Lots of other inconvenient stuff is missing too, which has lead to many of the recent mistakes,
including 2008 and its aftermath:
1) The true nature of money and how it is created and destroyed on bank balance sheets.
2) The work of Irving Fischer, Hyman Minsky and Steve Keen on debt inflated asset bubbles.
Their inflation, bursting and the debt deflation that follows.
3) Richard Koo on balance sheet recessions.
You can bias economics to suit vested interests but you can't make that biased economics work.
Economics needs to be rebuilt form the bottom up in an evolutionary, scientific, manner not
missing out the bits that are inconvenient for wealthy and powerful vested interests.
You can't put the economy first without good economics.
"On both sides of the Atlantic, public companies are sitting on record piles of cash-around
$2 trillion in the U.S. and a similar amount in Europe"
Keynes called it the "liquidity trap". 1929 and 2008 were both debt inflated asset bubbles,
where securitising loans increased leverage. Keynes studied the Great Depression and noted monetary
stimulus lead to a "liquidity trap". Businesses and investors will not invest without the demand
there to ensure their investment will be worthwhile. The money gets horded by investors and on
company balance sheets as they won't invest. Cutting wages to increase profit just makes the demand
side of the equation worse and leads you into debt deflation. Central Banks today talk about the
"savings glut" not realising this is Keynes's "liquidity trap".
US firms engage in share buybacks as they don't want to invest in expansion.
Investors pour into negative yielding bonds and gold for safety.
Keynes realised wage income was just as important as profit as wage income looks after the
demand side of the equation.
This is why you need fiscal stimulus to create jobs and wage income to spur demand.
Say may have said "supply creates its own demand" but he was wrong.
As we can see businesses and investors don't believe Say either and this why they are hoarding.
>Stagnation is not caused by the deterministic forces of an ageing population, high savings,
and exhausted tech opportunities. Rather, it is a result of falling private and public investment
that has prevented the emergence of new investment opportunities.
So I expected an explanation of why "falling investment" isn't directly correlated to "exhausted
tech opportunities" and the like. Didn't get it.
The usual techno-libertarian babble with the libertarian part jammed into the closet so as
to appeal to the political classes.
I think the problem with your problem is that it's not clear where the next phase of growth
will come from, and as tech has reached a pinnacle, maybe the new thing will turn out to be surprisingly
luddite and the searching for it may be better done by collective action which then is picked
up by the private sector with the public part moving on to lead the thing that replaces that because
this old world keeps spinning around in spite of the fact that people are always haunted with
the notion that it might stop .think y2k, jan 1 2000 was going to and did happen regardless of
the perceived capacity for our systems to bear it. Like in the election where the private sector
thought it could lead us where they wanted us to go but it turns out they were wrong and they're
actually following
The secret is in how money works, which is why hardly any economists understand either the
problem or the solution.
Money and debt are opposite sides of the same coin. If there is no debt there is no money.
Money is created by loans and destroyed by repayments of those loans.
After the system has been flooded with lots of debt by encouraging bankers to maximise profit
with their debt products, you get to a point where everyone is paying down debt and few people
are taking on new loans. This makes the money supply contract, making it harder to pay down the
debt.
When the repayments are larger than the new debt being taken on, the money supply starts contracting.
The Government needs to step in as the borrower of last resort to keep the money supply stable,
otherwise you head into a deflationary spiral.
Central Banks are the lender of last resort and Governments are the borrowers of last resort.
Central Banks print money for banks (QE) and, as no one is borrowing, it stays in the financial
system blowing bubbles and doesn't get to the real economy as seen from the low inflation round
the world.
Central Banks printing money for the Government to engage in fiscal stimulus gets the money
directly into the economy.
What they have been trying to do all along, the intermediary has just changed.
Banks never got the money into the real economy.
Keynes studied a similar situation in the Great Depression where debt deflation had taken hold.
He realised businesses and investors won't invest in the real economy when there is no demand.
Today we see all the global businesses hoarding cash and engaging in share buybacks, they won't
invest because there is no demand to make this worthwhile.
Keynes realised wage income was just as important as profit, wage income creates demand.
Keynes understood money.
Today's businesses think they should maximise profit by cutting wages, reducing wage income
and demand and making the whole thing worse.
Today's economics is basically the same as that of the 1920s, its neoclassical economics and
its core remains unchanged.
Neoclassical economics believes supply creates its own demand "Say's Law". It didn't then and
it doesn't now.
Neoclassical economics believes capitalism naturally reaches stable equilibriums. It led to
a Wall Street Crash and Great Depression then and it led to a Wall Street Crash and global recession
now.
The FED engaged in QE then, it has engaged in QE now, it didn't really work either time.
It was the "New Deal" that bought the US out of the Great Depression, it's what the world needs
now.
Saturating an economy in debt will always lead to debt deflation and the only way out is fiscal
stimulus.
He explains the mistake Christina Romer made analysing data from the Great Depression leading
Central Banks to think they could get us over 2008 with monetary policy.
In the first 12 mins.
Austerity is the worst thing you can do as it accelerates the contraction of the money supply.
When the US was panicking about the fiscal cliff it was because Ben Bernanke had read Richard
Koo's book and knew cutting Government spending would drive the US economy into recession.
Richard Koo understands money, he has worked in a Central Bank (New York Federal Reserve).
The secrets of money are not included in the neoclassical economics studied by economists outside
the Central Banks. The consequences of the secrets of money are understood by very few who work
in the Central Banks, they often favour austerity when it is the worst thing you can do.
While I don't disagree with the this essay in the whole, I think it misses an important piece.
There must be something that drives government investment. In the 1950s the government's investment
in the highway system crowded in investment in the auto industry as well as investments in suburban
housing. Those were things that could drive generations of wealth creation.
Green energy investments might do some of that today, but nowhere near on that scale. Besides
that, what else is there?
Maybe a conversion to "single-payer" medicine expanded to include a geater range of services;
child-services, elder care, and the like. These are people intensive services that can be performed
by a wide range of skilled and semi-skilled people. It puts people to work at a job that is becoming
essential as boomers age.
I think that her idea of private public partnerships may be the opposite of that of Trump.
There is worry that Trump's idea of this is privatization of assets to benefit a few in line
with crony capitalism.
Mazzucato on the other hand wants the public to share profits and not just losses.
I think Trump does understand that fiscal stimulus is important and can outweigh the austerity
oriented goal of balancing a budget.
Government has the deep pockets that can get huge projects like energy alternatives and public
transportation off the ground. Mazzucato wants to do it in a way that benefits the public rather
than what we have been seeing with the profits of these projects funneled to the 1%.
>I think that her idea of private public partnerships may be the opposite of that of Trump.
Oh the Judean People's Front not those right b*stards in the People's Front of Judea. Got it.
>Government has the deep pockets that can get huge projects like energy alternatives and public
transportation off the ground.
Well then just do it. What does the private financial sector have to do with it? I'm pretty
sure Solyandra didn't cost anybody a single vote they would have gotten otherwise so why did
they even involve the private financial again note the important word, here sector?
I'm not opposed to a more socialistic type response and actually see this as a move in that
direction.
She wants though to work within a capitalist system. Recognizing that the government has a
lot of control even in so called 'free markets' this often leads to monopoly type activities.
The government gives away important work such as in drug research or technology to the private
sector and lets them run with it with little control.
She would like to see more control over this work. It can be given to pharmaceutical and tech
companies to improve and market but not without controls in the public interest such as limiting
excessive drug prices and not having all the tech gains of a product go to a few execs but be
distributed to the overall public which helped fund the research in the first place.
In infrastructure it would emphasize the overall good to the economy of good infrastructure
and not let a few companies benefit by control over tolls for example.
trying to better capitalism is the wrong path. the lack of investments is caused by the growing
impossibility to get profit out of it which is the effect of capitalism itself (tendency of
falling profit rate).
Kalecki disagrees with you and later empirical work backs him up.
Capitalists choose to run the economy at less than full employment because they don't like
workers having the power they'd have (more say over work conditions, less of a pay gap with capitalists)
if they could quit their jobs and find another one readily. They seek a higher profit level than
is necessary and chronically underinvest as a result.
+1 YES! See also Joan Robinson (re: unemployment):
The first function of unemployment (which has always existed in open or disguised forms)
is that it maintains the authority of master over man. The master has normally been in a position
to say: "If you don't want the job, there are plenty of others who do." When the man can say:
"If you don't want to employ me, there are plenty of others who will," the situation is radically
altered.
Uh, one small problem. Capitalism isn't the problem. Unless we're simply using the word capitalism
to describe any fascist combination of imperialism abroad and corporate subsidies at home.
For example:
The failure by policy-makers to fully understand the dynamics of the capitalist system
This is the state of economic discourse on the left? Policy-makers understand the dynamics
quite well. That's why they have done everything possible to undermine the rule of law and individual
rights at the heart of market-based economics.
Concentration of wealth and power isn't a failure of public policy. It's the point.
Yas, No True Libertarian would allow erosion of the ruleoflaw and individualrights if only
those could be preserved, everythiing would fall into its preordained place Market-based economics
Accept Libertarians don't belive in rights, but rather in a batch of comodities they call "rights"
that exist for the soul purpous of being bartered away to the ownership class.
. . . What is striking about libertarians' conception of political power is
its resemblance to feudalism . By "feudalism" I mean a particular conception of political power,
not the manorial system or the economic system that relies on the institution of serfdom (as
in European medieval feudalism).
p.149
. . . Liberalism evolved in great part by rejecting the idea of privately
exercised political power, whether it stemmed from a network of private
contracts under feudalism or whether it was conceived as owned
and exercised by divine right under royal absolutism. Libertarianism
resembles feudalism in that it establishes political power in a web of
bilateral individual contracts. Consequently, it has no conception of
legitimate public political authority nor any place for political society,
a "body politic" that political authority represents in a fiduciary capacity.
Having no conception of public political authority, libertarians
have no place for the impartial administration of justice. People's
rights are selectively protected only to the extent they can afford protection
and depending on which services they pay for. Having no conception of a political society,
libertarians have no conception of the common good , those basic interests of each individual
that according to liberals are to be maintained for the sake of justice by the impartial exercise
of public political power.
Rethinking capitalism and rolling back the corporate coup d'etat will be difficult as most
citizens have no idea what has taken place. Trumps election is good in one sense, it will be no
longer possible to obfuscate corporate interests as somehow also in the best interests of the
citizenry. The are in fact opposites.
Rethinking capitalism leads to rethinking the legitimacy of power centers. The cyclical political
theatre between a sham duopoly hopefully is over, or will be over when Trump fails to deliver
in any meaningful way for the working class. The time is now for rediscovering the true power
in government lies with the people, not with some enthroned elite. It is somewhat ironic that
it took the Queen of England to point that out in her indirect way.
The author seems to have a hard time shaking certain conventional assumptions.
If future growth is to take a different path
If that path is negative then maybe they have a point but we can't have perpetual growth in
a closed system which is what this planet is.
And then this part:
As early as 1821, David Ricardo worried about the effect of mechanization on labor displacement.
What was important then, and should inform our thinking now, was that profits (from mechanization)
be reinvested into production, meaning that, in Ricardo's time, while some jobs fell away,
others were created.
This also seems a little shortsighted and somewhat vague. How much exactly do we need to produce?
Based on the amount of garbage floating around in the ocean and the rising global temperatures
it would seem we've probably already overdone it.
This is another author who seems to think that money really does grow on trees, ie it's a naturally
occurring phenomenon like the weather that we are subject to and can't change much rather than
a tool made by human beings that can be used any way we see fit.
Rather than factories running 24/7 producing mounds of cheap crap that breaks down and needs
to be replaced on a regular basis just to keep enough people marginally employed and constantly
buying stuff, would it really be so bad to have automation that produces enough of what we need
and then stops for a while until there's a new need, coupled with a job guarantee and BIG?
It boils down to, do you want a rip roaring economy for all or a habitable planet?
Perhaps we can escape this with a combination of jawb guarantee and BIG. You're hired and your
jawb is to do nothing. The problem is when you are off the jawb, spending the money earned by
doing nothing
What caused the economic collapse was hitting the obvious limits of economical resource extraction
and environmental limits to absorbing our industrial waste stream.
The global economy is 100% dependent on resource extraction, production, and disposal.
We have tried to deny this reality by jiggering around with economic, monetary, and financial
theories as if they, along with technolology can over come it. All that has done is increase inequality
and empower what I call the cannibalistic phase of capitalism.
What is needed is just about the opposite of capitalism. We need to figure out how to pay people
to do less way less, have less, consume less, procreate less .
We are facing a longer-term economic collapse if we don't restructure the economy to be vastly
less wasteful. But the crisis in 2008 was not the result of resource extraction. This was a financial
crisis and I (and many others) described at great length how it came about. My argument was that
it was the result of bad economic ideology, applied over a period of 50 years.
Sigh- another blind Economist wandering through the zoo, stumbling upon an elephant's trunk,
and conjuring up ideas to make it GROW longer.
Sustained exponential growth is mathematically impossible. At any rate of growth, the end result
is that humans and their things end up occupying every square inch of territory, using every joule
of energy, and consuming every natural resource until collapse intervenes.
Natural capital - the physical characteristics of the biosphere- is the foundation of all life
including that of homo sapiens. Any economic theory that fails to build from this fundamental
fact is mere econobabble.
Humans are a tribal species who have devoted much of their "human capital" to warfare since
the current genetic strain succeeded in exterminating the Neanderthals. Any discussion of contemporary
capitalism in the USA that fails to examine the pivotal role of the military-industrial state
is fatally flawed.
The goal of economic policy should be the maximization of quality of life for a population
level that can live in harmony with the billions of other inhalants of the biosphere- a goal diametrically
opposed to homo sapiens goal of growth in ability to dominate it.
You are wrong on both counts. If "growth" is just "compound intrest," than you have a pointless
economey, one that is not based in the real world,
Second, "human resourcs" is a "real resource" and thus havefundemental limits.
This is the origial point. You can not have an economey that violates the 2nd law of thermal
dynamics. Economist need to stop pretending physics dosn't apply.
the entropy that exists in our economies is a failure to organize at a much more complex and
complete level they say that nuclear energy is an incomplete technology and we all know how
disastrous it can be so is economics and it is because capitalism is a simplistic theory. Steve
Keen is so good on this subject. He almost makes me see in graphic form how we should reverse
our thinking from outward fractals of "productivity and profits" to something that goes deep instead.
We need to change the concept of vertical integration to deep integration make productivity
be coherent all the way down the economic food chain from the profits to the bacteria in the ground.
Repair the environment at all levels of production and account for the costs of using even the
smallest thing this would indeed put a cramp in capitalism.
"Economists need to stop pretending."
There, fixed it for you, the idea that an infinitely-complex system that is massively swayed by
human emotion is somehow "model-able" is silly. The queen called everybody's bluff, recall what
the august "economists" finally said after she asked what happened and why: "We don't know".
Second-order silly is the idea that a centrally-planned, command-and-control approach can work
on such a system. Keynes and the others that came up with this hoo-haw were admirers of Stalinist
Russia, at the time the Bloomsbury and other pink crowd were gushing "I have seen the future and
it works!". The idea is "let's raise X number cows because we project we will need leather for
Y number of shoes". After you're done falling off your chair laughing take a moment to realize
that's exactly what they try to do today with the price of money and the level of demand in the
economy.
There are too many unintended consequences, look at ZIRP for example, they thought free money
would make people borrow more but (being rational) people saw they would get no current income
so boosted their savings instead.
So:
Let bad debts clear, otherwise you're just suppressing brush fires on the forest floor and eventually
the whole thing burns to the ground. Mario Draghi buying CCC-rated junk is precisely what you
should not do.
And to Watt4 Bob below, the only "creative destruction" we have today is for people and households.
Zombie banks, oil companies, insurers, big pharma, military companies, the surveillance-industrial
complex are completely isolated from creative destruction by the big fat thumb of the gumment
on the scales.
Paul, Please step back and analyze the logical fallacy in your statement. Exponential growth
based upon human resources ("rather than real resources" means that at some point in the growth
cycle humans have to eat human resources rather than food.
Anyone who makes the (common) claim that you do simply does not understand the meaning of exponential
growth. Model growth at any rate and you eventually reach the point where the next increment of
growth fills the entirety of any finite universe. If production grows exponentially at the 3%
target often bandied about as desirable the entire world would be covered by the human capital
you hope will provide an escape from mathematical certainty. It only takes about 400 years of
3% exponential growth starting with only one Einstein or one bite of information to reach the
finite limit of our planet. And it matters not a whit whether the human capital walks around in
a physical body or is condensed into bits & bites and stored on a flash drive, the mathematics
are the same.
Because we live in a real world with real physical limits, sustained long term growth will
always be impossible and collapse of growth inevitable. Any theory of economics worth more than
toilet paper should recognize that fundamental fact.
Thor, with all due respect you've misunderstood what I wrote. Your response killed a bunch
of straw men.
The point about human resources was that the growth in consumption is some 20 times greater
than population growth. Take that for what it's worth, I think that is a big part of the problem.
The first point was purely arithmetic. An annuity of 1 at rate r for n periods fits the curve
of GDP growth (a proxy for growth) like a glove. Compound interest is calculated using the same
formula. Beyond that I don't know what you're arguing against.
You can do the same for growth in federal spending, growth in Investment, etc. They all fit
the annuity curve. Your "3% exponential growth" is an annuity of 1 at 3% compounded for n periods.
Which IS an exponential relationship, but it puts growth in perspective when you look at it
as analogous to compounding interest. For me at least.
Rethinking capitalism and rolling back the corporate coup d'etat will be difficult as most
citizens have no idea what has taken place.
It's worse than that.
Hysteresis, one of my favorite new vocabulary words, is the reason there's no easy fix for
the system that is currently circling the drain.
That being the damage done by neo-liberal, creative destruction was actually destructive
destruction.
It is impossible to simply turn-back the hands of time, the damage is done, the manufacturing
base that supported a healthy working-class has been destroyed, and there is no actual path for
revival of that reality.
This is the reason we are faced with the necessity of creating a new economy, TPTB have destroyed
any path to what we might call a 'normal' economy from our current condition.
Hysteresis, means "Nope, you can't get there from here."
That used to be a Yankee farmer joke, now it's a perfectly good explanation for our situation.
Assuming infinite growth on a finite planet is the fatal hubris of capitalism, which assumes
that economics exist apart from the laws of nature. We are experiencing inevitable contraction
because we have exceeded the limits of earth's ability to sustain our species' rapacious demands
and destructive lifestyles. We are already experiencing catastrophic effects from our destruction
of the planet's climate moderating system, which ultimately will destroy our habitat. We have
seen this coming for a long time, yet leaders, heads of state, and academicians (including this
author) continue to think in outmoded ways, particularly about our disregard of the ecosystem
which will result in near-term mass extinction. Human exceptionalism is the fatal flaw that will
wipe out most if not all life on this planet.
In the past, disaster was local, because hubris met its match locally. With a global civilization,
we dream of going to Mars to trash another planet from scratch. But when disaster is truly global,
the result will be truly apocalyptic. Humanity has had a good run; eat, drink and love while you
still can.
There is an ancient battle between Heraclitus and Parmenides. Either dynamics is reality, or
statics is reality. The reality is, both are real. Change is liberal, stasis is conservative.
Unfortunately neither is a panacea, because there is no panacea, it all depends on context. When
change is required, conservative-ism brings us the French Revolution as an unintended consequence.
When stasis is required, liberal-ism brings us the French Revolution as an intended consequence.
Sometimes change happens, sometimes things stay the same and either can be good or bad for you
individually. Generalizing beyond this is over-generalization.
While I acknowledge that this was written for an audience of economists, I do not think economists
should expect to have much influence on the development of new systems until they learn to express
themselves in language intelligible to an educated general audience. I can parse the clause, "Skills
have always been an endogenous function of investment." I know the meaning of every word in it.
I have no idea what it is supposed to communicate. It is not my problem, but the author's, that
she fails to state what she considers a key point in language that conveys meaning. In fact, the
sentence which follows the jargon appears to say what needed to be said; it is not at all clear
what purpose the jargon was intended to serve, other than to signal membership in a professional
club. Its primary effect is to break the flow of thought and annoy the non-specialist reader.
The point about companies hording profits is, I believe a key point. The money belongs to the
shareholders, and the individual shareholder have to place investments and not indulge in share
buybacks.
A second point not mentioned, after the great recession the chose solution was to preserve
as much debt and debt service as possible, ignoring the asserting "debt which cannot be repaid,
will not be repaid."
" shareholders have to place investments " in order for capitalism to progress. But oops,
we have come to the end of an era and altho there are trillions of dollars on the sidelines, there
is no place to invest. Like the guy in MASH said re Christianity: You guys haven't come up with
a new idea for 2000 years.
The fatal flaw of the current system is that it is not designed to benefit the majority of
people. It is a system of rent extraction, made to benefit a few people on top at the expense
of the general public.
It needs more than just a rethinking. It needs a ground up design. The problem is that the
rent seekers have control of business and government. Both institutions will not be used for public
benefit, but rather for the benefit of the extractive elite at the expense of the rest of society.
As for what has been learned the elite do not "want" to learn the lessons that need to be
learned. That is the problem that we face.
"... "And even though neoliberals and international banks would have you believe otherwise, a fall in these money movements is entirely a good thing. As Ken Rogoff and Carmen Reinhart found in their study of 800 years of financial crises, high levels of international capital flows are correlated with more frequent and severe financial crises. Similarly, a 2010 Bank of International Settlements study by Claudio Borio and Petit Disyatat ascertained that cross border capital flows were over 60 times trade flows, meaning they had almost nothing to do with them. " ..."
"... I think it is apparent that the entire edifice of finance has been jiggered to benefit, Davos man and NO ONE ELSE. ..."
"... hy shouldn't Davos man want it to continue the aftermath was set right for the 0.1% remarkably fast in the aftermath of the Great Recession by HUGE infusions of government money, guarantees, credit, forbearance, etcetera which for some reason can NEVER be made available to the 90% ..."
"... This is probably the most salient reason Hillary lost, but it can never, ever be proffered as a reason for it would reveal that ALL our problems are due to the rich . ..."
"... I've often wondered how "The Multiplier Effect" of money, [not] circulating and recirculating in our local economies, at the consumer level, is affected by money sent out of the country by "immigrants"? ..."
"... Is this such a small amount as not to be considered part of "cross border capital flows"? How does it affect local economies that are more important to us than what happens on Wall Street? ..."
m'kay so kind of like robbing peter (emerging markets with growth potential) to pay paul (goldman
et.al.) until peter goes broke (asset bubble collapse) so paul can't be paid until he "natural"
growth potential of emerging markets recovers (peters growth potential recovers from the asset
bubble/debt overhang with best performance to those with more flexible currency) so that paying
paul (new grifts, oops financial innovations) can be foisted on them again leading to, in hindsight
only of course, and notably after paul has been paid, another collapse? rinse and repeat .is there
any sense to this postulation?
Why do you use the term 'capital' when referring to credit/lending that is not related to economically
real outputs. The rest of the article tells this story but the lead groups it all as 'capital'
flows.
This is an editorial suggestion really one that does not conflate or mislead when treating
credit creation used for financial asset trading as if it were the same general thing as FDI,
that is, direct investment.
We have seen the financial system react to the crisis by recognizing their own unhinged behavior,
and doing much less of it for good reasons. They know their credit creating behavior was nit coverting
Savings into Investment, they know it was not 'capital' so editors, let us help our writers
to bring more clarity.
I agree. We need a separate word for 'financial capital'. I am thinking 'ante' or 'stake' or
some similar word from the world of gambling and confidence tricks.
"And even though neoliberals and international banks would have you believe otherwise, a fall
in these money movements is entirely a good thing. As Ken Rogoff and Carmen Reinhart found in
their study of 800 years of financial crises, high levels of international capital flows are correlated
with more frequent and severe financial crises. Similarly, a 2010 Bank of International Settlements
study by Claudio Borio and Petit Disyatat ascertained that cross border capital flows were over
60 times trade flows, meaning they had almost nothing to do with them. "
This is probably something that not one in 10,000 people understand (I don't really either)
but I think it is apparent that the entire edifice of finance has been jiggered to benefit, Davos
man and NO ONE ELSE. And why shouldn't Davos man want it to continue the aftermath was set right
for the 0.1% remarkably fast in the aftermath of the Great Recession by HUGE infusions of government
money, guarantees, credit, forbearance, etcetera which for some reason can NEVER be made available
to the 90%
This is probably the most salient reason Hillary lost, but it can never, ever be proffered
as a reason for it would reveal that ALL our problems are due to the rich .
I've often wondered how "The Multiplier Effect" of money, [not] circulating and recirculating
in our local economies, at the consumer level, is affected by money sent out of the country by
"immigrants"?
Is this such a small amount as not to be considered part of "cross border capital flows"?
How does it affect local economies that are more important to us than what happens on Wall Street?
"... As of September 2016, 4 counties produced 90.1% of all the Bakken/Three Forks oil production in North Dakota: McKenzie, Mountrail, Williams and Dunn. Relative to December 2014, North Dakota Bakken/Three Forks oil production is off 243,098 b/d relative to December 2014 while the number of producing wells is up 1861 based upon data from the state. ..."
"... This shows well density and production from last September. The distance is concentric from a "production centre of gravity" i.e. weighted average by production for all wells. The core area ("sweet spot") is a circle of about 50 to 60 kms only (it's squashed out a bit to the west and missing a bite in the SW). Maximum well density (and with the best wells is 120 to 160 acres, and falls off quickly outside the core. The core is getting saturated. ..."
"... "U.S. drilling activity is increasingly concentrated in the Permian Basin . The Permian now holds nearly as many active oil rigs as the rest of the United States combined, including both onshore and offshore rigs, and it is the only region in EIA's Drilling Productivity Report where crude oil production is expected to increase for the third consecutive month." ..."
"... "Several of the larger M&A deals involved Permian Basin assets, where drilling and production is beginning to increase. Based on data through November 10, the second half of 2016 already has more M&A spending than the first half of 2016, but on fewer deals. The 93 M&A announcements in the third quarter of 2016 totaled $16.6 billion, for an average of $179 million per deal, the largest per deal average since the third quarter of 2014. Although only 11 of the 49 deals so far in the fourth quarter of 2016 are in the Permian Basin, they accounted for more than half of total deal value." ..."
The number of rail cars hauling petroleum is a constant in the range of 7,200 to 7,400
petroleum cars hauled each week for a good six months now.
Seems as though petroleum by rail is more of a necessity than a choice.
The volume is down a good thirty percent since about 2013 when over 10,000 cars were
hauled per week.
Demand decreases, contracts expire, better modes of transport emerge and cost less. not
as much call for Bakken oil. Plenty of the stuff somewhere else in this world.
The trend is down, not up for petroleum hauled by rail.
If there were orders for Bakken oil for one million bpd, the production would be one
million bpd. Bakken oil lost marketshare due to price drop. Buyers can buy oil from
anywhere.
More Bakken petroleum is being moved by pipeline. Over the whole rail system, petroleum
and petroleum product rail car loadings were down to 10.5 thousand in September. That
compares to a high point of 16.3 thousand railcars in Sept of 2014.
Coal car loadings are on the rise, from a low of 61,000 in April to 86,000 in Sept.
Coal was running a near steady 105,00 to 110,000 railcars every month in 2013 and 2014.
The chart below from RBN shows that Bakken pipeline capacity did not increase since
early 2015. But production dropped, and this primarily affected volumes of Bakken oil
transported by rail.
Given the higher percentage of oil transported by pipelines, the average
transportation cost for Bakken crude should have decreased. Interesting, however,
that the price differential between the well-head Bakken sweet crude and WTI has
remained within the $10-12/bbl range.
Bakken Crude Production and Takeaway Capacity
Source: RBN
Bakken Blend differentials at terminals close to North Dakota wellheads held their
lowest assessment since December Tuesday, closing at the calendar-month average of
the NYMEX light sweet crude oil contract (WTI CMA) minus $6.25/b.
While one factor dragging on Bakken differentials has clearly been a tight Brent/WTI
spread - trading around 42 cents/b Tuesday, well in from the steady $2/b seen this
summer - the return of Louisiana Light Sweet to the Midwest market may also be having
an impact, according to traders.
One trader said there was an increase in volumes heading up the Capline pipeline,
however, differentials suggest LLS is still too expensive, at least compared to
Bakken. Platts assessed LLS at WTI plus $1.15/b Tuesday.
Considered by some to be the "champagne of crudes," it is unclear what appeal LLS
still has for a Midwest refiner as margins for LLS actually - and unusually - lag
those for Bakken.
S&P Global Platts data shows LLS cracking margins in the Midwest closed at $3.30/b
Monday, compared to Bakken cracking margins of $6.37/b. In fact, the advantage of
cracking Bakken has grown steadily since August.
Platts margin data reflects the difference between a crude's netback and its spot
price.
Netbacks are based on crude yields, which are calculated by applying Platts
product price assessments to yield formulas designed by Turner, Mason & Co.
What is clear however, is that the steeper discounts available for Bakken provide
the biggest incentive for a Midwest refiner.
The cost of getting Bakken to this market is around $3.48/b, according to Platts
netback calculations, compared to just $1.02/b for LLS.
These costs make up a significant portion of the Bakken discount.
Further, LLS moving up the Capline after many years of relative inactivity does
not necessarily suggest a new trend is in the making. However, recent pipeline
reversals between Texas and Louisiana mean more Permian crudes are capable of
reaching Louisiana refineries, and thus, if priced accordingly, could displace
incremental volumes of LLS from its home market.
With current pipeline capacity out of North Dakota typically full, the marginal
Bakken barrel often gets to market via rail, and this cost has traditionally sets the
floor to Bakken's discount to WTI. And part of the recent downturn in Bakken could be
chalked up to an increase in railed volumes to the US Atlantic Coast, as Bakken
cracking margins there are again in the black.
In fact, Association of American Railroad's latest monthly and weekly data shows
crude and refined product rail movements appear to have bottomed, having grown in
September from August.
Weekly data bears this out as well, showing increases in three of the last four
weeks.
It remains to be seen how long this will last, however, should Energy Transfer
Partners Dakota Access Pipeline go ahead as planned.
Linefill for the pipeline could boost Bakken differentials, potentially making the
grade too expensive to rail east. However, the devil is in the details.
Traders and analysts have pegged Dakota Access pipeline tariffs between
$4.50-$5.50/b for uncommitted shippers between North Dakota and Patoka, Illinois. A
further $6.50/b would be needed to bring the crude south from Patoka to Nederland,
Texas, sources have said.
If this $11-$12/b combined pipeline estimated cost were to pan out, it would be
more expensive than the $10.20/b Platts assumes in its Bakken USAC rail-based netback
calculation.
Oil rig count in the Permian is up 73.5% from this year's low the biggest increase
among all US basins.
It is still only 41% of October 2014 peak, but this is much better than the Bakken and
especially the Eagle Ford where drilling activity remains depressed.
As of September 2016, 4 counties produced 90.1% of all the Bakken/Three
Forks oil production in North Dakota: McKenzie, Mountrail, Williams and Dunn.
Relative to December 2014, North Dakota Bakken/Three Forks oil production is off
243,098 b/d relative to December 2014 while the number of producing wells is up 1861
based upon data from the state.
Based upon state data, the number of producing wells/square mile is 1.29 in
Mountrail County, 1.22 in McKenzie County, 1.02 in Willams County, and 0.86 in Dunn
County. How high can the number of producing wells/square mile go?
Is there something more than reduced drilling to explain the drop in production?
This shows well density and production from last September. The distance is
concentric from a "production centre of gravity" i.e. weighted average by
production for all wells. The core area ("sweet spot") is a circle of about 50 to
60 kms only (it's squashed out a bit to the west and missing a bite in the SW).
Maximum well density (and with the best wells is 120 to 160 acres, and falls off
quickly outside the core. The core is getting saturated.
"U.S. drilling activity is increasingly concentrated in
the Permian Basin . The Permian now holds nearly as many active oil rigs as the rest of
the United States combined, including both onshore and offshore rigs, and it is the only
region in EIA's Drilling Productivity Report where crude oil production is expected to
increase for the third consecutive month."
Hi Guy,BloomingDave says: 12/07/2016 at 9:07 pm
The IEA Oil Market Report, November 2016 on Iran's oil production and exports:AlexS says: 12/08/2016 at 6:54 am
Iraqi oil production and exports in 2016 were also above 2015 levelsAlexS says: 12/08/2016 at 6:59 am
According to JODI, Saudi Arabia's crude and refined product exports in January-September 2016 was about 460 kb/d higher than 2015 average.Watcher says: 12/08/2016 at 10:16 am
So that says KSA domestic consumption is 2ish mbpd?AlexS says: 12/08/2016 at 10:36 am
Here is the production graph. Not that much has happened. There was a big drop for 2011. 2009 on the other hand saw an increase. Up to the left, which is very hard to see, 2015 continues to follow 2014 which follows 2013 which follows 2012. Will we see 2013 reach 2007 the next few months?Watcher says: 11/16/2016 at 10:34 pm
Freddy, these latest years, the IP months are chopped at the top. Any chance of showing those?FreddyW says: 11/17/2016 at 2:10 pm
Excellent.Watcher says: 11/17/2016 at 8:12 pm
Hi FreddyW,FreddyW says: 11/16/2016 at 6:02 pm
I am not so convinced that either Texas or the Bakken is finished declining at the current level of completions. There was consistent completions of over 1000 wells in Texas until about October of 2015. Then it dropped to less than half of that. The number of producing wells in Texas peaked in June of this year. Since then, through October, it has decreased by roughly 1000 wells a month. The Texas RRC reports are indicating that they are still plugging more than they are completing.Dennis Coyne says: 11/16/2016 at 10:03 pm
Hi Alex S,shallow sand says: 11/17/2016 at 8:36 am
I expect if that depressing old banker were here he would note that instability is dangerous, and that all the moves in treasuries currency and possibly trade flow create changes of which the results are difficult or impossible to predictOldfarmermac says: 11/18/2016 at 7:55 amHi Heinrich,Heinrich Leopold says: 11/18/2016 at 9:49 am
This article from Platts explains better than me:AlexS says: 11/18/2016 at 8:59 pm
The number of horizontal rigs drilling for oil in the Permian is now 54% of the 2014 peak.AlexS says: 11/18/2016 at 9:42 pm
Weak drilling activity in the Bakken and the Eagle Ford helps to explain continued declines in their oil productionRoger Blanchard says: 11/19/2016 at 8:17 am
Alex,George Kaplan says: 11/19/2016 at 8:35 am
From a recent EIA report:AlexS says: 11/18/2016 at 9:58 pm
The EIA DPR production volume estimates for the Permian include both LTO and conventional C+CAlexS says: 11/18/2016 at 10:06 pm
Permian Basin also dominates M&A activity in the US E&P sector.Heinrich Leopold says: 11/19/2016 at 6:09 am
Dennis Coyne says: 11/16/2016 at 9:11 pmHi Alex S,
Jeff says: 11/16/2016 at 3:20 pmIEA WEO is out: http://www.iea.org/newsroom/news/2016/november/world-energy-outlook-2016.html presentation slides, fact sheet and summary are available online (report can be purchased). IEA seems to be _very_ concerned about underinvestment in upstream oil production. Several pages of the report is devoted to this, the title of that section is "mind the gap". More or less all of the content has been discussed on this website, including the issue with high levels of debt and that this can affect suppliers' capacity to rebound, and how much demand can be reduced as a result of a stringent carbon cap.
